Page 1 of 8
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 0-16106
APA OPTICS, INC.
(exact name of small business issuer as specified in its charter)
Minnesota 41-1347235
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
2950 N.E. 84th Lane, Blaine, Minnesota 55449
(Address of principal executive offices and zip code)
Issuer's telephone number, including area code: (612) 784-4995
Indicate whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was
required to file such reports), and (2) has been subject to the filing
requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Class: Outstanding at June 30, 1996
Common stock, par value $.01 8,146,360
<PAGE>
Page 2 of 8
PART 1, FINANCIAL INFORMATION
ITEM 1, FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30 March 31
1996 1996
<S> <C> <C>
CURRENT ASSETS: (Unaudited) (Audited)*
Cash and short-term investments $3,829,920 $2,256,309
Accounts receivable 384,597 406,852
Inventories:
Raw Materials 31,805 24,806
Work-in-process & finished goods 143,407 105,993
Costs in excess of billings on
research contracts 218,433 210,658
Prepaid expenses 18,589 30,305
Bond reserve funds 91,667 66,667
TOTAL CURRENT ASSETS 4,718,418 3,101,590
PROPERTY AND EQUIPMENT, NET 1,309,050 1,157,570
OTHER ASSETS 2,850,482 497,189
$ 8,877,950 $ 4,756,349
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 135,638 $ 100,000
Accounts payable 65,691 112,857
Accrued expenses 101,470 91,264
TOTAL CURRENT LIABILITIES 302,799 304,121
LONG TERM DEBT 4,004,362 345,000
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,000 shares
authorized; none issued --- ---
Common stock, $.01 par value; 15,000,000
shares authorized; 8,146,360 & 7,990,007
issued 81,464 79,900
Paid-in-capital 7,456,339 6,930,826
Retained earnings (deficit) (2,967,014) (2,903,498)
4,570,789 4,107,228
$ 8,877,950 $ 4,756,349
</TABLE>
* Derived from audited financial statements
<PAGE>
Page 3 of 8
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
June 30,
1996 1995
<S> <C> <C>
REVENUES $ 538,388 $ 592,017
COSTS AND EXPENSES:
Cost of sales and
services 356,740 445,326
Selling, general &
administrative 149,226 152,627
Research & development 108,356 2,467
614,322 600,420
Gain/Loss from Operations (75,934) (8,403)
INTEREST INCOME & EXPENSE:
Interest Income 21,188 2,445
Interest Expense (8,521) (10,279)
12,667 (7,834)
INCOME (LOSS)
BEFORE INCOME TAXES (63,267) (16,237)
INCOME TAX EXPENSE
(BENEFIT) 250 250
NET INCOME (LOSS) $ (63,517) $ (16,487)
EARNINGS (LOSS) PER
COMMON & COMMON EQUIVALENT
SHARE (EXHIBIT 11) $(.01) $(.00)
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,000,784 7,381,792
</TABLE>
Page 4 of 8
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ (63,517) $ (16,487)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 109,294 103,193
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 22,255 (38,953)
(Increase) decrease in inventories and
prepaid expenses (65,472) (18,424)
Increase (decrease) in accounts payable and
accrued expenses (1,322) (60,324)
Other 24,028 (38,003)
Net cash provided by (used in) operating
activities 25,266 (68,998)
INVESTING ACTIVITIES
(Purchases) Sales of property and equipment (248,773) (23,376)
Net cash used in investing activities (248,773) (23,376)
FINANCING ACTIVITIES
Proceeds from the sale of common stock 527,077 4,492
Long term debt proceeds 3,659,362 ---
Ernest money deposit on bond financing (315,000) ---
Debt placement costs (277,182) ---
Bond reserve funds (1,797,139) ---
Net cash provided by financing activities 1,797,118 4,492
Increase (decrease) in cash 1,573,611 (87,882)
Cash at Beginning of Period 2,256,309 401,034
Cash at End of Period $3,829,920 $ 313,152
</TABLE>
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the information furnished reflects all
adjustments which are necessary to a fair statement of the results of the
interim periods presented. All adjustments were of a normal recurring
nature. The results of any interim period are not necessarily indicative of
results for the full year.
Page 5 of 8
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Revenues for the first quarter of fiscal 1997 ended June 30,
1996 were $538,388, a decrease of 9% from the first quarter of
fiscal 1996 ended June 30, 1995. While the production revenues
increased by $21,665 during the first quarter of fiscal year 1997
as compared to the first quarter of fiscal year 1996, the
contract revenues decreased by $75,294 resulting in an overall
decrease of $53,629 for the period. The decrease in revenues for
the first quarter of fiscal 1997 as compared to revenues of the
first quarter of fiscal 1996 can be attributed to a substantial
increase in internal research & development funded by the
Company, by personnel who would otherwise be generating
revenues working on government paid contracts. Also, the Company
has experienced significant administration costs associated with
the Aberdeen project. The increase in IR&D results from
continuing efforts in the modulator production plans for our
Aberdeen facility. Internal research and development expenses
were $108,356 during the first quarter of fiscal year 1997 as
compared to $2,467 for the first quarter of fiscal year 1996.
The Company's backlog of unfinished government contracts is
approximately $3.6 million at the end of the first quarter of
fiscal 1997. The Company has hired additional research scientists
in the first quarter, which is expected to result in increased
contract revenues in the second quarter of fiscal 1997.
For the first quarter of fiscal 1997, the Company is
reporting a net loss of ($63,517) as compared to a net loss of
($16,487) for the first quarter of fiscal 1996. This increase in
losses of $47,030 is mainly due to an increase of
$105,889 in company paid research and development expenses. The
Company anticipated it would initially lose money on the Aberdeen
project, as reported previously in our fiscal 1996 annual
report. The Company's combined research & development activities
(contract and internal) increased by $30,595 for the first
quarter of fiscal 1997 as compared to the first quarter of fiscal
1996.
Liquidity and Capital Resources:
The Company's cash balance at June 30, 1996 is $3,829,920,
an increase of $1,573,611 from the year ended March 31, 1996. The
Company's current ratio is over fifteen to one. The Company
believes that it has sufficient cash to maintain its normal
operations through the balance of fiscal 1997 and beyond. During
Page 6 of 8
the first quarter of fiscal 1997 the Company closed on the
financial assistance programs from the State of South Dakota
and Aberdeen, South Dakota.
The total financing is not complete at this time, but the Company
has acquired funding of $3,445,000 along with equity
proceeds of $500,000, and a land grant of $250,000. The facility
in Aberdeen will begin construction during the second quarter of
fiscal 1997.
Page 7 of 8
PART II. OTHER INFORMATION
ITEMS 1 - 5. Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit
4.1(a) State of South Dakota Board of Economic Development $300,000
Promissory Note, REDI Loan No: 95-13-A
4.1(b) State of South Dakota Board of Economic Development Security
Agreement, REDI Loan No: 95-13-A dated May 28, 1996
4.2(a) $700,000 Loan Agreement dated June 24, 1996 by and between
Aberdeen Development Corporation and APA Optics, Inc.
4.2(b) $300,000 Loan Agreement dated June 24, 1996 by and between
Aberdeen Development Corporation and APA Optics, Inc.
4.2(c) $250,000 Loan Agreement dated June 24, 1996 by and between
Aberdeen Development Corporation and APA Optics, Inc.
4.2(d) $300,000 Loan Agreement dated June 24, 1996 by and between
Aberdeen Development Corporation and APA Optics, Inc.
4.3(a) Loan Agreement between South Dakota Economic Development
Finance Authority and APA Optics, Inc.
4.3(b) Mortgage and Security Agreement - One Hundred Day Redemption
from APA Optics, Inc. to South Dakota Economic Development Finance
Authority dated as of June 24, 1996
4.4(a) Subscription and Investment Representation Agreement of NE
Venture, Inc.
4.4(b) Form of Common Stock Purchase Warrant for NE Venture, Inc.
11: Statement RE: Computation of per share earnings.
27: Financial Data Schedule
Page 8 of 8
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
June 30, 1996.
Signatures
In accordance with the requirements of the Securities Exchange Act of 1934,
the issuer has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APA OPTICS, INC.
08/13/96 s/s Anil K. Jain
Date Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
08/13/96 s/s Randal J. Becker
Date Randal J. Becker
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,829,920
<SECURITIES> 0
<RECEIVABLES> 384,597
<ALLOWANCES> 0
<INVENTORY> 175,212
<CURRENT-ASSETS> 4,718,418
<PP&E> 1,309,050
<DEPRECIATION> 109,294
<TOTAL-ASSETS> 8,877,950
<CURRENT-LIABILITIES> 302,799
<BONDS> 0
81,464
0
<COMMON> 0
<OTHER-SE> 4,489,325
<TOTAL-LIABILITY-AND-EQUITY> 8,877,950
<SALES> 538,388
<TOTAL-REVENUES> 538,388
<CGS> 356,740
<TOTAL-COSTS> 356,740
<OTHER-EXPENSES> 257,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,521
<INCOME-PRETAX> (63,267)
<INCOME-TAX> 250
<INCOME-CONTINUING> (63,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,517)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
EXHIBIT 11
APA OPTICS, INC.
<TABLE>
<CAPTION>
Statement RE: Computation
of Per Share Earnings
Three months ended
June 30,
1996 1995
<S> <C> <C>
Average common
shares outstanding 8,000,784 7,381,792
Dilutive stock options
and warrants (A) --- ---
Total 8,000,784 7,381,792
Net income (loss) $ (63,517) $( 16,487)
Per share amount $(.01) $(.00)
</TABLE>
(A) Calculated using the "treasury stock" method.
50045/12M501!.DOC 5
Exhibit 4.1(a)
STATE OF SOUTH DAKOTA
BOARD OF ECONOMIC DEVELOPMENT
REDI Loan Number 95-13-A
PROMISSORY NOTE
Blaine, MN
(City and State)
$300,000 ,
19
(Date)
For value received, the undersigned APA OPTICS, INC.
promises to pay to the order of SOUTH DAKOTA BOARD OF ECONOMIC
DEVELOPMENT at its office in the City of PIERRE, State of SOUTH
DAKOTA or at holder's option, at such other place as may be
designated from time to time by the holder THREE HUNDRED THOUSAND
AND NO/100 ------------- Dollars, ($300,000) with interest on
unpaid principal computed from the date of each advance to the
undersigned at the rate of THREE percent (3%) per annum, payment
to be made in installments as follows:
Fifty-nine (59) equal monthly installments of
principal and interest in the amount of
$1,664 (based on a level 240 month
amortization) beginning thirty (30) days from
note date and a final payment of all unpaid
principal and accrued interest thereon due
sixty (60) months from note date.
This note is secured by:
First commercial security interest in
specified equipment.
Any sum payable hereunder and not paid when due shall
thereafter bear interest at a specified fixed rate three (3)
percentage points higher than the prime rate of interest
published weekly in the Wall Street Journal per annum until paid.
Payment of any installment of principal or interest owing on
this Note may be made prior to the maturity date thereof without
penalty. Borrower shall provide holder with written notice of
intent to prepay part or all of this loan at least twenty-one
(21) days prior to the anticipated prepayment date. If borrower
makes a prepayment and fails to give the required advance notice
of intent to prepay, then notwithstanding any other provisions to
the contrary in this note or other document, borrower shall be
required to pay lender twenty-one (21) days interest on the
unpaid principal as of the date preceding such prepayment.
The term "Indebtedness" as used herein shall mean the
indebtedness evidenced by this Note, including principal,
interest, and expenses, whether contingent, now due or hereafter
to become due and whether heretofore or contemporaneously
herewith or hereafter contracted. The term "Collateral" as used
in this Note shall mean any funds, guaranties, or other property
or rights therein of any nature whatsoever or the proceeds
thereof which may have been, are, or hereafter may be,
hypothecated, directly or indirectly by the undersigned or other,
in connection with, or as security for, the Indebtedness or any
part thereof. The Collateral, and each part thereof, shall
secure the Indebtedness and each part thereof. The covenants and
conditions set forth or referred to in any and all instruments of
hypothecation constituting the Collateral are hereby incorporated
in this Note as covenants and conditions of the undersigned with
the same force and effect as though such covenants and conditions
were fully set forth herein.
The Indebtedness shall immediately become due and payable,
without notice or demand, upon the appointment of a receiver or
liquidator, whether voluntary or involuntary, for the undersigned
or for any of its property, or upon the filing of a petition by
or against the undersigned under the provisions of any State
insolvency law or under the provisions of the Bankruptcy Reform
Act of 1978, as amended, or upon the making by the undersigned of
an assignment for the benefit of its creditors.
Holder is also authorized to declare all or any part of the
Indebtedness immediately due and payable upon ten (10) days of
written notice given to Borrower. Notice shall be deemed given
when transmitted by telex or telecopier or personally delivered,
or three days after being deposited in the U.S. mail, postage
prepaid, or one day after delivery to a nationally recognized
overnight carrier service, in each case addressed to the Borrower
at their address shown on the signature page, or at such other
address as the Holder may, by written notice received by the
Borrower, designate as their address for purposes of notice
hereunder. Default is deemed to occur upon the happening of any
of the following events: (1) Failure to pay any part of the
Indebtedness when due; (2) nonperformance by the undersigned of
any agreement with, or any condition imposed by any secured
lender, Holder, or State of South Dakota, Board of Economic
Development through the Governor's Office of Economic Development
(hereafter called "GOED"), with respect to the Indebtedness; (3)
Holder's discovery of the undersigned's failure in any
application of the undersigned to Lender, Holder or BED to
disclose any fact deemed by Holder to be material or of the
making therein or in any of the said agreements, or in any
affidavit or other documents submitted in connection with said
application or the indebtedness, or any misrepresentation by, on
behalf of, or for the benefit of the undersigned; (4) the
reorganization (other than a reorganization pursuant to any of
the provisions of the Bankruptcy Reform Act of 1978, as amended)
or merger or consolidation of the undersigned (or the making of
any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to
Holder's satisfaction, at such time or times as Holder may
require, for any of the Collateral, or proceeds thereof, coming
into the control of the undersigned; (6) the institution of any
suit affecting the undersigned deemed by Holder to affect
adversely its interest hereunder in the Collateral or otherwise,
or, (7) violate any other covenant contained in the loan
documents, including the Security Agreement and Mortgage.
Holder's failure to exercise its rights under this paragraph
shall not constitute a waiver thereof.
Upon the nonpayment of the Indebtedness, or any part
thereof, when due, whether by acceleration or otherwise, Holder
is empowered to sell, assign, and deliver the whole or any part
of the Collateral at public or private sale, without demand,
advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After
deducting all expenses incidental to or arising from such sale or
sales, Holder may apply the residue of the proceeds thereof to
the payment of the Indebtedness, as it shall deem proper,
returning the excess, if any, to the undersigned.
Upon the occurrence of an event of default, Holder is
further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the
Collateral, by suit or otherwise, and to surrender, compromise,
release, renew, extend, exchange, or substitute any item of the
Collateral in transactions with the undersigned or any third
party, irrespective of any assignment thereof by the undersigned,
and without prior notice to or consent of the undersigned or any
assignee. Whenever any item of the Collateral shall not be paid
when due, or otherwise shall be in default, whether or not the
indebtedness, or any part thereof, has become due, Holder shall
have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment
of the Indebtedness, or any part thereof, when due. None of the
rights, remedies, privileges, or powers of Holder expressly
provided for herein shall be exclusive, but each of them shall be
cumulative with and in addition to every other right, remedy,
privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to
administer, supervise, preserve, and protect the Collateral; and
regardless of any action taken by Holder, there shall be no duty
upon Holder in this respect. The undersigned shall pay all
expenses of any nature, whether incurred in or out of court, and
whether incurred before or after this Note shall become due at
its maturity date or otherwise, including but not limited to
reasonable attorney's fees and costs, which Holder may deem
necessary or proper in connection with the satisfaction of the
Indebtedness or the administration, supervision, preservation,
protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral.
Holder is authorized to pay at any time and from time to time any
or all of such expenses, add the amount of such payment to the
amount of the Indebtedness, and charge interest thereon at the
rate specified therein with respect to the principal amount of
this Note.
The security rights of Holder and its assigns hereunder
shall not be impaired by Holders sale, hypothecation or
rehypothecation of any note of the undersigned or any item of the
Collateral, or by any indulgence, including but not limited to
(a) any renewal, extension, or modification which Holder may
grant with respect to the Indebtedness or any part thereof, or
(b) any surrender, compromise, release, renewal, extension,
exchange, or substitution which Holder may grant in respect of
the Collateral, or (c) any indulgence granted in respect of any
endorser, guarantor, or surety. The purchaser, assignee,
transferee, or pledgee of this Note, the Collateral, and
guaranty, and any other document (or any of them), sold,
assigned, transferred, pledged, or repledged shall forthwith
become vested with and entitled to exercise all the powers and
rights given by this Note and all applications of the undersigned
to Holder or BED, as if said purchaser, assignee, transferee, or
pledgee were originally named as Payee in this Note and in said
application or applications.
This promissory note is given to secure a loan which BED is
making or in which it is participating with Lender pursuant to
SDCL Chapters 1-16G and 1-33, as amended, and Rules and
Regulations Article 68:02, Administrative Rules South Dakota
(ARSD).
APA OPTICS, INC.
(SEAL) By: /s/Anil K. Jain
Its President
_________________________________________________________________
_____________
Note. - Corporate applicants must execute Note, in corporate
name, by duly authorized officer, and seal must be affixed and
duly attested; partnership applicants must execute Note in firm
name, together with signature of an authorized general partner.
50883
7
Exhibit 4.1(b)
REDI Loan Number 95-13-A
STATE OF SOUTH DAKOTA
BOARD OF ECONOMIC DEVELOPMENT
SECURITY AGREEMENT
The undersigned Debtor (s) hereby grants to
SOUTH DAKOTA BOARD OF ECONOMIC DEVELOPMENT
711 Wells Avenue, Pierre, S.D. 57501
"Lender", a Security Interest in the following described property
"Collateral":
All machinery and equipment of Debtor described on
Exhibit A attached hereto together with all
accessions thereto and all substitutions and
replacements thereof and parts therefor.
All proceeds and products of all of the foregoing,
to secure payment to the Lender at the address stated
above of all notes of Debtor concurrently delivered
herewith, or heretofore or hereafter delivered to or
purchased or otherwise acquired by the Lender and all
other liabilities and indebtedness of Debtor to the
Lender, due or to become due, direct or indirect,
absolute or contingent, joint or several, howsoever
created, arising or evidenced, now existing or
hereafter at any time created, arising or incurred
(hereinafter called "Secured Obligations").
INFORMATIONAL (Check one or more).
The address of the Debtor, X Such address is
below, is his residence. Debtor's chief
place of business
Such address is where the X Debtor is a
Collateral is kept non-resident of
South Dakota
USE OF PROPERTY: Debtor warrants, covenants and
agrees that: The property is or is to be used by
Debtor primarily (check applicable):
1. In business: X equipment inventory
2. For personal, family, or household use ___
3. In farming operations: ___ equipment ___ farm
products
PURPOSE: (check if applicable) The security
interest herein is given on this collateral for a
purchase money loan: ___
Debtor warrants, represents and agrees that:
1. The Collateral is or will be kept at Aberdeen, SD
and will not be removed from such location or locations
unless, prior to any such removal, Debtor has given written
notice to the Lender of the location or locations to which
Debtor desires to remove the Collateral and the Lender has
given written consent to such removal.
2. Debtor has or will acquire title to and will at all
times keep the Collateral free of all liens and
encumbrances, except the Security Interest created hereby
and liens held by other lenders providing financing for the
SD project, and has full power and authority to execute this
Security Agreement, to perform Debtor's obligations
hereunder and to subject the Collateral to the Security
Interest created hereby. No financing statement covering
all or any part of the Collateral, except any which may have
been filed by the Lender and other permitted lienholders, is
on file at any public office.
3. Debtor will at any time or times hereafter execute such
financing statements and other instruments and perform such
acts as the Lender may request to establish and maintain a
valid Security Interest in the Collateral, and will pay all
costs of filing and recording.
4. Debtor will keep the Collateral and all lands, plants,
buildings, machinery, equipment and other property now or
hereafter at any time owned or used by Borrower in
connection with the manufacture, processing, production,
storage, sale or lease of the Collateral, in good condition
and insured against such risks and in such amounts as the
Lender may request, and with an insurance company or
companies satisfactory to the Lender, the policies to
protect the Lender as his interest may appear and to be
delivered to the Lender upon request.
5. Upon default by Debtor in any of the preceding
agreements, the Lender at his option may
(i) effect such insurance and repairs and pay the
premiums therefor and the costs thereof and
(ii) pay and discharge any taxes, liens, and
encumbrances on the Collateral. All sums so
advanced or paid by the Lender shall be payable by
the Debtor on demand with interest at the highest
rate allowed by law and shall be part of the
Secured Obligations.
6. Debtor will not sell, lease or otherwise dispose of the
Collateral other than in the ordinary course of business at
prices constituting the then fair market value thereof, and
will at all times during the term hereof maintain the
inventory at such value as Lender may from time to time
demand.
7. Lender shall have the authority, but shall not be
obligated to:
(a) place on any Chattel Paper received as
Proceeds a notation or legend showing the Lender's
Security Interest;
(b) in the name of the Debtor or otherwise, to
demand, collect, receive and receipt for,
compound, compromise, settle and give acquittance
for, and prosecute and discontinue any suits or
proceedings in respect of any or all of the
Collateral;
(c) take any action which the Lender may deem
necessary or desirable in order to realize on the
Collateral, including, without limitation, the
power to perform any contract, to endorse in the
name of Debtor any checks, drafts, note or other
instruments or documents received in payment for
or on account of the Collateral;
(d) after any default, to enter upon and into and
take possession of all or such part or parts of
the properties of Debtor, including lands, plants,
buildings, machinery, equipment and other property
as may be necessary or appropriate in the judgment
of the Lender to permit or enable the Lender to
manufacture, produce, process, store or sell or
complete the manufacture, production, processing,
storing or sale of all or any part of the
Collateral, as the Lender may elect, and to use
and operate said properties for said purposes and
for such length of time as the Lender may deem
necessary or appropriate for said purposes without
the payment of any compensation to Debtor
therefor.
8. Debtor will keep accurate books, records and accounts
with respect to the Collateral, and with respect to the
general business of Debtor, and will make the same available
to the Lender at its request for examination and inspection;
and will make and render to the Lender such reports,
accountings and statements as the Lender from time to time
may request with respect to the Collateral; and will permit
any authorized representative of the Lender to examine and
inspect, during normal business hours, any and all premises
where the Collateral is or may be kept or located.
9. The occurrence of any of the following events shall
constitute a Default:
(a) failure of Debtor, or of any co-maker,
endorser, surety or guarantor to pay when due any
amount payable under any of the Secured
Obligations;
(b) failure to perform any agreement or covenant
of Debtor contained herein;
(c) any statement, representation or warranty of
Debtor made herein or at any time furnished to the
Lender is untrue in any respect as of the date
made;
(d) entry of any judgment against Debtor in excess of
$50,000, unless such judgment is by a federal or
state governmental entity;
(e) appointment of a receiver due to, loss,
substantial damage to, destruction, theft, or
encumbrance to or of any portion of the
Collateral, or the making of any levy, seizure, or
attachment thereof;
(f) Debtor becomes insolvent or unable to pay his
debts as they mature, or makes an assignment for
the benefit of his Creditors or any proceeding is
commenced by or against Debtor alleging that he is
insolvent or unable to pay his debts as they
mature:
(g) death of any Debtor who is a natural person
or of any partner of any Debtor which is a
partnership;
(h) dissolution, consolidation, or merger, or
transfer of a substantial part of the property of
any Debtor which is a partnership;
(i) such a material change in the condition or affairs
(financial or otherwise) of Debtor or any
co-maker, endorser, surety or guarantor of any of
the Secured Obligations as in the opinion of the
Lender impairs the Lender's security or increases
his risks; or
10. Whenever a Default shall exist, the Lender may, at its
option and without demand or notice, declare all or any part
of the Secured Obligations immediately due and payable, and
the Lender may exercise, in addition to the rights and
remedies granted hereby, all rights and remedies of a
secured party under the Uniform Commercial Code or any other
applicable law.
11. Debtor agrees, in the event of Default, to make the
Collateral available to the Lender at a place or places
acceptable to the Lender, and to pay all costs of the Lender
in the collection of any of the Secured Obligations and the
enforcement of any of the Lender's rights. If any
notification of intended disposition of any of the
Collateral is required by law, such notification shall be
deemed reasonably and properly given if mailed at least ten
(10) days before such disposition, postage prepaid,
addressed to the Debtor at the address shown below.
12. No delay or failure by the Lender in the exercise of
any right or remedy shall constitute a waiver thereof, and
no single or partial exercise by the Lender of any right or
remedy shall preclude other or further exercise thereof or
the exercise of any other right or remedy.
13. If more than one party shall sign this Agreement, the
term "Debtor" shall mean all such parties, and each of them
and all such parties shall be jointly and severally
obligated hereunder.
14. All parties agree the terms of the within instrument
shall be construed according to the laws of the state of
South Dakota and all actions or proceedings brought
hereunder shall be heard in a court of competent
jurisdiction within the state of South Dakota .
Executed and delivered at Blaine, Minnesota,
this 28th day of May, 1996.
ADDRESS: APA OPTICS, INC.
2950 North East 84th Lane
Blaine, MN 55449
BY: /s/ Anil K. Jain
(Seal) ITS: President
_________________________________________________________
NOTE: Corporate applicants must execute Security Agreement,
in corporate name, by duly authorized officer, and seal must
be affixed and duly witnessed; partnership applicants must
execute Security Agreement in firm name, together with
signature of an authorized general partner.
50063/12MN01!.DOC 7
Exhibit 4.2(a)
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this 24th day of
June, 1996, by and between ABERDEEN DEVELOPMENT CORPORATION, a
South Dakota corporation with principal offices at 514.5 South
Main Street, PO Box 1179, Aberdeen, South Dakota 57402-1179,
hereinafter called "LENDER", and APA OPTICS, INC., a Minnesota
for profit corporation with principal offices at 2950 N.E. 84th
Lane, Blaine, Minnesota 55449, hereinafter called "BORROWER",
W I T N E S S E T H:
THAT IN CONSIDERATION OF THE COVENANTS AND CONDITIONS
HEREINAFTER CONTAINED IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. That LENDER agrees to loan to BORROWER and BORROWER
agrees to borrow funds from Aberdeen Development Corporation
pursuant to the terms and conditions of this Loan Agreement, the
sum of $700,000.00 which shall be evidenced by APA Optics, Inc.
signing a Promissory Note in favor of the Aberdeen Development
Corporation in the sum of $700,000.00 to be paid over twenty (20)
years with interest at the rate of 3% per annum. Interest shall
be calculated from January 1st to December 31st each year and
predicated on 365 days. Payments shall be applied first to
interest then to principal as payments are made and required
hereunder.
Payments in the amount of $3,882.18 to begin on or before
July 24, 1996 and a like amount thereafter due and payable on the
24th day of each month thereafter until June, 2002, when all
remaining principal and interest shall be paid.
The Borrower shall be entitled to a credit (the "Job
Credit") on all payments due under the Promissory Note to be
calculated as follows: The Job Credit shall be calculated based
on the full time employees employed by the Borrower at its
facility (the "Facility") in Aberdeen, South Dakota, at the end
of each year during the term of the Promissory Note. The basic
Job Credit each year shall be $7,500.00 times the increase in the
number of full time employees at the Facility at the end of that
year compared to the number of such employees at the end of the
immediately preceding year. The Borrower shall be entitled to an
additional Job Credit each year equal to 12.5% times the amount
by which (a) the annualized total payroll (including all fringe
benefits and bonuses) for all full time employees at the Facility
during December of that year exceeds (b) $20,000.00 times the
number of full time employees at the Facility at the end of that
year. The Job Credit shall be determined by the Borrower and the
Lender by January 31 of each year for the prior year. For
purposes of performing the calculation, "full time employee"means
any employee assigned to the Facility working more than an
average of 30 hours per week.
The Borrower may at its option apply the Job Credit
calculated in January of each year to (a) the monthly
installments due during that year or to (b) later installments or
the balloon payment.
In no event shall the aggregate Job Credit during the life
of the Promissory Note, together with the job credit allowed
under the $300,000.00 Promissory Note from the Borrower to the
Lender dated as of the date hereof exceed $750,000.00.
A job credits calculation is explained below:
Job Credits
Additi Addit Base Exces Base Exce Tota
Year onal ional Payro s Payro ss Tota l To
Employ Payro ll Payro ll Payr l Date
ees ll ll oll
1 20 600,0 400,0 200,0 150,0 25,0 175, 175,
00 00 00 00 00 000 000
2 20 650,0 400,0 250,0 150,0 31,2 181, 356,
00 00 00 00 50 250 250
3 40 1,400 800,0 600,0 300,0 75,0 375, 731,
,000 00 00 00 00 000 250
4 35 1,250 700,0 550,0 18,75 0 18,7 750,
,000 00 00 0 50 000
TOTA 115 3,900 2,300 1,600 618,7 131, 750,
L ,000 ,000 ,000 50 250 000
BORROWER shall issue warrants to LENDER in accordance with a
Warrant Agreement for purchase of common stock dated as of the
date hereof.
Payments shall be made by BORROWER to LENDER at LENDER'S
address hereinafter set forth.
Borrower may prepaid the obligation represented by this
agreement, both principal and interest, at any time without any
penalty whatsoever.
Borrower will establish a budget for construction of
facility and acquisition of equipment, etc. for that facility for
an amount of $3,200,000.00. Borrower further covenants and
agrees that for the first 24 months following execution of this
Agreement it will provide Lender with an accounting reflecting
expenditures made under budget from the proceeds provided by
Lender to Borrower under this Agreement.
2. Whenever and wherever time appears herein time shall be
considered of the essence.
3. For purpose of this agreement all notice or notices
given shall be sent as follows:
To LENDER:
Aberdeen Development Corporation
514.5 South Main Street
PO Box 1179
Aberdeen, SD 57402-1179
To BORROWER:
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
4. The Borrower agrees with Lender and represents as
follows:
A. Borrower shall carry key man life insurance on Dr. Anil
Jain, as principal officer, in an amount of
$2,000,000.00 and shall give proof of the carrying of
such coverage to Lender and, if requested, shall
provide a duplicate or specimen policy and, similarly,
Borrower shall give proof on an annual basis of the
payment of premiums on said life insurance policy so
long as this agreement and the debt represented thereby
is outstanding.
B. Borrower represents its current senior management are:
Jain, Khan, Olsen and Becker and that these individuals
are management and any change in management for
whatever reason shall result in Borrower being required
to give notice to the that effect to Lender.
C. Borrower covenants that as of the date of this
agreement the company is free from any union
representation and that as of the date of this
agreement there is not active organizational campaign
going on seeking representation for Borrower's
employees.
D. Borrower covenants that as of the date of this
agreement the equipment both at its Blaine operation
and at Aberdeen, or to be acquired for Aberdeen, will
be provided by exhibit to this agreement and that
current equipment as represented has not changed as to
ownership or placement or location nor is any exhibited
equipment subject to any lease with Borrower being the
lessee thereof except for leases of equipment with an
aggregate book value not in excess of $100,000.00.
Borrower covenants further that if any or all of the
equipment from either the Blaine, Minnesota plant or
Aberdeen, South Dakota plant, at any time during the
term of this agreement while said loan is in place and
remains unpaid, is removed without the permission or
consent of Lender that this will constitute a condition
of default and Borrower may declare the full sum due
and owing payable immediately. Provided, however, that
Borrower may remove for resale or trade-in purposes
equipment having for that purpose a value of $15,000.00
per transaction with the further understanding that in
no event will Borrower remove property for resale or
trade or for surplus or obsolescence having annually a
total value of $75,000.00 while this Agreement is still
in full force and effect.
E. Borrower further covenants that as of the date of this
agreement all tax obligations and liabilities on
properties whether at Blaine, Minnesota or to be used
in the Aberdeen, South Dakota project are current and
paid and no deficiency or delinquency exists and that
Borrower covenants and agrees that it will continue to
keep all tax payments and liabilities, whether real
property or personal property, paid and current so that
the same are not in default and in the event of default
acknowledges that Lender may make those payments and
add any of those payments to the obligation under this
agreement, shall add interest thereto and it shall
become a continuing and ongoing obligation of Borrower
until paid.
F. Borrower covenants and agrees that it will maintain
life insurance as previously in this agreement
mentioned and will similarly carry general liability in
the amounts as set forth in Certificate of Insurance
exhibit attached to this agreement and as set forth as
follows:
General aggregate $1,000,000
Products-comp aggregate $1,000,000
Personal and ADY injury $1,000,000
Each occurrence $1,000,000
Fire damage (any one fire) $100,000
Medical expenses (any one person) $5,000
Automobile liability - combined single limit
$1,000,000
Excess liability (each occurrence). $3,000,000
Borrower covenants and agrees that it will furnish
proof of coverage and proof of payment so long as this
agreement shall remain in full force and effect.
G. Borrower covenants and agrees that it has a reporting
obligation to Lender so long as the obligation under
this agreement remains in effect to report as to the
business condition and in addition agrees that it will
provide to the observer, who will be an agreed party to
represent the interest of Lender, all financial data
and information reasonably sought by such observer and
further covenants and agrees that information shall be
prepared in accordance with accepted accounting
standards consistent with FASBE regulations and shall
no less frequently than quarterly provide a statement
of operations of the business of APA OPTICS, INC. at
both its Blaine, Minnesota and Aberdeen, South Dakota
operations.
H. Borrower covenants that so long as this agreement is
outstanding or any debt represented thereby is still
due and owing that it will indemnify and hold harmless
Lender from any cause of action, claim or proceeding
brought by any person, partnership, corporation or any
entity whatsoever against Lender for any claim or
demand arising out of the operation of APA OPTICS,
INC., Blaine, Minnesota or Aberdeen, South Dakota, and
further agrees to provide defense costs, including
reasonable attorney's fees to Lender, by reason of it
being involved in such litigation.
I. In addition to this agreement Borrower covenants and
agrees to execute appropriate security agreements
covering only its equipment in the Blaine, Minnesota
plant and its personal property in the ultimate
Aberdeen, South Dakota facility, provided, however,
that when Borrower's obligation to Lender for this
Agreement, and for any and all other financial
agreements cumulatively, has an unpaid balance of
$250,000.00 plus the remaining balance on the
$250,000.00 note from the Borrower to the Lender dated
as of the date hereof, then Lender covenants and agrees
to satisfy and cancel the security agreements then in
place and outstanding.
J. Borrower covenants and agrees that it will pay all
costs, expenses and fees in connection with this and
other loan agreements as relates to the Aberdeen, South
Dakota project, which includes but is not necessary
limited to recording fees, filing fees or other costs
incurred by any public entity by reason of
acknowledgment of any documentation or records
supporting this loan environment.
K. Borrower covenants and agrees that in the event of
default of any of the warranties, representatives,
conditions or covenants of Borrower that Lender at its
sole option and discretion shall have the right to
determine whether or not such default shall constitute
significant default for the purpose of declaring the
full sum due under this agreement immediately due and
payable or whether to allow or permit Borrower to
correct such default. Such action on the part of
Borrower in any case shall be no later than 30 days
from the date of the occurrence of such default.
5. This agreement shall be governed by the laws of the
state of South Dakota regardless of the residence, personal or
corporate, of any of the parties to this agreement.
6. This agreement may be executed in original and in one
or more counterparts but shall constitute one and in the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed the day and year first above written.
ABERDEEN DEVELOPMENT CORPORATION
By /s/ Rodney Fouberg
Its President
ATTEST: LENDER
/s/ James C. Barringer_________
Its Executive Vice President
WITNESS:
/s/ Cheryl A.Olson
APA OPTICS, INC.
By: /s/ Anil Jain
Dr. Anil Jain
Its President
ATTEST: BORROWER
/s/ Kenneth A. Olsen
Its Vice President
WITNESS:
/s/ Randal J. Becker
Prepared by:
MALONEY & MALONEY
PO Box 755
Aberdeen, SD 57402-0755
605/229-2752
50062/12MM01!.DOC 7
Exhibit 4.2(b)
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this 24th day of
June, 1996, by and between ABERDEEN DEVELOPMENT CORPORATION, a
South Dakota corporation with principal offices at 514.5 South
Main Street, PO Box 1179, Aberdeen, South Dakota 57402-1179,
hereinafter called "LENDER", and APA OPTICS, INC., a Minnesota
for profit corporation with principal offices at 2950 N.E. 84th
Lane, Blaine, Minnesota 55449, hereinafter called "BORROWER",
W I T N E S S E T H:
THAT IN CONSIDERATION OF THE COVENANTS AND CONDITIONS
HEREINAFTER CONTAINED IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. That LENDER agrees to loan to BORROWER and BORROWER
agrees to borrow funds from the Aberdeen Development Corporation
pursuant to the terms and conditions of this Loan Agreement, the
sum of $300,000.00 which shall be evidenced by APA Optics, Inc.
signing a Promissory Note in favor of the Aberdeen Development
Corporation in the sum of $300,000.00 to be paid over twenty (20)
years with interest at the rate of 3% per annum. Interest shall
be calculated from January 1st to December 31st each year and
predicated on 365 days. Payments shall be applied first to
interest then to principal as payments are made and required
hereunder.
Payments in the amount of $1,663.79 to begin on or before
July 24, 1996, and a like amount thereafter due and payable on
the 24th day of each and every month until June 24, 2003, when
all remaining principal and interest shall be paid.
The Borrower shall be entitled to a credit (the "Job
Credit") on all payments due under the Promissory Note to be
calculated as follows: The Job Credit shall be calculated based
on the full time employees employed by the Borrower at its
facility (the "Facility") in Aberdeen, South Dakota, at the end
of each year during the term of the Promissory Note. The basic
Job Credit each year shall be $7,500.00 times the increase in the
number of full time employees at the Facility at the end of that
year compared to the number of such employees at the end of the
immediately preceding year. The Borrower shall be entitled to an
additional Job Credit each year equal to 12.5% times the amount
by which (a) the annualized total payroll (including all fringe
benefits and bonuses) for all full time employees at the Facility
during December of that year exceeds (b) $20,000.00 times the
number of full time employees at the Facility at the end of that
year. The Job Credit shall be determined by the Borrower and the
Lender by January 31 of each year for the prior year. For
purposes of performing the calculation, "full time employee"
means any employee assigned to the Facility working more than an
average of 30 hours per week.
The Borrower may at its option apply the Job Credit
calculated in January of each year to (a) the monthly
installments due during that year or to (b) later installments or
the balloon payment.
In no event shall the aggregate Job Credit during the life
of the Promissory Note, together with the job credit allowed
under the $700,000.00 Promissory Note from the Borrower to the
Lender dated as of the date hereof exceed $750,000.00.
A job credits calculation is explained below:
Job Credits
Additi Addit Base Exces Base Exce Tota
Year onal ional Payro s Payro ss Tota l To
Employ Payro ll Payro ll Payr l Date
ees ll ll oll
1 20 600,0 400,0 200,0 150,0 25,0 175, 175,
00 00 00 00 00 000 000
2 20 650,0 400,0 250,0 150,0 31,2 181, 356,
00 00 00 00 50 250 250
3 40 1,400 800,0 600,0 300,0 75,0 375, 731,
,000 00 00 00 00 000 250
4 35 1,250 700,0 550,0 18,75 0 18,7 750,
,000 00 00 0 50 000
TOTA 115 3,900 2,300 1,600 618,7 131, 750,
L ,000 ,000 ,000 50 250 000
BORROWER shall issue warrants to LENDER in accordance with a
Warrant Agreement for purchase of common stock dated as of the
date hereof.
Payments shall be made by BORROWER to LENDER at LENDER'S
address hereinafter set forth.
Borrower may prepay the obligation represented by this
agreement, both principal and interest, at any time without any
penalty whatsoever.
Borrower will establish a budget for construction of
facility and acquisition of equipment, etc. for that facility for
an amount of $3,200,000.00. Borrower further covenants and
agrees that for the first 24 months following execution of this
Agreement it will provide Lender with an accounting reflecting
expenditures made under budget from the proceeds provided by
Lender to Borrower under this Agreement.
2. Whenever and wherever time appears herein time shall be
considered of the essence.
3. For purpose of this agreement all notice or notices
given shall be sent as follows:
To LENDER:
Aberdeen Development Corporation
514.5 South Main Street
PO Box 1179
Aberdeen, SD 57402-1179
To BORROWER:
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
4. The Borrower agrees with Lender and represents as
follows:
A. Borrower shall carry key man life insurance on Dr. Anil
Jain, as principal officer, in an amount of
$2,000,000.00 and shall give proof of the carrying of
such coverage to Lender and, if requested, shall
provide a duplicate or specimen policy and, similarly,
Borrower shall give proof on an annual basis of the
payment of premiums on said life insurance policy so
long as this agreement and the debt represented thereby
is outstanding.
B. Borrower represents its current senior management are:
Jain, Khan, Olsen and Becker and that these individuals
are management and any change in management for
whatever reason shall result in Borrower being required
to give notice to the that effect to Lender.
C. Borrower covenants that as of the date of this
agreement the company is free from any union
representation and that as of the date of this
agreement there is not active organizational campaign
going on seeking representation for Borrower's
employees.
D. Borrower covenants that as of the date of this
agreement the equipment both at its Blaine operation
and at Aberdeen, or to be acquired for Aberdeen, will
be provided by exhibit to this agreement and that
current equipment as represented has not changed as to
ownership or placement or location nor is any exhibited
equipment subject to any lease with Borrower being the
lessee thereof except for leases of equipment with an
aggregate book value not in excess of $100,000.00.
Borrower covenants further that if any or all of the
equipment from either the Blaine, Minnesota plant or
Aberdeen, South Dakota plant, at any time during the
term of this agreement while said loan is in place and
remains unpaid, is removed without the permission or
consent of Lender that this will constitute a condition
of default and Borrower may declare the full sum due
and owing payable immediately. Provided, however, that
Borrower may remove for resale or trade-in purposes
equipment having for that purpose a value of $15,000.00
per transaction with the further understanding that in
no event will Borrower remove property for resale or
trade or for surplus or obsolescence having annually a
total value of $75,000.00 while this Agreement is still
in full force and effect.
E. Borrower further covenants that as of the date of this
agreement all tax obligations and liabilities on
properties whether at Blaine, Minnesota or to be used
in the Aberdeen, South Dakota project are current and
paid and no deficiency or delinquency exists and that
Borrower covenants and agrees that it will continue to
keep all tax payments and liabilities, whether real
property or personal property, paid and current so that
the same are not in default and in the event of default
acknowledges that Lender may make those payments and
add any of those payments to the obligation under this
agreement, shall add interest thereto and it shall
become a continuing and ongoing obligation of Borrower
until paid.
F. Borrower covenants and agrees that it will maintain
life insurance as previously in this agreement
mentioned and will similarly carry general liability in
the amounts as set forth in Certificate of Insurance
exhibit attached to this agreement and as set forth as
follows:
General aggregate $1,000,000
Products-comp aggregate $1,000,000
Personal and ADY injury $1,000,000
Each occurrence $1,000,000
Fire damage (any one fire) $100,000
Medical expenses (any one person) $5,000
Automobile liability - combined single limit
$1,000,000
Excess liability (each occurrence). $3,000,000
Borrower covenants and agrees that it will furnish
proof of coverage and proof of payment so long as this
agreement shall remain in full force and effect.
G. Borrower covenants and agrees that it has a reporting
obligation to Lender so long as the obligation under
this agreement remains in effect to report as to the
business condition and in addition agrees that it will
provide to the observer, who will be an agreed party to
represent the interest of Lender, all financial data
and information reasonably sought by such observer and
further covenants and agrees that information shall be
prepared in accordance with accepted accounting
standards consistent with FASBE regulations and shall
no less frequently than quarterly provide a statement
of operations of the business of APA OPTICS, INC. at
both its Blaine, Minnesota and Aberdeen, South Dakota
operations.
H. Borrower covenants that so long as this agreement is
outstanding or any debt represented thereby is still
due and owing that it will indemnify and hold harmless
Lender from any cause of action, claim or proceeding
brought by any person, partnership, corporation or any
entity whatsoever against Lender for any claim or
demand arising out of the operation of APA OPTICS,
INC., Blaine, Minnesota or Aberdeen, South Dakota, and
further agrees to provide defense costs, including
reasonable attorney's fees to Lender, by reason of it
being involved in such litigation.
I. In addition to this agreement Borrower covenants and
agrees to execute appropriate security agreements
covering only its equipment in the Blaine, Minnesota
plant and its personal property in the ultimate
Aberdeen, South Dakota facility, provided, however,
that when Borrower's obligation to Lender for this
Agreement, and for any and all other financial
agreements cumulatively, has an unpaid balance of
$250,000.00 plus the remaining balance on the
$250,000.00 note from the Borrower to the Lender dated
as of the date hereof, then Lender covenants and agrees
to satisfy and cancel the security agreements then in
place and outstanding.
J. Borrower covenants and agrees that it will pay all
costs, expenses and fees in connection with this and
other loan agreements as relates to the Aberdeen, South
Dakota project, which includes but is not necessary
limited to recording fees, filing fees or other costs
incurred by any public entity by reason of
acknowledgment of any documentation or records
supporting this loan environment.
K. Borrower covenants and agrees that in the event of
default of any of the warranties, representatives,
conditions or covenants of Borrower that Lender at its
sole option and discretion shall have the right to
determine whether or not such default shall constitute
significant default for the purpose of declaring the
full sum due under this agreement immediately due and
payable or whether to allow or permit Borrower to
correct such default. Such action on the part of
Borrower in any case shall be no later than 30 days
from the date of the occurrence of such default.
5. This agreement shall be governed by the laws of the
state of South Dakota regardless of the residence, personal or
corporate, of any of the parties to this agreement.
6. This agreement may be executed in original and in one
or more counterparts but shall constitute one and in the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed the day and year first above written.
ABERDEEN DEVELOPMENT CORPORATION
ATTEST By: /s/ Rodney Fouberg
:
Its President
/s/ James C. Barringer
Its Executive Vice LENDER
President
WITNESS:
/s/ Cheryl A. Olson
APA OPTICS, INC.
ATTEST By: /s/ Anil K. Jain
:
Dr. Anil Jain
/s/ Kenneth A. Olsen Its President
Its Vice President
BORROWER
WITNESS:
/S/ Randal J. Becker
Prepared by:
MALONEY & MALONEY
PO Box 755
Aberdeen, SD 57402-0755
605/229-2752
50061/12ML01!.DOC 6
Exhibit 4.2(c)
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this day of
, 1996, by and between ABERDEEN DEVELOPMENT CORPORATION, a South
Dakota corporation with principal offices at 514.5 South Main
Street, PO Box 1179, Aberdeen, South Dakota 57401, hereinafter
called "LENDER", and APA OPTICS, INC., a Minnesota for profit
corporation with principal offices at 2950 N.E. 84th Lane,
Blaine, Minnesota 55449, hereinafter called "BORROWER",
W I T N E S S E T H:
THAT IN CONSIDERATION OF THE COVENANTS AND CONDITIONS
HEREINAFTER CONTAINED IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. That LENDER agrees to loan to BORROWER and BORROWER
agrees to borrow funds from the Aberdeen Development Corporation
pursuant to the terms and conditions of this Loan Agreement, the
sum of $250,000.00 which shall be evidenced by APA OPTICS, INC.
signing a Promissory Note in favor of the Aberdeen Development
Corporation in the sum of $250,000.00 to be paid over twenty (20)
years with no interest.
Payment as follows:
Years 1 and 2. No payments.
Years 3 through 20. Payments of $13,889.00 per year to
begin on or before June 24, 1999 with like amount due and
payable on or before June 24 each and every year thereafter
for the years 1999 through 2016.
Payments shall be made by BORROWER to LENDER at LENDER'S
address hereinafter set forth.
Borrower may prepay the obligation represented by this
agreement at any time without any penalty whatsoever.
Borrower will establish a budget for construction of
facility and acquisition of equipment, etc. for that facility for
an amount of $3,200,000.00. Borrower further covenants and
agrees that for the first 24 months following execution of this
Agreement it will provide Lender with an accounting reflecting
expenditures made under budget from the proceeds provided by
Lender to Borrower under this Agreement.
2. Whenever and wherever time appears herein time shall be
considered of the essence.
3. For purpose of this agreement all notice or notices
given shall be sent as follows:
To LENDER:
Aberdeen Development Corporation
514.5 South Main Street
PO Box 1179
Aberdeen, SD 57402-1179
To BORROWER:
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
4. The Borrower agrees with Lender and represents as
follows:
A. Borrower shall carry key man life insurance on Dr. Anil
Jain, as principal officer, in an amount of
$2,000,000.00 and shall give proof of the carrying of
such coverage to Lender and, if requested, shall
provide a duplicate or specimen policy and, similarly,
Borrower shall give proof on an annual basis of the
payment of premiums on said life insurance policy so
long as this agreement and the debt represented thereby
is outstanding.
B. Borrower represents its current senior management are:
Jain, Khan, Olsen and Becker and that these individuals
are management and any change in management for
whatever reason shall result in Borrower being required
to give notice to the that effect to Lender.
C. Borrower covenants that as of the date of this
agreement the company is free from any union
representation and that as of the date of this
agreement there is not active organizational campaign
going on seeking representation for Borrower's
employees.
D. Borrower covenants that as of the date of this
agreement the equipment both at its Blaine operation
and at Aberdeen, or to be acquired for Aberdeen, will
be provided by exhibit to this agreement and that
current equipment as represented has not changed as to
ownership or placement or location nor is any exhibited
equipment subject to any lease with Borrower being the
lessee thereof except for leases of equipment with an
aggregate book value not in excess of $100,000.00.
Borrower covenants further that if any or all of the
equipment from either the Blaine, Minnesota plant or
Aberdeen, South Dakota plant, at any time during the
term of this agreement while said loan is in place and
remains unpaid, is removed without the permission or
consent of Lender that this will constitute a condition
of default and Borrower may declare the full sum due
and owing payable immediately. Provided, however, that
Borrower may remove for resale or trade-in purposes
equipment having for that purpose a value of $15,000.00
per transaction with the further understanding that in
no event will Borrower remove property for resale or
trade or for surplus or obsolescence having annually a
total value of $75,000.00 while this Agreement is still
in full force and effect.
E. Borrower further covenants that as of the date of this
agreement all tax obligations and liabilities on
properties whether at Blaine, Minnesota or to be used
in the Aberdeen, South Dakota project are current and
paid and no deficiency or delinquency exists and that
Borrower covenants and agrees that it will continue to
keep all tax payments and liabilities, whether real
property or personal property, paid and current so that
the same are not in default and in the event of default
acknowledges that Lender may make those payments and
add any of those payments to the obligation under this
agreement, shall add interest thereto and it shall
become a continuing and ongoing obligation of Borrower
until paid.
F. Borrower covenants and agrees that it will maintain
life insurance as previously in this agreement
mentioned and will similarly carry general liability in
the amounts as set forth in Certificate of Insurance
exhibit attached to this agreement and as set forth as
follows:
General aggregate $1,000,000
Products-comp aggregate $1,000,000
Personal and ADY injury $1,000,000
Each occurrence $1,000,000
Fire damage (any one fire) $100,000
Medical expenses (any one person) $5,000
Automobile liability -
combined single limit $1,000,000
Excess liability (each occurrence). $3,000,000
Borrower covenants and agrees that it will furnish
proof of coverage and proof of payment so long as this
agreement shall remain in full force and effect.
G. Borrower covenants and agrees that it has a reporting
obligation to Lender so long as the obligation under
this agreement remains in effect to report as to the
business condition and in addition agrees that it will
provide to the observer, who will be an agreed party to
represent the interest of Lender, all financial data
and information reasonably sought by such observer and
further covenants and agrees that information shall be
prepared in accordance with accepted accounting
standards consistent with FASBE regulations and shall
no less frequently than quarterly provide a statement
of operations of the business of APA OPTICS, INC. at
both its Blaine, Minnesota and Aberdeen, South Dakota
operations.
H. Borrower covenants that so long as this agreement is
outstanding or any debt represented thereby is still
due and owing that it will indemnify and hold harmless
Lender from any cause of action, claim or proceeding
brought by any person, partnership, corporation or any
entity whatsoever against Lender for any claim or
demand arising out of the operation of APA OPTICS,
INC., Blaine, Minnesota or Aberdeen, South Dakota, and
further agrees to provide defense costs, including
reasonable attorney's fees to Lender, by reason of it
being involved in such litigation.
I. In addition to this agreement Borrower covenants and
agrees to execute appropriate security agreements
covering only its equipment in the Blaine, Minnesota
plant and its personal property in the ultimate
Aberdeen, South Dakota facility, provided, however,
that when Borrower's obligation to Lender for this
Agreement, and for any and all other financial
agreements cumulatively, has an unpaid balance of
$250,000.00 plus the remaining balance on the
$250,000.00 note from the Borrower to the Lender dated
as of the date hereof, then Lender covenants and agrees
to satisfy and cancel the security agreements then in
place and outstanding.
J. Borrower covenants and agrees that it will pay all
costs, expenses and fees in connection with this and
other loan agreements as relates to the Aberdeen, South
Dakota project, which includes but is not necessary
limited to recording fees, filing fees or other costs
incurred by any public entity by reason of
acknowledgment of any documentation or records
supporting this loan environment.
K. Borrower covenants and agrees that in the event of
default of any of the warranties, representatives,
conditions or covenants of Borrower that Lender at its
sole option and discretion shall have the right to
determine whether or not such default shall constitute
significant default for the purpose of declaring the
full sum due under this agreement immediately due and
payable or whether to allow or permit Borrower to
correct such default. Such action on the part of
Borrower in any case shall be no later than 30 days
from the date of the occurrence of such default.
5. This agreement shall be governed by the laws of the
state of South Dakota regardless of the residence, personal or
corporate, of any of the parties to this agreement.
6. This agreement may be executed in original and in one
or more counterparts but shall constitute one and in the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed the day and year first above written.
ABERDEEN DEVELOPMENT CORPORATION
ATTEST By: /s/ Rodney Fouberg
:
Its President
/s/ James C. Barringer
Its Executive Vice LENDER
President
WITNESS:
/s/ Cheryl A. Olson
APA OPTICS, INC.
ATTEST By: /s/ Anil K. Jain
:
Dr. Anil Jain
/s/ Kenneth A. Olsen Its President
Its Vice President
BORROWER
WITNESS:
/S/ Randal J. Becker
Prepared by:
MALONEY & MALONEY
PO Box 755
Aberdeen, SD 57402-0755
605/229-2752
50055/12MF01!.DOC 6
Exhibit 4.2(d)
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into this 24th day of
June, 1996, by and between ABERDEEN DEVELOPMENT CORPORATION, a
South Dakota Corporation, with offices at 514.5 South Main Street,
PO Box 1179, Aberdeen, South Dakota 57402-1179, hereinafter
called "LENDER", and APA OPTICS, INC., a Minnesota for profit
corporation with principal offices at 2950 N.E. 84th Lane,
Blaine, Minnesota 55449, hereinafter called "BORROWER",
W I T N E S S E T H:
THAT IN CONSIDERATION OF THE COVENANTS AND CONDITIONS
HEREINAFTER CONTAINED IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. That LENDER agrees to loan to BORROWER and BORROWER
agrees to borrow funds from the Aberdeen Development Corporation
pursuant to the terms and conditions of this Loan Agreement, the
sum of $300,000.00 which shall be evidenced by APA Optics, Inc.
signing a Promissory Note in favor of Aberdeen Development
Corporation in the sum of $300,000.00 to be paid over twenty (20)
years with interest at the rate of 3% per annum. Balloon payment
after 5th year. Interest shall be calculated from January 1st to
December 31st each year and predicated on 365 days. Payments
shall be applied first to interest then to principal as payments
are made and required hereunder.
Payments in the amount of $1,663.79 to begin on or before
July 24, 1996 and a like amount thereafter due and payable on the
24th day of each and every month. Balance of $240,926.52 due at
end of 5th year or after 60th payment.
Payments shall be made by BORROWER to LENDER at LENDER'S
address hereinafter set forth.
Borrower may prepay the obligation represented by this
agreement, both principal and interest, at any time without any
penalty whatsoever.
Borrower will establish a budget for construction of
facility and acquisition of equipment, etc. for that facility for
an amount of $3,200,000.00. Borrower further covenants and
agrees that for the first 24 months following execution of this
Agreement it will provide Lender with an accounting reflecting
expenditures made under budget from the proceeds provided by
Lender to Borrower under this Agreement.
2. Whenever and wherever time appears herein time shall be
considered of the essence.
3. For purpose of this agreement all notice or notices
given shall be sent as follows:
To LENDER:
Aberdeen Development Corporation
514.5 South Main Street
PO Box 1179
Aberdeen, SD 57402-1179
To BORROWER:
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55449
4. The Borrower agrees with Lender and represents as
follows:
A. Borrower shall carry key man life insurance on Dr. Anil
Jain, as principal officer, in an amount of
$2,000,000.00 and shall give proof of the carrying of
such coverage to Lender and, if requested, shall
provide a duplicate or specimen policy and, similarly,
Borrower shall give proof on an annual basis of the
payment of premiums on said life insurance policy so
long as this agreement and the debt represented thereby
is outstanding.
B. Borrower represents its current senior management are:
Jain, Khan, Olsen and Becker and that these individuals
are management and any change in management for
whatever reason shall result in Borrower being required
to give notice to the that effect to Lender.
C. Borrower covenants that as of the date of this
agreement the company is free from any union
representation and that as of the date of this
agreement there is not active organizational campaign
going on seeking representation for Borrower's
employees.
D. Borrower covenants that as of the date of this
agreement the equipment both at its Blaine operation
and at Aberdeen, or to be acquired for Aberdeen, will
be provided by exhibit to this agreement and that
current equipment as represented has not changed as to
ownership or placement or location nor is any exhibited
equipment subject to any lease with Borrower being the
lessee thereof except for leases of equipment with an
aggregate book value not in excess of $100,000.00.
Borrower covenants further that if any or all of the
equipment from either the Blaine, Minnesota plant or
Aberdeen, South Dakota plant, at any time during the
term of this agreement while said loan is in place and
remains unpaid, is removed without the permission or
consent of Lender that this will constitute a condition
of default and Borrower may declare the full sum due
and owing payable immediately. Provided, however, that
Borrower may remove for resale or trade-in purposes
equipment having for that purpose a value of $15,000.00
per transaction with the further understanding that in
no event will Borrower remove property for resale or
trade or for surplus or obsolescence having annually a
total value of $75,000.00 while this Agreement is still
in full force and effect.
E. Borrower further covenants that as of the date of this
agreement all tax obligations and liabilities on
properties whether at Blaine, Minnesota or to be used
in the Aberdeen, South Dakota project are current and
paid and no deficiency or delinquency exists and that
Borrower covenants and agrees that it will continue to
keep all tax payments and liabilities, whether real
property or personal property, paid and current so that
the same are not in default and in the event of default
acknowledges that Lender may make those payments and
add any of those payments to the obligation under this
agreement, shall add interest thereto and it shall
become a continuing and ongoing obligation of Borrower
until paid.
F. Borrower covenants and agrees that it will maintain
life insurance as previously in this agreement
mentioned and will similarly carry general liability in
the amounts as set forth in Certificate of Insurance
exhibit attached to this agreement and as set forth as
follows:
General aggregate $1,000,000
Products-comp aggregate $1,000,000
Personal and ADY injury $1,000,000
Each occurrence $1,000,000
Fire damage (any one fire) $100,000
Medical expenses (any one person) $5,000
Automobile liability - combined single limit
$1,000,000
Excess liability (each occurrence). $3,000,000
Borrower covenants and agrees that it will furnish
proof of coverage and proof of payment so long as this
agreement shall remain in full force and effect.
G. Borrower covenants and agrees that it has a reporting
obligation to Lender so long as the obligation under
this agreement remains in effect to report as to the
business condition and in addition agrees that it will
provide to the observer, who will be an agreed party to
represent the interest of Lender, all financial data
and information reasonably sought by such observer and
further covenants and agrees that information shall be
prepared in accordance with accepted accounting
standards consistent with FASBE regulations and shall
no less frequently than quarterly provide a statement
of operations of the business of APA OPTICS, INC. at
both its Blaine, Minnesota and Aberdeen, South Dakota
operations.
H. Borrower covenants that so long as this agreement is
outstanding or any debt represented thereby is still
due and owing that it will indemnify and hold harmless
Lender from any cause of action, claim or proceeding
brought by any person, partnership, corporation or any
entity whatsoever against Lender for any claim or
demand arising out of the operation of APA OPTICS,
INC., Blaine, Minnesota or Aberdeen, South Dakota, and
further agrees to provide defense costs, including
reasonable attorney's fees to Lender, by reason of it
being involved in such litigation.
I. In addition to this agreement Borrower covenants and
agrees to execute appropriate security agreements
covering only its equipment in the Blaine, Minnesota
plant and its personal property in the ultimate
Aberdeen, South Dakota facility, provided, however,
that when Borrower's obligation to Lender for this
Agreement, and for any and all other financial
agreements cumulatively, has an unpaid balance of [not
more than] $250,000.00 plus the remaining balance on
the $250,000.00 note from the Borrower to the Lender
dated as of the date hereof, then Lender covenants and
agrees to satisfy and cancel the security agreements
then in place and outstanding.
J. Borrower covenants and agrees that it will pay all
costs, expenses and fees in connection with this and
other loan agreements as relates to the Aberdeen, South
Dakota project, which includes but is not necessary
limited to recording fees, filing fees or other costs
incurred by any public entity by reason of
acknowledgment of any documentation or records
supporting this loan environment.
K. Borrower covenants and agrees that in the event of
default of any of the warranties, representatives,
conditions or covenants of Borrower that Lender at its
sole option and discretion shall have the right to
determine whether or not such default shall constitute
significant default for the purpose of declaring the
full sum due under this agreement immediately due and
payable or whether to allow or permit Borrower to
correct such default. Such action on the part of
Borrower in any case shall be no later than 30 days
from the date of the occurrence of such default.
5. This agreement shall be governed by the laws of the
state of South Dakota regardless of the residence, personal or
corporate, of any of the parties to this agreement.
6. This agreement may be executed in original and in one
or more counterparts but shall constitute one and in the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be executed the day and year first above written.
ABERDEEN DEVELOPMENT CORPORATION
ATTEST By: /s/ Rodney Fouberg
:
Its President
/s/ James C. Barringer
Its Executive Vice LENDER
President
WITNESS:
/s/ Cheryl A. Olson
APA OPTICS, INC.
ATTEST By: /s/ Anil K. Jain
:
Dr. Anil Jain
/s/ Kenneth A. Olsen Its President
Its Vice President
BORROWER
WITNESS:
/S/ Randal J. Becker
Prepared by:
MALONEY & MALONEY
PO Box 755
Aberdeen, SD 57402-0755
605/229-2752
50425/12wp01!.doc 85
Exhibit 4.3(a)
Execution Copy
_________________________________________________________________
LOAN AGREEMENT
between
SOUTH DAKOTA ECONOMIC DEVELOPMENT FINANCE AUTHORITY
and
APA OPTICS, INC.
________________________
Dated as of June 1, 1996
________________________
Relating to Pooled Loan Program
South Dakota Economic Development Finance Authority
_________________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND RULES OF INTERPRETATION
Section 1.1. Definitions2
Section 1.2. Rules of Interpretation12
Section 1.3. Appendix and Exhibits13
ARTICLE II
REPRESENTATIONS AND COVENANTS
Section 2.1. Representations and Covenants of the Authority13
Section 2.2. Representations and Covenants of the Borrower14
Section 2.3. Covenant with Bondowners19
Section 2.4. Capital Reserve Fund Right of Reimbursement19
Section 2.5. Authority Right of Reimbursement19
ARTICLE III
AGREEMENT TO ISSUE SERIES BONDS AND TO LOAN PROCEEDS
THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT
Section 3.1. Issuance of Series Bonds; Deposit of Bond Proceeds19
Section 3.2. Agreement To Make Loan20
Section 3.3. Borrower's Contribution to Costs of the Project20
ARTICLE IV
DEVELOPMENT OF THE PROJECT;
APPLICATION OF MONEYS IN LOAN ACCOUNT
Section 4.1. Prior Acquisition of Land21
Section 4.2.Acquisition, and Installation of the Facilities; Deposit to
Loan Account 21
Section 4.3. Application of Moneys in Loan Account22
Section 4.4.Certificates of Substantial Completion and Completion25
Section 4.5. Completion by Borrower25
Section 4.6. Title Insurance and Survey26
Section 4.7.Remedies To Be Pursued Against Contractors and their
Sureties 26
ARTICLE V
REPAYMENT PROVISIONS; SECURITY CLAUSES
Section 5.1. Repayment of Loan26
Section 5.2. Other Amounts Payable28
Section 5.3. Obligations of Borrower Unconditional29
Section 5.4. Security Clauses29
Section 5.5.Investment of Funds and Accounts; Consent to Election32
ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1.Maintenance and Modifications of Collateral by Borrower 32
Section 6.2. Installation of Additional Personalty33
Section 6.3. Taxes, Assessments and Utility Charges33
Section 6.4. Insurance Required34
Section 6.5. Additional Provisions Respecting Insurance34
Section 6.6. Application of Net Proceeds of Insurance35
Section 6.7.Right of Authority To Pay Taxes, Premiums and Other Charges
35
Section 6.8. Environmental Matters35
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. Damage or Destruction37
Section 7.2. Condemnation40
Section 7.3.Condemnation of Borrower-Owned Property Other Than Collateral 41
ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. Qualification in the State41
Section 8.2. Hold Harmless Provisions41
Section 8.3.Borrower To Maintain its Existence; Under Which Exceptions
Permitted 42
Section 8.4. Agreement To Provide Information43
Section 8.5. Books of Record and Account; Financial Statements43
Section 8.6.Borrower To File Statements with Internal Revenue Service 44
Section 8.7. Assurance as to Tax Exemption44
Section 8.8. Certificate of No Default45
Section 8.9. Notice of Default45
Section 8.10. Assignment and Leasing45
Section 8.11. Right To Inspect the Facilities and Collateral46
Section 8.12. Compliance with Orders, Ordinances, etc.46
Section 8.13. Liens and Encumbrances47
Section 8.14. Identification of Equipment47
Section 8.15. Relocation of Equipment48
Section 8.16. Depreciation Deductions48
Section 8.17. Mortgage Covenants48
Section 8.18. Covenant Against Discrimination48
Section 8.19. Employment Records48
Section 8.20. Certain Financial Covenants48
Section 8.21. Covenants Against Loans, Dividends, etc.51
Section 8.22. Covenant Against Unreasonable Compensation51
Section 8.23. Restrictions on Sale or Assignment51
ARTICLE IX
PLEDGE OF CERTAIN INTERESTS
Section 9.1. Pledge of Certain Interests to Bondowners52
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default Defined52
Section 10.2. Remedies on Event of Default54
Section 10.3. Remedies Cumulative55
Section 10.4. Agreement To Pay Attorneys' Fees and Expenses55
Section 10.5. No Additional Waiver Implied by One Waiver55
ARTICLE XI
EARLY TERMINATION OF AGREEMENT; PREPAYMENT OF LOAN
Section 11.1. Early Termination of Agreement55
Section 11.2. Conditions to Early Termination of Agreement56
Section 11.3. Discharge of Lien57
Section 11.4. Prepayment of Loan in Part57
Section 11.5. Consent to Refunding57
ARTICLE XII
MISCELLANEOUS
Section 12.1. Notices58
Section 12.2. Binding Effect58
Section 12.3. Severability58
Section 12.4. Amendments, Changes and Modifications58
Section 12.5. Privacy Disclosure59
Section 12.6. Execution Counterparts59
Section 12.7. Applicable Law59
Section 12.8. Recording and Filing59
Section 12.9. Survival of Obligations59
Section 12.10.Table of Contents and Section Headings Not Material60
Section 12.11. Limited Liability60
SIGNATURES
APPENDIX IForm of Note 62
EXHIBIT A Description of the Land Error!
EXHIBIT B Description of Equipment 1
EXHIBIT C Investment Instructions 1
THIS LOAN AGREEMENT, dated as of June 1, 1996 (the
"Agreement"), is by and between the South Dakota Economic
Development Finance Authority, a body corporate and politic
authorized to act on behalf of the State of South Dakota
(together with any legal successor thereto, herein referred to as
the "Authority"), and APA Optics, Inc., a corporation duly
organized and existing under the laws of the State of Minnesota
having its principal place of business in Blaine, Minnesota, and
authorized to do business in the State of South Dakota (the
"Borrower").
W I T N E S S E T H:
WHEREAS, the Authority was created by South Dakota Codified
Laws, Chapter 1-16B, as amended (the "Act"), to act on behalf of
the State of South Dakota (the "State") within the scope of
powers granted to it in the Act to make loans to enterprises to
finance economic development projects as provided in the Act; and
WHEREAS, to provide the funds to make the loans under the
Act, the Authority has established its South Dakota Economic
Development Loan Program (the "Program"); and
WHEREAS, in accordance with the Program, the Board of
Directors of the Authority on September 11, 1990, adopted its
Economic Development Revenue Bond First Amended and Restated
General Bond Resolution (Pooled Loan Program), as heretofore or
hereafter supplemented and amended from time to time (the
"General Bond Resolution"), pursuant to which General Bond
Resolution (and resolutions to be adopted from time to time by
the Authority as supplemental resolutions thereto), the Authority
has issued and intends to issue its revenue bonds in series from
time to time (the "Bonds"), and to loan the proceeds thereof to
"enterprises" to finance "economic development projects" with the
meaning of the Act, for use by them in connection with their
business operations; and
WHEREAS, the Bonds of each such series, as provided in the
General Bond Resolution, are special obligations of the
Authority, the principal of, premium, if any, and interest on
which are payable solely from and secured solely by the revenues,
funds and other property or assets of the Authority described in
the General Bond Resolution (and the supplemental resolutions)
and pledged thereto; and
WHEREAS, it is the further purpose of the Authority with
respect to its Program to provide additional financial assistance
to the enterprises participating therein by creating an account
within the State Treasury to be known as the "Capital Reserve
Fund," transferring certain moneys from the State Treasury and
from other sources to the Capital Reserve Fund and pledging and
allocating the moneys on deposit in the Capital Reserve Fund to
guarantee debt service payments and certain mandatory prepayments
payable on or with respect to the Bonds; and
WHEREAS, pursuant to a resolution adopted by the Board of
Directors of the Authority on December 18, 1986 (the "Capital
Reserve Fund Resolution"), the Authority created and established
the Capital Reserve Fund as an account within the State Treasury
and pursuant to a Capital Reserve Fund Pledge and Escrow
Agreement, dated as of December 18, 1986 (the "Capital Reserve
Fund Pledge and Escrow Agreement"), by and between the Authority
and The First National Bank in Sioux Falls, as escrow agent
(together with its successors, the "Escrow Agent"), the Authority
provided for the holding, investment, application, disposition of
and use of moneys in the Capital Reserve Fund and various other
matters related thereto; and
WHEREAS, the Borrower has applied to the Authority for
assistance under the Program in connection with the financing of
a project to consist of the construction and equipping on
approximately 12 acres of land of an approximately 24,000 square
foot manufacturing facility in Aberdeen, South Dakota (the
"Project"); and
WHEREAS, by a resolution adopted by the Board of Directors
of the Authority on August 21, 1995, the Authority has found that
the Borrower is an "enterprise" under the Act and that the
Project qualifies for a loan under the Act and has determined to
provide such loan by the inclusion of the Project in the Program;
and
WHEREAS, to implement this determination the Authority
proposes (i) to issue a series of Bonds under the General Bond
Resolution and its Series Supplemental Resolution and (ii) to
loan the proceeds of the sale of said Bonds to the Borrower to
finance a portion of the cost of the Project, upon the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenants hereinafter contained, the parties hereto
hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS AND RULES OF INTERPRETATION
Section 1.1. Definitions. The following terms as used in
the Loan Agreement shall have the following meanings unless the
context hereof otherwise requires:
"Accountant" means a firm of independent public accountants
of recognized standing, selected by the Borrower and acceptable
to the Authority.
"Act" means South Dakota Codified Laws, Chapter 1-16B, as
now in effect and as it may from time to time be amended and
supplemented, together with the rules promulgated by the
Authority from time to time thereunder.
"Agreement" means this Loan Agreement, as it may be amended
or supplemented from time to time.
"Appraised Value" means the value established by an
independent appraiser acceptable to the Authority.
"Authority" means the South Dakota Economic Development
Finance Authority, or any successor to its powers and authority
under the Act.
"Authority Resolution" means the General Bond Resolution and
the Series Supplemental Resolution.
"Authorized Representative" means, in the case of the
Authority, the Chairman, the Vice Chairman or the Executive
Director of the Authority; in the case of the Borrower, its
President or any Vice President; and, in the case of both, such
additional persons as, at the time, are designated to act in
behalf of the Authority or the Borrower, as the case may be, by
written certificate furnished to the Trustee and the Authority or
the Borrower, as the case may be, containing the specimen
signature of each such person and signed on behalf of (i) the
Authority by the Chairman, the Vice Chairman or the Secretary of
the Authority, and (ii) the Borrower by the President or any Vice
President of the Borrower.
"Board" means the Board of Directors of the Authority or any
successor governing body of the Authority.
"Bonds" means any of the Authority's Economic Development
Revenue Bonds (Pooled Loan Program) issued from time to time
under the General Bond Resolution and then Outstanding.
"Bond Counsel" means Counsel who is nationally recognized as
experienced in matters relating to the exemption from federal
income taxation of interest payable on obligations of states and
their political subdivisions, and who is selected by the
Authority and acceptable to the Trustee.
"Bond Proceeds" means the amount, including accrued
interest, if any, received by the Authority as the purchase price
of the Series Bonds, and deposited by the Trustee in accordance
with the provisions of the Authority Resolution into certain
funds and accounts created thereunder, and investment income
thereon.
"Bond Rate" means, as of the date of calculation and with
respect to any period, the weighted average rate of interest
payable on the Outstanding Series Bonds in accordance with their
terms, determined as of such date with respect to such period
(including any fluctuations of rate, if any).
"Bond Year" means, for the Series Bonds, the 12-month period
beginning on April 2 of any year and ending on April 1 of the
succeeding year; provided, however, that the initial Bond Year
shall begin on the date in which such Bonds are issued and end on
the next succeeding April 1.
"Bondowner" or "Owner" or similar term, when used with
respect to a Bond, means the Person in whose name such Bond is
registered in the Bond Register.
"Borrower" means (i) APA Optics, Inc., a corporation duly
organized and existing under the laws of the State of Minnesota,
and its successors and assigns, or (ii) any surviving, resulting
or transferee Person as provided in Section 8.3 hereof.
"Buildings" means all those buildings, improvements,
structures or renovations to existing buildings, improvements or
structures and other related facilities (i) affixed or attached,
or to be affixed or attached, to the Land, (ii) financed with the
proceeds of the Series Bonds or of any payment by the Borrower
pursuant to Section 3.3 or Section 4.5 hereof, and (iii) not part
of the Equipment, as such may exist from time to time.
"Capital Reserve Fund" means that fund in the State Treasury
that has been created in accordance with the Act and the Capital
Reserve Fund Resolution and is held by the Escrow Agent pursuant
to the Pledge and Escrow Agreement.
"Capital Reserve Fund Payments" means any payments made by
the Escrow Agent to the Trustee for deposit into Holding Account
and the Special Redemption Account pursuant to Section 7 of the
Pledge and Escrow Agreement.
"Capital Reserve Fund Reimbursement Amount" means, as of the
date of calculation and with respect to the Series Bonds, an
amount equal to the aggregate of all Capital Reserve Fund
Payments made with respect to such Series Bonds, less those sums
that have been applied to reimburse the Capital Reserve Fund for
such Capital Reserve Fund Payments, plus, unless waived by the
Authority in any given case, interest accruing on the amount of
such unpaid Capital Reserve Fund Payments at the Bond Rate.
"Capital Reserve Fund Resolution" means the resolution
adopted by the Board on December 18, 1986, pursuant to which the
Authority created the Capital Reserve Fund.
"Capitalized Interest Account" means the Account so
designated which is created and established by Section 3.01(k) of
the Series Supplemental Resolution pursuant to the General Bond
Resolution.
"Capitalized Lease Obligations" means all lease obligations
which have been or should be, in accordance with generally
accepted accounting principles, capitalized on the books of the
lessee.
"Closing Date" means the date of issuance and delivery of
the Series Bonds.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the Treasury Regulations promulgated
thereunder.
"Collateral" means all Property subject to any mortgage or
security interest described in Section 5.4 of this Agreement.
"Completion Date" means the date of completion of the
Project, as certified pursuant to Section 4.4(b) hereof.
"Condemnation" means the taking of title to, or the use of,
Property under the exercise of the power of eminent domain by any
governmental entity or other Person acting under governmental
authority.
"Construction Period" means, with respect to the Project,
the period (a) beginning on the earlier of (i) the date of
commencement of the Project, or (ii) the Closing Date, and (b)
ending on the Completion Date.
"Costs of Issuance" means all items of expense payable or
reimbursable directly or indirectly by the Authority and related
to the authorization, sale and issuance of the Series Bonds,
which items of expense shall include but not be limited to
printing and photocopying costs, filing and recording fees, title
insurance premiums and fees, initial fees and charges of the
Trustee, initial Capital Reserve Fund Premiums, if any, initial
cost of providing any Credit Enhancement, legal fees and charges,
professional consultants' fees, costs of credit ratings, fees and
charges for execution, transportation and safekeeping of Bonds,
underwriter's discount or placement fees and expenses (including
filing or registration fees under applicable securities laws),
costs and expenses of refunding and other costs, charges and fees
in connection with the original issuance of Bonds.
"Costs of Issuance Account" means the Account so designated
which is created and established by Section 3.01(j) of the Series
Supplemental Resolution pursuant to the General Bond Resolution.
"Cost of the Project" means all those items of cost and
expenses enumerated in Section 4.3(a) hereof.
"Counsel" means an attorney or firm of attorneys duly
admitted to practice law before the highest court of any state of
the United States of America and not a full-time employee of the
Borrower, and who is acceptable to the Authority and the Trustee.
"Current Assets" means, as of the date of determination, the
current assets of the Borrower, in accordance with generally
accepted accounting principles.
"Current Liabilities" means, as of the date of
determination, the current liabilities of the Borrower, in
accordance with generally accepted accounting principles.
"Debt Service Account" means the Account so designated which
is created and established by Section 3.01(l) of the Series
Supplemental Resolution pursuant to the General Bond Resolution.
"Debt Service" means, with respect to any Outstanding Series
Bonds and for any period or on any date, the amount required to
pay the principal of and interest on all such Outstanding Series
Bonds during such period or on such date, assuming that
Outstanding Serial Series Bonds are to be paid at their Stated
Maturities and Outstanding Term Series Bonds are to be paid on
Sinking Fund Payment Dates; provided, however, that if the
maturity of the Series Bonds has been accelerated, "Debt Service"
shall include the principal amount of the Outstanding Series
Bonds and interest accrued thereon to the date of calculation.
"Debt Service Payment" means, with respect to any Interest
Payment Date, the interest payable on the Series Bonds on such
Interest Payment Date, plus (ii) the principal, if any, payable
on the Series Bonds on such Interest Payment Date, plus (iii) the
premium, if any, payable on the Series Bonds on such Interest
Payment Date.
"Determination of Taxability" means the issuance of a
statutory notice of deficiency by the Internal Revenue Service, a
ruling by the National Office of the Internal Revenue Service, or
a final decision of a court of competent jurisdiction that holds
in effect or a change in any law or regulation that has the
effect that the interest payable on the Series Bonds is
includible in the gross income of the Owner for federal income
tax purposes (other than an Owner who is a Substantial User of
the Facilities or a related person thereto within the meaning of
Section 147(a) of the Code), if the period, if any, for contest
or appeal of such action, ruling or decision by the Borrower or
the Owners has expired without such contest or appeal having been
properly initiated by the Borrower or the Owners, or the receipt
by the Trustee of an opinion of Bond Counsel which states in
effect that the interest payable on the Series Bonds is
includible in the gross income of the Owners for federal income
tax purposes (other than an Owner who is a Substantial User of
the Facilities or a related person thereto); provided, however,
that a Determination of Taxability shall not be deemed to arise
solely as a result of interest on the Series Bonds being included
as a measure of an alternative minimum tax imposed on an Owner
under the Code; and provided, further, that neither the Borrower
nor any Bondowner is under any obligation to contest or appeal
any action, ruling or decision that may result in a Determination
of Taxability.
"Equipment" means all machinery, equipment, furniture and
other personal property which is acquired, in whole or in part,
with the proceeds of the Series Bonds (which property is
described generally in Exhibit B annexed to this Agreement),
exclusive of items constituting Fixtures under the Mortgage,
whether or not located on or in the Land, and any such items
acquired in replacement thereof or in substitution therefor, as
such may exist from time to time in accordance with the
provisions of this Agreement.
"Escrow Agent" means The First National Bank in Sioux Falls,
of Sioux Falls, South Dakota, or any successor escrow agent under
the Pledge and Escrow Agreement.
"Facilities" means the Land, the Buildings and the Equipment
to be acquired, constructed and installed by the Borrower with
the Bond Proceeds or any payment by the Borrower pursuant to
Section 4.5 hereof, with such additions thereto and substitutions
therefor as may exist from time to time in accordance with the
provisions of this Agreement.
"Funded Indebtedness" means, for any Person, all
Indebtedness which matures by its terms more than one year from
the date as of which any calculation of Funded Indebtedness is
made, and any Indebtedness maturing within one year from such
date which is renewable or extendible at the option of the debtor
to a date beyond one year from such date, including any
Indebtedness renewable or extendible (whether or not heretofore
renewed or extended) under, or payable from the proceeds of other
Indebtedness which may be incurred pursuant to the provisions of,
any revolving credit agreement or other similar agreement.
"General Bond Resolution" means the Economic Development
Revenue Bonds (Pooled Loan Program) First Amended and Restated
General Bond Resolution adopted by the Board on September 11,
1990, as the same has been or hereafter may be amended or
supplemented from time to time by any supplemental resolution
thereunder.
"Holding Account" means the Account so designated which is
created and established by Section 3.01(c) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"Indebtedness" means, for any Person, (i) all indebtedness
or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services (but not
including accounts payable not yet delinquent) (ii) all
indebtedness or other obligations of any other Person for
borrowed money or for the deferred purchase price of property or
services the payment or collection of which such Person has
guaranteed (except by reason of endorsement for collection in the
ordinary course of business) or in respect of which such Person
is liable, contingently or otherwise, including, without
limitation, liable by way of agreement to purchase, to provide
funds for payment, to supply funds to or otherwise to invest in
such other Persons, or otherwise to assure a creditor against
loss, (iii) all indebtedness or other obligations of any other
Person for borrowed money or for the deferred purchase price of
property or services secured by (or for which the holder of such
indebtedness has an existing right, contingent or otherwise, to
be secured by) any mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance upon or in
property (including, without limitation, accounts and contract
rights) owned by such Person, whether or not such indebtedness or
obligations and (iv) Capitalized Lease Obligations of such
Person.
"Indemnified Parties" means the Authority and its directors,
officers, employees and agents.
"Independent" when used with respect to any specified Person
means such a Person who (i) is in fact independent; (ii) does not
have any direct financial interest or any material indirect
financial interest in the Borrower, other than the payment to be
received under a contract for services to be performed by such
Person; and (iii) is not connected with the Authority, the
Borrower as an official, officer, employee, promoter,
underwriter, trustee, partner, affiliate, subsidiary, director or
person performing similar functions. Whenever it is herein
provided that any Independent Person's opinion or certificate
shall be furnished to the Trustee, such Person shall be appointed
by the Authority, the Borrower or the Trustee, as the case may
be, and such opinion or certificate shall state that the signer
thereof has read this definition and that such signer is
Independent within the meaning hereof.
"Interest Payment Date" means each April 1 and October 1 so
long as any Series Bonds are Outstanding, commencing October 1,
1996.
"Investment Instructions" means the Investment Instructions,
in substantially the form set forth as Exhibit C hereto, which
are to be delivered by the Authority and the Borrower to the
Trustee, and any amendment thereof or supplement thereto.
"Land" means the real estate described in Exhibit A hereto
on which is located or is to be located the Buildings and the
Equipment, with such additions thereto and substitutions therefor
as may exist from time to time in accordance with the provisions
of this Agreement.
"Lien" means any interest in Property securing an obligation
owed to a Person, whether such interest is based on the common
law, statute or contract, and including but not limited to the
security interest arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a Uniform Commercial Code
security interest, lease, consignment or bailment for security
purposes. The term "Lien" includes reservations, exceptions and
encroachments, easements, rights of way, covenants, conditions,
restrictions, leases and other similar title exceptions and
encumbrances, including but not limited to mechanics',
materialmen's, warehousemen's, carriers' liens and other similar
encumbrances, affecting real property. For the purposes of this
Agreement, a Person shall be deemed to be the owner of any
Property which it has acquired or holds title subject to a
conditional sale agreement or other arrangement pursuant to which
title to the Property has been retained by or vested in some
other Person for security purposes.
"Loan" means the loan made by the Authority to the Borrower
pursuant to Section 3.2 of this Agreement and as evidenced by the
Note.
"Loan Account" means the Account so designated which is
created and established by Section 3.01(a) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"Loan Reserve Account" means the Account so designated which
is created and established by Section 3.01(d) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"Loan Reserve Account Requirement" means, as of the date of
calculation, with respect to the Series Bonds, the maximum amount
of principal and interest payable on the then Outstanding Series
Bonds in any Bond Year, assuming that Series Bonds subject to
mandatory sinking fund redemption are to be redeemed on such
mandatory sinking fund redemption dates (initially, $178,000).
"Loan Term" means the period commencing with the Closing
Date and continuing until all the Series Bonds and interest
thereon have been paid in full or provision for such payment has
been made pursuant to Article XI of the General Bond Resolution
and all obligations hereunder have been satisfied.
"Mortgage" means that Mortgage and Security Agreement_One
Hundred Eighty Day Redemption, dated as of the date of this
Agreement, from the Borrower, as mortgagor, to the Authority, as
mortgagee, with respect to the Land, as such may be amended or
supplemented from time to time.
"Municipality" means the City of Aberdeen, South Dakota,
within the corporate borders of which the Land is located.
"Net Proceeds" means so much of the gross proceeds with
respect to which that term is used as remain after payment of all
expenses, costs and taxes (including attorneys' fees) incurred in
obtaining such gross proceeds.
"Net Worth" means, at any date, the Tangible Assets of a
Person which would be shown, in accordance with generally
accepted accounting principles, on its balance sheet, minus
liabilities (other than capital stock and surplus or its
equivalent but including all reserves for contingencies and other
potential liabilities) which would be shown, in accordance with
generally accepted accounting principles, on such balance sheet.
"Note" means the promissory note of the Borrower dated as of
the date of the Series Bonds, evidencing the Borrower's
obligations pursuant to this Agreement, substantially in the form
of Appendix I hereto.
"Official Action Resolution" means that resolution adopted
by the Board on August 21, 1995, with respect to the Borrower and
the Project.
"Optional Redemption Account" means the Account so
designated which is created and established by Section 3.01(f) of
the Series Supplemental Resolution, pursuant to the General Bond
Resolution.
"Permitted Encumbrances" means (i) Liens described in
Exhibit A hereto, (ii) this Agreement, the Mortgage, the
Authority Resolution and any security interest created
thereunder, (iii) utility, access and other easements and rights
of way, restrictions and exceptions that, in the opinion of the
Authority, do not materially impair the utility or the value of
the Property affected thereby for the purposes for which it is
intended; (iv) mechanics, materialmen's, warehousemen's,
carriers' and other similar Liens and any other Liens to the
extent permitted by Section 8.13 hereof, (v) Liens for taxes or
assessments at the time not delinquent; (vi) any lease, sublease,
assignment or reassignment entered into in conformity with
Section 8.10 of this Agreement, (vii) the security interests in
the Equipment to be granted to the Aberdeen Development
Corporation securing indebtedness not exceeding $1,250,000 if
they are subordinated to the security interest of the Loan
Agreement; and (viii) the security interests in the Equipment to
be granted to the NECOG Development Corporation securing
indebtedness not exceeding $150,000 if they are subordinated to
the security interest of the Loan Agreement.
"Person" means an individual, partnership, corporation,
limited liability company, limited liability partnership, joint
venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Plans and Specifications" means the plans and
specifications for the Project, including a schedule detailing
the components of the Project and their respective costs or
proposed costs, filed by the Borrower with the Trustee, as the
same may be implemented and detailed from time to time and as the
same may be revised from time to time in accordance with Section
4.2(b) of this Agreement. The Plans and Specifications shall
include a list of all the Equipment that the Borrower will
acquire with respect to the Project.
"Pledge" means the pledge by the Authority of the rights and
interest of the Authority in and to this Agreement and the
Mortgage, including all rights to receive payment thereunder,
such pledge by the Authority being made pursuant to Section 1.04
of the General Bond Resolution and Article V of the Series
Supplemental Resolution to the Bondowners for the payment of the
principal of, premium, if any, and interest on the Bonds in
accordance with their terms.
"Pledge and Escrow Agreement" means that Capital Reserve
Fund Pledge and Escrow Agreement, dated as of December 18, 1986,
between the Authority and the Escrow Agent, as such may be
amended or supplemented in accordance with its terms.
"Principal User" means any Person constituting a "principal
user" within the meaning of Section 103 of the Code.
"Program" means the Authority's South Dakota Economic
Development Pooled Loan Program implemented under the Act and the
General Bond Resolution.
"Program Accountant" means a firm of independent public
accountants or financial consultants appointed by the Board to
calculate or verify financial matters relating to the Program,
including the calculation of the amount to be rebated to the
United States pursuant to Section 148(f) of the Code and other
calculations required by the Investment Instructions, or any
successor accountant or financial consultant appointed by the
Board to perform the same functions.
"Program Expenses" means the expenses of the Program,
including (without limitation) the fees and expenses of the
Trustee and of the Program Accountant and such other fees and
expenses of the Program or of the Authority relating thereto as
shall be approved by the Authority.
"Program Expense Fund" means the Fund so designated, which
is created and established by Section 5.01 of the General Bond
Resolution.
"Program Payments" means a payment by the Borrower with
respect to Program Expenses.
"Project" means the construction of the Buildings and the
acquisition and installation of the Equipment.
"Project Supervisor" means AMCON Corp., of Burnsville,
Minnesota, or any title insurance company licensed to operate in
the State and with offices located in the State or any architect
or engineer or firm of architects or engineers licensed to
practice in the State and with offices in the State, or any
combination thereof, which is appointed by the Authority and
satisfactory to the Trustee.
"Property" means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or
intangible.
"Rebate Account" means the Account so designated which is
created and established by Section 3.01(h) of the Series
Supplemental Resolution, pursuant to the Series Supplemental
Resolution.
"Reconstruction Account" means the Account so designated
which is created and established by Section 3.01(i) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"Redemption Price" means, when used with respect to the
Series Bonds, the principal amount of such Bonds or portions
thereof plus the applicable premium, if any, payable upon the
redemption thereof pursuant to the Series Supplemental
Resolution.
"Reimbursement Account" means the Account so designated
which is created by Section 3.01(g) of the Series Supplemental
Resolution, pursuant to the General Bond Resolution.
"Related Person" means any Person constituting a "related
person" within the meaning of Section 144(a)(3) of the Code.
"Revenue Account" means the Account so designated which is
created and established by Section 3.01(b) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"Series Bonds" means the Authority's Economic Development
Revenue Bonds (Pooled Loan Program) (APA Optics, Inc. Project),
Series 1996A, in the aggregate principal amount of $1,895,000,
authorized to be issued by the Series Supplemental Resolution.
"Series Supplemental Resolution" means the resolution
adopted by the Board on June 13, 1996, authorizing the issuance
of the Series Bonds, as the same may be amended or supplemented
from time to time in accordance with its terms.
"Sinking Fund Payment" means, with respect to any Term
Series Bonds, the amount required to redeem such Series Bonds on
a Sinking Fund Payment Date.
"Sinking Fund Payment Date" means one of the dates set forth
in the Series Supplemental Resolution for the making of mandatory
principal payments on Term Series Bonds.
"Special Redemption Account" means the Account so designated
which is created and established by Section 3.01(e) of the Series
Supplemental Resolution, pursuant to the General Bond Resolution.
"State" means the State of South Dakota.
"Stated Maturity" when used with respect to any Series Bond
or any installment of interest thereon means the date specified
in such Series Bond as the fixed date on which principal of such
Bond or such installment of interest is due and payable.
"Substantial User" means any Person constituting a
"substantial user" within the meaning of Section 147(a) of the
Code.
"Tangible Assets" means total assets except: (i) that
portion of deferred assets and prepaid expenses (other than
prepaid insurance, prepaid rent and prepaid taxes) which do not
mature, or in accordance with generally accepted accounting
principles, are not amortizable within one year from the date of
calculation, and (ii) trademarks, trade names, good will, and
other similar intangibles.
"Term Series Bond" means any Series Bond for the payment of
the principal of which mandatory payments are required by the
Series Supplemental Resolution to be made at times and in amounts
sufficient to redeem all or a portion of such Series Bond prior
to its Stated Maturity.
"Trustee" means The First National Bank in Sioux Falls, of
Sioux Falls, South Dakota, or any successor trustee appointed
pursuant to the General Bond Resolution.
"Voting Stock" means securities of any class or classes of
a corporation the holders of which are ordinarily, in the absence
of contingencies, entitled to elect a majority of the corporate
directors (or Persons performing similar functions).
Section 1.2. Rules of Interpretation.
(a) This instrument shall be interpreted in accordance with
and governed by the laws of the State.
(b) The words "herein" and "hereof" and words of similar
import, without reference to any particular section or
subdivision, refer to this Agreement as a whole rather than to
any particular section or subdivision hereof.
(c) Reference in this instrument to any particular section
or subdivision hereof are to the section or subdivision of this
instrument as originally executed.
(d) Any terms not defined herein but defined in the
Authority Resolution shall have the same meaning herein unless
the context hereof clearly requires otherwise.
(e) The headings of sections herein are for convenience
only and are not a part of this instrument.
(f) Unless the context hereof clearly requires otherwise,
the singular shall include the plural and vice versa, and the
masculine shall include the feminine and vice versa.
(g) "Or" is not exclusive but contemplates or permits one
or more or all of the alternatives conjoined.
(h) Notwithstanding anything contained in this Agreement to
the contrary, nothing herein shall be construed as (i) obligating
the Borrower (A) to make any payments to cure any deficit in any
Account created by the Series Supplemental Resolution (the
"Related Account") resulting from payments (except Program
Payments) made under the General Bond Resolution to the Trustee
or to the owners of any Bonds (except the Series Bonds) or (B) to
pay the principal of or interest on any Series Bonds payable
solely because of the acceleration of Bonds (unless the Loan has
theretofore been accelerated) or (ii) depriving the Borrower of
the right (hereby granted) to be reimbursed or credited for any
sums held in a Related Account that are so paid to the Trustee or
owners of other Bonds as provided in clause (i)(A) above.
Section 1.3. Appendix and Exhibits. Attached to and by
reference made a part of this Agreement are the following
Appendix and Exhibits:
Appendix I: the form of the Note;
Exhibit A: the legal description of the Land; and
Exhibit B: a description of the Equipment; and
Exhibit C: the Investment Instructions.
ARTICLE II
REPRESENTATIONS AND COVENANTS
Section 2.1. Representations and Covenants of the
Authority. The Authority makes the following representations and
covenants as the basis for the undertakings on its part herein
contained:
(a) The Authority is duly established and existing and is
constituted as a body corporate and politic to act on behalf of
the State and created and existing by virtue of the laws of the
State and has the power to enter into the transactions
contemplated by this Agreement and the Mortgage and to adopt the
Authority Resolution, and to carry out its obligations hereunder
and thereunder. The Project is of a nature that qualifies under
the Act for the financial assistance provided by the Program. By
proper official action, the Authority has been duly authorized to
execute and deliver or accept this Agreement, the Note and the
Mortgage and has duly adopted the Authority Resolution.
(b) Neither the execution and delivery or acceptance of
this Agreement, the Note or the Mortgage or the adoption of the
Authority Resolution, the consummation of the transactions
contemplated hereby or thereby nor the fulfillment of or
compliance with the provisions of this Agreement or the Mortgage
and the Authority Resolution will conflict with or result in a
breach of any of the terms, conditions or provisions of the Act,
or any restriction, agreement or instrument to which the
Authority is a party or by which it is bound, or will constitute
a default under any of the foregoing, or will result in the
creation or imposition of any Lien upon any of the Property of
the Authority under the terms of any such instrument or agreement
(other than as contemplated by this Agreement, the Mortgage and
the Authority Resolution).
(c) The Authority will lend to the Borrower the sum of
$1,895,000 pursuant to this Agreement to finance (i) a portion of
the cost of the Project, (ii) a deposit into the Loan Reserve
Account required under the provisions of the General Bond
Resolution and (iii) certain Costs of Issuance with respect to
the issuance of the Series Bonds, all in furtherance of the
purposes of the Act.
(d) To finance a portion of the Project Costs and the other
costs described in subsection (c) of this Section 2.1, the
Authority will issue its Series Bonds which will mature, bear
interest, be redeemable and have the other terms and conditions
as set forth in the Authority Resolution.
Section 2.2. Representations and Covenants of the Borrower.
The Borrower makes the following representations and covenants as
the basis for the undertakings on its part herein contained:
(a) The Borrower is a corporation duly incorporated under
the laws of the State of Minnesota, is in good standing under its
articles of incorporation and the laws of the State of Minnesota
and of the State, is duly authorized to do business in the State
of Minnesota and in the State, has the power to enter into this
Agreement, the Note and the Mortgage and to borrow money pursuant
hereto and by proper corporate action has been duly authorized to
execute and deliver this Agreement, the Note and the Mortgage.
(b) Neither the execution and delivery of this Agreement,
the Note and the Mortgage, the consummation of the transactions
contemplated hereby nor the fulfillment of or compliance with the
provisions of this Agreement, the Note and the Mortgage will
conflict with or result in a breach of any of the terms,
conditions or provisions of any restriction or any agreement or
instrument to which the Borrower is a party or by which it is
bound, or will constitute a default under any of the foregoing,
or result in the creation or imposition of any Lien of any nature
upon any of the Property of the Borrower under the terms of any
such instrument or agreement or violate any provision of the
articles of incorporation or bylaws of the Borrower. No event
has occurred and no condition exists which, with the passage of
time or the giving of notice, would constitute an event of
default under any such agreement or instrument.
(c) So long as any of the Series Bonds shall be
Outstanding, the Borrower will not take any action, or fail to
take any action, or cause, suffer or permit others to take or
fail to take action, which would (i) cause the Project not to
qualify under the Act for the financial assistance provided by
the Program (as such Act is in effect on the Closing Date) or
(ii) adversely affect the tax-exempt status of the interest
payable on any of the Series Bonds then Outstanding.
(d) Neither "construction" nor "acquisition" of the Project
"commenced" prior to August 21, 1995 (the date of adoption of the
Official Action Resolution) within the meanings ascribed to such
terms under Section 144(a) of the Code.
(e) No other bonds, notes or other obligations the interest
on which is, or is claimed to be, exempt from federal income
taxation under Section 103 of the Code are outstanding, the
proceeds of which have been used to finance facilities located,
in whole or in part, in the Municipality, the Principal User of
which is the Borrower, any other Principal User of the Facilities
or one or more Related Persons thereto, except as set forth in
Section 2.2(r).
(f) The Facilities consist, and will at all times consist,
entirely of land or of property which is of a character subject
to the allowance for depreciation provided in the Code.
(g) Substantially all (at least 95%) of the proceeds of the
Series Bonds will be expended on costs of a manufacturing
facility (within the meaning of Section 144(a)(12)(C) of the
Code), properly capitalized or to be capitalized by the Borrower
for federal income tax purposes (or which would be so capitalized
but for (or with) a proper election by the Borrower), incurred
with respect to the acquisition and improvement of land and
acquisition and construction of facilities classified as
depreciable property pursuant to the applicable provisions of the
Code. No part of the Bond Proceeds will be used, directly or
indirectly, to provide working capital or to finance inventory.
(h) No part of the Facilities was "placed in service"
(determined in accordance with the provisions of Section 144(a)
of the Code) more than one year prior to the date of issue of the
Series Bonds.
(i) The Facilities will be located entirely within the
Municipality.
(j) The findings and determinations made by the Authority
in the Official Action Resolution concerning the Borrower and the
Project are true and correct. In particular, the financing of
the Project will not have the effect of a transfer of jobs from
one area of the State to another.
(k) The availability of the financial assistance by the
Authority as provided in this Agreement, in the Authority
Resolution and by the Program has been a substantial inducement
to the Borrower to undertake the Project and to locate the
Project in the State.
(1) No officer or official of the Authority has any
interest (financial, employment or other) in the Borrower or the
transactions contemplated by this Agreement. (m) Any items of
Cost of the Project to be paid to the Borrower or its Related
Persons reflect (i) direct cost of labor, materials or supplies,
or (ii) overhead and profit attributable to the Project in
accordance with generally accepted accounting principles, and not
in excess of the amount that would have been paid to an unrelated
Person.
(n) The Borrower will be the only "principal user" (within
the meaning of Section 144(a) of the Code) of the Facilities.
The Borrower is the only Person in possession or control, by
occupancy, lease, license, contract or otherwise, of any part of
the Facilities.
(o) The Borrower, any other Principal User of the
Facilities and any Related Persons thereto do not operate any
facility in any county or incorporated municipality which shares
a common border with the Municipality, which facility is
contiguous to the Land or which facility constitutes an
"integrated facility" (as defined in Section 144(a) of the Code
and applicable Treasury Regulations) with the Facilities or any
part thereof.
(p) The Facilities as designed will comply in all material
respects with all presently applicable environmental, building,
zoning and subdivision laws, ordinances, rules and regulations.
(q) The Borrower reasonably estimates that the aggregate
Cost of the Project will be at least $2,010,000, plus interest on
the Series Bonds during the Construction Period of the Project
but excluding amounts required to be deposited into the Loan
Reserve Account or the Costs of Issuance Account.
(r) The Borrower and its Related Persons do not presently
intend to enter into any obligations which obligations would be
used to or would tend to secure, in whole or in part, any
"private activity bonds" within the meaning of Section 141(a) of
the Code other than the Series Bonds. In addition, the Borrower
and its Related Persons thereto do not presently intend to own or
occupy, in whole or in part, any facilities which facilities
would be financed, in whole or in part, by outstanding tax-exempt
facility-related bonds" other than the Series Bonds. Neither the
Borrower nor any of its Related Persons has owned or occupied
Property that was financed in whole or in part from proceeds of
tax-exempt facility-related bonds, except for those facilities in
Blaine, Minnesota financed by bonds issued by the City of Blaine,
Minnesota and the Minnesota Agricultural Board.
(s) All Related Persons to the Borrower are set forth
below:
None
(t) The "average maturity" of the Series Bonds is not more
than 12.53 years and 120% of the "average reasonably expected
economic life" of the Facilities is not less than 20.95 years (as
such terms are determined in accordance with Section 147(b) of
the Code, calculating for the average reasonably expected
economic life of the Facilities from the date the Facilities are
expected to be placed in service (July 1, 1998), which date is
later than the Closing Date). Accordingly, 120% of the average
reasonably expected economic life of the Facilities exceeds the
average maturity of the Series Bonds.
(u) No more than 25% of the proceeds of the Series Bonds
shall be used to provide a facility the primary purpose of which
is any of the following: retail food and beverage services,
automobile sales or service, or the provision of recreation or
entertainment. In addition, no portion of the proceeds of the
Series Bonds shall be used to provide any of the following: any
private or commercial golf course, country club, massage parlor,
tennis club, skating facility (including rollerskating,
skateboard and ice skating), racquet sports facility (including
any handball or racquetball court), hot tub facility, or
racetrack, residential rental property, any airplane, skybox or
other private luxury box, any health club facility, or any
facility primarily used for gambling, or any store the principal
business of which is the sale of alcoholic beverages for
consumption off premises. In addition, none of the proceeds of
the Series Bonds will be used for the acquisition of "land"
within the meaning of Section 147(c) of the Code.
(v) There has been no material adverse change in the
condition of the Borrower (financial or otherwise), since the
last annual and interim financial statements and reports
furnished by the Borrower to the Authority in or pursuant to the
Borrower's application to the Authority for financial assistance
and the information contained in said statements fairly presents
the financial condition of the Borrower as of the dates of such
financial statements and reports.
(w) There is no action or proceeding pending or, to the
best knowledge of the Borrower, threatened against the Borrower,
before any court, administrative agency or arbitration board that
may materially adversely affect the properties, business,
prospects, profits or condition (financial or otherwise) of the
Borrower or the ability of the Borrower to perform its
obligations under this Agreement or the Note or which, if
determined adversely to the Borrower, would result in a
determination that the Borrower violated environmental laws,
rules or administrative orders.
(x) The Borrower has all requisite power and authority and
all necessary authorizations, licenses and permits, without
unusual restrictions or limitations, to own and operate its
Property and to carry on its business as now conducted, and is
duly qualified, is authorized to do business, and is in good
standing in each jurisdiction where the character of its Property
or the nature of its activities makes such qualification
necessary.
(y) The Borrower has no contingent liabilities other than
those disclosed in the financial statements described in Section
2.2(v) hereof.
(z) No event of default has occurred in any agreement as to
any outstanding indebtedness of the Borrower for money borrowed
and no condition, event or act exists which, with the giving of
notice or the lapse of time, or both, would constitute such an
event of default under any such agreement.
(aa) The Facilities have not been and are not presently
expected to be sold or otherwise disposed of by the Borrower
during the term of the Series Bonds. The Facilities are being
held by the Borrower for use in the Borrower's trade or business
or for the production of income, within the meaning of Section
167 of the Code, and not for the purpose of resale.
(bb) No proceeds of the Series Bonds will be used for the
acquisition of any property (or an interest therein) unless the
first use of such property is pursuant to such acquisition.
(cc) Neither the Borrower, any other Principal User of the
Facilities during the three-year period beginning on the Closing
Date, nor any "related person" within the meaning of Section
144(a)(3) of the Code to the Borrower or any other Principal User
of the Facilities during the three-year period beginning on the
Closing Date, will have allocated to them (all within the meaning
of Section 144(a)(10) of the Code), as an owner or user of
facilities financed from the proceeds of tax-exempt facility-
related bonds outstanding on the Closing Date, including the
Series Bonds, in an aggregate authorized face amount in excess of
$40,000,000.
(dd) The Facilities will not share any common facilities,
including heating, cooling, parking, elevator and stairway
facilities, with any other structure or facility.
(ee) The Borrower will not permit any Person to become a
"principal user" of the Facilities if as a result the limitations
applicable under Section 144(a)(1) or 144(a)(10) of the Code
would be violated and result in a loss of the exemption from
federal income taxation of interest on the Series Bonds.
(ff) The Borrower agrees not to lease, sell, assign, grant
or convey all or any portion of the Facilities or any interest
therein to the United States or any agency or instrumentality
thereof within the meaning of Section 149(b) of the Code if the
result thereof would be to cause the interest on the Series Bonds
to become includable in gross income for purposes of federal
income taxation.
(gg)(1) The Borrower covenants not to invest, or cause to
be invested, any "gross proceeds" of the Series Bonds (as defined
in Section 148(f)(6)(B) of the Code and the regulations
promulgated thereunder) if such investment would cause the
interest to be paid to the Owner of any Series Bond to become
includable in gross income of the recipient thereof for federal
income tax purposes.
(2) The Borrower shall cause to be made the calculation(s)
required by the Investment Instructions and shall provide to the
Authority and the Trustee such calculations with a letter from
the Program Accountant verifying the accuracy of such
calculations. The Authority shall direct the Trustee to make
deposits to and disbursements from the Rebate Account in
accordance with the Investment Instructions and to invest the
Rebate Account pursuant to said Investment Instructions and
direction from the Authority and direct the Trustee to deposit
income from such investments immediately upon receipt thereof in
the Rebate Account.
(3) The Authority may deliver to the Borrower and the
Trustee Investment Instructions that supersede or amend the
extant Investment Instructions, if the new Investment
Instructions are accompanied by an opinion of Bond Counsel
addressed to the Authority and the Trustee to the effect that the
use of said new Investment Instructions will not cause the
interest on the Series Bonds to become includable in gross income
for purposes of federal income taxation (other than to an Owner
which is a substantial user of the Facilities or a related person
thereto).
(4) The Borrower shall cause to be made the computation of
the Rebatable Arbitrage as of April 1 of each year described in
Section V of the Investment Instructions. If a deposit to the
Rebate Account is required as a result of such computation, the
Borrower shall notify the Authority and the Trustee by May 1 of
each year that a payment is required and make such deposit.
Records of the determinations required by this paragraph and
Section V of the Investment Instructions must be retained by the
Borrower and the Trustee until six years after the Series Bonds
are no longer outstanding.
(5) Not later than 30 days after the end of the fifth bond
year (30 days after April 1, 2000) and every five years
thereafter, the Borrower shall direct the Trustee to pay to the
United States at least ninety percent (90%) of the Rebate Amount
from the amount on deposit in the Rebate Account as of such
payment date as provided in the Authority Resolution. Not later
than 30 days after the final retirement of the Series Bonds, the
Borrower shall direct the Trustee to pay to the United States one
hundred percent (100%) of the Rebate Amount from the Rebate
Account as provided in the Indenture. Each payment required to
be paid to the United States pursuant to this paragraph (5) shall
be filed with the Internal Revenue Service Center, Philadelphia,
Pennsylvania 19255 or such other address as the Internal Revenue
Service may designate from time to time. The Borrower shall
provide with such direction a copy of Form 8038-T and a statement
summarizing the determination of the amount to be paid to the
United States.
(6) The provisions of this subsection (gg) shall survive,
until the Borrower observes its covenants and agreements under
this Subsection (gg), the retirement and payment of the Series
Bonds and the discharge of the other obligations of the Borrower
hereunder.
(7) Terms used in this Subsection (gg) which are not
defined herein or in Section 1.1 of this Loan Agreement shall
have the meanings set forth in the Investment Instructions.
Section 2.3. Covenant with Bondowners. The Authority and
the Borrower agree that this Agreement is executed in part to
induce the purchase by others of the Series Bonds. Accordingly,
subject to the provisions of Section 2.4 and Section 2.5 of this
Agreement, all covenants and agreements on the part of the
Authority and the Borrower set forth in this Agreement are hereby
declared to be for the benefit of the Owners from time to time of
such Series Bonds.
Section 2.4. Capital Reserve Fund Right of Reimbursement.
If any Capital Reserve Fund Payments are made from the Capital
Reserve Fund with respect to the Series Bonds, the Borrower
hereby agrees to reimburse the Capital Reserve Fund by payment to
the Authority of an amount equal to the Capital Reserve Fund
Reimbursement Amount. This obligation of the Borrower shall
accrue as of the date a Capital Reserve Fund Payment is made and
shall be secured as provided in Section 5.4 of this Agreement and
enforced and reduced as provided in Section 10.2 of this
Agreement and, in each case, as may be provided in the General
Bond Resolution; provided, however, that such right of
reimbursement shall be subordinate to the payment of the Note and
as further provided in the General Bond Resolution.
Section 2.5. Authority Right of Reimbursement. If the
Authority elects to redeem the Series Bonds in whole or in part
from any moneys available to the Authority for such purpose from
any source other than the Capital Reserve Fund (and other than
those sources pledged to pay Bonds pursuant to Section 1.04 of
the General Bond Resolution), the Borrower hereby agrees to
reimburse the Authority in an amount equal to the amount so paid
by the Authority with respect to the Series Bonds. This
obligation of the Borrower shall accrue as of the date the
Authority makes such a payment and shall be secured as provided
in Section 5.4 of this Agreement and enforced and reduced as
provided in Section 10.2 of this Agreement and, in each case, as
provided in the General Bond Resolution; provided, however, that
such right of reimbursement shall be subordinate to the payment
of the Note and as further provided in the General Bond
Resolution.
ARTICLE III
AGREEMENT TO ISSUE SERIES BONDS AND TO LOAN
PROCEEDS THEREOF; BORROWER'S CONTRIBUTION TO COSTS OF PROJECT
Section 3.1. Issuance of Series Bonds; Deposit of Bond
Proceeds. In order to provide funds for (i) payment of all or a
portion of the Cost of the Project, together with other payments
and incidental expenses in connection therewith, (ii) a deposit
into the Loan Reserve Account required under the provisions of
the General Bond Resolution and (iii) certain Costs of Issuance
with respect to the issuance of the Series Bonds, the Authority
agrees that it will issue and sell the Series Bonds and cause the
Bond Proceeds to be delivered to the Trustee.
Section 3.2. Agreement To Make Loan. The Authority agrees
that, upon (i) the sale and delivery of the Series Bonds and (ii)
satisfaction of the terms and conditions set forth in this
Agreement, it will and does hereby lend the Borrower the sum of
$1,895,000 in accordance with the provisions of this Agreement,
such loan to be evidenced by the Note. The obligation of the
Authority to make said loan shall be discharged and the
obligation of the Borrower hereunder and under the Note shall
become effective, when the following sums, totaling $1,895,000,
are deposited in the following funds and accounts established
under the Authority Resolution, or are otherwise directly applied
for certain purposes, in any case, in the following amounts:
(1) To the Loan Reserve Account, $178,000.00;
(2) To pay Costs of Issuance with respect to the Series
Bonds as a discount from the par amount of the Series Bonds, the
amount of $37,900.00 (for underwriter's discount);
(3) To the Capitalized Interest Account, $102,924.67; and
(4) To the Loan Account, $1,576,175.33, being the cash
balance of the Bond Proceeds (other than amounts representing
accrued interest on the Series Bonds), to pay the Cost of the
Project.
Section 3.3. Borrower's Contribution to Costs of the
Project. The Borrower hereby represents that the amount of the
Loan deposited into the Loan Account to pay for the Cost of the
Project is less than the total Cost of the Project (other than
interest payable on the Series Bonds during the Construction
Period of the Project and Costs of Issuance) by an amount equal
to $434,525. Accordingly, pursuant to the loan criteria for its
Program, the Authority hereby requires the Borrower to make an
equity contribution to pay for such deficiency in the Cost of the
Project, such equity contribution to take the form of the payment
of the costs of the acquisition of the Land and certain site
improvements as a donation by Aberdeen Development Corporation,
and the balance from funds contributed by the Borrower (including
the deposit to the Loan Account as provided in Section 4.2(f)
hereof), resulting in the cost of the Land, the Buildings and the
Equipment upon completion of the Project exceeding the proceeds
of the Series Bonds applied to the costs of acquisition or
construction thereof. Such costs of acquisition, construction
and installation of the Building and of Equipment so paid or
funded shall not be paid or reimbursed to the Borrower from the
Loan Account except as otherwise provided in Section 4.3 hereof.
ARTICLE IV
DEVELOPMENT OF THE PROJECT;
APPLICATION OF MONEYS IN LOAN ACCOUNT
Section 4.1. Prior Acquisition of Land. The Borrower will
on or before the Closing Date acquire the Land in fee simple
subject only to the Permitted Encumbrances.
Section 4.2. Acquisition, Construction and Installation of
the Facilities; Deposit to Loan Account.
(a) The Borrower agrees that it will acquire, construct and
install the Facilities or cause the Facilities to be acquired,
constructed and installed on the Land in accordance with the
Plans and Specifications.
(b) The Borrower shall provide to the Trustee a copy of the
Plans and Specifications. With the consent of the Authority, the
Borrower may revise the Plans and Specifications from time to
time; provided, however, that no material change shall be made in
the Plans and Specifications which would alter the proposed use
of the Facilities or materially reduce the cost of the
Facilities, unless the Trustee shall be furnished with an
unqualified opinion of Bond Counsel that construction of the
Facilities in accordance with the revised Plans and
Specifications will not adversely affect the tax-exempt status of
the interest payable on the Series Bonds.
(c) The Borrower hereby agrees that in order to effectuate
the purposes of this Agreement, it will make, execute,
acknowledge and deliver any contracts, order, receipts, writings
and instructions with any other Persons, and in general do all
things which may be requisite or proper, all for acquiring,
construction and installing the Facilities. So long as the
Borrower is not in default under any of the provisions of this
Agreement, the Borrower shall carry out the acts and agreements
provided in this Section 4.2 and such obligations shall not be
terminated by act of the Authority or the Borrower. The Borrower
agrees to acquire, construct and to install the Facilities with
all reasonable dispatch, and to use its reasonable efforts to
cause such acquisition, construction and installation to be
completed by June 24, 1998, or as soon thereafter as may be
practicable; but if for any reason such acquisition, construction
and completion are not completed by said date, there shall be no
resulting liability on the part of the Authority and no
diminution in or postponement of the payments required in Section
5.1 hereof or under the Note to be paid by the Borrower.
(d) The Borrower shall obtain all necessary approvals from
any and all governmental agencies requisite to the acquiring,
constructing and installation of the Facilities, and the
Facilities shall be acquired, constructed and installed in
compliance with all State and local laws, ordinances and
regulations applicable thereto. The Borrower agrees that the
improvements to be made with respect to the Facilities will not
encroach upon or overhang any easement or right-of-way nor upon
the land of others and that all improvements when erected shall
be wholly within the building restriction lines however
established and will not violate applicable use or other
restrictions contained in prior conveyances, zoning ordinances or
regulations. Upon completion of the Project, the Borrower shall
obtain all required occupancy permits and authorizations from
appropriate authorities, if any be required, authorizing the
occupancy and uses of the Facilities for the purpose contemplated
hereby.
(e) THE AUTHORITY MAKES NO WARRANTY, EITHER EXPRESS OR
IMPLIED, AS TO THE CONDITION, TITLE, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS OF THE FACILITIES OR THAT IT IS OR
WILL BE SUITABLE FOR THE BORROWER'S PURPOSES OR NEEDS.
(f) On the date of issuance of the Series Bonds, the
Borrower shall remit to the Trustee $315,000 in immediately
available funds for deposit in the Loan Account for disbursement
to pay Project Costs as provided in Section 4.3 hereof.
Section 4.3. Application of Moneys in Loan Account.
(a) The Authority and the Borrower agree that upon
substantial completion and completion of the Project and
submission to the Trustee and the Project Supervisor of the
certificates required by Section 4.4(a) or (b) hereof, as the
case may be, the following items of costs and expenses incurred
by the Borrower on and after the date of adoption by the
Authority of the Official Action Resolution in connection with
the Project and theretofore paid may be reimbursed from moneys in
the Loan Account to the extent permitted by and subject to the
limitations of the Act, the Code and this Agreement:
(i) the cost of preparing the Plans and Specifications
for the Project (including any preliminary study or planning
of the Project or any aspect thereof);
(ii) all costs of acquiring, constructing, equipping
and installing the Facilities (including architectural,
engineering and supervisory services with respect thereto),
but shall not include any costs of the acquisition of the
Land or site improvements;
(iii) any expenses of the Borrower in enforcing any
remedy against any contractor or subcontractor in accordance
with Section 4.7 hereof;
(iv) the cost of all premiums (A) for any title
insurance on the Land paid during the Construction Period
and (B) for all insurance maintained pursuant to Section 6.4
hereof during the Construction Period for such Facility;
(v) any taxes, assessments and other charges specified
in Section 6.3 hereof during the Construction Period for the
Project;
(vi) fees, taxes, charges and other expenses for
recording or filing, as the case may be, this Agreement, any
other agreements contemplated hereby, the Mortgage, the
Series Supplemental Resolution, any financing statements and
any other documents that the Authority or the Trustee may
deem desirable in order to perfect or protect any security
interest contemplated by this Agreement, the Mortgage or the
Series Supplemental Resolution;
(vii) any Costs of Issuance (except underwriter's
discount), subject to Section 8.7 hereof;
(viii) to pay interest owing on the Series Bonds
during the Construction Period (pursuant to Section 5.1 of
this Agreement);
(ix) all fees and expenses of the Project Supervisor;
and
(x) all advances, payments and expenditures made by
the Authority or any other person with respect to the
foregoing expenses.
All of the foregoing Costs of the Project are hereby approved by
the Authority as "Project Costs" (within the meaning of the
General Bond Resolution) with respect to the Project.
In addition, from the Borrower funds deposited in the Loan
Account pursuant to Section 4.2(f) hereof (with investment income
thereon, the "Equity Deposit"), the Trustee may make
disbursements to the Borrower for the reimbursement of Project
Costs theretofore paid by the Borrower.
(b) As conditions precedent to the payment of funds from
the Loan Account, except with respect to capitalized interest and
Costs of Issuance, the Borrower shall deliver to the Project
Supervisor, a requisition complying with Section 5.2(b) of the
General Bond Resolution executed by an Authorized Representative
of the Borrower together with the following: (i) copies of
invoices, bills or other similar proof from vendors of services,
materials, goods or property that a payment is required from the
Loan Account with respect to the Project (and in the case of
disbursement from the Equity Deposit, evidence of payment thereof
by the Borrower), and (ii) copies of lien waivers with respect to
all work done or materials supplied for the Project for which
payment was made pursuant to all previous draw requests, unless
theretofore furnished to the Project Supervisor. The Project
Supervisor shall certify to the Trustee in writing the receipt of
all of such items, stating that they are in conformity with the
requirements of this Agreement.
Notwithstanding anything contained herein to the contrary,
(i) The Trustee shall make no advances from the Loan
Account while there is any lien or encumbrance upon the
Land, other than Permitted Encumbrances, nor will the
Trustee make any advances from the Loan Account while there
is any charge, question or claim of any kind whatsoever,
whether of record or not, which, in the opinion of
Independent Counsel for the Trustee, may constitute a cloud
on the title to the Land, render the title to the Land
unmarketable, or otherwise invalidate or have priority over
the Mortgage or in any way render the Loan or its
enforcement insecure;
(ii) Neither the Authority nor the Trustee shall be
under any obligation to see to the proper application of
advances by the Borrower, its contractor or subcontractor,
and nothing shall prevent the Authority or the Trustee from
deducting from any advance, any sums due to the Authority or
the Trustee from the Borrower for sums paid and expended by
the Authority or the Trustee for taxes or assessments, for
insurance premiums and like payments, pursuant to its or
their rights under the terms hereof; and
(iii) No advance other than for capitalized interest
or from the Equity Deposit shall be made by the Trustee
until the Borrower presents to the Trustee (A) a certificate
of substantial completion as set forth in Section 4.4(a)
hereof and (B) a certificate of the grantor or its
successor, in recordable form, to the effect that the
Project has satisfied and is released from the covenants in
the Statement to Conditions, Covenants, Restrictions and
Reservations and Easements Affecting Aberdeen East
Industrial Park, Aberdeen, South Dakota, dated November 7,
1995, made by Aberdeen Development Corporation, relating to
the construction and completion of the Project.
In connection with clauses (i), (ii) and (iii) above and the
preconditions established therein, the Trustee may request the
Project Supervisor to certify to the Trustee the existence of
such preconditions in connection with making any advances from
the Loan Account and the Trustee shall be entitled to rely
conclusively upon such certification. In rendering such
certification, the Project Supervisor may rely on an opinion of
Independent Counsel to the extent such certification covers
matters of law. In addition, in making any such payment from the
Loan Account the Trustee may rely on such requisitions and proof
delivered to it and the Trustee shall be relieved of all
liability with respect to making such payments if such payments
are made in accordance with the foregoing. The Borrower hereby
agrees that it shall pay all reasonable costs of filing such
requisitions and proof delivered to the Trustee and the Project
Supervisor.
The Trustee shall keep and maintain adequate records
pertaining to the Loan Account and all disbursements therefrom,
and after the Project has been completed and the Borrower has
filed with the Authority a certificate of completion of the
Project as otherwise provided, the Authority thereafter shall
file an accounting with respect to the Loan Account and all
disbursements therefrom with the Authority and with the Borrower.
Notwithstanding anything contained herein, no funds shall be
disbursed from the Loan Account, except with respect to interest
during construction or from the Equity Deposit, until the Trustee
has received the title insurance policy and survey required by
Section 4.6 hereof and certificates evidencing the insurance
coverage required by Sections 6.4 and 6.5 hereof.
(c) Upon (i) completion of the Project as certified to
pursuant to Section 4.4(b) hereof, or (ii) the acceleration of
the Loan pursuant to Section 10.2(a)(i) of this Agreement, any
moneys remaining in the Loan Account, except for amounts to be
paid pursuant to the draw made upon completion or those retained
therein for the payment of incurred and unpaid items of the Cost
of the Project, shall be applied in accordance with Section
5.02(b) of the General Bond Resolution; provided that minor items
of work and materials awaiting seasonal completion may be
specified in the Borrower's requisition, which specification
shall include the amount, not to exceed three percent (3%) of the
Loan, required to be seasonably completed, and upon completion of
such work and disbursement of such funds following a further
requisition of the Borrower under this Section 4.3, any remaining
funds in the Loan Account shall be applied in accordance with
Section 5.02(b) of the General Bond Resolution.
Section 4.4. Certificates of Substantial Completion and
Completion.
(a) Substantial completion of the Project (apart from
acquisition and installation of all items of Equipment) shall be
evidenced by a certificate signed by an Authorized Representative
of the Borrower and the Project Supervisor stating that (i) the
acquisition, construction and installation of the Facilities
(exclusive of the acquisition and installation of all items of
Equipment) has been completed substantially in accordance with
the Plans and Specifications therefor, (ii) all costs and
expenses of acquiring, constructing and installing the Facilities
(exclusive of items of Equipment thereafter to be acquired and
installed) have been paid or provided for, (iii) that there
exists no Liens or encumbrances with respect to the Project other
than Permitted Encumbrances or Liens and encumbrances which the
Authority or the Trustee shall have waived in writing, and (iv)
that, as certified by the Borrower, any disbursement from the
Loan Account for reimbursement of such Costs of the Project shall
not cause the Borrower to be in default in its obligations
hereunder, including Section 3.3 hereof; provided that minor
items of work and materials awaiting seasonal completion may be
specified in the Borrower's requisition, which specification
shall include the amount, not to exceed three percent (3%) of the
Loan, required to be seasonably completed.
(b) Completion of the Project from shall be evidenced by a
certificate signed by an Authorized Representative of the
Borrower and the Project Supervisor stating that (i) the
acquisition, construction and installation of the Facilities has
been completed substantially in accordance with the Plans and
Specifications therefor and (ii) except for amounts to be
retained in the Loan Account as provided in Section 4.3(c)
hereof, all costs and expenses of acquiring, constructing and
installing the Facilities have been paid or provided for and that
there exists no Liens or encumbrances with respect to the Project
other than Permitted Encumbrances or Liens and encumbrances which
the Authority or the Trustee shall have waived in writing;
provided that minor items of work and materials awaiting seasonal
completion may be specified in the Borrower's requisition, which
specification shall include the amount, not to exceed three
percent (3%) of the Loan, required to be seasonably completed.
Section 4.5. Completion by Borrower. To the extent that
the Bond Proceeds that are deposited into the Loan Account are
not sufficient to pay in full all costs of the Project, as is
contemplated in Section 3.3 hereof, the Borrower agrees to pay
all sums as may be necessary to complete the Project. At the
Trustee's request, the Borrower will provide the Trustee with
evidence satisfactory to the Trustee as to whether or not the
remaining moneys in the Loan Account available to pay the Costs
of the Project shall be sufficient to pay the remaining Costs of
the Project. In the event that the Trustee, or the Project
Supervisor at the request of the Trustee, shall determine at any
time that the remaining moneys in the Loan Account available for
payment of the remaining Costs of the Project shall not be
sufficient to pay the costs thereof in full, the Trustee shall
give written notice thereof to the Borrower and the Borrower
shall promptly pay to the Trustee for deposit into the Loan
Account moneys sufficient to pay the Costs of the Project in
excess of the moneys available therefor in the Loan Account. The
Trustee shall make such determination each time the Plans and
Specifications are revised in accordance with Section 4.2(b) of
this Agreement. No payment by the Borrower pursuant to this
Section 4.5 shall entitle the Borrower to any diminution or
abatement of the other amounts payable by the Borrower under this
Agreement or the Note.
Section 4.6. Title Insurance and Survey.
(a) The Borrower at its own expense has obtained or will
obtain, and throughout the Loan Term will maintain in force, a
policy or policies of title insurance (ALTA extended coverage
form) written by a title insurance company licensed to do
business in the State and satisfactory to the Authority in the
face amount of the Note insuring for the benefit of the Authority
as the holder of the Note the Lien of the Mortgage on the Land as
a first mortgage lien on the Land, free and clear of Liens or
encumbrances except Permitted Encumbrances. The Net Proceeds of
such insurance, if received prior to the Completion Date of the
Project, shall be delivered to the Trustee and deposited in the
Loan Account and, if received thereafter, shall be delivered to
the Trustee and deposited in the Special Redemption Account.
(b) In addition, the Borrower shall concurrently with the
execution and delivery of this Agreement deliver to the Authority
and the Trustee, a plat or survey of the Land prepared by a
registered land surveyor, addressed and certified to the
Authority and the Trustee, containing the correct legal
description of and showing and listing by document number all
easements, encroachments and other encumbrances upon the Land and
the location of all improvements thereon and encroachments and
overlaps with respect thereto.
Section 4.7. Remedies To Be Pursued Against Contractors and
Subcontractors and their Sureties. In the event of default of
any contractor or subcontractor under any contract made by it in
connection with the Project or in the event of a breach of
warranty with respect to any materials, workmanship, or
performance guaranty, the Borrower shall promptly proceed, either
separately or in conjunction with others, to exhaust the remedies
of the Borrower against the contractor or subcontractor so in
default and against each surety for the performance of such
contract. The Borrower agrees to advise the Authority of the
steps it intends to take in connection with any such default.
The Borrower may prosecute or defend any action or proceeding or
take any other action involving any such contractor,
subcontractor or surety which the Borrower deems reasonably
necessary. The Net Proceeds of any amounts recovered pursuant to
this Section 4.7, if received prior to the Completion Date, shall
be delivered to the Trustee and deposited in the Loan Account
and, if received thereafter, shall be delivered to the Trustee
and deposited in the Special Redemption Account.
ARTICLE V
REPAYMENT PROVISIONS; SECURITY CLAUSES
Section 5.1. Repayment of Loan.
(a) Principal of the Loan shall be paid by the Borrower on
the dates and in the amounts provided in the Note. Interest on
the unpaid balance of the Loan shall be payable at the times
stated in the Note at the rate provided in the Note. All such
amounts to be so paid shall be paid by the Borrower to the
Trustee on behalf of the Authority.
(b) The Note shall provide that interest thereon shall
accrue from the date thereof and shall be payable thereon on the
first day of the following month and thereafter on the first day
of each month until the principal sum of the Loan is discharged,
each such payment to include interest payable in advance due to
and including the first day of the next succeeding month. The
principal amount of the Loan shall be payable at the same times
and in the same manner as interest. Principal and interest
payments on the Loan shall be made in monthly installments
through the date of final maturity of the Note, applied first to
the payment of interest then due on the unpaid principal amount
of the Loan, and the remaining balance of each such installment
applied to the Loan. The monthly installments to be paid on the
Loan shall be in an amount equal to (i) one-sixth of the interest
payable on the Series Bonds on the next succeeding Interest
Payment Date and (ii) one-twelfth of the principal payable on the
Series Bonds on the next two succeeding Interest Payment Dates,
whether at Stated Maturity or upon Sinking Fund Redemption;
provided that such payments shall be redeemed or abated, in
inverse chronological order before an Interest Payment Date, by
any amounts then on deposit in the Holding Account and available
to pay such interest or principal on such Interest Payment Date,
and provided further that the installment payable on July 1, 1996
shall be in the amount of $3,056.80. All payments of principal
of, premium, if any, and interest on the Note by the Borrower
shall be made to the Trustee at the address set forth in Section
12.1 of this Agreement.
(c) If on any Interest Payment Date the amount then on
deposit in the Holding Account shall not be sufficient to pay the
interest on or principal of the Series Bonds then due, the
Borrower shall forthwith pay any such deficiency into the Revenue
Account for transfer into the Holding Account.
(d) The Borrower shall have the option to make payments
designated as and representing advance loan payments on the Note
under and pursuant to this Agreement (or Section 5.2 of this
Agreement) to the Trustee for deposit in the Revenue Account.
Such payments shall not in any way alter or suspend any
obligations of the Borrower under the terms of this Agreement (i)
except to the extent that such payment shall be transferred by
the Trustee under the provisions of the Authority Resolution to
the Holding Account and shall result in a credit against payments
on the Note as provided in Section 5.1(b) of this Agreement or
the retirement of principal amounts of the Series Bonds, pursuant
to these provisions, or (ii) except to the extent that such
payments shall otherwise be transferred by the Trustee in
accordance with the provisions of Section 5.06(a) of the General
Bond Resolution and shall result in a credit against payments as
provided in Section 5.2 of this Agreement; and the Borrower
shall, in either case, continue to perform and be responsible for
the performance of all the terms and provisions of this
Agreement.
(e) If at any time the amount held by the Trustee in the
Holding Account and the Loan Reserve Account shall be sufficient
to pay at the times required the principal of, premium, if any,
and interest on the Series Bonds then unpaid, the Borrower shall
not be obligated to make any further payments under the foregoing
provisions.
(f) If the Borrower should fail to pay when due an amount
required under this Section 5.1, the amount so in default shall
continue as an obligation of the Borrower until it shall have
been fully paid, and the Borrower shall pay the same with
interest thereon at the Bond Rate until paid.
(g) The Borrower agrees to make the above-mentioned
payments without any further notice, in lawful money of the
United States of America which, at the time of payment, shall be
legal tender for the payment of public and private debts.
Section 5.2. Other Amounts Payable.
(a) The Borrower shall pay to the Trustee for deposit by
the Trustee in the Revenue Account, the following amounts (in
addition to those amounts described in Section 5.1(b) of this
Agreement) at the times set forth below:
(i) On April 1 of each year, the Program Payments due
with respect to the Bond Year then ended; provided, however,
that, to the extent that on any April 1 there are amounts in
the Revenue Account in excess of the amounts required to be
deposited therein pursuant to Section 5.1, Section
5.2(a)(i), Section 5.2(a)(ii) and Section 5.2(a)(iii) of
this Agreement, the amount required to be paid by the
Borrower pursuant to this Section 5.2(a)(i) shall be reduced
by the amount of such excess;
(ii) On each April 1 and October 1, a sum sufficient
to satisfy any outstanding Capital Reserve Fund
Reimbursement Amount;
(iii) On each Interest Payment Date, a sum sufficient
so that amounts then on deposit in the Loan Reserve Account
shall not be less than the Loan Reserve Account Requirement.
(b) Notwithstanding anything contained in this Agreement to
the contrary, any amount payable as and for an outstanding
Capital Reserve Fund Reimbursement Amount under Section
5.2(a)(ii) of this Agreement shall not be payable as and for
unpaid amounts due under Section 5.1(b) and Section 5.1(f) of
this Agreement.
(c) Notwithstanding anything contained in this Agreement to
the contrary, any amount payable pursuant to Section 5.2(a)(iii)
of this Agreement shall not be payable as and for unpaid amounts
due under Section 5.1(b) and Section 5.1(f) of this Agreement.
(d) In addition to the foregoing payments, the Borrower
shall make such reports and shall pay during the Loan Term the
annual fees required to maintain the secondary market trading of
the Series Bonds in the State. Such fees shall be paid directly
by the Borrower to the South Dakota Department of Commerce and
Regulation, Division of Securities, by the time required by law
each year, with the Borrower to provide evidence satisfactory to
the Authority to be provided to the Authority that each such
payment has been made. The Borrower shall also make such reports
and pay such fees in any other state designated by the Authority
in writing.
(e) Simultaneously with the delivery by the Borrower of the
certificate of completion of the Project pursuant to Section
4.4(b) of this Agreement, the Borrower shall pay to the Trustee
for deposit into the Loan Account all amounts equal to
capitalized interest that the Borrower withdrew from the Loan
Account pursuant to Section 4.3(a)(viii) of this Agreement
(except that the Borrower shall not be required to pay such
amounts to the extent that such capitalized interest has been
paid from investment earnings deposited in or transferred to the
Loan Account, and available to pay capitalized interest owing on
the Series Bonds during the Construction Period). In lieu of
making any payments required pursuant to the preceding sentence,
the Borrower may, instead, deposit with the Trustee and the
Project Supervisor proof satisfactory to the Trustee and the
Project Supervisor that an amount equal to such payments has been
made to pay certain Costs of the Project and that such Costs of
the Project have not been the subject of any requisition
submitted pursuant to Section 4.3(a) of this Agreement or have
been paid from the Borrower's equity contribution pursuant to
Section 3.3 and Section 4.3(b)(iv) of this Agreement.
Section 5.3. Obligations of Borrower Unconditional. The
obligations of the Borrower to make the payments required by this
Agreement and the Note and to perform and observe any and all of
the other covenants and agreements on its part contained herein
shall be absolute and unconditional irrespective of any defense
or any rights of setoff, recoupment or counterclaim it may
otherwise have against the Authority or the Trustee or any Owners
of the Bonds. The Borrower agrees it will not (i) suspend,
discontinue or abate any payment required by this Agreement and
the Note or (ii) fail to observe any of its other covenants or
agreements in this Agreement and the Note or (iii) seek judicial
or other relief from the obligations to make any payment required
by, or to perform any covenant in, this Agreement and the Note or
(iv) except as provided in Section 7.1(b), Section 7.2(b) or
Section 11.1 hereof, terminate this Agreement for any cause
whatsoever including, without limiting the generality of the
foregoing, failure to complete the Project, failure of the
Borrower to use the Facilities as contemplated in this Agreement
or otherwise, any defect in the title, design, operation,
merchantability, fitness or condition of the Facilities or in the
suitability of the Facilities for the Borrower's purposes or
needs, failure of consideration, destruction of or damage to the
Facilities, commercial frustration of purpose, or the taking by
Condemnation of title to or the use of all or any part of the
Facilities, any change in the tax or other laws of the United
States of America or of the State or any political subdivision of
either, or any failure of the Authority to perform and observe
any agreement, whether expressed or implied, or any duty,
liability or obligation arising out of or in connection with this
Agreement. Nothing contained in this Section 5.3 shall be
construed to release the Authority from the performance of any of
the agreements on its part contained in this Agreement.
Section 5.4. Security Clauses.
(a) In order to secure the payment of this Agreement, the
Note and the Series Bonds according to their tenor and effect,
and to secure the right of reimbursement of the Capital Reserve
Fund provided for in Section 2.4 of this Agreement and the right
of reimbursement of the Authority provided for in Section 2.5 of
this Agreement and to secure the performance by the Borrower of
all of its covenants expressed or implied in this Agreement, the
Borrower shall concurrently herewith grant and deliver a mortgage
lien to the Authority in the Land and all buildings, structures
and fixtures and certain equipment heretofore or hereafter placed
thereon pursuant to the Mortgage, which Mortgage is to be pledged
by the Authority to the Bondowners pursuant to the Authority
Resolution as security for the Series Bonds. The Mortgage shall
be subject only to Permitted Encumbrances.
(b) In order further to secure the payment of this
Agreement, the Note and the Series Bonds according to their tenor
and effect, and to secure the right of reimbursement of the
Capital Reserve Fund provided for in Section 2.4 of this
Agreement and the right of reimbursement of the Authority
provided for in Section 2.5 of this Agreement and to secure the
performance by the Borrower of all its covenants expressed or
implied in this Agreement, the Borrower hereby grants to the
Authority a first security interest in the Equipment, and agrees
that this Agreement shall be deemed to be a security interest
within the meaning of the Uniform Commercial Code of the State.
The Borrower agrees that in the event that any additional items
of machinery, equipment, furniture or other personal property are
located on the Land or in the Project or are used in the
operations of the Project, this Agreement shall immediately
attach to and constitute a security interest in such additional
items without further act or deed of the Borrower, and such items
shall become Equipment for all purposes of this Agreement.
Notwithstanding the foregoing, the Borrower agrees that promptly
upon the location or use of such additional items of personal
property at or in the Project to furnish to the Trustee a
description of the additional items of personal property, which
description shall be sufficient for the creation and perfection
of a security interest in said equipment under the Uniform
Commercial Code of the State, and a statement to the effect that
such items of equipment are owned by the Borrower and are free
and clear of all security interests, liens, and encumbrances of
any kind whatsoever (other than Permitted Encumbrances). The
Authority's rights herein as secured party are to be pledged by
the Authority to the Bondowners pursuant to the Authority
Resolution as security for the Series Bonds.
(c) The Borrower shall have the right at any time or from
time to time to sell or otherwise dispose of all or any part of
the Equipment subject, however, to all of the following terms and
conditions:
(i) the Borrower shall, prior to or simultaneously
with, any such sale or other disposition of any item of
Equipment, cause to be substituted therefor equipment which
is determined by the Trustee to have a value substantially
equal to the value of the item of Equipment so sold or
otherwise disposed of at the time the item of Equipment was
originally acquired by the Borrower pursuant to the terms
hereof, but which equipment may, however, be of a different
kind or type or have a different function or purpose;
(ii) the security interest granted pursuant to
subsection (b) of this Section 5.4 shall attach to the
equipment so substituted upon its acquisition by the
Borrower and its installation on the Land and prior to the
sale or other disposition of the equipment originally
subject to such security interest;
(iii) the Borrower shall execute any and all documents,
instruments, agreements or other writings (including, but
not limited to, one or more Uniform Commercial Code
financing statements) and otherwise do all acts and things
which the Authority or the Trustee shall reasonably deem
necessary or advisable to perfect or continue perfection of
a security interest in the equipment so substituted;
(iv) the Borrower shall pay any and all reasonable
expenses (including, but not limited to, any applicable
filing fees) incurred by the Authority or the Trustee in
connection with the perfection or continuation of such
security interest; and
(v) the Borrower shall, not less than fifteen days
prior to the consummation of any such sale or disposition,
furnish the Trustee with a certificate signed by an
Authorized Representative of the Borrower setting forth (1)
a description of the item of Equipment which the Borrower
proposes to sell or otherwise dispose of, which description
has been previously set forth in the copy of Exhibit B
hereto maintained by the Trustee in accordance with Section
8.04 of the Series Supplemental Resolution, (2) a
description of the equipment to be proposed to be
substituted for the item of Equipment sold or otherwise
disposed of, which description shall be sufficient for the
creation and perfection of a security interest in said
equipment under the Uniform Commercial Code of the State,
(3) a statement to the effect that the equipment proposed to
be so substituted is now owned by and in the possession of
the Borrower and is free and clear of all security
interests, liens, and encumbrances of any kind whatsoever
(other than Permitted Encumbrances), and (4) a submission of
reasonable proof satisfactory to the Trustee that such
equipment proposed to be substituted is now owned by and in
possession of the Borrower and is free and clear of all
security interest, liens and encumbrances of any kind
whatsoever (other than Permitted Encumbrances).
The description of substituted equipment provided for in
Section 5.4(c)(v)(2) above shall, when furnished to the Trustee,
constitute an amendment or supplement to Exhibit B hereof. Items
of Equipment replaced and substituted pursuant to the terms of
this Section 5.4(c) shall be deleted from Exhibit B by the
Trustee.
The Borrower shall not substitute or replace any item of
Equipment pursuant to this Section 5.4(c) for any property which
is not free and clear of all security interests, liens and
encumbrances of any kind whatsoever (other than Permitted
Encumbrances).
(d) The Borrower will from time to time, upon the written
request of the Authority or the Trustee, file with the Authority
and the Trustee a list of Equipment currently on the Land, which
list shall further identify said items of equipment substituted
pursuant to Section 5.4(c) hereof and the date and reason for
substitution. The Borrower shall have sixty days in which to
respond to each such request, but shall be obligated to respond
to such request no more than twice each calendar year.
(e) Notwithstanding the provisions set forth in Section
5.4(c) of this Agreement, the Borrower shall have the right at
any time or from time to time to sell or otherwise dispose of all
or any part of the Equipment free and clear of the security
interest set forth in Section 5.4(b) and Section 5.4(c) of this
Agreement, without being obligated to substitute new equipment
therefor, if:
(i) The items of Equipment so disposed from time to
time have an aggregate Appraised Value at the time of
disposition not in excess of $1,000 (the Borrower is to
furnish to the Trustee written evidence of such Appraised
Value for each item of Equipment so disposed); or
(ii) The ratio of the outstanding principal amount of
the Loan to the Appraised Value of the Collateral (excluding
the items of Equipment to be so disposed) at the time of the
proposed disposition shall not be less than eighty percent
(80%) (the Borrower is to furnish to the Trustee written
evidence of such Appraised Value of the Collateral).
Section 5.5. Investment of Funds and Accounts; Consent to
Election.
(a) Notwithstanding anything contained in this Agreement to
the contrary, any moneys at any time in the Loan Reserve Account,
the Loan Account, the Holding Account, the Optional Redemption
Account, the Rebate Account, the Reconstruction Account, the
Reimbursement Account, the Revenue Account, the Special
Redemption Account or any other Fund or Account created under, or
authorized by, the General Bond Resolution or the Series
Supplemental Resolution may be invested and reinvested by the
Authority as provided in Section 5.16 of the General Bond
Resolution and any letter of instruction issued by the Authority
to the Trustee thereunder, to which such investment and
reinvestment, the Borrower hereby consents. Neither the
Authority nor its members, officers or employees shall be liable
for any rate of interest achieved or not achieved on such
investment or for any depreciation in the value of, or for any
loss arising from, any such investment. Investment income earned
from money deposited in any such Funds and Accounts shall be
applied by the Trustee in the manner provided for in the
Authority Resolution.
(b) The Borrower hereby consents to the election made by
the Authority in Section 2.10 of the Series Supplemental
Resolution with respect to Section 144(a)(4) of the Code.
ARTICLE VI
MAINTENANCE, MODIFICATIONS, TAXES AND INSURANCE
Section 6.1. Maintenance and Modifications of Collateral by
Borrower.
(a) The Borrower agrees that during the Loan Term it will,
at its own expense, (i) keep the Collateral in as reasonably safe
condition as its operations shall permit; (ii) make all necessary
repairs and replacements to the Collateral (whether ordinary or
extraordinary, structural or nonstructural, foreseen or
unforeseen); and (iii) operate the Collateral in a sound and
economic manner.
(b) The Borrower from time to time may, at its own expense,
make any structural additions, modifications or improvements to
the Collateral or any part thereof which it may deem desirable.
All such structural additions, modifications or improvements so
made by the Borrower shall become a part of the Collateral. The
Borrower agrees to deliver to the Authority all documents which
may be necessary or appropriate to convey to the Authority a
mortgage lien of the priority described in Section 5.4 of this
Agreement, or other satisfactory security interest in, such
Collateral.
Section 6.2. Installation of Additional Personalty.
Subject to the provisions of Section 5.4 of this Agreement and
the Mortgage, the Borrower from time to time may, at its own
expense, install additional machinery, equipment or other
personal property in the Facilities (which may be attached or
affixed to the Collateral) not constituting Equipment, and such
machinery, equipment or other personal property shall not become,
or be deemed to become, a part of the Collateral. The Borrower
shall keep appropriate records of all of such machinery,
equipment or other personal property installed at the Facilities
sufficient to identify the same. Subject to the Mortgage, the
Borrower from time to time may remove or permit the removal of
such machinery, equipment and other personal property from the
Facilities and may create or permit to be created any Lien on
such machinery, equipment or other personal property; provided
that any such removal of such machinery, equipment or other
personal property shall not adversely affect the structural
integrity of the Facilities or impair the overall operating
efficiency of the Facilities for the purposes for which they are
intended and provided further that if any damage is occasioned to
the Facilities by such removal, the Borrower agrees to repair
promptly such damage at its own expense.
Section 6.3. Taxes, Assessments and Utility Charges.
(a) The Borrower agrees to pay, as the same respectively
become due, (i) all taxes and governmental charges of any kind
whatsoever which may at any time be lawfully assessed or levied
against or with respect to (1) the Collateral, (2) any machinery,
equipment or other property installed or brought by the Borrower
therein or thereon (including without limitation any sale or use
taxes), (3) the employees of the Borrower located at or assigned
to the Facilities, and (4) the income or revenues of the Borrower
from the Facilities, (ii) all utility and other charges,
including "service charges," incurred or imposed for the
operation, maintenance, use, occupancy, upkeep and improvement of
the Collateral, and (iii) all assessments and charges of any kind
whatsoever lawfully made by any governmental body for public
improvements; provided that, with respect to special assessments
or other governmental charges that may lawfully be paid in
installments over a period of years, the Borrower shall be
obligated under this Agreement to pay only such installments as
are required to be paid during the Loan Term.
(b) The Borrower may in good faith contest any such taxes,
assessments and other charges. In the event of any such contest,
the Borrower may permit the taxes, assessments or other charges
so contested to remain unpaid during the period of such contest
and any appeal therefrom; provided that adequate book reserves in
accordance with generally accepted accounting principles (in the
opinion of the Borrower's Accountant) have been established with
respect thereto. If the Authority or the Trustee shall notify
the Borrower that by nonpayment of any such items the Mortgage or
security interest created pursuant to Section 5.4(b) and (c) as
to any part of the Collateral will be materially endangered or
the Collateral or any part thereof will be subject to loss or
forfeiture, however, such taxes, assessments or charges shall be
paid promptly or secured by posting a bond in form and substance
satisfactory to the Authority and the Trustee.
Section 6.4. Insurance Required. At all times throughout
the Loan Term, including without limitation during any period of
construction of the Facilities, the Borrower shall, at its own
expense, maintain insurance against such risks and for such
amounts as are customarily insured against by businesses of like
size and type, and shall pay, as the same become due and payable,
all premiums in respect thereof, including, but not necessarily
limited to:
(a) Insurance protecting the interests of the Borrower, the
Trustee and the Authority against loss or damage to the
Collateral by fire, lightning or other casualties, with a uniform
standard extended coverage endorsement, such insurance to be in
an amount not less than the lesser of the full insurable value of
the Collateral or the outstanding principal amount of the Note.
(As an alternative to the above requirements in this
subsection (a), the Borrower may insure such Property under a
blanket insurance policy or policies covering not only the
Collateral but other Property as well).
(b) Workers' compensation insurance, disability benefits
insurance, and each other form of insurance which the Borrower is
required by law to provide, covering loss resulting from injury,
sickness, disability or death of employees of the Borrower who
are located at or assigned to the Facilities.
(c) Insurance protecting the Borrower against loss or
losses from liabilities (including, without limitation, products
liability) imposed by law or assumed in any written contract and
arising from bodily injury including personal injury and death
and damage to the Property of others, caused by any accident or
occurrence, with limits of not less than $1,000,000 per accident
or occurrence, excluding liability imposed upon the Borrower by
any applicable workmen's compensation law; and a blanket excess
liability policy in the amount not less than $2,000,000,
protecting the Borrower against any loss or liability or damage
for bodily injury including personal injury and death and
Property damage.
(d) The Borrower may satisfy the requirements of
subsections (a) through (c) of this Section 6.4 through builder's
risk insurance during construction of the Project.
Section 6.5. Additional Provisions Respecting Insurance.
(a) All insurance required by Section 6.4 hereof shall be
procured and maintained in financially sound and generally
recognized responsible insurance companies selected by the
Borrower and authorized to write such insurance in the State.
Such insurance may be written with deductible amounts acceptable
to the Authority. All policies evidencing such insurance shall
provide for (i) payment of the losses to the Borrower, the
Authority and the Trustee as their respective interests may
appear, and (ii) at least thirty (30) days' written notice of the
proposed cancellation thereof to the Borrower and the Trustee.
The policies required by Section 6.4(a) hereof shall contain
standard mortgagee clauses requiring that all Net Proceeds of
insurance resulting from any claim in excess of $50,000 for loss
or damage covered thereby be paid to the Trustee.
(b) All such policies of insurance, or a certificate or
certificates of the insurers that such insurance is in force and
effect, shall be deposited with the Trustee on or before the
Closing Date. Prior to expiration of any such policy, the
Borrower shall not less than thirty (30) days before such
expiration furnish the Trustee with evidence that the policy has
been renewed or replaced or is no longer required by this
Agreement.
Section 6.6. Application of Net Proceeds of Insurance. The
Net Proceeds of the insurance carried pursuant to (i) subsection
(a) of Section 6.4 hereof shall be applied as provided in Section
7.1 hereof and (ii) subsections (b) and (c) of Section 6.4 hereof
shall be applied toward extinguishment or satisfaction of the
liability with respect to which such insurance proceeds may be
paid.
Section 6.7. Right of Authority To Pay Taxes, Insurance
Premiums and Other Charges. If the Borrower fails (i) to pay any
tax, assessment or other governmental charge required to be paid
by Section 6.3 hereof or (ii) to maintain any insurance required
to be maintained by Section 6.4 hereof, the Authority or the
Trustee may pay such tax, assessment or other governmental charge
or the premium for such insurance. No such payment by the
Authority or the Trustee shall affect or impair any rights of the
Authority under this Agreement, the Note and the Mortgage or of
the Authority or the Trustee under the Authority Resolution
arising as a consequence of such failure by the Borrower. The
Borrower shall reimburse the Authority or the Trustee, as the
case may be, for any amount so paid by the Authority or the
Trustee, as the case may be, pursuant to this Section 6.7,
together with interest thereon from the date of payment by the
Authority at the Bond Rate.
Section 6.8. Environmental Matters. To the best knowledge
of the Borrower, based on the Phase I Environmental Assessment,
dated May 10, 1996, prepared by Gem Star Associates, Inc., of
Waubay, South Dakota, and other inquiry deemed reasonable by the
Borrower, (i) no dangerous, toxic or hazardous pollutants,
contaminants, chemicals, waste, materials or substances, as
defined in or governed by the provisions of any federal, state or
local law, statute, code, ordinance, regulation, requirement or
rule relating thereto (collectively, "Environmental
Regulations"), and also including urea-formaldehyde,
polychlorinated biphenyls, asbestos, asbestos containing
materials, nuclear fuel or waste, radioactive materials,
explosives, carcinogens and petroleum products, or any other
waste, material, substance, pollutant or contaminant which would
subject the owner of the Facilities to any damages, penalties or
liabilities under any applicable Environmental Regulation
(collectively, "Hazardous Substances") are now or have been
stored, located, generated, produced, processed, treated,
transported, incorporated, discharged, emitted, released,
deposited or disposed of in, upon, under, over or from the
Facilities; (ii) no threat exists of a discharge, release or
emission of a Hazardous Substance upon or from the Facilities
into the environment; (iii) the Facilities have not been used as
or for a mine, a landfill, a dump or other disposal facility,
industrial or manufacturing facility, or a gasoline service
station; (iv) no underground storage tank is now located in the
Facilities or has previously been located therein but has been
removed therefrom; (v) no violation of any Environmental
Regulation now exists relating to the Facilities, no notice of
any such violation or any alleged violation thereof has been
issued or given by any governmental entity or agency, and there
is not now any investigation or report involving the Facilities
by any governmental entity or agency which in any way relates to
Hazardous Substances; (vi) no person, party or private or
governmental agency or entity has given any notice of or asserted
any claim, cause of action, penalty, cost or demand for payment
or compensation, whether or not involving any injury or
threatened injury to human health, the environment or natural
resources, resulting or allegedly resulting from any activity or
event described in (i) above; (vii) there are not now any
actions, suits, proceedings or damage settlements relating in any
way to Hazardous Substances, in, upon, under, over or from the
Facilities; (viii) the Facilities are not listed in the United
States Environmental Protection Agency's National Priorities List
of Hazardous Waste Sites or any other list of Hazardous Substance
sites maintained by any federal, state or local governmental
agency; and (ix) the Facilities are not subject to any lien or
claim for lien or threat of a lien in favor of any governmental
entity or agency as a result of any release or threatened release
of any Hazardous Substance.
The Borrower shall not store, locate, generate, produce,
process, treat, transport, incorporate, discharge, emit, release,
deposit or dispose of any Hazardous Substance in, upon, under,
over or from the Facilities, shall not permit any Hazardous
Substance to be stored, located, generated, produced, processed,
treated, transported, incorporated, discharged, emitted,
released, deposited, disposed of or to escape therein, thereupon,
thereunder, thereover or therefrom, shall cause all Hazardous
Substances found thereon to be properly removed therefrom and
properly disposed of in accordance with all applicable
Environmental Regulations, shall not install or permit to be
installed any underground storage tank therein or thereunder, and
shall comply with all Environmental Regulations which are
applicable to the Facilities; provided, however, that the
Borrower may store, use, transfer and dispose of commercial
quantities of Hazardous Substances necessary for its business
operations at the Facilities and used in the ordinary course of
business, so long as the storage, use, transfer and disposal of
such Hazardous Substances is in compliance in all material
respects with all applicable Environmental Regulations. At any
time, and from time to time, if the Authority or the Trustee so
requests, the Borrower shall have any environmental review,
audit, assessment and/or report relating to the Facilities
theretofore provided by the Borrower to the Authority or the
Trustee updated, at the Borrower's sole cost and expense, by an
engineer or scientist acceptable to the Authority and the
Trustee, or shall have such a review, audit, assessment and/or
report prepared for the Authority and the Trustee, if none has
previously been so provided; provided, however, that if such
request is made more often than once each two years or does not
follow the occurrence of an event or a condition that causes the
Authority or the Trustee to reasonably believe a violation of
Environmental Regulations at the Facilities has occurred, then
such update or report shall be at the expense of the Authority.
The Borrower acknowledges that it has furnished to the Authority
a Phase I Environmental Assessment, dated May 10, 1996. The
Borrower shall indemnify the Authority and the Trustee against,
shall hold the Authority and the Trustee harmless from, and shall
reimburse the Authority and the Trustee for, any and all claims,
demands, judgments, penalties, liabilities, costs, damages and
expenses, including court costs and attorneys' fees directly or
indirectly incurred by the Authority or the Trustee (prior to
trial, at trial and on appeal) in any action against or involving
the Authority or the Trustee, resulting from any breach of the
foregoing covenants, or from the discovery of any Hazardous
Substance, in, upon, under or over, or emanating from, the
Facilities, whether or not the Borrower is responsible therefor,
it being the intent of the Borrower, the Authority and the
Trustee that the Authority and the Trustee shall have no
liability or responsibility for damage or injury to human health,
the environment or natural resources caused by, for abatement
and/or clean-up of, or otherwise with respect to, Hazardous
Substances by virtue of the interest in the Facilities of the
Authority or of the Trustee as mortgagee or as the result of the
Authority or the Trustee exercising any of its rights or remedies
with respect thereto under the Mortgage or the Loan Agreement
including but not limited to becoming the owner thereof by
foreclosure or conveyance in lieu of foreclosure. The foregoing
representations, warranties and covenants of this Section 6.8
shall be deemed continuing covenants, representations and
warranties for the benefit of the Authority and the Trustee, and
any successors and assigns of the Authority or the Trustee,
including but not limited to any purchaser at a foreclosure sale,
any transferee of the title of the Authority or the Trustee or
any other purchaser at a foreclosure sale, and shall survive the
satisfaction or release of this Loan Agreement or the Mortgage,
any foreclosure of the Mortgage and/or any acquisition of title
to the Facilities or any part thereof by the Authority or the
Trustee, or anyone claiming by, through or under the Authority or
the Trustee, by deed in lieu of foreclosure or otherwise. Any
amounts covered by the foregoing indemnification shall bear
interest from the date incurred at the rate of 12% per annum or,
if less, the maximum rate permitted by law, and shall be payable
on demand.
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. Damage or Destruction.
(a) If the Collateral shall be damaged or destroyed (in
whole or in part) at any time during the Loan Term:
(i) the Authority shall have no obligation to replace,
repair, rebuild or restore the Collateral;
(ii) there shall be no abatement or reduction in the
amounts payable by the Borrower under this Agreement
(whether or not the Collateral is replaced, repaired,
rebuilt or restored); and
(iii) except as otherwise provided in subsection (b)
of this Section 7.1, the Borrower shall promptly replace,
repair, rebuild or restore the Collateral to substantially
the same condition and value as an operating entity as
existed prior to such damage or destruction, with such
changes, alterations and modifications as may be desired by
the Borrower; provided that such changes, alterations or
modifications do not (A) so change the nature of the
Facilities that they do not qualify under the Act for the
financial assistance provided by the Program or (B)
adversely affect the tax-exempt status of the interest on
the Bonds.
Except as otherwise provided in subsection (b) of this
Section 7.1, the Borrower shall apply to the replacement, repair,
rebuilding or restoration of the Collateral so much as may be
necessary of any Net Proceeds of insurance resulting from claims
for such losses.
If the claim for loss resulting from such damage or
destruction exceeds $50,000, all Net Proceeds of insurance shall
be paid to and held by the Trustee in the Reconstruction Account.
The Trustee, upon receipt of a certificate of an Authorized
Representative of the Borrower that payments are required for
such purpose, shall apply so much as may be necessary of the Net
Proceeds of such insurance to the payment of the costs of such
replacement, repair, rebuilding or restoration, such moneys to be
applied either on completion thereof or as the work progresses,
at the option of the Trustee.
In the event such Net Proceeds are not sufficient to pay in
full the costs of such replacement, repair, rebuilding or
restoration, the Trustee shall request the Borrower to pay into
the Reconstruction Account an amount equal to that portion of the
costs thereof in excess of such Net Proceeds, and, upon receipt
of such request, the Borrower shall forthwith pay such amount to
the Trustee. In the event that the Borrower fails to pay any
such excess amount into the Reconstruction Account, then the
Series Bonds shall be prepaid in accordance with Section 7.1(b)
of this Agreement.
All such replacements, repairs, rebuilding or restoration
made pursuant to this Section 7.1, whether or not requiring the
expenditure of the Borrower's contribution, shall automatically
become a part of the Collateral as if the same were specifically
described herein.
Any balance of such Net Proceeds remaining after payment of
all the costs of such replacement, repair, rebuilding or
restoration shall be deposited in the Special Redemption Account
held by the Trustee and used only to prepay the Series Bonds as
provided in Section 5.11(a) of the General Bond Resolution.
(b) In the event that the Borrower shall fail or elect not
to replace, repair or restore the Collateral, or if an Event of
Default under Section 10.1 hereof shall have occurred or be
continuing, then the Net Proceeds of the insurance shall be
transferred from the Reconstruction Account to the Special
Redemption Account or otherwise paid to the Trustee for deposit
into the Special Redemption Account. To the extent that such Net
Proceeds so transferred into the Special Redemption Account are
not sufficient to pay the Series Bonds in whole pursuant to
Section 2.04(b) of the Series Supplemental Resolution, the
Borrower shall forthwith pay the amount of such deficiency to the
Trustee for deposit into the Special Redemption Account.
(c) The Borrower shall not be obligated to replace, repair,
rebuild or restore the Collateral, and all such Net Proceeds
shall be paid to the Borrower for its corporate purposes, if the
Series Bonds and interest thereon have been paid in full.
(d) The Borrower may adjust all claims under any policies
of insurance required by Section 6.4(a) hereof; provided,
however, that no such claim with respect to an insured event as
to which the Authority or the Trustee may be or is alleged to be
liable may be adjusted without the prior written consent of the
Authority or the Trustee, as the case may be.
Section 7.2. Condemnation.
(a) If at any time during the Loan Term the whole or any
part of title to, or the use of, the Collateral shall be taken by
Condemnation, the Authority shall have no obligation to restore
or replace the Collateral and there shall be no abatement or
reduction in the amounts payable by the Borrower under this
Agreement (whether or not the Collateral is restored or
replaced).
Except as otherwise provided in subsection (b) of this
Section 7.2, the Borrower shall promptly:
(i) restore the Collateral (excluding any Land taken
by Condemnation) to substantially the same condition and
value as an operating entity as existed prior to such
Condemnation; or
(ii) upon receipt by the Borrower of written approval
of the Trustee and the Authority as to the location thereof
(which approval shall not be unreasonably withheld),
acquire, by construction or otherwise, facilities of
substantially the same nature and value as an operating
entity as the Collateral (hereinafter referred to in this
Section 7.2 as "Substitute Facilities"). Such Substitute
Facilities shall (A) be of such nature so as to qualify
under the Act for the financial assistance provided by the
Program, (B) not adversely affect the tax-exempt status of
the interest payable on the Series Bonds, and (C) be subject
to no Liens prior to the Mortgage or the security interest
created by Section 5.4(b) and (c) of this Agreement other
than Permitted Encumbrances.
The Borrower shall cause all Net Proceeds of any award in
any Condemnation proceeding, if such award exceeds $50,000, to be
paid to the Trustee which shall hold such moneys in the
Reconstruction Account. The Trustee, upon receipt of a
certificate of an Authorized Representative of the Borrower that
payments are required for such purpose, shall apply so much as
may be necessary of such Net Proceeds to the payment of the costs
of the restoration of the Collateral or the acquisition of
Substitute Facilities at the option of the Borrower, such moneys
to be applied either on completion thereof or as the restoration
or acquisition progresses, at the option of the Trustee.
In the event such Net Proceeds of any Condemnation award are
not sufficient to pay in full the costs of restoration of the
Collateral or such acquisition of Substitute Facilities, the
Trustee shall request the Borrower to pay into the Reconstruction
Account an amount equal to that portion of the costs thereof in
excess of such Net Proceeds, and, upon receipt of such request,
the Borrower shall forthwith pay such amount to the Trustee. In
the event that the Borrower fails to pay any such excess amount
into the Reconstruction Account, then the Series Bonds shall be
prepaid in accordance with Section 7.2(b) of this Agreement.
The Collateral, as so restored, or the Substitute
Facilities, whether or not requiring the expenditure of the
Borrower's contribution, shall automatically become part of the
Collateral as if the same were specifically described herein.
Any balance of such Net Proceeds of any Condemnation award
remaining after payment of all costs of such restoration or
acquisition shall be deposited in the Special Redemption Account
held by the Trustee and used only to prepay the Series Bonds as
provided in Section 5.11(a) of the General Bond Resolution.
(b) In the event that the Borrower shall fail or elect not
to replace, repair or restore the Collateral or to acquire
Substitute Facilities, or if an Event of Default under Section
10.1 hereof shall have occurred or be continuing, then the Net
Proceeds of the Condemnation Award shall be transferred from the
Reconstruction Account to the Special Redemption Account or
otherwise paid to the Trustee for deposit into the Special
Redemption Account. To the extent that such Net Proceeds so
transferred into the Special Redemption Account are not
sufficient to pay the Series Bonds in whole pursuant to Section
2.04(b) of the Series Supplemental Resolution, the Borrower shall
forthwith pay the amount of such deficiency to the Trustee for
deposit into the Special Redemption Account.
(c) The Borrower shall not be obligated to restore the
Collateral or to acquire Substitute Facilities, and all such Net
Proceeds shall be paid to the Borrower for its corporate
purposes, if the Series Bonds and interest thereon have been paid
in full.
(d) The Authority shall cooperate fully with the Borrower
in the handling and conduct of any Condemnation proceeding with
respect to the Collateral.
Section 7.3. Condemnation of Borrower-Owned Property Other
Than Collateral. The Borrower shall be entitled to the proceeds
of any Condemnation award or portion thereof made for damage to
or taking of any Property which, at the time of such damage or
taking, is not part of the Collateral and which is owned by the
Borrower.
ARTICLE VIII
SPECIAL COVENANTS
Section 8.1. Qualification in the State. Throughout the
Loan Term, the Borrower shall continue to be duly authorized to
do business in the State.
Section 8.2. Hold Harmless Provisions.
(a) The Borrower during the Loan Term hereby releases the
Indemnified Parties from, agrees that the Indemnified Parties
shall not be liable for and agrees to indemnify and hold the
Indemnified Parties harmless from and against any and all
liability arising from or expense incurred by the Authority's
making the Loan to the Borrower pursuant to this Agreement,
including without limiting the generality of the foregoing, all
causes of action and attorneys' fees and any other expenses
incurred in defending any suits or actions which may arise as a
result thereof; provided that any such liabilities or expenses of
the Indemnified Parties are not incurred or do not result from
the intentional or willful wrongdoing of the Indemnified Parties
or any of their members, agents or employees.
(b) Notwithstanding any provision of this Agreement or the
Authority Resolution to the contrary, the Borrower shall be
liable for, and shall hold the Indemnified Parties harmless
against, any liability for any failure by any Person to comply
with the requirements of Section 148(f) of the Code, including,
without limitation, the failure to make rebate payments due to
the United States of America under Section 148(f) of the Code
with respect to the Series Bonds. Further, the Borrower
specifically agrees that Indemnified Parties shall not be held
liable, or in any way responsible, for any investment of any Fund
or Account or the Capital Reserve Fund or other "gross proceeds"
(as defined in Section 148(f) of the Code) under the Code or the
determination of any amount due to the United States of America
or for any consequences resulting from any such mistake or error.
Section 8.3. Borrower To Maintain its Existence; Conditions
Under Which Exceptions Permitted. The Borrower agrees that
during the Loan Term it will maintain its corporate existence,
will not dissolve or otherwise dispose of all or substantially
all of its assets, and will not consolidate with or merge into
another corporation or permit one or more corporations to
consolidate with or merge into it; provided, however, that any
mortgages and security interests in personal property entered
into by the Borrower in the ordinary course of business with
respect to any of its Property shall not be deemed to constitute
a disposition of assets for purposes of this Section 8.3 and
provided further that, if no Event of Default specified in
Section 10.1 hereof shall have occurred, the Borrower may
consolidate with or merge into another domestic corporation
organized and existing under the laws of one of the states of the
United States of America or of Canada, or permit one or more such
domestic corporations to consolidate with or merge into it, or
sell or otherwise transfer to another such domestic corporation
all or substantially all of its assets as an entirety and
thereafter dissolve, provided (a) that the surviving, resulting,
or transferee corporation, as the case may be, is incorporated
under the laws of the State or qualifies to do business in the
State, (b) that the surviving, resulting or transferee
corporation, as the case may be, assumes in writing all of the
obligations of and restrictions on the Borrower under this
Agreement, the Note, the Mortgage and any other agreement
securing the Borrower's performance of its obligations hereunder,
(c) that the consummation of the transaction will not adversely
affect the tax-exempt status of the interest payable on the
Series Bonds or any of the Bonds then Outstanding, (d) (1) that
immediately after the consummation of the transaction, and after
giving effect thereto, the surviving, resulting or transferee
corporation, as the case may be, (A) has a Net Worth at least
equal to the greater of: (i) Net Worth of the Borrower as of the
end of its most recent fiscal year immediately prior to the
transaction, or (ii) the Net Worth required to be maintained by
the Borrower under Section 8.20(a) hereof upon the effective date
of the transaction, and (B) the ratio of its Indebtedness to Net
Worth is not more than 2:1, or (2) the prior written consent of
the Authority shall be obtained, and (e) that as of the date of
such consolidation, merger, sale or transfer, the Authority and
Trustee shall be furnished with (i) an opinion of Independent
Counsel opining as to compliance with items (a) and (b) of this
Section 8.3, (ii) an opinion of Bond Counsel opining as to
compliance with item (c) of this Section 8.3, (iii) a review of
an Accountant opining as to compliance with item (d)(1) of this
Section 8.3 and (iv) a certificate, dated the effective date of
such consolidation, merger, sale or transfer, signed by the chief
executive officer and the chief financial officer of the Borrower
or of the surviving, resulting of transferee corporation, as the
case may be, to the effect that immediately after the
consummation of the transaction, and after giving effect thereto,
no event of default exists under this Agreement (as set forth in
Section 10.1(a) hereof) and no event exists which, with the
giving of notice or the lapse of time or both, would become such
an Event of Default and that the provisions of Section 8.3(d)
hereof are satisfied.
Section 8.4. Agreement To Provide Information. The
Borrower agrees, whenever requested by the Trustee or the
Authority, to provide and certify or cause to be provided and
certified such information concerning the Borrower, its finances,
and such other topics as the Trustee or the Authority from time
to time reasonably considers necessary or appropriate, including,
but not limited to such information as may be necessary to enable
the Authority to make any reports required by the Act, any other
law or governmental regulation or to enable the Authority to
issue additional Series of Bonds under the General Bond
Resolution and publicly or privately market the same.
The Borrower understands and acknowledges that the Authority
is financing the Loan by the issuance of the Series Bonds under
the Program pursuant to which the Authority issues Bonds from
time to time to provide funds therefor. The Borrower covenants
and agrees that, upon written request of the Authority from time
to time, the Borrower will promptly provide to the Authority all
information that the Authority reasonably determines to be
necessary or appropriate to offer and sell Bonds or to provide
continuing disclosure in respect of Bonds, whether under Rule
15c2-12 promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934 (17 C.F.R. 240.15c2-
12) or otherwise. The Borrower will also provide, with any
information so furnished to the Authority, a certificate of its
chief executive officer or chief financial officer to the effect
that, to the best of his or her knowledge, such information does
not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein to make the
statements made, in light of the circumstances under which they
are made, not misleading.
Section 8.5. Books of Record and Account; Financial
Statements.
(a) The Borrower agrees to maintain proper accounts,
records and books in which full and correct entries shall be
made, in accordance with generally accepted accounting
principles, of business and affairs of the Borrower. The
Authority and the Trustee or their designated agents or
representatives shall have the right to inspect such accounts,
records and books during reasonable business hours.
(b) Within 120 days after the close of each fiscal year of
the Borrower during the Loan Term, commencing with the fiscal
year ending March 31, 1997, the Borrower shall furnish to the
Authority and the Trustee a consolidated balance sheet, a
consolidated statement of income and retained earnings and a
consolidated statement of cash flows of the Borrower for the
immediately preceding fiscal year, all in reasonable detail
(including footnotes to such financial statements), such
financial statements to be audited and accompanied by the opinion
of an Accountant. Such financial statements shall be accompanied
by a report containing the total compensation paid to all
directors and officers of the Borrower during such fiscal year
and all of the calculations required by Sections 8.20 and 8.21 of
this Agreement to determine whether or not the Borrower is in
compliance with the requirements of said Sections 8.20 and 8.21,
such calculations to be prepared by an Accountant from the then-
current audited, or unaudited interim, financial statements of
the Borrower. In addition to the foregoing, except during any
period when the Authority has notified the Borrower in writing
that monthly financial statements are not required, the Borrower
shall furnish to the Authority and the Trustee within 30 days
after the expiration of each calendar month in each fiscal year
of the Borrower, a consolidated balance sheet, consolidated
statement of income and retained earnings and a consolidated
statement of changes in cash flows of the Borrower for the period
beginning on the first day of such fiscal year and ending on the
date of such balance sheet, prepared in comparative form, setting
forth the corresponding figures for the same period in the
preceding fiscal year, all in reasonable detail and certified,
subject to year-end adjustment, by the chief financial officer of
the Borrower, and including a statement that the Borrower is or
is not in compliance with the requirements of Sections 8.20
through 8.22 hereof.
Section 8.6. Borrower To File Statements with Internal
Revenue Service. The Borrower agrees to file, or cause to be
filed, with the Internal Revenue Service of the United States
Treasury Department or any other authorized governmental agency
any and all statements or other instruments which may be required
by Sections 144 or 149 of the Code, at the times required
therein, with respect to the Series Bonds.
Section 8.7. Assurance as to Tax Exemption.
Notwithstanding any other provision of this Agreement, so long as
the Series Bonds shall be unpaid, neither the Authority nor the
Borrower shall use, or direct or permit the use of, the Bond
Proceeds or any other moneys within their respective control
(including without limitation the proceeds of any insurance or
any Condemnation award with respect to the Facilities) which, if
such use had been reasonably expected on the date of issue of the
Series Bonds, would have caused the Series Bonds to be "arbitrage
bonds" within the meaning of Section 148(a) of the Code or which
use has resulted or will result in violation of any of the
requirements of Section 148 of the Code.
The Borrower also covenants that it will fulfill all
conditions specified in Section 144(a) of the Code to qualify the
Bonds as "qualified small issue bonds" thereunder and that it
will not make or permit to be made or incurred any capital
expenditures which under the provisions of Section 144(a)(4) of
the Code would cause interest on the Series Bonds to be
includable in gross income for purpose of federal income taxation
in the hands of Bondowners other than a Substantial User of the
Facilities or a "related person" (as defined in Section 147(a) of
the Code).
The Borrower also covenants that it will fulfill all
conditions specified in Sections 141, 144, 147, 148, 149 and 150
of the Code to qualify the Series Bonds as "qualified small issue
bonds" under Section 144(a)(4) of the Code.
None of the proceeds of the Series Bonds deposited in the
Loan Account or investment income therefrom will be applied to
the payments of Costs of Issuance, or any other cost that is an
"issuance cost" within the meaning of Section 147(g) of the Code.
Section 8.8. Certificate of No Default. The Borrower
agrees to deliver to the Trustee and to the Authority within 60
days after the close of each of the first three quarters of each
fiscal year of the Borrower and within 120 days after the close
of each fiscal year of the Borrower, a certificate of an
Authorized Representative of the Borrower (a) to the effect that
he is not aware of any condition, event or act which constitutes
an Event of Default hereunder and no condition, event or act
which, with the giving of notice or the lapse of time or both,
would constitute such an Event of Default, including specifically
an Event of Default that has occurred or could occur under
Sections 8.20, 8.21 and 8.22 and 10.01 hereof as a result of the
payment of any dividend on preferred stock of the Borrower, or if
any such condition, event or act exists, specifying the same, and
(b) to the effect that he is not aware of any failure in the
payment of any part of the principal of or interest on any
outstanding indebtedness of the Borrower for money borrowed and
as the same shall become due and payable, whether at the stated
maturity of such indebtedness or at a date fixed for redemption
or otherwise, or the acceleration of the maturity of any such
indebtedness following a default under the terms of any agreement
or instrument relating to any such indebtedness.
Section 8.9. Notice of Default. The Borrower will
forthwith, upon the occurrence of an Event of Default hereunder
or upon the occurrence of a condition, event or act which, with
the giving of notice or the lapse of time, or both, would
constitute such an Event of Default, notify in writing the
Trustee and the Authority of the occurrence of such Event of
Default.
Section 8.10. Assignment and Leasing.
(a) This Agreement may be assigned in whole or in part and
the Facilities may be leased as a whole or in part by the
Borrower, but only with the written consent of the Authority and
the Trustee and provided further that:
(i) No assignment (other than pursuant to Section 8.3
hereof) or lease shall relieve the Borrower from primary
liability for any of its obligations hereunder;
(ii) The assignee or lessee shall assume the
obligations of the Borrower hereunder to the extent of the
interest assigned or leased;
(iii) The Borrower shall, within ten (10) days after
the delivery thereof, furnish or cause to be furnished to
the Authority and to the Trustee a true and complete copy of
each such assignment or lease, as the case may be, and the
instrument of assumption;
(iv) Such assignment or lease shall not cause the
interest on the Series Bonds or any other Bonds issued on a
tax-exempt basis to become includible in gross income for
federal income tax purposes (other than to a Person who is a
"substantial user" of the facilities financed from proceeds
of such Bonds or a related person to a substantial user
thereof (within the meaning of section 147(a) of the Code);
(v) The assignment or lease shall be subject and
subordinate to the Lien of this Agreement, the Mortgage and
the Pledge; and
(vi) Neither the validity nor the enforceability of
this Agreement, the Mortgage or any security interest
created thereunder shall be adversely affected thereby.
(b) As of the purported effective date of any assignment or
lease pursuant to subsection (a) of this Section 8.10, the
Borrower shall furnish the Trustee with an opinion, in form and
substance satisfactory to the Trustee, (i) of Bond Counsel
opining that the tax-exempt status of the interest on the Series
Bonds will not be adversely affected thereby, (ii) of Independent
Counsel that the assignment or lease is subject and subordinate
to the Lien of this Agreement, the Mortgage and the Pledge, (iii)
of Independent Counsel that neither the validity nor the
enforceability of this Agreement, the Note or the Mortgage will
be adversely affected thereby and (iv) of Independent Counsel
opining that the assumption of obligations of the Borrower by any
Person pursuant to Section 8.10(a)(ii) hereof will constitute a
valid and legally enforceable assumption by such Person.
(c) Any reassignment or sublease in turn of any assignment
or lease entered into pursuant to subsection (a) of this Section
8.10 shall comply with and be subject to all the provisions of
subsections (a) and (b) of this Section 8.10. Any sublease in
turn of a lease entered into pursuant to subsection (a) of this
Section 8.10 shall be subject and subordinate to such original
lease.
Section 8.11. Right To Inspect the Facilities and
Collateral. The Authority, the Trustee and the duly authorized
agents of either of them shall have the right at all reasonable
times or, if no Event of Default then subsists, only during
regular business hours, to inspect the Facilities and the
Collateral.
Section 8.12. Compliance with Orders, Ordinances, etc.
(a) The Borrower agrees that it will, throughout the Loan
Term, promptly comply with all statutes, codes, laws, acts,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, permits, licenses, authorizations, directions and
requirements of all federal, state, county, municipal and other
governments, departments, commissions, boards, companies or
associations insuring the premises, courts, authorities,
officials and officers, foreseen or unforeseen, ordinary or
extraordinary, which now or at any time hereafter may be
applicable to the Collateral or any part thereof, or to any use,
manner of use or condition of the Collateral or any part thereof.
(b) Notwithstanding the provisions of subsection (a) of
this Section 8.12, the Borrower may in good faith contest the
validity or the applicability of any requirement of the nature
referred to in such subsection (a). In such event, the Borrower
may fail to comply with the requirement or requirements so
contested during the period of such contest and any appeal
therefrom, unless the Authority or the Trustee shall notify the
Borrower that by failure to comply with such requirement or
requirements the Lien of the Mortgage or this Agreement as to any
part of the Collateral may be materially endangered or the
Collateral or any part thereof may be subject to loss or
forfeiture, in which event the Borrower shall promptly take such
action with respect thereto as shall be satisfactory to the
Trustee.
Section 8.13. Liens and Encumbrances.
(a) During the Loan Term and subject to the provisions of
Section 5.4 of this Agreement and the Mortgage, the Borrower
shall not permit or create or suffer to be permitted or created
any Lien, except for Permitted Encumbrances, upon the Collateral
or any part thereof, nor may the Borrower assign, sell or
otherwise dispose of the Collateral or any part thereof, without
the prior written consent of the Authority and the Trustee. Any
such Lien, if nonetheless created or permitted, shall be
discharged by the Borrower forthwith.
(b) Notwithstanding the provisions of subsection (a) of
this Section 8.13, the Borrower may in good faith contest any
Lien upon the Collateral or any part thereof by reason of any
labor, services or materials rendered or supplied or claimed to
be rendered or supplied with respect to the Project or any part
thereof. In such event, the Borrower may permit the items so
contested to remain undischarged and unsatisfied during the
period of such contest and any appeal therefrom, unless the
Authority or the Trustee shall notify the Borrower that by
nonpayment of any such item or items the Lien of the Mortgage or
the security interest created by Section 5.4(b) and (c) of this
Agreement may be materially endangered or the Collateral or any
part thereof may be subject to loss or forfeiture, in which event
the Borrower shall promptly secure payment of all such unpaid
items by filing the requisite bond, in form and substance
satisfactory to the Trustee, thereby causing a Lien to be
removed.
(c) Upon the request of the Authority or the Trustee, the
Borrower shall provide the Authority and the Trustee, within
sixty (60) days of such request, with proof satisfactory to the
Trustee that all items of Collateral continue to be free and
clear of all Liens and encumbrances (other than Permitted
Encumbrances).
(d) Notwithstanding the provisions of subsection (a) of
this Section 8.13, the Authority shall release from the Lien of
the Mortgage any part of the Collateral constituting real
property; provided (i) an Independent architect satisfactory to
the Authority certifies that the real property to be released is
not material to the continued business operations of the Borrower
at the site owned by the Borrower and (ii) the Appraised Value of
the real property to be released is not more than 5% of the
overall Appraised Value of the Collateral constituting real
property. Pursuant to this Section 8.13(d), the Authority shall
execute such instruments as shall be necessary to effect such
release from the Mortgage as provided above as may be requested
by the Borrower.
Section 8.14. Identification of Equipment. All Equipment
shall be properly identified by the Borrower by appropriate
records, including computerized records.
Section 8.15. Relocation of Equipment. The Borrower
covenants and agrees that during the Loan Term it will not remove
any items of Equipment (except in accordance with the terms of
Section 5.4(c) hereof) from the Land to a new location either
within or outside of the State, without first obtaining the
express written consent of the Authority with respect to such
removal and relocation.
Section 8.16. Depreciation Deductions. The parties agree
that the Borrower shall be entitled to all depreciation
deductions with respect to any depreciable property in the
Facilities pursuant to Section 167 of the Code to the extent
permitted for property financed with tax-exempt bonds.
Section 8.17. Mortgage Covenants. The Borrower covenants
and agrees to perform all of the obligations and covenants
imposed upon it pursuant to the Mortgage and agrees that any
failure to perform such covenants may constitute a default for
purposes of this Agreement.
Section 8.18. Covenant Against Discrimination. The
Borrower covenants and agrees that in the performance of this
Agreement or the employment of persons at the Facilities it will
not discriminate or permit discrimination against any person or
group of persons on the grounds of race, color, religion,
national origin or sex in any manner prohibited by the laws of
the United States of America or of the State.
Section 8.19. Employment Records. Within sixty (60) days
after the close of each calendar year, the Borrower shall furnish
a written report to the Authority of the total number of
employees at the Facilities, and shall separately indicate: (a)
the number of permanent new jobs which was estimated to be
created by the Facilities on the Borrower's application to the
Authority, with job descriptions and annual salaries; (b) which
of these permanent new jobs are currently filled; and (c) the
average number of full-time, part-time or seasonal employees at
the Facilities within the three categories of (i) professional
managerial, technical, (ii) skilled, and (iii) semi-skilled or
unskilled for the current reporting period.
Section 8.20. Certain Financial Covenants.
(a) During the Loan Term, the Borrower shall maintain, as
determined at the end of the most recent fiscal year for which
audited financial statements of the Borrower are available, a Net
Worth of not less than the following amounts set forth opposite
the date of calculation below:
Minimum
Date of Calculation Net Worth
March 31, 1997 $2,500,000
March 31, 1998 3,000,000
March 31, 1999 3,750,000
March 31, 2000 and 5,000,000
thereafter
(b) During the Loan Term and as of any date of calculation,
the Borrower shall maintain a ratio of earnings before paying
interest on all of its Indebtedness, taxes and making allowances
for depreciation (all in accordance with generally accepted
accounting principles) averaged for the last three full fiscal
years of the Borrower to regularly scheduled payments of
principal and interest on all Indebtedness of the Borrower
averaged for the last three full fiscal years of the Borrower of
at least 2.0 to 1.0.
(c) The Borrower will pay punctually when due and payable,
any Indebtedness heretofore or hereafter incurred or assumed by
it and perform and observe the covenants, provisions and
conditions to be performed and observed on the part of the
Borrower in connection therewith, or in connection with any
agreement or other instrument relating thereto, or in connection
with any mortgage, pledge, security interest or other lien
existing at any time upon any of the assets of the Borrower;
provided, however, that nothing contained in this paragraph shall
require the Borrower to pay any such Indebtedness or to perform
or observe any such covenants, provisions and conditions so long
as the Borrower in good faith shall contest any claim which may
be asserted against it in respect of any such Indebtedness or of
any such covenants, provisions and conditions and shall set aside
on its books adequate reserves with respect thereto.
(d) Borrower shall maintain, as determined at the end of
each fiscal year, a ratio of its Net Worth to Indebtedness of not
less than the following amounts set forth opposite the date of
calculation below:
Net Worth to
Date of Calculation Indebtedness
March 31, 1997 1.00 to 1.0
March 31, 1998 1.00 to 1.0
March 31, 1999 1.25 to 1.0
March 31, 2000 1.75 to 1.0
March 31, 2001 and 2.00 to 1.0
thereafter
(e) Borrower shall maintain, as determined at the end of
each fiscal year, a ratio of its Current Assets to Current
Liabilities of not less than 3:1.
(f) Notwithstanding anything contained herein to the
contrary, the failure by the Borrower to comply with the
provisions of either Section 8.20(a), Section 8.20(b), Section
8.20(c), Section 8.20(d) or Section 8.20(e) of this Agreement
shall not constitute an Event of Default hereunder, but shall
result in the imposition of the following requirements on the
Borrower during the continuance of such failure:
(i) That the Borrower shall not incur, assume,
guarantee or become obligated in respect of any
Indebtedness, other than (i) Indebtedness payable to the
Board of Economic Development of the State, in a principal
amount not to exceed $300,000, to finance costs of certain
equipment to be located in the Buildings, (ii) Indebtedness
payable to the Aberdeen Development Corporation, in a
principal amount not to exceed $1,250,000, (iii)
Indebtedness payable to the Minnesota Agricultural and
Economic Development Board, in a principal amount not to
exceed $345,000, (iv) Indebtedness payable to the Aberdeen
Development Corporation, in a principal amount not to exceed
$300,000, (v) Indebtedness payable to the NECOG Development
Corporation, in a principal amount not to exceed $150,000,
and (vi) Indebtedness which matures by its terms in 60 days
or less and which is not renewable or extendible at the
option of the Borrower to a date beyond said 60-day period
in excess of the sum of the following: (y) 50% of the
accounts receivable of the Borrower not delinquent more than
90 days; and (z) 50% of the inventory of the Borrower,
valued at the lower of cost or market value; and (vii)
Indebtedness in the form of purchase money security
mortgages to purchase equipment to the extent the purchase
money mortgage is not more than eighty percent (80%) of the
purchase price of the property.
(ii) That, without the prior written consent of the
Authority, the Borrower shall not pay any annual increases
in total compensation (excluding insurance, medical, dental
and pension benefits) to the shareholders, directors and
officers of the Borrower or any person who is or has been at
any time related by blood or marriage to any of such
directors and officers in excess of 3%;
(iii) That, without the prior written consent of the
Authority, the Borrower shall not pay pursuant to contract,
agreement or other arrangement for goods or services
rendered in the aggregate to a Related Person to the
Borrower in a single fiscal year of the Borrower an amount
in excess one percent (1%) of the sales of the Borrower for
its last completed fiscal year;
(iv) That the Borrower will not pay any Indebtedness
owed by it to either the shareholders, directors, officers
and Related Persons or to any corporation the Voting Stock
of which is owned by the shareholders, directors, officers
or Related Persons or any Subsidiary of any of the
foregoing; and
(v) That the Borrower will not loan or advance funds
to any of the
shareholders, directors, officers and Related Persons or to
any corporation the Voting Stock of which is owned by the
shareholders, directors, officers and Related Persons or any
Subsidiary of any of the foregoing; and
(g) The calculations required to evidence compliance or
noncompliance with the limitations imposed by the foregoing
subsections of this Section 8.20 and Section 8.21 of this
Agreement shall be prepared by an Accountant and submitted to the
Authority and the Trustee annually pursuant to Section 8.5 of
this Agreement.
Section 8.21. Covenants Against Loans, Dividends, etc. The
Borrower covenants and agrees that it will not, without the prior
written consent of the Authority, pay or declare any dividends on
any class of its capital stock, redeem any capital stock or
purchase any treasury stock, or make any loans or transfer title
to any of its assets to any shareholder, director, officer,
stockholder or Related Persons of the Borrower in an amount or at
fair market value in the aggregate in excess of $100,000 in any
single fiscal year or in excess of $200,000 in any five
consecutive fiscal years.
Section 8.22. Covenant Against Unreasonable Compensation.
The Borrower covenants and agrees that it will not pay directors'
and officers' salaries or provide any form of compensation to its
directors and officers in excess of that reasonable for services
rendered.
Section 8.23. Restrictions on Sale or Assignment. In order
to induce the Authority to make the Loan, the Borrower agrees
that if its interest in the Mortgaged Property (as defined in the
Mortgage) or any part thereof or interest therein or its interest
in Property comprising more than fifty percent (50%) of the book
value of its Property is leased, sold, assigned, transferred,
conveyed or otherwise alienated, or mortgaged, pledged or
encumbered (other than by Permitted Encumbrances), by the
Borrower, whether voluntarily or involuntarily or by operation of
law, in either or any case without the prior written consent of
the Authority, the Authority, at its option, may declare the Loan
and all other obligations hereunder to be forthwith due and
payable; provided that the Borrower may convey its interest in
the Mortgaged Property or in its Property as permitted by
Sections 8.3 and 8.10 hereof. Any change in the legal or
equitable title of the Mortgaged Property or in the beneficial
ownership of the Mortgaged Property, whether or not of record and
whether or not for consideration, shall be deemed a transfer of
an interest in the Mortgaged Property, except any change
resulting from a merger, consolidation or transfer of assets, or
a lease or assignment, permitted and in accordance with Sections
8.3 and 8.10 hereof.
In the event ownership of the Mortgaged Property, or any
part thereof, becomes vested in a Person or Persons other than
the Borrower, without the prior written approval of the
Authority, the Authority may, without notice to the Borrower,
waive such default and deal with such successor or successors in
interest with reference to this Agreement, the Note and the
Mortgage in the same manner as with the Borrower, without in any
way releasing, discharging or otherwise affecting the liability
of the Borrower hereunder, or for indebtedness secured hereby or
by the Mortgage. No sale of the Mortgaged Property, no
forbearance on the part of the Authority, no extension of time
for the payment of the Loan or any change in the terms thereof
consented to by the Authority, shall in any way whatsoever
operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in
part, nor shall the full force and effect of the lien of the
Mortgage be altered thereby. Any deed conveying the interest of
the Borrower in the Mortgaged Property, or any part thereof, in a
transaction otherwise permitted by this Section 8.23 shall
provide that the grantee thereunder assume all of the grantor's
obligations under this Agreement, the Mortgage, the Note and all
other instruments or agreements evidencing or securing the
repayment of the Loan. In the event such deed shall not contain
such assumption, the Authority shall have all rights reserved to
it hereunder in the event of a default or if the Authority shall
not elect to exercise such rights and remedies, the grantee under
such deed shall nevertheless be deemed to have assumed such
obligations by acquiring the Mortgaged Property or such portion
thereof.
ARTICLE IX
PLEDGE OF CERTAIN INTERESTS
Section 9.1. Pledge of Certain Interests to Bondowners.
(a) The Authority under Section 1.04 of the General Bond
Resolution and under Article V of the Series Supplemental
Resolution has pledged all of its rights and interest and all
provisions of this Agreement and the Note (except pursuant to
Section 8.2 hereof), and the Mortgage as security for the payment
of the principal of, premium, if any, and interest on the Bonds
and the Series Bonds. Such Pledge shall in no way impair or
diminish any obligation of the Borrower under this Agreement, the
Note and the Mortgage. The Borrower hereby consents to such
Pledge by the Authority.
(b) Except as provided in this Section 9.1 and in Article
X of this Agreement and except as otherwise expressly provided in
this Agreement, the Note and the Mortgage, the Authority shall
not sell, assign, transfer, convey or otherwise dispose of its
interest in or its rights under this Agreement, the Note and the
Mortgage, without the prior written consent of the Borrower.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Default Defined.
(a) Any one of the following shall constitute an "Event of
Default" under this Agreement:
(i) The failure by the Borrower to pay or cause to be
paid, when due, the amounts specified to be paid pursuant to
Section 5.1, Section 5.2(a) or Section 11.1(a) hereof and
the Note;
(ii) The failure by the Borrower to observe and
perform any covenant contained in Section 8.3, 8.20(f), 8.21
or 8.23 hereof;
(iii) The failure by the Borrower to observe and
perform any covenant, condition or agreement hereunder on
its part to be observed or performed (except obligations
referred to in Section 10.1(a)(i), (ii), (iv) and (v)
hereof) for a period of thirty (30) days after written
notice, specifying such failure and requesting that it be
remedied, is given to the Borrower by the Authority or the
Trustee;
(iv) The dissolution or liquidation of the Borrower or
the filing by the Borrower of a voluntary petition in
bankruptcy, or the failure by the Borrower within sixty (60)
days to lift any execution, garnishment or attachment of
such consequence as will impair its ability to carry on its
operations at the Facilities, or the commission by the
Borrower of any act of bankruptcy, or the adjudication of
the Borrower as a bankrupt, or the assignment of assets by
the Borrower for the benefit of its creditors, or the entry
by the Borrower into an agreement of composition with its
creditors, or the approval by a court of competent
jurisdiction of a petition applicable to the Borrower in any
proceeding for its reorganization instituted under the
provisions of any state or federal bankruptcy or similar
law, or appointment by final order, judgment or decree of a
court of competent jurisdiction of a receiver of the whole
or a substantial portion of the Property of the Borrower
unless such receiver is removed or discharged within sixty
(60) days of the date of his qualification). The term
"dissolution or liquidation of the Borrower" as used in this
subsection shall not be construed to include any transaction
permitted by Section 8.3 hereof; or
(v) Default in the payment of any part of the
principal of or interest on any Indebtedness of the Borrower
for money borrowed having an outstanding principal amount of
$50,000, when and as the same shall become due and payable,
whether at the stated maturity of such Indebtedness or at a
date fixed for redemption or otherwise, which failure
results in the acceleration of the maturity of any such
indebtedness following a default under the terms of any
agreement or instrument relating to any such indebtedness.
(b) Notwithstanding the provisions of Section 10.1(a), if
by reason of force majeure either party hereto shall be unable in
whole or in part to carry out its obligations under this
Agreement and if such party shall give notice and full
particulars of such force majeure in writing to the other party
and to the Trustee within a reasonable time after the occurrence
of the event or cause relied upon, the obligations under this
Agreement of the party giving such notice, so far as they are
affected by such force majeure, shall be suspended during the
continuation of the inability, which shall include a reasonable
time for the removal of the effect thereof. The suspension of
such obligations for such period pursuant to this subsection (b)
shall not be deemed an Event of Default under this Section 10.1.
Notwithstanding anything to the contrary in this subsection (b),
an event of force majeure shall not excuse, delay or in any way
diminish the obligations of the Borrower to make the payments
required by Section 5.1, Section 5.2 and Section 11.1(a) hereof,
to obtain and continue in full force and effect the insurance
required by Section 4.6 and Section 6.4 hereof, to provide the
indemnity required by Section 8.2 hereof and to comply with the
provisions of Sections 2.2(c), 2.2(g), 2.2(m), 2.2(u), 2.2(bb),
2.2(cc), 2.2(ff), 2.2(gg), 4.3, 4.5, 6.3, 6.5, 6.7, 8.3, 8.4,
8.6, 8.7, 8.8, 8.9, 8.10, 8.12, 8.13, 8.18, 8.19, 8.20, 8.21,
8.22 and 8.23 hereof. The term "force majeure" as used herein
shall include, without limitation, acts of God, strikes, lockouts
or other industrial disturbances, acts of public enemies, orders
of any kind of the government of the United States of America or
of the State or any of their departments, agencies, governmental
subdivisions, or officials, or any civil or military authority,
insurrections, riots, epidemics, landslides, lightning,
earthquakes, fire, hurricanes, storms, floods, washouts,
droughts, arrests, restraint of government and people, civil
disturbances, explosions, breakage or accident to machinery,
transmission pipes or canals, partial or entire failure of
utilities, or any other cause or event not reasonably within the
control of the party claiming such inability.
Section 10.2. Remedies on Event of Default.
(a) Whenever any Event of Default shall have occurred, the
Authority or the Trustee may take any one or more of the
following remedial steps.:
(i) Declare, by written notice to the Borrower, to be
immediately due and payable, whereupon the same shall become
immediately due and payable and so accelerated: (i) all
unpaid amounts payable pursuant to Section 5.1 hereof, and
pursuant to the Note (constituting principal of the Loan and
accrued but unpaid interest thereon) and (ii) all other
payments due under this Agreement and pursuant to the Note
(whether or not constituting principal of the Loan and
accrued but unpaid interest thereon);
(ii) Terminate the disbursement of any moneys in the
Loan Account in accordance with Section 4.3 hereof and, upon
acceleration of the Loan pursuant to Section 10.2(a)(i) of
this Agreement, transfer such moneys to the Special
Redemption Account;
(iii) Foreclose and otherwise enforce the Mortgage on,
and any security interest in, the Facilities or other
Collateral;
(iv) Take possession of the Equipment and for that
purpose the Borrower agrees that (a) it will, when so
requested by the Authority or the Trustee assemble the
Equipment and make it available to the Authority or the
Trustee on the premises on which it is located and (b) the
Authority and the Trustee, their employees, agents and
representatives shall have the right to enter peacefully
upon any premises in the possession of the Borrower wherein
the Equipment or any part thereof may be located and take
possession of and remove such Equipment without interference
or hindrance from the Borrower, its officers, agents or
employees or any person associated therewith;
(v) Upon not less than ten (10) days' notice to the
Borrower (which the Borrower hereby agrees is commercially
reasonable) the Authority or the Trustee may proceed to sell
or otherwise dispose of the Equipment or any part thereof by
public or private sale in any commercially reasonable manner
(and without intending to limit the generality of the
foregoing, the Borrower hereby agrees that the sale of such
property at a public auction conducted by a reputable
auctioneer in the manner in which such auctions are usually
conducted is commercially reasonable); and
(vi) Take any other action at law or in equity which
may appear necessary or desirable to collect the payments
then due or thereafter to become due and to enforce the
obligations, agreements or covenants of the Borrower under
this Agreement, the Mortgage and the Note.
(b) Any sums realized as a consequence of any action taken
pursuant to Section 10.2(a) shall be paid to the Trustee and
shall be applied by the Trustee, subject to the provisions of
Section 7.04 of the General Bond Resolution, in accordance with
the provisions of Section 6.06(d) of the General Bond Resolution,
to which such application the Borrower hereby consents.
Section 10.3. Remedies Cumulative. No remedy herein
conferred upon or reserved to the Authority is intended to be
exclusive of any other available remedy, but each and every such
remedy shall be cumulative and in addition to every other remedy
given under this Agreement or now or hereafter existing at law or
in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and
as often as may be deemed expedient. In order to entitle the
Authority to exercise any remedy reserved to it in this Article
X, it shall not be necessary to give any notice, other than such
notice as may be herein expressly required in this Agreement and
the Note.
Section 10.4. Agreement To Pay Attorneys' Fees and
Expenses.. In the event the Borrower should default under any of
the provisions of this Agreement and the Authority or the Trustee
should employ attorneys or incur other expenses for the
collection of amounts payable hereunder or the enforcement of
performance or observance of any obligations or agreements on the
part of the Borrower herein contained, including without
limitation obligations and agreements under this Section 10.4,
the Borrower shall, on demand therefor, pay to the Authority or
the Trustee the reasonable fees of such attorneys and such other
expenses so incurred. Commencement of a lawsuit to recover any
amount payable under this Agreement or the Note shall be deemed a
demand for payment of all expenses incurred in the course of such
lawsuit, including without limitation attorneys' fees.
Section 10.5. No Additional Waiver Implied by One Waiver.
In the event any agreement contained herein should be breached by
either party and thereafter waived by the other party, such
waiver shall be limited to the particular breach so waived and
shall not be deemed to waive any other breach hereunder including
without limitation a subsequent breach or subsequent breaches of
the same provision of this Agreement.
ARTICLE XI
EARLY TERMINATION OF AGREEMENT;
PREPAYMENT OF LOAN
Section 11.1. Early Termination of Agreement.
(a) The Borrower shall terminate this Agreement and shall
comply with the requirements set forth in Section 11.2 hereof
within 90 days after a Determination of Taxability. The
obligation of the Borrower to comply with the requirements of
this Section 11.1(a) shall be absolute and unconditional to the
same extent as provided in Sections 5.1 and 5.3 of this
Agreement.
(b) The Borrower shall have an option to terminate this
Agreement upon filing with the Authority and the Trustee a
certificate signed by an Authorized Representative of the
Borrower stating the Borrower's intention to do so on the next
succeeding Interest Payment Date pursuant to this Section 11.1(b)
and complying with the requirements of Section 3.02(b) of the
General Bond Resolution and upon further compliance with the
requirements set forth in Section 11.2 hereof.
Section 11.2. Conditions to Early Termination of Agreement.
In the event the Borrower exercises its option, or is required,
to terminate this Agreement in accordance with any provision of
Section 11.1 hereof, the Borrower shall comply with the
requirements set forth in the following three subsections:
(a) The following payments shall be made:
(i) To the Trustee for the account of the Authority:
an amount certified by the Trustee which, when added to the
total amount on deposit with the Trustee for the account of
the Authority and the Borrower and available for such
purpose, will be sufficient (A) to pay, for deposit into the
Special Redemption Account, the amount required by Section
2.04(a) of the Series Supplemental Resolution as the
Redemption Price for the Series Bonds in connection with the
redemption in whole of such Bonds, if such termination is
pursuant to Section 11.1(a) hereof, or (B) to pay, for
deposit into the Optional Redemption Account, the Redemption
Price of the Series Bonds in connection with the redemption
in whole of such Bonds, in accordance with the terms of
Section 2.04(a) of the Series Supplemental Resolution,
together with all interest on such Series Bonds which will
accrue to the date of redemption (which shall be the next
succeeding Interest Payment Date for which the Trustee may
give notice pursuant to Section 3.03 and Section 3.04 of the
General Bond Resolution), if such termination is pursuant to
Section 11.1(b) hereof, plus, in either event, to pay any
amounts then payable or to be payable to the United States
under Section 148(f) of the Code following redemption of the
Series Bonds;
(ii) To the Authority: an amount certified by the
Authority sufficient to pay all unpaid fees and expenses of
the Authority incurred under this Agreement and the
Authority Resolution; and
(iii) To the appropriate Person: an amount sufficient
to pay all other fees, expenses or charges, if any, due and
payable or to become due and payable under this Agreement
and the Authority Resolution and not otherwise paid or
provided for.
(b) The certificate required to be filed pursuant to
Section 11.1(b), shall specify the date upon which the payments
pursuant to subdivision (a) of this Section 11.2 shall be made,
which date shall not be less than ninety (90) nor more than one
hundred twenty (120) days from the date such certificate is filed
with the Authority and the Trustee.
Section 11.3. Discharge of Lien. If the Borrower shall pay
or cause to be paid to the Trustee for the account of the
Authority the principal or Redemption Price, if applicable, and
interest due or to become due at the times and in the manner
stipulated in the Series Bonds and observe and perform all
obligations and covenants to be performed by it hereunder and
under the Note, then the rights in the Collateral hereby granted
and all covenants, agreements and other obligations of the
Borrower hereunder to the Authority and the Trustee shall
thereupon cease, terminate and become void and be discharged and
satisfied, except as otherwise provided in Section 12.9 hereof.
In such event, the Authority and the Trustee shall cancel and
discharge the Lien of the Mortgage and the security interest in
the Equipment created in Section 5.4 of this Agreement and
execute and deliver to the Borrower all such instruments as may
be appropriate to evidence such discharge and satisfaction of
such liens. After payment in full of the Series Bonds and the
interest thereon and the payment of all other amounts, fees,
charges and expenses required to be paid under this Agreement,
the Note and the Series Supplemental Resolution, all amounts on
deposit with the Trustee for the account of the Authority and the
Borrower under this Agreement, the Note and the Series
Supplemental Resolution, if any, shall be applied by the Trustee
in accordance with the provisions of Section 5.21 of the General
Bond Resolution.
Section 11.4. Prepayment of Loan in Part.
(a) The Borrower shall have the option to prepay the Loan
in part upon filing with the Authority and the Trustee a
certificate signed by an Authorized Representative of the
Borrower stating the Borrower's intention to do so pursuant to
this Section 11.4 and complying with the requirements of Section
2.04(a) of the Series Supplemental Resolution and Section 3.06 of
the General Bond Resolution. Such certificate shall specify the
date (which shall be an Interest Payment Date) and amount of the
partial prepayment of the Loan, which date shall not be less than
one hundred twenty (120) days nor less than ninety (90) days
after the date such certificate is filed with the Authority and
the Trustee.
(b) Upon the filing of such certificate, the Borrower shall
pay to the Trustee for the account of the Authority a sum
sufficient to pay, for deposit into the Optional Redemption
Account, the Redemption Price of the Series Bonds to be redeemed
(from the amounts of the Loan to be prepaid as certified in
Section 11.4(b) of this Agreement) in accordance with the terms
of Section 2.04(a) of the Series Supplemental Resolution,
together with all interest on such Series Bonds which will accrue
to the date of redemption.
Section 11.5. Consent to Refunding. If the Authority
certifies to the Borrower that it wishes to refund the Series
Bonds in order to permit the Authority to amend the provisions of
the General Bond Resolution or the Pledge and Escrow Agreement
without the necessity of obtaining Bondowner consent, the
Borrower hereby agrees to continue to make payments and to be
bound by this Agreement and the Note as if the Series Bonds
continued to be Outstanding.
ARTICLE XII
MISCELLANEOUS
Section 12.1. Notices. All notices, other than interest
billing notices, certificates or other communications hereunder
shall be in writing and shall be sufficiently given and shall be
deemed given when delivered and, if delivered by mail, shall be
sent by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
To the South Dakota Economic Development
Authority: Finance Authority
Governors Office of Economic
Development
711 East Wells Avenue
Pierre, South Dakota 57501
Attn: Executive Director
To the APA Optics, Inc.
Borrower:
2950 North East 84th Lane
Blaine, Minnesota 55449
Attn: Dr. Anil K. Jain
To the The First National Bank in Sioux Falls
Trustee:
100 South Phillips
P.O. Box 1186
Sioux Falls, South Dakota 57117
Attn: Corporate Trust Department
A duplicate copy of each notice, certificate and other
communication given hereunder by either the Authority or the
Borrower to the other shall also be given to the Trustee. The
Authority, the Borrower and the Trustee may, by notice given
hereunder, designate any further or different addresses to which
subsequent notices, certificates and other communications shall
be sent.
Section 12.2. Binding Effect. This Agreement shall inure
to the benefit of and shall be binding upon the Authority, the
Borrower and their respective successors and assigns and shall
create no rights in any other parties except as may be
specifically set forth elsewhere in this Agreement, including
Section 2.3 hereof.
Section 12.3. Severability. In the event any provision of
this Agreement shall be held invalid or unenforceable by any
court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 12.4. Amendments, Changes and Modifications. This
Agreement, the Mortgage and the Note may not be amended, changed,
modified, altered or terminated without the concurring written
consent of the Bondowners, except as provided in Section 6.08 of
the General Bond Resolution.
Section 12.5. Privacy Disclosure. The Borrower understands
that the information which the Borrower provides pursuant to this
Agreement, including, but not limited to, information required
under Sections 8.4, 8.5, 8.6, 8.8 and 8.19 hereof, will be used
by the Authority to:
(a) Assess the Borrower's financial status;
(b) Make any reports required by the Act, any other law or
government regulation;
(c) Provide such information to the public, including, but
not limited to, potential purchasers of the Bonds, Bondowners,
Bond Counsel and the Authority's underwriters and placement
agents, as is needed in connection with the sale, issuance and
payment of Bonds;
(d) Enforce this agreement and any mortgage or other
security instrument between the Borrower and the Authority; and
(e) Operate and evaluate its Program.
The Borrower further understands that there is a possibility that
the information might constitute a public record and may be
examined by anyone. The Borrower hereby consents to the use of
such data as described above and to its public disclosure.
Failure to provide the required data may constitute an Event of
Default under Section 10.1.
Section 12.6. Execution Counterparts. This Agreement may
be executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same
instrument.
Section 12.7. Applicable Law. This Agreement shall be
governed by the applicable laws of the State without giving
effect to the conflicts-of-law principles thereof.
Section 12.8. Recording and Filing.
(a) The Mortgage and financing statements perfecting the
security interest created therein or herein shall be recorded or
filed, as the case may be, in such office or offices as may at
the time be provided by law as the proper place for the
recordation or filing thereof. The Borrower shall be responsible
for such recording and filing and shall bear the expense
associated therewith.
(b) The Authority and the Borrower shall execute and
deliver all instruments and shall furnish all information
necessary or appropriate to perfect or protect any security
interest created or contemplated by this Agreement, the Mortgage
or the Authority Resolution.
Section 12.9. Survival of Obligations. This Agreement and
the Note shall remain in full force and effect until the Series
Bonds, together with all interest thereon, and all amounts
payable under this Agreement and the Note and the Authority
Resolution shall have been paid in full. However, the
obligations of the Borrower to make the payments required by
Section 5.1, Section 5.2(a) and Section 5.2(b) hereof and to
provide the indemnity required by Section 8.2 hereof shall
survive the termination of this Agreement and the full payment of
the Bond.
Section 12.10. Table of Contents and Section Headings Not
Material. The Table of Contents and the headings of the several
Sections in this Agreement have been prepared for convenience of
reference only and shall not control, affect the meaning of or be
taken as an interpretation of any provision of this Agreement.
Section 12.11. Limited Liability. The Act prescribes and
the parties intend that by reason of making this Agreement, by
reason of the issuance of the Series Bonds, by reason of the
performance of any act required of the Authority by this
Agreement, or by reason of the performance of any act requested
of the Authority by the Borrower, no indebtedness or charge
against the general credit or taxing powers, if any, of the
Authority within the meaning of any constitutional or statutory
limitation shall occur.
IN WITNESS WHEREOF, the Authority and the Borrower have caused
this Loan Agreement to be executed in their respective names as
of June 1, 1996.
SOUTH DAKOTA ECONOMIC DEVELOPMENT
FINANCIAL AUTHORITY
By: /s/ Jack Lynass
(SEAL) Chairman
ATTEST:
By: /s/ Lonae Lindquist
Secretary
APA OPTICS, INC.
By: /s/ Anil L.
Jain
(SEAL) President
ATTEST:
By: /s/ Kenneth A. Olsen
Secretary
APPENDIX I
PROMISSORY NOTE
No. 1 $1,895,000
APA Optics, Inc. (the "Borrower"), a corporation organized
and existing under the laws of the State of Minnesota, and
authorized to conduct business in the State of South Dakota,
acknowledges itself indebted and for value received hereby
promises to pay to the South Dakota Economic Development Finance
Authority (the "Authority") or assigns, the principal sum of ONE
MILLION NINE HUNDRED TWENTY THOUSAND AND 00/00 DOLLARS
($1,895,000.00), together with interest on the unpaid principal
balance of this Note until the Borrower's obligation with respect
to the payment of such sum shall be discharged at a rate of
interest equal from time to time to the weighted average of the
stated rates of interest on the Outstanding Bonds referred to
below (taking into account the different rates for the different
maturities and principal amounts of the Outstanding Bonds), but
payable not as provided in the Bonds but as provided in Schedule
I hereto and in the Loan Agreement referred to below.
This Note is issued to evidence the obligation of the
Borrower under and pursuant to, and shall be governed by and
construed in accordance with the terms and conditions of, a Loan
Agreement, dated as of June 1, 1996 (the "Loan Agreement"),
between the Authority and Borrower, for the repayment of the loan
made by the Authority to the Borrower thereunder from the
proceeds of the Authority's $1,895,000 in aggregate principal
amount of Economic Development Revenue Bonds (Pooled Loan
Program) (APA Optics, Inc. Project), Series 1996A (the "Bonds")
and the payment of interest thereon, including provision for
prepayment of said loan in certain cases, and for the
satisfaction of certain rights of reimbursement of the Capital
Reserve Fund or the Authority as provided in the Loan Agreement
under certain circumstances. This Note is secured by a Mortgage
and Security Agreement_One Hundred Eighty Day Redemption, dated
as of the date hereof (the "Mortgage"), with respect to the Land
(as defined in the Loan Agreement), and is secured by a security
interest in the Equipment (as defined in the Loan Agreement),
granted by the Borrower to the Authority as provided in the Loan
Agreement. The Loan Agreement (together with this Note) and the
Mortgage have been pledged to the Owners of the Bonds issued from
time to time under the First Amended and Restated Economic
Development Revenue Bond (Pooled Loan Program) General Bond
Resolution (the "General Bond Resolution") adopted by the Board
of Directors of the Authority on September 11, 1990, as
heretofore or hereafter amended or supplemented from time to time
in accordance with its terms.
As provided in the Loan Agreement and subject to the
provisions thereof, payments of principal of and interest on this
Note are to be made in lawful money of the United States of
America at the place and in the manner provided in the Loan
Agreement, in installments due on the dates and in the amounts
set forth on the payment schedule attached hereto as Schedule I,
such installments to be reduced or abated as provided in Section
5.1 of the Loan Agreement.
This Note may be prepaid in whole or in part in accordance
with the provisions of the Loan Agreement. In addition, upon the
occurrence of a Determination of Taxability (as defined in the
Loan Agreement), this Note shall be mandatorily prepaid and the
Loan Agreement terminated in accordance with the provisions of,
and for the amount specified in, Article XI of the Loan Agreement
(and in particular, Section 11.1(a) and Section 11.2(a)(i)(A)
thereof).
The Borrower agrees to make the payments on this Note on the
dates and in the amounts specified herein and in the Loan
Agreement and in addition agrees to make such other payments at
such times and upon such conditions as are required pursuant to
the Loan Agreement. Upon the occurrence of an Event of Default
(as defined in the Loan Agreement), the principal of and accrued
interest on this Note may be declared immediately due and payable
as provided in the Loan Agreement. This Note may be cancelled,
amended or supplemented as provided in the Loan Agreement.
Presentment for payment, notice of dishonor, protest and
notice of protest are hereby waived by the Borrower.
IN WITNESS WHEREOF, APA Optics, Inc. has caused this Note to
be executed in its name and on its behalf by its President by the
manual signature of said officer, and its official seal to be
impressed hereon and attested by the manual signature of its
Secretary, all as of June 1, 1996.
APA OPTICS, INC.
___________________________________
(SEAL) President
ATTEST:
___________________________________
Secretary
SCHEDULE I
Payment Schedule
Installment Amount Installment
Payment Date (the first day of (includes principal and
the month) interest)
July 1996 $ 3,056.80
August 1996 to and including 10,917.13
March 1997
April 1997 to and including 14,408.75
March 1998
April 1998 to and including 14,596.25
March 1999
April 1999 to and including 14,757.92
March 2000
April 2000 to and including 14,473.55
March 2001
April 2001 to and including 14,597.71
March 2002
April 2002 to and including 14,693.55
March 2003
April 2003 to and including 14,760.21
March 2004
April 2004 to and including 14,796.88
March 2005
April 2005 to and including 14,386.05
March 2006
April 2006 to and including 14,801.46
March 2007
April 2007 to and including 14,743.13
March 2008`
April 2008 to and including 14,655.63
March 2009
April 2009 to and including 14,538.55
March 2010
April 2010 to and including 14,753.13
March 2011
April 2011 to and including 14,494.80
March 2012
April 2012 to and including 14,625.00
March 2013
April 2013 to and including 14,698.96
March 2014
April 2014 to and including 14,716.67
March 2015
April 2015 to and including 14,678.13
March 2016
The foregoing payment schedule assumes that all Series Bonds
are paid at their Stated Maturities or on Sinking Fund Payment
Dates and is subject to the reductions and abatements provided in
Section 5.1 of the Loan Agreement.
EXHIBIT A TO
LOAN AGREEMENT
DESCRIPTION OF LAND
Legal Description of the Land
Lots 1, 2 and the North 203.8 feet of Lot 3, Block 3,
Aberdeen Industrial Park East Addition to Aberdeen, South Dakota
located in the Northeast Quarter of Section 16, Township 123
North, Range 63 West of the 5th P.M., according to the plat
thereof of record, Brown County, South Dakota.
Additional Permitted Encumbrances:
1. RESOLUTION concerning creation of the West Brown Irrigation
District, dated Jan. 18, 1965, executed by the Board of Brown
County Commissioners to the public; filed for record February 8,
1965 at 8:00 A.M. in Book 41 MR, page 534 records of said county.
2. RESERVATIONS contained in that certain State Patent, dated
May 11, 1945, executed by State of South Dakota to F.W.
Hatterscheidt; filed for record June 1, 1945 at 9:30 A.M. in Book
136, page 102 records of said county.
3. RIGHT-OF-WAY EASEMENT, dated August 20, 1991, executed by
John Milton Howell and Thelma Howell, to WEB Water Development
Association, Inc.; filed for record May 14, 1992 at 2:42 P.M. in
Book 110 MR, page 415 records of said county.
4. STATEMENT TO CONDITIONS, COVENANTS, RESTRICTIONS AND
RESERVATIONS AND EASEMENTS AFFECTING ABERDEEN EAST INDUSTRIAL
PARK ABERDEEN, SOUTH DAKOTA, dated November 7, 1995, executed by
Aberdeen Development Corporation, and Midstates Printing, Inc.,
and Midcom, Inc. to the Public; filed for record November 20,
1995 at 9:16 A.M. in Book 117 MR, page 174 records of said
county.
5. Subject to set-back line and utility easement as shown on
the recorded plat.
EXHIBIT B TO
LOAN AGREEMENT
DESCRIPTION OF EQUIPMENT
Number Cost Total Cost
Equipment Requir each NEW Anticipated
ed NEW ($1000) Supplier
($1000
s)
Wafer Saw 1 90 90 K&S 982/Disco DAD
520
Wafer Mounter 1 15 15 Kisco DFM-M150
Wafer Scribe 1 15 15 Tempress
Wafer Cleaning 1 25 25 Disco DCS 140
Die Eject 1 5 5 Royce DE35
Station
Microscopes 6 5 30 10-60/Meiji LM
Series
Laminar Flow 18 5 90 Clean Air
Hoods
Leak Tester 1 20 20 Veeco MS 34DT
Mask Aligner 1 170 170 Kart Suse, America
Wet Benches 2 10 20 Clean Air Systems
Spectrophotomete 1 30 30 Beckmann
r
TOTAL $510
EXHIBIT C
INVESTMENT INSTRUCTIONS
June 25, 1996
The First National Bank in Sioux Falls
100 South Phillips
P.O. Box 1168
Sioux Falls, South Dakota 57117
Attn: Corporate Trust Department
Re: $1,895,000 Economic Development Revenue Bonds (Pooled
Loan Program Project) (APA Optics, Inc. Project),
Series 1996A South Dakota Economic Development Finance
Authority
Ladies and Gentlemen:
This letter sets forth instructions regarding the investment
and disposition of moneys deposited in various funds and accounts
established under the First Amended and Restated General Bond
Resolution, adopted by the Board of Directors of the South Dakota
Economic Development Finance Authority (the "Authority") on
September 11, 1990 (as heretofore or hereafter amended or
supplemented from time to time in accordance with its terms, the
"General Bond Resolution"), and the Series Supplemental
Resolution, adopted by the Board of Directors of the Authority on
June 13, 1996 (collectively, with the General Bond Resolution,
the "Resolutions"), pursuant to which you are acting as Trustee,
and the Capital Reserve Fund Pledge and Escrow Agreement, dated
as of December 18, 1986 (the "Pledge and Escrow Agreement"),
between the Authority and you, as Escrow Agent. The Resolution
provides for the issuance by the Authority of its Economic
Development Revenue Bonds (Pooled Loan Program Project) (APA
Optics, Inc. Project), Series 1996A (the "Series 1996A Bonds"),
in the aggregate principal amount of $1,895,000. The proceeds of
the Series 1996A Bonds are to be loaned to APA Optics, Inc., a
Minnesota corporation (the "Borrower"), pursuant to a Loan
Agreement, dated as of June 1, 1996 (the "Loan Agreement"),
between the Authority and the Borrower, and are to be used to
finance a portion of the costs of the acquisition, construction
and equipping of a manufacturing facility (the "Project") in
Aberdeen, South Dakota.
I. General Provisions and Definitions.
1.1. The purpose of these Instructions is to ensure that
the investment of the moneys in the funds and accounts described
herein will comply with the arbitrage limitations imposed by
Section 148 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations, temporary and final, applicable
thereunder, including without limitation Income Tax Regulations,
Sections 1.148-1 through 1.148-11, 1.149(b)-1, 1.149(d)-1,
1.149(e)-1, 1.149(g)-1, 1.150-1 and 1.150-2 (the "Regulations").
The Instructions implement the Arbitrage Certification executed
by the Authority and endorsed by the Borrower and the Underwriter
on the date of issue of the Series 1996A Bonds. These
Instructions may be amended, supplemented or changed by the
Authority, but only if the amendment, supplement or change is
accompanied by an opinion of nationally recognized bond counsel
stating that compliance with these Instructions as so amended,
supplemented or changed will not adversely affect the exemption
from federal income taxation of interest on the Series 1996A
Bonds or other Bonds of the Authority.
1.2. In addition to the definitions assigned capitalized
terms used in this Instructions the Resolutions, the Code and the
Regulations, the following terms have the following meanings when
used in these Instructions:
Bond Year means (i) the period from the Closing Date to
April 1, 1997, and (ii) each subsequent period of one year ending
on April 1 or, if the last Bond is not paid on an April 1, such
shorter period from the last preceding April 2 to the date on
which the last Bond is paid.
Closing Date means June 25, 1996, the date of issuance and
delivery of the Series 1996A Bonds.
Computation Date means an installment computation date (the
last day of the fifth and each succeeding fifth Bond Year) and
the final computation date (the date the last Series 1996A Bond
is discharged).
Gross Proceeds means, with respect to the Series 1996A
Bonds, all proceeds of the Series 1996A Bonds (including sale
proceeds, investment proceeds, replacement proceeds and
transferred proceeds) and any funds (other than proceeds) that
are part of a reserve or replacement fund for the Series 1996A
Bonds, including without limitation, amounts on hand in the Loan
Account, in Capitalized Interest Account, the Loan Reserve
Account, the Special Redemption Account, the Optional Redemption
Account, the Holding Account and the Debt Service Account.
Investment Property means any security, obligation (other
than a Non-AMT Obligation), annuity contract or investment-type
property.
Non-AMT Obligation means any obligation the interest on
which is not includible in gross income under Section 103 of the
Code and which is not a "specified private activity bond" (within
the meaning of Section 57(a)(5)(C) of the Code).
Nonpurpose Investment means any Investment Property that is
not a purpose investment in which Gross Proceeds of the Series
1996A Bonds are invested, including investments allocated to the
Series 1996A Bonds in the Loan Account, the Capitalized Interest
Account, the Loan Reserve Account, the Special Redemption
Account, the Optional Redemption Account, the Holding Account and
the Debt Service Account.
Rebatable Arbitrage means, as of any Computation Date, the
excess of the future value of all nonpurpose receipts with
respect to the Series 1996A Bonds over the future value of all
nonpurpose payments with respect to the Series 1996A Bonds.
Voluntary Computation Date means April 1, 1997 and each
April 1 thereafter, excluding Computation Dates.
Yield, with reference to any obligation, means that discount
rate which, when computing the present value of all
unconditionally payable payments of principal and interest paid
and to be paid on such obligation, produces an amount equal to
the present value of the issue price of the obligation.
1.3. Other than the Debt Service Account, the Loan Reserve
Account and the Capital Reserve Fund, the Authority has not
created or established, and does not expect to create or
establish, any sinking or similar fund which is reasonably
expected to be used to pay debt service on the Series 1996A Bonds
or which is pledged as collateral to secure the Series 1996A
Bonds. No amounts in any other funds or amounts of the Authority
are reserved for or pledged to the payment of debt service on the
Series 1996A Bonds or will be used to replace funds that will be
used to pay debt service on the Series 1996A Bonds.
II. The Loan Account and Capitalized Interest Account.
2.1. From the sale proceeds of the Series 1996A Bonds,
$1,679,100.00 (the "Original Proceeds") are to be deposited in
the Loan Account and Capitalized Interest Account for the purpose
of financing the acquisition and construction of the Project and
the payment of interest thereon during construction of the
Project. The Original Proceeds may be invested in obligations
that bear a Yield in excess of the Yield of the Series 1996A
Bonds. The period of unrestricted investment of the Original
Proceeds shall end on the earlier of (i) June 25, 1999 or (ii)
the date on which the Project would be completed if undertaken
and completed with due diligence (excluding delays occasioned by
force majeure) and the costs thereof promptly paid when due (the
"Completion Date").
2.2. After the Completion Date any Original Proceeds on
deposit in the Loan Account may be invested in obligations that
bear a Yield in excess of the Yield of the Series 1996A Bonds,
but only to the extent that the amounts so invested, when added
to amounts described in Sections 2.4, 3.2, 3.4, 4.2 and 5.2
hereof that are invested at a Yield in excess of the Yield of the
Series 1996A Bonds, do not exceed the limitations on the dollar
amount of such investments set forth in Section VI of these
Instructions.
2.3. Any interest earnings or investment gains realized
from the investment of moneys on deposit in the Loan Account and
Capitalized Interest Account may be reinvested pending
disbursement in obligations that bear a Yield in excess of the
Yield of the Series 1996A Bonds. The period of unrestricted
investment of such earnings shall not exceed the longer of (i) a
one-year period beginning on the date of receipt of each amount
of investment income, or (ii) a period ending on the Completion
Date.
2.4. After the period of unrestricted reinvestment of
interest and investment earnings described in Section 2.4., such
earnings may be invested in obligations that bear a Yield in
excess of the Yield of the Series 1996A Bonds, but only to the
extent that the amount so invested, when added to amounts
described in Sections 2.2, 3.2, 3.4, 4.2 and 5.2 hereof that are
invested at a Yield in excess of the yield of the Series 1996A
Bonds, do not exceed the limitations on the dollar amount of such
investments set forth in Section VI of these Instructions.
III. The Holding Account, Special Redemption Account, Optional
Redemption Account and Debt Service Account.
3.1. Payments made by the Borrower pursuant to the Loan
Agreement which are deposited in the Holding Account are to be
transferred to the Debt Service Account for the purpose of paying
principal of and interest on the Series 1996 Bonds within 13
months of receipt. Such moneys may be invested in obligations
that bear a Yield in excess of the Yield of the Series 1996A
Bonds. Interest realized from the investment of moneys on
deposit in the Holding Account and Debt Service Account is to be
used to pay principal of or interest on the Series 1996A Bonds.
Pending disbursement to pay debt service, such interest earnings
may be invested in obligations that bear a Yield in excess of the
Yield of the Series 1996A Bonds. The Holding Account will be
depleted annually on each April 1.
3.2. Any moneys deposited in the Debt Service Account which
have been held or are expected to be held for more than 13 months
from date of receipt may be invested in obligations that bear a
Yield in excess of the Yield of the Series 1996A Bonds, but only
to the extent that the amounts so invested, when added to amounts
described in Sections 2.2, 2.4, 3.4, 4.2 and 5.2 hereof that are
invested at a Yield in excess of the yield of the Series 1996A
Bonds, do not exceed the limitations on the dollar amount of such
investments set forth in Section VI of these Instructions.
3.3. Prepayments made by the Borrower pursuant to the Loan
Agreement and certain other funds, representing unexpended
proceeds of the Series 1996A Bonds, insurance claims or
condemnation awards, are to be deposited in the Special
Redemption Account or Optional Redemption Account as provided in
the General Bond Resolution and are to be applied to the purchase
or redemption of Series 1996A Bonds within 13 months of receipt
of such moneys and, as such, may be invested in obligations that
bear a Yield in excess of the Yield of the Series 1996A Bonds.
Interest realized from the investment of moneys on deposit in
such Accounts is to be used to pay principal of the Series 1996A
Bonds. Pending disbursement to pay debt service, such interest
earnings may be invested in obligations that bear a Yield in
excess of the Yield of the Series 1996A Bonds.
3.4. Any moneys deposited in the Special Redemption Account
or the Optional Redemption Account which have been held or are
expected to be held for more than 13 months from date of receipt
may be invested in obligations that bear a Yield in excess of the
Series 1996A Bonds, but only to the extent that the amounts so
invested, when added to amounts described in Sections 2.2, 2.4,
3.4, 4.2 and 5.2 hereof that are invested at a Yield in excess of
the Yield of the Series 1996A Bonds, do not exceed the
limitations on the dollar amount of such investments set forth in
Section VI of these Instructions.
IV. The Loan Reserve Account.
4.1. From the sale proceeds of the Series 1996A Bonds,
$178,000.00 is to be deposited in the Loan Reserve Account. The
Loan Reserve Account is a reasonably required reserve within the
meaning of Section 148(d)(1) of the Code. The balance in the
Loan Reserve Account is to be maintained in an amount equal to
the Loan Reserve Requirement (the maximum annual debt service
payable on the Series 1996A Bonds in the current or any future
Bond Year), initially $178,000.
4.2. Any moneys deposited in the Loan Reserve Account in
excess of the least of: (i) the Loan Reserve Requirement, (ii)
the maximum annual debt service payable on the Series 1996A Bonds
in the current or any future Bond Year, or (iii) 125 percent of
the average annual debt service payable on the Series 1996A Bonds
in the current or any future Bond Year, may be invested in
obligations that bear a Yield in excess of the Yield of the
Series 1996A Bonds, but only to the extent that the amounts so
invested, when added to amounts described in Sections 2.2, 2.4,
3.2 and 5.2 hereof that are invested at a Yield in excess of the
Yield of the Series 1996A Bonds, do not exceed the limitations on
the dollar amount of such investments set forth in Section VI of
these Instructions.
V. The Capital Reserve Fund.
5.1. The Authority has established the Capital Reserve Fund
under the Pledge and Escrow Agreement as additional security for
all Bonds issued under the General Bond Resolution, including the
Series 1996A Bonds. The Authority has funded the Capital Reserve
Fund from its own funds and not from proceeds of any Bonds. The
amount on deposit therein, $2,507,743, secures $5,900,000 of
outstanding Bonds, including the Series 1996A Bonds. The amount
on deposit in the Capital Reserve Fund allocable to the Series
1996A Bonds (the "1996A Reserve Amount") as of the date hereof
equals $596,666. In determining the amount of the 1996A Reserve
Amount and similar reserve amounts for other Series of Bonds, the
Authority will allocate amounts on deposit in the Capital Reserve
Fund to Series of Bonds then outstanding in proportion to their
original principal amounts.
5.2. Any moneys on deposit in the Capital Reserve Fund
representing the 1996A Reserve Amount may be invested in
obligations that bear a Yield in excess of the Yield of the
Series 1996A Bonds, but only to the extent that the amounts so
invested, when added to amounts described in Sections 2.2, 2.4,
3.2, 3.4 and 4.2 hereof that are invested at a Yield in excess of
the Yield of the Series 1996A Bonds, do not exceed the
limitations on the dollar amount of such investments set forth in
Section VI of these Instructions.
VI. Limitations on Investments.
6.1. The following limitations apply only to the investment
of the amounts described in Sections 2.2, 2.4, 3.2, 3.4, 4.2 and
5.2 of these Instructions (the "Restricted Proceeds"):
(a) If at any time the amount of Restricted Proceeds
exceeds $94,750, the amount in excess of $94,750 shall not be
invested (except in Obligations) unless the Trustee receives an
opinion of nationally recognized bond counsel that the investment
of such excess will not cause the Series 1996A Bonds to be
"arbitrage bonds" within the meaning of Section 148(a) of the
Code.
(b) At no time during any Bond Year shall the amount of
Restricted Proceeds invested in obligations that bear a Yield
higher than the Yield of the Series 1996A Bonds exceed 150% of
the debt service due on the Series 1996A Bonds during such Bond
Year.
(c) The aggregate amount of Restricted Proceeds invested in
obligations that bear a Yield in excess of the Yield of the
Series 1996A Bonds shall be reduced, in any Bond Year within 30
days of any redemption or cancellation of Series 1996A Bonds
resulting in a reduction in annual debt service, so that after
such reduction the limitation in Section 6.1(b) hereof shall be
satisfied, based upon the revised annual debt service.
6.2. For purposes of the limitations in Section 6.1(b) and
(c) hereof, in determining the aggregate amount of Restricted
Proceeds invested in obligations that bear a yield in excess of
the Yield of the Series 1996A Bonds, each obligation shall be
valued at its fair market value on the date such obligation is
acquired by the Trustee at the direction of the Authority or the
Borrower. In addition, the Yield of obligations acquired with
Restricted Proceeds shall be determined based on such fair market
value. For purposes of this Section VI, an obligation acquired
with Restricted Proceeds need not be revalued after the date on
which the obligation is acquired.
6.3. The determination of annual debt service on the Series
1996A Bonds must be made on the first day of each Bond Year. The
debt service for any Bond Year means the scheduled amount of
interest and amortization of principal payable during that Bond
Year on the Series 1996A Bonds. For purposes of determining
annual debt service, there shall not be taken into account
amounts scheduled with respect to any portion of the Series 1996A
Bonds that have been retired before the beginning of the Bond
Year.
6.4. If on the first day of any Bond Year it is determined
that the amount of Restricted Proceeds invested in obligations
that bear a Yield in excess of the Yield of the Series 1996A
Bonds exceeds 150 percent of debt service for the current Bond
Year, such excess investments must be disposed of within 30 days.
6.5. In determining whether the limitations of this Section
VI have been reached, any discount on obligations acquired with
Restricted Proceeds must be taken into account ratably each year
as additional Restricted Proceeds that are reinvested at the same
yield as the discounted obligation. Thus, if a $1,000, 10-year
obligation is purchased at a yield higher than the yield of the
Series 1996A Bonds for a purchase price of $900, $930 shall be
considered invested at such higher yield after three years.
6.6. For purposes of satisfying the limitations on the
dollar amount of investments set forth in this Section VI, the
yield of the Series 1996A Bonds is 6.409224% per annum.
VII. Rebate.
7.1. The Authority, in Section 6.14 of the General Bond
Resolution, and the Borrower, in Section 2.2(gg) of the Loan
Agreement, have covenanted to comply with the requirement of
Section 148(f) of the Code with respect to the Series 1996A
Bonds. The Authority covenants that it will consult with
nationally recognized bond counsel and undertake to determine
what is required with respect to the rebate provisions contained
in Section 148(f) of the Code from time to time and will comply
with any requirements that may be applicable to the Bonds. The
methodology described in these Instructions will be followed,
except to the extent inconsistent with any requirements of future
regulations or written advice received from nationally recognized
bond counsel.
7.2. The Rebate Account has been established pursuant to
Article III of the Series Supplemental Resolution. The Trustee
has agreed to keep the Rebate Account separate and apart from all
other funds and money held by it and shall administer the Rebate
Account consistent with the provisions of these Instructions.
The Rebate Account is established to segregate the Rebatable
Arbitrage from the money of the Authority and permit the
Authority to rebate amounts, if any, due the United States under
Section 148(f) of the Code promptly when due. Amounts on hand in
the Rebate Account may be invested without regard to Yield
restriction.
7.3. Detailed records with respect to each and every
Nonpurpose Investment attributable to Gross Proceeds of the
Series 1996A Bonds will be maintained by the Trustee with respect
to Funds and Accounts established under the Resolutions and by
the Authority or the Borrower with respect to other Gross
Proceeds, if any, as the case may be, including: (i) purchase
date, (ii) purchase price, (iii) brokerage or other transaction
costs of purchase, (iv) information establishing fair market
value on the date such investment became a Nonpurpose Investment,
(v) any accrued interest paid, (vi) face amount, (vii) coupon or
stated interest rate, (viii) periodicity of interest payments
(ix) disposition price, (x) any accrued interest received, (xi)
disposition date, and (xii) brokerage or other transaction costs
of disposition. Such detailed recordkeeping is required for the
calculation of the Rebatable Arbitrage which, in part, will
require a determination of the difference between the actual
aggregate earnings of all Nonpurpose Investments and the amount
of such earnings assuming a rate of return equal to the Yield of
the Bonds.
7.4. For purposes of Sections VII and VIII, amounts on
deposit in the Holding Account, the Debt Service Account, the
Optional Redemption Account and the Special Redemption Account to
the extent in a Bond Year they constitute a bona fide debt
service fund for the Bonds within the meaning of Section 1.18-
1(b) of the Regulations and the gross earnings thereon during the
Bond Year are less than $100,000, and such funds do not
constitute Gross Proceeds of the Bonds. Furthermore, if all
funds in the Loan Account and the Capitalized Interest Account
and all investment income on funds in the Loan Reserve Account
through the Completion Date are expended on Costs of the Project
by December 25, 1996, then such amounts shall not be deemed Gross
Proceeds of the Bonds for purposes of this Section VII and
Section VIII.
VIII. Rebatable Arbitrage Calculation and Payment.
8.1. For purposes of complying with Section 148(f), the
Borrower will prepare or have prepared a calculation of the
Rebatable Arbitrage consistent with the rules described in this
Section VIII. The Authority will deliver to the Trustee a
calculation of the Rebatable Arbitrage within 30 days after each
Computation Date. In addition, the Borrower will within 30 days
after each Voluntary Computation Date deliver to the Trustee a
calculation of the Rebatable Arbitrage on the assumption such
Voluntary Computation Date is a Computation Date.
8.2. The Authority shall direct the Trustee to pay to the
United States Department of the Treasury from the Rebate Fund (A)
not later than 60 days after each installment Computation Date:
and (B) not later than 60 days after the final Computation Date,
an amount equal to 100% of the Rebatable Arbitrage. If
sufficient funds are not available in the Rebate Account to make
the required payment, the Trustee shall submit a written demand
upon the Borrower for the required additional funds which the
Borrower agrees to pay forthwith.
8.3. Each payment required to be made pursuant hereto shall
be filed with the Internal Revenue Service Center, Philadelphia,
Pennsylvania 19255 (or at such other address as the Internal
Revenue Service shall designate), on or before the date such
payment is due, and shall be accompanied by a completed Internal
Revenue Service Form 8038-T executed by the Authority. The
Authority shall retain records of the calculations required by
this Section VIII until six years after the final Computation
Date.
8.4. The Authority shall file or cause to be filed such
reports or other documents with the Internal Revenue Service a
required by Section 148(f) of the Code in accordance with an
opinion of nationally recognized Bond Counsel.
8.5. Notwithstanding anything in these Instructions or any
other provisions of the Resolutions or the Loan Agreement to the
contrary, the obligation to remit the Rebatable Arbitrage to the
United States Department of Treasury and to comply with all other
requirements contained in these Instructions shall survive the
defeasance of the Series 1996A Bonds.
Very truly yours,
SOUTH DAKOTA ECONOMIC DEVELOPMENT
FINANCE AUTHORITY
By_________________________________
Chairman of the Board of Directors
APA OPTICS, INC.
By_________________________________
Its President
Receipt acknowledged this 25th day of June, 1996.
THE FIRST NATIONAL BANK OF SIOUX
FALLS, as Trustee
By:
Its
2
23
Exhibit 4.3(b)
Execution Copy
This Mortgage contains after-acquired property provisions.
__________________________________________________________
MORTGAGE AND SECURITY AGREEMENT_ONE HUNDRED
EIGHTY DAY REDEMPTION
from
APA OPTICS, INC.
to
SOUTH DAKOTA ECONOMIC DEVELOPMENT FINANCE AUTHORITY
_________________
Dated as of June 1, 1996
_________________
__________________________________________________________
This instrument was drafted by
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
The name and post-office Tax Statements for the
address of the mortgagee property covered hereby
herein are as follows: should be sent to:
South Dakota Economic Development APA Optics, Inc.
Finance Authority 2950 North East 84th Lane
711 East Wells Avenue Blaine, Minnesota 55449
Pierre, South Dakota 57501
TABLE OF CONTENTS
(Not a part of this Mortgage)
Page
PARTIES 1
RECITALS 1
GRANTING CLAUSES 2
ARTICLE ONE -DEFINITIONS, EXHIBIT AND GENERAL PROVISIONS 3
Section 1-1. Definitions 3
Section 1-2. Exhibit 5
Section 1-3. Rules of Interpretation 6
ARTICLE TWO -GENERAL 6
Section 2-1. Title and Instruments of Further Assurance
6
Section 2-2. Rights Under Loan Agreement
6
Section 2-3. Performance of and Authority for Covenants
6
ARTICLE THREE - POSSESSION, USE AND RELEASE OF
MORTGAGED PROPERTY; ADDITIONS
TO MORTGAGED PROPERTY 7
Section 3-1. Possession and Use
7
Section 3-2. Release of Land
7
Section 3-3. Grant of Easements, Liens, Etc
8
Section 3-4. Tie-In Walls
8
Section 3-5. Removal of Fixtures
9
Section 3-6. Additions to Mortgaged Property
10
ARTICLE FOUR -
DEFAULT PROVISIONS
AND REMEDIES OF AUTHORITY 10
Section 4-1. Events of Default
10
Section 4-2. Remedies
10
Section 4-3. Assignment of Rents
11
Section 4-4. Remedies Not Exclusive; Waiver
12
Section 4-5. Termination of Proceedings
12
Section 4-6. Waiver of Events of Default
12
Section 4-7. Authority as Purchaser
13
Section 4-8. Application of Proceeds
13
Section 4-9. Security Agreement
13
Section 4-10. Application of Chapter 21-49
13
Section 4-11. Assignment by Authority 13
ARTICLE FIVE -MISCELLANEOUS 14
Section 5-1. Supplements or Amendments to this Mortgage
14
Section 5-2. Severability
14
Section 5-3. Notices
14
Section 5-4. Counterparts
14
Section 5-5. Construction Mortgage
14
Section 5-6. Fixture Filing
14
SIGNATURES 5
ACKNOWLEDGMENTS 16
EXHIBIT A_Legal Description of the Land A-1
THIS MORTGAGE AND SECURITY AGREEMENT_ONE HUNDRED EIGHTY DAY
REDEMPTION, dated as of June 1, 1996, between APA OPTICS, INC., a
corporation organized and existing under the laws of the State of
Minnesota, herein called the Borrower, and the SOUTH DAKOTA
ECONOMIC DEVELOPMENT FINANCE AUTHORITY, or its successors or
assigns, herein called the Authority;
W I T N E S S E T H:
WHEREAS, the Authority was created by South Dakota Codified
Laws, Chapter 1-16B, as amended (herein referred to as the
"Act"), to act on behalf of the State of South Dakota (the
"State") within the scope of powers granted to it by the Act to
make loans to enterprises to finance economic development
projects as provided in the Act;
WHEREAS, to provide the funds to make the loans under the
Act, the Authority has established its South Dakota Economic
Development Loan Program (the "Program"); and
WHEREAS, in accordance with the Program, the Authority on
September 11, 1990 adopted its Economic Development Revenue Bonds
(Pooled Loan Program) First Amended and Restated General Bond
Resolution (as heretofore or hereafter supplemented or amended,
the "General Bond Resolution"), pursuant to which General Bond
Resolution (and resolutions to be adopted from time to time by
the Authority as supplemental resolutions thereto), the Authority
has issued and intends to issue revenue bonds (the "Bonds"), and
to loan the proceeds thereof to "enterprises" within the meaning
of the Act to finance "economic development projects" with the
meaning of the Act, for use by them in connection with their
business operations; and
WHEREAS, such Bonds, as provided in the General Bond
Resolution, shall be special, limited obligations of the
Authority, the principal of, premium, if any, and interest on
which are payable solely from and secured solely by the revenues,
funds and other property of the Authority described in the
General Bond Resolution and the resolutions supplemental thereto
and pledged therefor; and
WHEREAS, the Borrower has applied to the Authority for
assistance under the Program in connection with the financing of
a project to consist of the construction and equipping of a
manufacturing facility located in Aberdeen, South Dakota (the
"Project"); and
WHEREAS, by a resolution adopted on August 21, 1995, the
Board of Directors of the Authority has found that the Borrower
is an "enterprise" under the Act and that the Project is an
"economic development project" under the Act and has determined
to provide such loan by the inclusion of the Project in the
Program; and
WHEREAS, in furtherance of the foregoing, the Authority
proposes (i) to issue a series of Bonds under the General Bond
Resolution and a Series Supplemental Resolution and (ii) to loan
the proceeds of the sale of such Bonds to the Borrower to finance
a portion of the cost of the Project, upon the terms and
conditions set forth in a Loan Agreement, of even date herewith
(the "Loan Agreement"), between the Authority and the Borrower,
which loan shall be evidenced by a promissory note of the
Borrower, of even date herewith (the "Note");
WHEREAS, the Authority has required, as a condition for
issuing the Bonds and entering into the Loan Agreement, that the
Borrower secure the Bonds and its obligations under the Loan
Agreement and the Note by this Mortgage and Security Agreement;
and
WHEREAS, the amount presently estimated to be necessary to
finance costs of the Project permitted by the Act, will require
the issuance, sale and delivery of the Bonds in the aggregate
principal amount of $1,895,000, as hereinafter provided, maturing
as therein provided, but in no event later than April 1, 2016 and
bearing interest at the rates therein provided, not exceeding
6.75% per annum.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, THIS
MORTGAGE AND SECURITY AGREEMENT WITNESSETH:
The Borrower, in consideration of the premises and in order
to secure the payment of the principal of and interest on the
Bonds according to their tenor and effect and as provided in the
General Bond Resolution and the Series Supplemental Resolution
and the performance and observance by the Borrower of all the
covenants expressed or implied herein, in the Loan Agreement, the
Note and in the other Collateral Documents (as hereinafter
defined), does hereby grant, bargain, sell, convey, confirm,
assign, transfer, mortgage and pledge to the Authority, and to
its successors and to them and their assigns, forever, and grant
a security interest in, the following:
GRANTING CLAUSE FIRST
The Borrower's entire estate and interest in the real estate
described in Exhibit A hereto and made a part hereof, situated in
the County of Brown, State of South Dakota;
GRANTING CLAUSE SECOND
The Borrower's entire estate and interest in and to all
buildings, structures, additions and improvements now or
hereafter located on the real estate described in Exhibit A, and
all tenements, hereditaments, appurtenances, rights, privileges
and immunities thereunto belonging or appertaining;
GRANTING CLAUSE THIRD
The Borrower's entire estate and interest in and to any
Fixtures (as hereinafter defined) owned by the Borrower now or
hereafter attached to or installed within or used or usable in
connection with the operation of the Facilities (as hereinafter
defined);
GRANTING CLAUSE FOURTH
The Borrower's entire estate and interest in and to any and
all building materials and supplies now or hereafter located on
the Land and now or hereafter owned by the Borrower and suitable
or intended for incorporation in any building, structure or other
improvement now standing or to be constructed on the Land;
GRANTING CLAUSE FIFTH
All of the estate, interest, right, title, other claim or
demand, including claims or demands with respect to security
deposits, which the Borrower now has or may hereafter acquire in
the Land, the Improvements or the Fixtures, and any and all
awards made for the taking by eminent domain or by any proceeding
or the proceeds of insurance with respect hereto, purchase in
lieu thereof of the whole or any part of the Facilities,
including without limitation any awards resulting from a change
of grade of streets and awards for severance damage;
GRANTING CLAUSE SIXTH
All rents, income, profits, revenues, royalties, bonuses,
rights, accounts, contract rights and benefits under any and all
leases or tenancies now existing or hereafter created in all or
any portions of the Facilities or any part thereof, or arising
out of the construction, use or operation of the Facilities or
any part thereof, and any other equitable or contract rights
pertaining to the Facilities, with the right to receive and apply
the same to said indebtedness, and the Authority may demand, sue
for and recover such payments but shall not be required to do so;
GRANTING CLAUSE SEVENTH
All proceeds from any property described in the Granting
Clauses hereof, and any and all other property of every name and
nature from time to time hereafter by delivery or by writing of
any kind conveyed, mortgaged, pledged, assigned or transferred,
as and for additional security hereunder by the Borrower or by
anyone in its behalf or with its written consent to the
Authority, which is hereby authorized to receive any and all such
property at any and all times and to hold and apply the same
subject to the terms hereof;
TO HAVE AND TO HOLD all the same with all privileges and
appurtenances hereby conveyed and assigned, or agreed or intended
so to be to the Authority and its successors and to them and
their assigns forever;
WITH POWER OF SALE for the purposes of South Dakota Codified
Laws, Chapter 21-49, as amended;
SUBJECT TO Permitted Encumbrances as defined in Section 1-1
hereof;
PROVIDED, HOWEVER, that if the Borrower, its successors or
assigns, shall well and truly pay, or cause to be paid, when due,
the principal of the Bonds and the premium, if any, and the
interest due or to become due thereon, at the times and in the
manner mentioned in the Bonds according to the true intent and
meaning thereof, and shall well and truly keep, perform and
observe all the covenants and conditions pursuant to the terms of
this Mortgage, the Loan Agreement and the Note to be kept,
performed and observed by them, and shall pay to the Authority
all sums of money due or to become due to it in accordance with
the terms and provisions hereof, then this Mortgage and the
rights hereby granted shall cease, terminate and be void;
otherwise, this Mortgage shall be and remain in full force and
effect.
The Borrower and the Authority mutually covenant and agree,
as follows:
ARTICLE ONE
DEFINITIONS, EXHIBIT AND GENERAL PROVISIONS
Section 1-1. Definitions. In this Mortgage the following
terms have the following respective meanings unless the context
hereof clearly requires otherwise:
Act: South Dakota Codified Laws, Chapter 1-16B, as amended.
Authority: the South Dakota Economic Development Finance
Authority, a body corporate and politic of the State, or any
successor to its powers and authority under the Act or any
successor or assign to its interest hereunder.
Bonds: the Economic Development Revenue Bonds (Pooled Loan
Program) (APA Optics, Inc. Project), Series 1996A, dated, as
originally issued, as of June 1, 1996, issued by the Authority.
Borrower: APA Optics, Inc., a Minnesota corporation, or its
permitted successors and assigns under the Loan Agreement.
Collateral Documents: the following documents each of which
shall be in form and substance acceptable to the Authority:
(a) the Mortgage;
(b) the Loan Agreement; and
(c) the Note.
Counsel: an attorney designated by or acceptable to the
Authority, duly admitted to practice law before the highest court
of any state; an attorney for the Borrower or the Authority may
be eligible for appointment as Counsel.
Default: any event which is, or after notice or lapse of
time or both would become, an Event of Default under this
Mortgage.
Event of Default: any of the events referred to as such in
Section 4-1 hereof.
Facilities: collectively, the Land, the Improvements and
the Fixtures, as such properties may at any time exist.
Fixtures: any and all items of fixtures owned by the
Borrower now or hereafter attached to or installed within or used
in connection with the Improvements or the Land, including, but
not limited to, any and all partitions, screens, awnings, motors,
engines, boilers, furnaces, pipes, plumbing, elevators, cleaning,
call and sprinkler systems, fire extinguishing apparatus and
equipment, water tanks, heating, ventilating, air conditioning
and air cooling equipment, refrigeration equipment, and gas and
electric machinery and appurtenances and all other non-consumable
personal property of every kind and nature permanently affixed to
the Land, including all extensions, additions, improvements,
betterments, renewals and replacements of any of the foregoing,
all of which are hereby declared and shall be deemed to be
fixtures and an accession to the freehold and a part of the
realty, excluding any items of Equipment (as defined in the Loan
Agreement).
Improvements: any additions, enlargements, improvements,
extensions or alterations of or to any improvements, structures
or other facilities located on the Land, and any personal
property acquired or constructed by the Borrower and located on
the Land.
Land: the real estate, interests in real estate and other
rights located in Brown County, South Dakota, and described in
Exhibit A hereto, together with all additions thereto and
substitutions therefor, less such interests in real estate and
other rights as may be released pursuant to the provisions
hereof.
Loan Agreement: the Loan Agreement, of even date herewith,
between the Authority and the Borrower, including any amendment
thereof or supplement thereto entered into in accordance with the
provisions thereof.
Mortgage: this Mortgage and Security Agreement--One Hundred
Eighty Day Redemption, including any mortgage supplemental hereto
or amendatory hereof entered into in accordance with the
provisions hereof.
Mortgaged Property: the property and funds described in the
Granting Clauses of this Mortgage.
Note: the promissory note of the Borrower dated as of the
date hereof, evidencing the Borrower's obligation to repay the
loan under the Loan Agreement.
Permitted Encumbrances: (i) liens described in Exhibit A
hereto, (ii) this Mortgage, the Agreement, the General Bond
Resolution and any security interest created thereunder, (iii)
utility, access and other easements and rights of way,
restrictions and exceptions that, in the opinion of the
Authority, do not materially impair the utility or the value of
the Facilities affected thereby for the purposes for which they
are intended; (iv) mechanics, materialmen's, warehousemen's,
carriers' and other similar liens and any other liens to the
extent permitted by Section 8.13 of the Loan Agreement, (v) liens
for taxes or special assessments at the time not delinquent, (vi)
any lease, sublease, assignment or reassignment entered into in
conformity with Section 8.10 of the Loan Agreement which is
subordinate to this Mortgage, (vii) the security interests in the
Equipment to be granted to the Aberdeen Development Corporation
securing indebtedness not exceeding $1,250,000 if they are
subordinated to the security interest of the Loan Agreement; and
(viii) the security interests in the Equipment to be granted to
the NECOG Development Corporation securing indebtedness not
exceeding $150,000 if they are subordinated to the security
interest of the Loan Agreement.
Person: any individual, corporation, partnership, limited
liability company, limited liability partnership, joint venture,
association, joint stock company, trust, unincorporated
organization, or government or any agency or political
subdivision thereof.
State: State of South Dakota.
Trustee: The First National Bank in Sioux Falls, in Sioux
Falls, South Dakota, or any successor Trustee under the General
Bond Resolution (as defined in the Loan Agreement).
Section 1-2. Exhibit. Attached to and by reference made a
part of this Mortgage is Exhibit A, a legal description of the
Land.
Section 1-3. Rules of Interpretation.
(1) This Mortgage shall be interpreted in accordance with
and governed by the laws of the State without giving effect to
the conflicts-of-law principles thereof.
(2) The words "herein," "hereof" and "hereunder" and words
of similar import, without reference to any particular section or
subdivision, refer to this Mortgage as a whole rather than to any
particular section or subdivision hereof.
(3) Any terms not defined herein but defined in the Loan
Agreement shall have the same meaning herein unless the context
hereof requires otherwise.
(4) The Table of Contents and headings of articles and
sections herein are for convenience only and are not a part of
this Mortgage.
(5) Unless the context hereof clearly requires otherwise,
the singular shall include the plural and vice versa, and the
masculine shall include the feminine and vice versa.
ARTICLE TWO
GENERAL
Section 2-1. Title and Instruments of Further Assurance.
The Borrower covenants that it has not made, done, executed or
suffered, and will not make, do, execute or suffer, any act or
thing whereby its estate or interest in and title to the
Facilities or any part thereof shall or may be impaired or
charged or encumbered in any manner whatsoever except by
Permitted Encumbrances; that it will not convey all or any part
of its estate or interest in and title to the Facilities to any
Person, except as expressly permitted in this Mortgage, without
the prior written consent of the Authority; and that it will do,
execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered, such mortgages or instruments
supplemental hereto and such further acts, instruments and
transfers as the Authority may reasonably require for the better
assuring, transferring, mortgaging, pledging, assigning and
confirming unto the Authority all and singular the property
herein described and the revenues assigned and pledged hereby.
Section 2-2. Rights Under Loan Agreement. The Loan
Agreement sets forth covenants and obligations of the Authority
and the Borrower, and reference is hereby made to the Loan
Agreement for a detailed statement of said covenants and
obligations.
Section 2-3. Performance of and Authority for Covenants.
The Borrower covenants that it will faithfully perform at all
times any and all covenants, undertakings, stipulations and
provisions contained in this Mortgage, the Note and the Loan
Agreement; that it is duly authorized under the Constitution and
laws of the State of Minnesota to execute the Loan Agreement, the
Note and this Mortgage, to mortgage and grant a security interest
in the property described and mortgaged and secured herein and to
assign and pledge the revenues in the manner and to the extent
herein set forth; that all action on its part for the execution
and delivery of this Mortgage, the Note and the Loan Agreement
has been duly and effectively taken.
ARTICLE THREE
POSSESSION, USE AND RELEASE
OF MORTGAGED PROPERTY;
ADDITIONS TO MORTGAGED PROPERTY
Section 3-1. Possession and Use. Subject to the terms
hereof and the Loan Agreement, until the happening of an Event of
Default hereunder, the Borrower shall be permitted to possess,
use and enjoy the Mortgaged Property and to receive and use the
issues and profits of the Mortgaged Property.
Section 3-2. Release of Land. In addition to the rights
granted to the Borrower elsewhere in this Mortgage, the Borrower
shall have the right, at any time and from time to time, but only
upon the prior written consent of the Authority, which consent
shall not be unreasonably withheld, to obtain a release from the
lien of this Mortgage of any part of the Land not containing any
permanent structure necessary for the total operating unity and
efficiency of the Improvements (as determined by an Independent
Architect) and the Authority shall, from time to time, release
from the lien of this Mortgage such real property, but only upon
receipt by the Trustee of the following:
(A) A request of an Authorized Representative of the
Borrower for such release;
(B) A certificate of an Authorized Representative of the
Borrower, signed also as to clause (1) of this
subsection by a registered land surveyor and as to
clause (3) of this subsection by an Independent
Architect, stating or setting forth in substance as
follows:
(1) the quantity of the Land to be
released;
(2) that the property to be released is not necessary
for the total operating unity and efficiency of
the Improvements;
(3) that the release will not impair the structural
integrity of the Mortgaged Property or the
usefulness of the Mortgaged Property for the
purposes for which they were intended and will not
inhibit adequate means of ingress to or egress
from the Improvements or limit or inhibit adequate
parking for the Improvements;
(4) that no default under this Mortgage or the Loan
Agreement has occurred which has not been cured;
and
(5) that all conditions precedent herein provided for
relating to such release have been complied with;
(C) A survey prepared by a registered land surveyor
describing and showing the Land, after giving effect to
such release;
(D) Cash, if any, required by the Authority in its written
consent to the release;
(E) The written consent of the Authority to the release;
and
(F) An Opinion of Counsel, stating that the certificates,
opinions and other instruments and cash which have been
or are therewith delivered to and deposited with the
Trustee conform to the requirements of this Section 3-2
and that, upon the basis of such application, the
property may be lawfully released from the lien of this
Mortgage and that all conditions precedent herein
provided for relating to such release have been
complied with.
Simultaneously with the release of any real property as
provided in this Section 3-2, the cash, if any, in the amount
specified in Subsection (D) of this Section 3-2, shall be
deposited in the 1996A Special Redemption Account. The Borrower
shall not be entitled to any abatement or diminution of the
payments required under Section 5.1 of the Agreement as a result
of such release.
The Authority shall also release Property from the lien
hereof as required by Section 8.13(d) of the Loan Agreement.
Section 3-3. Grant of Easements, Liens, Etc. The Borrower
may at any time or times grant to itself or others easements,
licenses, rights-of-way and other rights or privileges in the
nature of easements with respect to the Land, free from the lien
of this Mortgage, or the Borrower may release existing easements,
licenses, rights-of-way and other rights or privileges, with or
without consideration, and the Authority will execute and deliver
any instrument necessary or appropriate to confirm and grant or
release any such easement, license, right-of-way or privilege;
provided, however, that prior to any such grant or release, there
shall have been supplied to the Authority and the Trustee a
certificate of an Authorized Representative of the Borrower and a
certificate of an Independent Architect:
(a) stating that such grant or release is not detrimental
to the proper operation of the Mortgaged Property; and
(b) stating that such grant or release will not materially
impair the operating unity or the efficiency of the
Improvements on such Land or materially and adversely
affect the character thereof.
Section 3-4. Tie-In Walls. The Borrower may, at its own
expense,
(a) connect or "tie-in" walls (including use of existing
walls, footings and foundations for the support of
future adjacent buildings) and utilities and other
facilities located on the Land to other structures
erected on the Land or on real property adjacent to or
near the Land or partly on such adjacent real property
and partly on the Land; or
(b) in connection with the expansion or improvement of any
building on the Land, tear down any wall of such
building and build an addition to such building as a
separate structure (either on the Land or on real
property adjacent thereto or partly on such adjacent
real property and partly on the Land); provided,
however, that prior to any such expansion, addition,
improvement, tearing down or connection with the "tie-
in" walls, utilities and other facilities, the
Authority shall have approved the same in writing
(which approval shall not be unreasonably withheld)
based on a certification or opinion of an Independent
Architect that the same will not materially impair the
operating unity, structural integrity, or the
efficiency of the Improvements on the Land or
materially adversely affect the character thereof, and
based on an Opinion of Counsel stating that all party-
wall agreements, easements, cross-easements or other
instruments, relating to such expansion, addition,
improvement, tearing down or connection with the "tie-
in" walls, utilities and other facilities, which are
necessary or desirable to define the relative rights of
the owners and encumbrances of the same therein, and to
preserve fully the security hereof, have been duly
executed, delivered and recorded, to which Opinion of
Counsel copies of all such instruments shall be
attached. The Authority shall release from the lien of
this Mortgage any interest in the Land or the
Improvements, or join in any such party-wall
agreements, easements, cross-easements or other
agreements, to the extent necessary to effect the
purpose of this Section 3-4, including the release of
Land under which foundations or footings are located
and which is required for construction of such
expansions, improvement or additions.
Section 3-5. Removal of Fixtures. The Borrower will not
remove or permit the removal of any items of Fixtures from the
Land, except in accordance with the provisions of this Section 3-
5:
(1) In any instance where the Borrower in its sound
discretion determines that any item of Fixtures has
become inadequate, obsolete, worn out, unsuitable,
undesirable or unnecessary for the operation of the
Facility, the Borrower may, at its expense, remove and
dispose of it and substitute and install other items of
furniture, machinery, equipment or other personal
property, not necessarily having the same function;
provided that such removal and substitution shall not
materially impair the operating utility of the
Improvements. All substituted items shall be installed
free of all liens and encumbrances, other than
Permitted Encumbrances, and shall become a part of the
Mortgaged Property as Fixtures. The Borrower will
cooperate with the Authority and the Trustee and will
pay all necessary costs, including reasonable
attorneys' fees, incurred in subjecting to the lien of
this Mortgage all items so substituted, and the
Authority will cooperate with the Borrower in securing,
if necessary, release of the property for which the
substitution is made and in providing such bills of
sale or other documents as may be required to
facilitate the removal and substitution. In the event
the market value of the substituted items is less than
the market value of the Fixtures disposed of, as
reasonably determined by the Mortgagor, the Borrower
shall pay to the Trustee an amount equal to the
difference.
(2) The Mortgagor shall promptly report to the
Authority and the Trustee by a certificate of an
Authorized Representative of the Borrower the removal
of any Fixtures for which substitute items of Fixtures
are not installed in the Facility pursuant to
Subsection (1) of this Section 3-5, and amounts
required to be accounted for by the Borrower, if any,
shall promptly be paid to the Trustee for deposit in
the 1996A Special Redemption Account after any
substitution; provided that no certificate need be
given or payment made unless the aggregate book value
of items of Fixtures removed during any fiscal year of
the Mortgagor is at least $10,000. The certificate of
an Authorized Representative of the Borrower submitted
shall specify the items of Fixtures removed, the items
of property substituted therefor, if any, and the
amount, if any, required to be paid to the Trustee
pursuant to the provisions of this Section 3-5. Where
the certificate of an Authorized Representative of the
Borrower indicates that substitute items of property
have been acquired and installed, the certificate shall
be accompanied by an Opinion of Counsel stating that
all steps requisite to perfection of the security
interest of the Authority in and to such substitute
items of property have been duly taken. The Borrower
and the Authority will execute all instruments
advisable in the Opinion of Counsel for perfection of
the respective security interests as aforesaid.
Section 3-6. Additions to Mortgaged Property. All
buildings, structures or improvements which may be acquired or
constructed by the Borrower subsequent to the date hereof and
which are located on the Land, except as released pursuant to
this Article Three, and all property of every kind or nature
added to or installed in any building, structure or improvement
located on the Land (exclusive, however, of trade fixtures and
other items of machinery, equipment and personal property not
acquired in whole or in part with proceeds of the Bonds or
installed on the Land in substitution therefor or in replacement
thereof as provided in Section 3-5(1) hereof) after the date
hereof shall, immediately upon the acquisition thereof by the
Borrower, and without any further conveyance or assignment,
become subject to the mortgage, lien and security interest of
this Mortgage. Nevertheless, the Borrower, in accordance with
the provisions of Section 2-1 hereof, will do, execute,
acknowledge and deliver, all and every such further acts,
conveyances and assurances as the Authority shall require for
accomplishing the purposes of this Section 3-6.
ARTICLE FOUR
DEFAULT PROVISIONS AND REMEDIES
OF AUTHORITY
Section 4-1. Events of Default. If any of the following
events occur, it is hereby defined as and declared to be and to
constitute an Event of Default hereunder:
(A) If default shall be made in the due and punctual
payment of the principal of, premium, if any, or interest on the
Note;
(B) If default shall be made in the due and punctual
payment of any moneys required to be paid to the Authority under
the provisions hereof and such default continues for 30 days
after notice in writing given by the Authority to the Borrower,
specifying such default and requesting that it be remedied; or
(C) If default shall be made in the performance or
observance of any other covenants, agreements or conditions of
the Borrower in this Mortgage, and such default continues for 30
days after notice in writing given by the Authority to the
Borrower, specifying such default and requesting that it be
remedied; or
(D) If an "event of default" occurs under Section 10.1 of
the Loan Agreement and is continuing; or
(E) If a event of default occurs under any other Collateral
Document.
Section 4-2. Remedies. If one or more Events of Default
shall have occurred and be continuing, the Borrower hereby
empowers and confers upon the Authority the right and option to
exercise and the Authority shall be entitled to exercise any or
all of the following remedies, as appropriate:
(A) Upon not less than 20 days' notice given by the
Authority, the Authority may declare the principal of the Note,
with interest accrued thereupon, immediately due and payable,
whereupon the Borrower will pay to the Authority, the whole
amount then due and payable on the Note, with interest at the
respective rates prescribed in the Note on overdue principal and
(to the extent that payment of such interest is legally
enforceable) on overdue installments of interest; and, in
addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of
the Authority, its agents and counsel. If the Borrower fails to
pay or cause to be paid on its behalf such amounts forthwith upon
such demand, the Authority, shall be entitled to recover judgment
against the Borrower.
The Authority shall be entitled, if permitted by law, to
recover judgment as aforesaid either before, after or during the
pendency of any proceedings for the enforcement of the lien of
this Mortgage and in case of a lease or sale of the Mortgaged
Property and the application of the proceeds of lease or sale as
aforesaid, the Authority shall be entitled to enforce payment of,
and to receive, all amounts then remaining due and unpaid upon
the Note and shall be entitled to recover judgment for any
portion of the same remaining unpaid with interest as aforesaid.
No recovery of any such judgment by the Authority, and no levy of
any execution under any such judgment upon any property forming a
part of the Mortgaged Property shall affect or impair the lien of
this Mortgage upon the Mortgaged Property, or any rights, power
or remedies of the Authority hereunder or under the Loan
Agreement.
(B) Foreclose this Mortgage by judicial proceedings
pursuant to the statutes of the State in such case made and
provided, power being expressly granted to sell the Mortgaged
Property at public auction, as an entirety or in parcels as
hereinafter provided, and to convey the same to the purchaser in
fee simple in accordance with the statutes, and to apply the
proceeds from such sale as set forth in Section 4-7 hereof;
(C) Proceed to protect and enforce its rights by suit,
whether for specific performance of any covenant herein
contained, or in aid of the execution of any power herein
granted, or for the foreclosure of this Mortgage and the sale of
the Mortgaged Property under the judgment or decree of a court of
competent jurisdiction, or for the enforcement of any other
right, as the Authority shall deem most effectual for such
purpose;
(D) Appoint a receiver to take possession of the Mortgaged
Property if the Mortgaged Property is abandoned or, if not
abandoned, petition a court of competent jurisdiction for the
appointment of a receiver to take possession of and manage and
operate the Mortgaged Property, in either case for the benefit of
the Authority and to the extent permitted by law;
(E) Exercise any remedies available under any Collateral
Document;
(F) Take whatever action at law or in equity may appear
necessary or appropriate to collect the Note and other payments
or amounts then due and thereafter to become due hereunder, or to
enforce performance or observance of any obligation, agreement or
covenant of the Borrower under this Mortgage; or
(G) Exercise all rights and remedies available to a secured
party under the South Dakota Uniform Commercial Code.
Section 4-3. Assignment of Rents. As further security for
the Note and the Loan Agreement, the Borrower hereby assigns to
the Authority all of the rents, revenues, issues, earnings,
income, products and profits of the Facilities, such assignment
to become effective upon the occurrence of an Event of Default
and the filing of a suit or other commencement of judicial
proceedings to enforce the rights of the Authority under this
Mortgage, and it shall be lawful for the Authority by such
officer or agent as it may appoint to take possession of the
Facilities and all or any part of the rents, revenues, issues,
earnings, income, products and profits of the Facilities and
copies of the books, papers and accounts of the Borrower
pertaining thereto; and to hold, operate and manage the same, and
from time to time make all needful repairs and improvements as
the Authority shall deem wise; and the Authority may lease the
Facilities or any part thereof in the name of and for the account
of the Borrower and collect, receive and sequester the rents,
revenues, issues, earnings, income, products and profits
therefrom, and out of the same and any moneys received from any
receiver of any part thereof pay, or set up proper reserves for
the payment of, all proper costs and expenses of so taking,
holding and managing the same, including reasonable compensation
to the Authority, its agents and counsel and any charges of the
Authority hereunder, and any taxes and assessments and other
charges prior to the lien of this Mortgage which the Authority
may deem it wise to pay, and all expenses of such repairs and
improvements, and apply the remainder of the moneys so received
by the Authority in accordance with the provisions of Section 4-8
hereof. Whenever all that is due under the Note and under the
Loan Agreement shall have been paid and all Events of Default
cured or waived, the Authority shall surrender possession of the
Facilities and the rents, revenues, issues, earnings, income,
products and profits to the Borrower, its successors or assigns;
the same right of possession, however, to exist upon any
subsequent Event of Default.
While in possession of the Facilities and of such rents,
revenues, issues, earnings, income, products and profits, the
Authority shall render annually to the Borrower a summarized
statement of income and expenditures in connection therewith.
Section 4-4. Remedies Not Exclusive; Waiver. No remedy by
the terms of this Mortgage conferred upon or reserved to the
Authority is intended to be exclusive of any other remedy, but
each and every such remedy shall be cumulative and shall be in
addition to any other remedy given to the Authority or now or
hereafter existing at law or in equity or by statute. The
assertion or exercise of any right or remedy hereunder shall not
prevent the concurrent assertion or exercise of any other
appropriate right or remedy.
No delay or omission to exercise any right or power accruing
upon any Event of Default shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default,
or acquiescence therein; and every such right and power may be
exercised from time to time and as often as may be deemed
expedient by the Authority.
No waiver of any Event of Default hereunder shall extend to
or shall affect any subsequent Event of Default or shall impair
any rights or remedies consequent thereon.
Section 4-5. Termination of Proceedings. In case the
Authority shall have proceeded to enforce any right under this
Mortgage, and such proceedings shall have been discontinued or
abandoned for any reason, or shall have been determined adversely
to the Authority, then and in every such case the Borrower and
the Authority shall be restored, subject to any final
determination in such proceeding, to their former positions and
rights hereunder with respect to the Mortgaged Property, and all
rights, remedies and power of the Authority shall continue as if
no such proceedings had been taken.
Section 4-6. Waiver of Events of Default. The Authority
may in its discretion waive any Event of Default hereunder and
its consequences and rescind any declaration of acceleration of
the Note.
Section 4-7. Authority as Purchaser. In case of any sale
of the Mortgaged Property pursuant to any judgment or decree of
any court or by advertisement or otherwise in connection with the
enforcement of any of the terms of this Mortgage, the Authority,
its successors or assigns, may become the purchaser, and for the
purpose of making settlement for or payment of the purchase
price, shall be entitled to turn in and use the Note and any
claims for interest matured and unpaid thereupon, together with
additions to the mortgage debt, in order that there may be
credited as paid on the purchase price the sums then due under
the Note, including principal and interest thereon and any
accrued additions to the mortgage debt.
Section 4-8. Application of Proceeds. The purchase money
proceeds and avails of any sale of the Mortgaged Property or any
part thereof, and the proceeds and avails of any remedy hereunder
shall be paid to the Authority and applied as follows:
(a) First, to the payment of costs end expenses of
foreclosure and of sale, including all legal costs and
charges of such foreclosure and the maximum attorneys'
fees permitted by law;
(b) Second, to the payment of all expenses, liability and
advances incurred or made hereunder by the Authority,
and of all taxes, installments of assessments or liens
superior to the lien of this Mortgage paid by the
Authority, if such expenses and costs are included in
the judgment upon which the sale was made;
(c) Third, to the payment to the Authority of the amount
then owing and unpaid under the Loan Agreement, the
Note and this Mortgage for principal and interest and
other indebtedness and, in case any such proceeds shall
be insufficient to pay the whole amount so due, then in
such order as Authority may determine; and
(d) Fourth, any excess to the payment to the Borrower, its
successors and assigns, or to whomsoever may be
lawfully entitled to receive the same.
Section 4-9. Security Agreement. This instrument is
intended to constitute a security agreement pursuant to the South
Dakota Uniform Commercial Code covering any of the items or types
of property as a part of the Mortgaged Property which may be
subject to the Uniform Commercial Code. The Authority, in
exercising its rights hereunder, shall also have, without
limitation, all of the rights and remedies provided by the South
Dakota Uniform Commercial Code, including the right to proceed
under the South Dakota Uniform Commercial Code provisions
governing default as to any personal property which may be
included in the Mortgaged Property separately from the real
estate included therein, or to proceed as to all of the Mortgaged
Property in accordance with its rights and remedies in respect of
said real estate.
Section 4-10. Application of Chapter 21-49. THE PARTIES
AGREE THAT THE PROVISIONS OF THE ONE HUNDRED EIGHTY DAY
REDEMPTION MORTGAGE ACT (SOUTH DAKOTA CODIFIED LAWS, CHAPTER 21-
49) GOVERN THIS MORTGAGE.
Section 4-11. Assignment by Authority. The Borrower hereby
acknowledges and agrees that the Authority may assign its
interest in this Mortgage to the Trustee as security for the
payment of the principal of, premium, if any, and interest on the
Series Bonds, Program Payments and other amounts payable under
the Loan Agreement and the Note.
ARTICLE FIVE
MISCELLANEOUS
Section 5-1. Supplements or Amendments to this Mortgage.
This Mortgage may not be supplemented or amended without the
written consent of the Authority and the Borrower.
Section 5-2. Severability. If any provision of this
Mortgage shall be held or deemed to be or shall, in fact, be
inoperative or unenforceable as applied in any particular case in
any jurisdiction or jurisdictions or in all jurisdictions or in
all cases because it conflicts with any provisions or any
constitution or statute or rule of public policy, or for any
other reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable
in any other case or circumstance, or of rendering any other
provision or provisions herein contained invalid, inoperative, or
unenforceable to any extent whatever.
The invalidity of any one or more phrases, sentences,
clauses or paragraphs in this Mortgage contained shall not affect
the remaining portions of this Mortgage or part thereof.
Section 5-3. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be
deemed given when mailed by certified mail, postage prepaid, with
proper address as indicated below. The Borrower and the
Authority may, by written notice given by each to the others,
designate any other address or addresses to which notices,
certificates or other communications to them shall be sent when
required as contemplated by this Mortgage. Until otherwise
provided by the respective parties, all notices, certificates and
communications to each of them shall be addressed as follows:
To the Borrower: APA Optics, Inc.
2950 North East 84th Lane
Blaine, Minnesota 55449
Attn: Dr. Anil K. Jain
To the Authority: South Dakota Economic Development
Finance Authority
Governors Office of Economic
Development
711 East Wells Avenue
Pierre, South Dakota 57501
Attn: Executive Director
Section 5-4. Counterparts. This Mortgage may be
simultaneously executed in several counterparts, each of which
shall be an original and all of which shall constitute but one
and the same instrument.
Section 5-5. Construction Mortgage. The Mortgage secures
on obligation incurred for the construction of an improvement on
Land, and is a "construction mortgage" within the meaning of
South Dakota Codified Laws, Section 57A-9-313, of the Uniform
Commercial Code.
Section 5-6. Fixture Filing. This instrument shall be
deemed to be a Fixture Financing Statement within the meaning of
the South Dakota Uniform Commercial Code, South Dakota Codified
Laws, Section 57A-9-313:
(1) Name and Address of Debtor: APA Optics, Inc.
2950 North East 84th Lane
Blaine, Minnesota 55449
Attn: Dr. Anil K. Jain
Employer Identification No. 41-
1347235
(2) Name and Address of South Dakota Economic Development
Secured Party: Finance Authority
Governors Office of Economic
Development
711 East Wells Avenue
Pierre, South Dakota 57501
(3) Description of the types These items defined and described
(or items) of property as Fixtures in Section 1-1 hereof.
covered by this Financing
Statement
(4) Description of real estate See Exhibit A hereto.
to which collateral is
attached or upon which it
is located:
Some of the above-described collateral is or is to become
fixtures upon the above-described real estate, and this Financing
Statement is to be filed for record in the real estate records of
the Register of Deeds of Brown County, South Dakota.
IN WITNESS WHEREOF, the Borrower has executed this Mortgage
as of the date first above written.
APA OPTICS, INC.
By /s/ Anil K.
Jain_______________
Its President
Attest: /s/ Kenneth A.
Olsen________
Its Secretary
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN)
On this _____ day of June, 1996, before me, a Notary Public,
personally appeared Dr. Anil K. Jain and ________________, known
to me or satisfactorily proved to be the President and the
Secretary, respectively, of APA Optics, Inc., the corporation
that executed the foregoing instrument.
/s/ Lenore
Aaseng_______________
Notary Public,
State of Minnesota
(NOTARIAL SEAL)
EXHIBIT A
Legal Description of the Land
Lots 1, 2 and the North 203.8 feet of Lot 3, Block 3,
Aberdeen Industrial Park East Addition to Aberdeen, South Dakota
located in the Northeast Quarter of Section 16, Township 123
North, Range 63 West of the 5th P.M., according to the plat
thereof of record, Brown County, South Dakota.
Additional Permitted Encumbrances:
1. RESOLUTION concerning creation of the West Brown Irrigation
District, dated Jan. 18, 1965, executed by the Board of
Brown County Commissioners to the public; filed for record
February 8, 1965 at 8:00 A.M. in Book 41 MR, page 534
records of said county.
2. RESERVATIONS contained in that certain State Patent, dated
May 11, 1945, executed by State of South Dakota to F.W.
Hatterscheidt; filed for record June 1, 1945 at 9:30 A.M. in
Book 136, page 102 records of said county.
3. RIGHT-OF-WAY EASEMENT, dated August 20, 1991, executed by
John Milton Howell and Thelma Howell, to WEB Water
Development Association, Inc.; filed for record May 14, 1992
at 2:42 P.M. in Book 110 MR, page 415 records of said
county.
4. STATEMENT TO CONDITIONS, COVENANTS, RESTRICTIONS AND
RESERVATIONS AND EASEMENTS AFFECTING ABERDEEN EAST
INDUSTRIAL PARK ABERDEEN, SOUTH DAKOTA, dated November 7,
1995, executed by Aberdeen Development Corporation, and
Midstates Printing, Inc., and Midcom, Inc. to the Public;
filed for record November 20, 1995 at 9:16 A.M. in Book 117
MR, page 174 records of said county.
5. Subject to set-back line and utility easement as shown on
the recorded plat.
-2-
Exhibit 4.4(a)
APA OPTICS, INC.
SUBSCRIPTION AND INVESTMENT REPRESENTATION AGREEMENT
OF NE VENTURE, INC.
THIS AGREEMENT, made effective this day of June, 1996,
between APA OPTICS, INC., a Minnesota corporation (the "Company"),
and NE Venture, Inc., a South Dakota corporation (the
"Subscriber"):
W I T N E S S E T H
In consideration of the mutual promises contained herein, and
other good and valuable consideration, the parties hereto agree as
follows:
1. Agreement of Sale. Pursuant to Paragraph 7 of the Agreement of
Intent and Due Diligence between the Company and Aberdeen
Development Corporation ("ADC") dated May 8, 1995, as amended
effective August , 1995 (the "Agreement of Intent"), the
Company agrees to sell to the Subscriber, and the Subscriber
agrees to purchase from the Company, shares of Common Stock,
par value $.01 per share, of the Company (the "Common Stock")
in the amounts and under the terms described below:
a. On the date hereof, the Subscriber shall purchase
148,148 shares of Common Stock at a purchase price of
$3.375 per share, or a total of $500,000. The Closing (the
"First Closing") of such purchase and sale shall be held
concurrently with the $700,000 loan to the Company by the
Subscriber or ADC described in Paragraph 6 of the Agreement
of Intent.
b. On the date which is 90 days after the First Closing,
the Subscriber shall purchase $700,000 worth of Common
Stock, at a price per share equal to the average of the bid
and asked prices of the Common Stock on The NASDAQ Small-
Cap Market during the fiscal quarter immediately preceding
such purchase. The closing (the "Second Closing") of such
purchase and sale shall be held concurrently with the
$300,000 loan to the Company by the Subscriber or ADC
described in Paragraph 6 of the Agreement of Intent.
2. Issuance of the Warrants. In connection with loans described
in Paragraph 6 of the Agreement of Intent, the Company shall
issue to the Subscriber on each of the first five anniversary
dates of this Agreement, a warrant to purchase shares of Common
Stock (the "Warrants"), the number of which shall be calculated
by dividing the dollar amount of job credits earned by the
Company in the 12 months preceding that anniversary date (as
described in the Agreement of Intent) by the exercise price.
The exercise price shall be $4.00 for Warrants issued on the
first anniversary date and shall increase by $1.00 per year
thereafter so that the exercise price of the Warrants issued on
the fifth anniversary date shall be $8.00. The Warrants shall
be substantially in the form attached hereto as Exhibit A. If
the loans described in Paragraph 6 of the Agreement of Intent
are not made or if no job credits are earned, no Warrants shall
be issued. The exercise price
set forth in this Paragraph 2 to be used to calculate the
number of Warrants to be issued pursuant to this Paragraph 2
shall be subject to adjustment from time to time in the manner
and upon the occurrence of the events described in Paragraph 4
of the form of Warrant attached as Exhibit A to this Agreement.
3. Purchase of and Sale of Common Stock.
a. In order to purchase the Common Stock to be sold
pursuant to Paragraph 1(a) or 1(b) hereunder, the
Subscriber will notify the Company of its intent to make
such purchase and within ten business days thereafter shall
deliver cash or a check in the amount of the purchase price
to the Company (the date on which the Subscriber shall
deliver such payment is hereinafter referred to as the
"First Closing Date"). If Common Stock is to be purchased
pursuant to Paragraph 1(b) hereof, the Subscriber shall
notify the Company at least five business days prior to the
date on which the Subscriber intends to deliver payment so
that the Company may verify the purchase price (the date on
which the Subscriber shall deliver such payment is
hereinafter referred to as the "Second Closing Date") .
b. At each closing, the Company will deliver to the
Subscriber a certificate registered in the Subscriber's
name, dated as of such Closing Date, representing the
shares of Common Stock purchased by the Subscriber at such
Closing Date (the "Shares") against payment to the Company
of the purchase price of the Shares being purchased by the
Subscriber.
4. Representations and Warranties of the Company. In
consideration of the Subscriber's agreement to purchase the
Securities (as defined in Paragraph 6 of this Agreement), the
Company represents and warrants to the Subscriber as follows:
a. Organization. The Company is a duly organized and
validly existing corporation under the laws of the State of
Minnesota. The Company has the requisite corporate power
and authority to own its properties and to carry on its
business in all material respects as it is now being
conducted and as proposed to be conducted. The Company has
no subsidiaries or direct or indirect ownership interest in
any firm, corporation, association or business. The
Company has the requisite corporate power and authority to
authorize, issue, sell and deliver the Securities and to
otherwise perform its obligations under this Agreement.
The Company is qualified to do business in each
jurisdiction in which the conduct of its business or the
ownership of its properties requires such qualification.
b. Good Standing. The Company is in good standing under
the laws of the State of Minnesota, and there are no
proceedings or actions pending to limit or impair any of
its powers, rights and privileges, or to dissolve it.
c. Corporate Authorization. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by proper
corporate action of the
company. This Agreement has been duly executed and
delivered by authorized officers of the Company and is a
valid and binding agreement on the part of the Company that
is enforceable against the Company in accordance with its
terms, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, moratorium,
reorganization or other laws of general application
affecting enforcement of creditors' rights or by general
principles of equity.
d. Shares. The Shares, when issued and paid for pursuant
to the terms of this Agreement, will be duly and validly
authorized, validly issued and outstanding, fully paid,
nonassessable shares and will be free and clear of all
pledges, liens, encumbrances and restrictions, except as
set forth in Paragraph 7 of this Agreement.
e. No Brokers or Finders. Except for the financial
consultant being used by the Company, no person, firm or
corporation has or will have, as a result of any act or
omission of the Company, any right, interest or valid claim
against the Company or the Subscriber for any commission,
fee or other compensation as a finder or broker in
connection with the transactions contemplated by this
Agreement.
f. Governmental Consents. Based in part upon the
representations of the Subscriber in Paragraph 5, no
consent, approval, qualification, or order or authorization
of, or filing with, any local, state or federal
governmental authority is required on the part of the
Company in connection with the Company's valid execution,
delivery or performance of this Agreement, the offer, sale,
issuance or delivery of the Securities by the Company, or
the performance by the Company of its obligations in
respect thereof except such filings as have been made prior
to the applicable Closing, except any notices of sale
required to be filed with the Commission (as defined below)
under Regulation D of the Act (as defined below), or such
post-closing filings as may be required under applicable
state securities laws, which will be timely filed within
the applicable periods therefor.
g. No Conflicts. Neither the execution, delivery or
performance by the Company of this Agreement, nor
compliance with the terms and provisions hereof nor the
consummation of the transactions contemplated hereby will
(i) contravene any applicable law, statute, rule,
regulation, order, writ, injunction or decree of any
Federal, state or local government, court or governmental
department, commission, board, bureau, agency or
instrumentality, (ii) conflict or be inconsistent with, or
result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default
(either immediately or with notice or the passage of time
or both) under, any indenture, mortgage, deed of trust,
credit agreement or instrument or any other material
agreement or instrument to which the Company is a party or
by which it may be bound or to which any of the foregoing
may be subject or (iii) violate any provisions of the
Articles of Incorporation or Bylaws of the Company.
h. Litigation. There are no legal actions, suits,
arbitrations or other legal, administrative or governmental
proceedings pending or, to the best of the Company's
knowledge, threatened against the Company or its
properties, assets or business which, if determined
adversely, would have a material adverse effect on the
Company or its properties, assets or business and neither
the Company nor any of its officers is aware of any facts
which might result in or form the basis for any such
action, suit or other proceeding. The Company is not in
material default with respect to any judgment, order or
decree of any court or any governmental agency or
instrumentality.
i. Building Project. The Company will establish, and
deliver to the Subscriber, a budget for the construction of
the Company's new facility in Aberdeen, SD and for the
acquisition of equipment for that facility. The budget
shall show a total project cost including construction and
acquisition costs of not less than $3,200,000.00. During
the first 24 months following execution of this Agreement,
the Company will provide the Subscriber with an accounting
reflecting expenditures made under such budget from the
proceeds of the sale of the Common Stock under this
Agreement or the exercise of the Warrants under this
Agreement.
j. Securities Laws Filings. The Company has furnished to
Subscriber complete and accurate copies of its annual
report on Form 10-KSB ("10-KSB") for the fiscal year ended
March 31, 1995, and quarterly reports on Form 10-QSB for
the quarters ended June 30, 1995, September 30, 1995 and
December 31, 1995, Proxy Statement for the Annual Meeting
of Shareholders held August 16, 1995, and the 1995 Annual
Report to Shareholders (the "SEC Filings"), in each case as
filed with the Securities and Exchange Commission (the
"Commission"). The Company has not filed with the
Commission any registration statement, report, proxy or
information statement or other information under the Act
(as defined below), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), since the date of the
filing of the 10-KSB, except the other SEC Filings, nor has
it amended any of the SEC Filings except for an amendment
to the June 30, 1995 Form 10-KSB.
k. Changes. There has been no material adverse change in
the financial condition or business, assets or properties
of the Company since March 31, 1995, and December 31, 1995,
other than normal recurring operating losses.
l. Capitalization and Voting Rights. The authorized
capital of the Company consists, or will consist prior to
the First Closing, of (a) 15,000,000 shares of common
stock, $0.01 par value (the "Common Stock"), of which there
are 7,990,007 fully paid and nonassessable shares duly
issued and outstanding and no other shares issued and
outstanding, 415,000 shares reserved for issuance upon the
exercise of warrants and 10,000 shares reserved for
issuance pursuant to the exercise of stock options and (b)
5,000,000 undesignated shares, none of which are
outstanding. All of the outstanding shares of Common Stock
have been validly issued and are fully paid and
nonassessable. No class of capital stock of the Company is
entitled to preemptive or similar rights to purchase any
securities of the Company.
5. Representations and Warranties of the Subscriber. In
consideration of the Company's agreement to sell the
Securities, the Subscriber hereby represents and warrants to
the Company as follows:
a. Information About the Company. The Subscriber has
received, read, and understands the Agreement of Intent and
the Company's Annual Report on Form 10-KSB for the fiscal
year ended March 31, 1995 and Quarterly Reports on Form 10-
QSB for the quarters ended June 30, 1995, September 30,
1995 and December 31, 1995. Further, the Subscriber has
had the opportunity to ask questions of, and receive
answers from, the Company, or an agent of the Company,
concerning the terms and conditions of the investment and
the business and affairs of the Company and to obtain any
additional information necessary to verify such
information, and the Subscriber has received such
additional information concerning the Company as the
Subscriber considers necessary or advisable in order to
form a decision concerning an investment in the Company.
b. High Degree of Risk. The Subscriber realizes that the
Securities are speculative and involve a high degree of
risk, including the risks of receiving no return on the
investment and of losing the investment in the Company.
c. Ability to Bear the Risk. The Subscriber is able to
bear the economic risk of investment in the Securities,
including the total loss of such investment.
d. Appropriate Investment. The Subscriber believes, in
light of the information provided pursuant to Paragraph
5(a) above, that subscribing for the Securities pursuant to
the terms of this Agreement is an appropriate and suitable
investment for the Subscriber.
e. Business Sophistication. The Subscriber and its
executive officers are experienced and knowledgeable in
financial and business matters, capable of evaluating the
merits and risks of purchasing securities of the Company.
f. Residency. The Subscriber is a corporation
incorporated under the laws of the State of South Dakota.
g. Exemption. The Company reserves the right to request
information from the Subscriber from time to time to permit
the Company to verify that the issuance of the Shares, the
Warrants and the shares of Common Stock issuable upon
exercise of the Warrants is exempt under the Act and any
applicable state law.
6. Investment Purpose in Acquiring the Units. The Subscriber and
the Company acknowledge that neither the Shares, the Warrants,
nor the shares of Common Stock issuable upon exercise of the
Warrants (collectively, the "Securities"), have been registered
under the Securities Act of 1933, as amended (the "Act"), or
applicable state securities laws and that such Securities will
be issued to the Subscriber in reliance on exemptions from the
registration requirements of the Act and applicable state
securities laws and in reliance on the Subscriber's and the
Company's representations and agreements contained herein. The
Subscriber is subscribing to acquire the Securities for the
account of the Subscriber for investment purposes only and not
with a view to their resale or distribution. The Subscriber
has no present intention to divide its participation with
others or to resell or otherwise dispose of all or any part of
the Securities. In making these representations, the
Subscriber understands that, in the view of the Commission,
exemption of the Securities from the registration requirements
of the Act would not be available if, notwithstanding the
representations of the Subscriber, the Subscriber has in mind
merely acquiring the Securities for resale upon the occurrence
or nonoccurrence of some predetermined event.
7. Compliance with Securities Act. The Subscriber agrees that if
the Securities or any part thereof are sold or distributed in
the future, the Subscriber shall sell or distribute them
pursuant to the requirements of the Act and applicable state
securities laws. The Subscriber agrees that the Subscriber
will not transfer any part of the Securities without (a)
obtaining an opinion of counsel satisfactory in form and
substance to the counsel for the Company to the effect that
such transfer is exempt from the registration requirements
under the Act and applicable state securities laws or (b) such
registration.
8. Restrictive Legend. The Subscriber agrees that Company may
place a restrictive legend on the certificates representing the
Securities containing substantially the following language:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any
state securities laws. They may not be sold, offered for sale,
or transferred in the absence of either an effective
registration under the Securities Act of 1933, as amended, and
under the applicable state securities laws, or an opinion of
counsel satisfactory to the Company that such transaction is
exempt from registration under the Securities Act of 1933, as
amended, and under the applicable state securities laws."
9. Removal of Legend. Upon the sale of any of the Securities in
accordance with Rule 144 or any similar rule then in effect, or
pursuant to an effective registration statement, the Company
shall instruct its transfer agent to issue new certificates for
the Securities without the restrictive legend described in
Paragraph 8. In addition, if the Subscriber delivers to the
Company an opinion of counsel to the effect that no subsequent
transfer of such Securities will require registration under the
Act, the Company will promptly upon such contemplated transfer
deliver new certificates evidencing such Securities that do not
bear the legend set forth in Paragraph 8.
10. Stop Transfer Order. The Subscriber agrees that the Company
may place a stop transfer order with its registrar and stock
transfer agent covering all certificates representing the
Securities.
11. Knowledge of Restrictions upon Transfer of the Securities. The
Subscriber understands that the Securities are not freely
transferable and may in fact be prohibited from sale for an
extended period of time and that, as a consequence thereof, the
undersigned must bear the economic risk of investment in the
Securities for an indefinite period of time and may have
extremely limited opportunities to dispose of the Securities.
The Subscriber understands that Rule 144 under the Act permits
the transfer of "restricted securities" of the type here
involved only under certain conditions, including a minimum two-
year holding period and the availability to the public of
certain information concerning the Company.
12. Registration Rights. (a) In the event the Company files a
registration statement under the Act during Registration Period
(as defined below) for any Security, the Company will use its
best efforts to permit the Subscriber to register that Security
on a piggyback basis as part of such registration. The Company
may require that the Subscriber pay all incremental costs
associated with such piggyback registration. The Company may
restrict the volume of the Subscriber's piggyback registration
if the Company reasonably determines that such a reduction is
necessary to avoid a material adverse impact on the
registration and if, in connection with such reduction, the
Company treats all holders of unregistered securities in an
equivalent manner. The "Registration Period" with respect to
any Security shall be the period beginning on the first
anniversary date of the issuance of such Security to the
Subscriber and ending on the second anniversary of the issuance
of such Security, provided that the Registration Period with
respect to any Security shall, if it has not previously
expired, continue for so long as the Subscriber is not free to
sell the Security under Rule 144(k). In the case of a Warrant,
issuance shall be deemed to have occurred upon issuance of
Common Stock upon exercise of the Warrant.
b. Indemnification. In the event that any Securities held
by Subscriber are included in a registration statement under
Paragraph 12 of this Agreement:
(i) The Company will indemnify and hold harmless
the Subscriber and each of its officers and directors,
and any underwriter (as defined in the Act) for the
Subscriber and each person, if any, who controls the
Subscriber or such underwriter within the meaning of
the Act from and against any and all loss, damage,
liability, cost and expense (or actions, proceedings or
settlements in respect thereof) to which the Subscriber
or any such underwriter or controlling person may
become subject under the Act or otherwise, arising out
of or based upon any statement or alleged untrue
statement of any material fact by the Company contained
in such registration statement, any prospectus
contained therein or any amendment or supplement
thereto or any document incident to any registration,
qualification or compliance, or arising out of or based
upon the omission or alleged omission by the Company to
state therein a material fact required to be stated
therein or necessary to make the statements therein, in
light of the
circumstances in which they were made, not misleading
and will reimburse the Subscriber and each person
controlling the Subscriber, each such underwriter, and
each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in
connection with investigating and defending or settling
any such claim, loss, damage, liability, or action;
provided, however, that the Company will not be liable
in any such case to the extent that any such loss,
damage, liability, cost or expense arises out of or is
based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in
conformity with information furnished by the
Subscriber, such underwriter or such controlling
person. It is agreed that the indemnity agreement
contained in this Paragraph 12(b)(i) shall not apply to
amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is
effected without the consent of the Company (which
consent has not been unreasonably withheld).
(ii)The Subscriber will indemnify and hold harmless
the Company, and each of its officers and directors,
and any underwriter (as defined in the Act) and each
person, if any, who controls the Company or such
underwriter within the meaning of the Act from and
against any and all loss, damage, liability, cost and
expense (or actions, proceedings or settlements in
respect thereof) to which the Company or any such
underwriter or controlling person may become subject
under the Act or otherwise, arising out of or based
upon any untrue or alleged untrue statement of any
material fact by the Subscriber contained in such
registration statement, any prospectus contained
therein or any amendment of supplement thereto or any
document incident to any registration, qualification or
compliance, or arising out of or based upon the
omission or the alleged omission by the Subscriber to
state therein a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading or any violation by the Subscriber of the
Act or any rule or regulation thereunder applicable to
the Subscriber and relating to action or inaction
required of the Subscriber in connection with any such
registration, qualification, or compliance, and will
reimburse the Company and each person controlling the
Company, each such underwriter, and each person who
controls any such underwriter, for any legal and any
other expenses reasonably incurred in connection with
investigating and defending or settling any such claim,
loss, damage, liability, or action; provided, however,
that the Subscriber shall be liable in the case of any
such untrue statement or alleged untrue statement or
omission or alleged omission only to the extent that
any such untrue statement or alleged untrue statement
or omission or alleged omission was so made in reliance
upon and in conformity with information furnished to
the Company by the Subscriber. It is agreed that the
indemnity agreement contained in this Paragraph
12(c)(ii) shall not apply to amounts paid in settlement
of any such loss,claim, damage, liability, or action if
such settlement is effected without the consent of the
Subscriber (which consent shall not be unreasonably
withheld).
(iii)If the indemnification provided for in
Subsections (i) or (ii) above is held by a court of
competent jurisdiction to be unavailable to the
indemnified party with respect to any loss, liability,
claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or
expense in such proportion as appropriate to reflect
the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in
connection with the statements or omissions that
resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or
omission to state a material fact relates to
information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to
correct or prevent such statement or omission.
13. Conditions of the Subscriber's Obligation. The obligation of
the Subscriber to purchase and pay for the Shares that the
Subscriber has agreed to purchase on a Closing Date is subject
to the fulfillment prior to or on such Closing Date of the
following conditions, any of which may be waived in whole or in
part with respect to such Closing Date by the Subscriber.
a. No Errors, etc. The representations and warranties of
the Company under this Agreement will be true in all
material respects as of the relevant Closing Date with the
same effect as though made on and as of such Closing Date.
b. Compliance with Agreement. The Company shall have
performed and complied in all material respects with all
agreements or conditions required by this Agreement and the
Agreement of Intent to be performed and complied with by it
prior to or as of such Closing Date.
c. Secretary's Certificate. The Company shall have
delivered to the Subscriber a certificate, dated such
Closing Date, executed by the Secretary of the Company and
substantially in the form of Exhibit B.
d. President's Certificate. The president of the Company
shall have delivered to the Subscriber at such Closing a
certificate certifying that the conditions specified in
this Paragraph 13 have been fulfilled.
e. Required Filings. All material governmental filings,
authorizations and approvals that are required for the
consummation of the transactions contemplated hereby will
have been duly made and obtained.
14.Conditions to the Company's Obligations. The obligation of the
Company to consummate the transactions contemplated by this
Agreement on a Closing Date is subject to the satisfaction of
the following conditions on or before such Closing Date, any of
which may be waived in whole or in part by the Company.
a. No Errors, Etc. The representations and warranties of
the Subscriber under this Agreement will be true in all
material respects as of the relevant Closing Date as though
made on and as of such Closing Date.
b. Compliance with Agreement. The Subscriber will have
performed and complied in all material respects with all
agreements required by this Agreement and the Agreement of
Intent to be performed and complied with by it prior to or
as of such Closing Date.
c. Required Filings. All material governmental filings,
authorizations and approvals that are required for, or as a
result of, the consummation of the transactions
contemplated hereby will have been duly made and obtained.
15. Mutual Conditions. The several obligations of the Company and
of the Subscriber to consummate the transactions contemplated
by this Agreement on a Closing Date are subject to the
satisfaction of the following conditions as of such Closing
Date.
a. Pending Proceedings. There will not be threatened,
instituted or pending any action or proceeding before any
court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, delay
or otherwise directly or indirectly restrain or prohibit
the consummation of the transactions contemplated hereby or
seeking to obtain material damages in connection with such
transactions, (ii) seeking to invalidate or render
unenforceable any material provision of this Agreement or
(iii) otherwise relating to and materially adversely
affecting the transactions contemplated hereby.
b. Governmental Actions. There will not be any action
taken or any statute, rule, regulation, judgment, order or
injunction, enacted, entered, enforced, promulgated, issued
or deemed applicable to the transactions contemplated
hereby by any federal, state or foreign court, government
or governmental authority or agency that could reasonably
be expected to result, directly or indirectly, in any of
the consequences referred to in Paragraph 15(a).
16. Binding Effect. Except as otherwise expressly provided in this
Agreement or the exhibits hereto, neither this Agreement nor
any interest herein shall be assignable by the Subscriber or
the Company without the prior written consent of the other
party. The provisions of this Agreement shall be binding upon
and inure to the benefit of the parties hereto, and their
respective heirs, legal representatives, successors and
assigns.
17. Representations to Survive Delivery. The covenants,
representations, warranties, agreements and statements of the
Company and of the Subscriber contained in this Agreement or in
any certificate, statement or document furnished in connection
herewith or in connection with the transactions contemplated
hereby will remain operative and in full force and effect and
will survive any investigation at any time by the Company or
the Subscriber, the payment of the purchase price pursuant to
Section 3 above and the delivery of certificates representing
the Securities. All statements contained in any certificate,
instrument or other writing (except legal opinions) delivered
pursuant hereto or in connection with the transactions
contemplated herein shall constitute representations and
warranties hereunder made by the party hereto who is
responsible for such delivery.
18. Changes, Waiver, Etc. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or
termination is sought.
19. Expenses. Except as otherwise expressly provided for herein or
in the Agreement of Intent, the Subscriber and the Company will
pay all of their own expenses (including attorneys' and
accountants' fees) in connection with the negotiation and
preparation of this Agreement, the performance of their
respective obligations hereunder and the consummation of the
transactions contemplated hereby (whether consummated or not).
20. Rule 144 Reporting. With a view to maintaining the
availability to the Subscriber of Rule 144 under the Act, the
Company agrees to use its best efforts to:
a. Make and keep available public information regarding
the Company at all times as those terms are understood and
defined in Rule 144 under the Act; and
b. File with the Commission in a timely manner all reports
and other documents required of the Company under the Act
and the Exchange Act at any time during which it is subject
to such reporting requirements.
c. The Company will, so long as the Subscriber owns any of
the Securities, furnish to the Subscriber upon written
request, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents
as the Subscriber may reasonably request in availing itself
of any rule or regulation of the Commission allowing the
Subscriber to sell any such securities without
registration.
21. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement, and the balance of this
Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
22. Counterparts. This Agreement may be executed concurrently in
one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the
same instrument.
23. Entire Agreement. This Agreement (including the exhibits
hereto) constitute the entire agreement of the parties hereto
with respect to the subject matter hereof (and thereof).
24. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of
Minnesota.
NE VENTURE, INC.
By
Its
P.O. Box 1179
Aberdeen, South Dakota 57402-
1179
The Company hereby accepts the
subscription evidenced by this
Subscription and Investment
Representation Agreement:
APA OPTICS, INC.
By:
Its:
Date:
SUBSCRIBER INFORMATION
NE VENTURE, INC.
(Please print name(s) in which the Securities are to be issued)
Taxpayer I.D. No.
Taxpayer I.D. No.
(If more than one investor)
Address: P.O. Box 1179
City: Aberdeen State: SD Zip
Code: 57402-1179
Telephone Number ( 605 ) 229-5335
Check One:
Individual Ownership Tenants in Common
Joint Tenants (JTWROS) X Other (Specify: Corporation )
CERTIFICATE OF SIGNATORY
I, , am the of
NE Venture, Inc.
(the "Entity").
I certify that I am empowered and duly authorized by the Entity
to execute and carry out the terms of the Subscription and
Investment Representation Agreement and to purchase and hold the
Securities and certify further that the Subscription and Investment
Representation Agreement has been duly and validly authorized by
and executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this day of
, 1996.
371Z159
-10-
Exhibit 4.4(b)
COMMON STOCK PURCHASE WARRANT
To Purchase
Shares of Common Stock of
APA OPTICS, INC.
THIS CERTIFIES THAT NE Venture, Inc., a South Dakota
corporation ("NE Venture") (the "Holder"), or its successors or
permitted assigns, is entitled to subscribe to and purchase from
APA Optics, Inc., a Minnesota corporation (the "Company"), at any
time on or after , 199 , to and including
, 200 , fully paid and nonassessable
shares of the Company's Common Stock, $.01 par value (the
"Warrant Shares"), at the price of $ per share (the "Warrant
Exercise Price"), subject to adjustment as hereinafter indicated.
This Warrant is issued pursuant to the Agreement of Intent
and Due Diligence by and between the Company and Aberdeen
Development Corporation dated May 8, 1995, as amended effective
August , 1995, and the Subscription and Investment
Representation Agreement by and between the Company and the
Holder made effective April , 1996 (the "Subscription
Agreement"), and is subject to the provisions thereof and the
following provisions, terms, and conditions:
1. Exercise and Transferability.
(a) The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not
as to fewer than 100 shares of Common Stock), by written
notice of exercise delivered to the Company and by the
surrender of this Warrant (properly endorsed if required) at
the principal office of the Company and upon payment to it
by cash or certified or cashier's check of the Warrant
Exercise Price for the Warrant Shares being purchased.
(b) This Warrant may not be transferred, except by
will, pursuant to the operation of law, or in compliance
with the provisions of Section 9 hereof.
2. Issuance of the Warrant Shares. The Company agrees
that the Warrant Shares purchased hereby shall be and are deemed
to be issued to the record holder hereof as of the close of
business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid.
Subject to the provisions of the next succeeding Section,
certificates for the Warrant Shares so purchased shall be
delivered to the Holder hereof within a reasonable time, not
exceeding ten (10) days after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant
has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be
delivered to the Holder hereof within such time. Notwithstanding
the foregoing, however, the Company shall not be required to
deliver any certificate for shares of Common Stock upon exercise
of this Warrant, except in accordance with the provisions, and
subject to the limitations, of Section 9 hereof, to the extent
that such provisions and limitations are applicable.
3. Covenants of the Company. The Company covenants and
agrees that the Warrant Shares issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be duly
authorized and issued, fully paid, nonassessable, and free from
all taxes, liens, and charges with respect to the issue thereof,
and without limiting the generality of the foregoing, the Company
covenants and agrees that it will from time to time take all such
action as may be required to assure that the par value per share
of the Common Stock is at all times equal to, or less than, the
then effective Warrant Exercise Price. The Company further
covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company
will at all times have authorized and reserved for issuance upon
exercise of the rights evidenced by this Warrant a sufficient
number of shares of its Common Stock to provide for the exercise
of such rights.
4. Antidilution Adjustments. The provisions in this
Warrant relating to the number of Warrant Shares and the Warrant
Exercise Price are subject to adjustment as hereinafter provided.
(a) In case the Company shall declare a dividend or
make any other distribution upon the Common Stock of the
Company payable in shares of Common Stock or other
securities, upon exercise of this Warrant, the Holder shall
be entitled to receive, for each share of Common Stock
purchased pursuant to such Warrant, the number of shares of
Common Stock or other securities, as the case may be, issued
per share of Common Stock in payment of such dividend or
distribution.
(b) In case at any time the Company shall subdivide its
outstanding shares of Common Stock into a greater number of
shares, the Warrant Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced
and the number of Warrant Shares purchasable pursuant to
this Warrant immediately prior to such subdivision shall be
proportionately increased, and, conversely, in case at any
time the Company shall combine its outstanding shares of
Common Stock into a smaller number of shares, the Warrant
Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the
number of Warrant Shares purchasable upon the exercise of
this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this
Subsection 4(b), no adjustment in the Warrant Exercise Price
and no change in the number of Warrant Shares so purchasable
shall be made pursuant to this Section 4 as a result of, or
by reason of, any such subdivision or combination.
(c) If the Company takes any other action, or if any
other event occurs, which does not come within the scope of
the provisions of Section 4(a) or 4(b), but which should
result in an adjustment in the Warrant Exercise Price and/or
the number of shares subject to this Warrant in order to
fairly protect the purchase rights of the Holder, an
appropriate adjustment in such purchase rights shall be made
by the Company.
(d) Upon any adjustment of the Warrant Exercise Price,
the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered
Holder at the address of the Holder as shown on the books of
the Company, which notice shall state the Warrant Exercise
Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant, setting forth
in reasonable detail the method of calculation and the facts
upon which such calculation is based.
(e) Except as hereinafter provided, no adjustment of
the Warrant Exercise Price hereunder shall be made if such
adjustment results in a change in the Warrant Exercise Price
then in effect of less than five cents ($.05). Any
adjustment of less than five cents ($.05) of any Warrant
Exercise Price shall be carried forward and shall be made at
the time of and together with any subsequent adjustment
which, together with any adjustment or adjustments so
carried forward, amounts to five cents ($.05) or more.
However, upon the exercise of this Warrant, the Company
shall make all necessary adjustments (to the nearest cent)
not theretofore made to the Warrant Exercise Price up to and
including any date upon which this Warrant is exercised.
5. Consolidation, Merger, or Sale of Assets. In the case
of any consolidation or merger of the Company with another
corporation, the sale of all or substantially all of its assets
to another person, or any reorganization or reclassification of
the capital stock of the Company (except a split-up or
combination, provision for which is made in Section 4 hereof):
(a) As a condition of such consolidation, merger,
sale, reorganization, or reclassification, lawful and
adequate provision shall be made whereby the Holder shall
thereafter have the right to purchase upon the basis and
upon the terms and conditions specified herein and in lieu
of the Warrant Shares immediately theretofore purchasable
hereunder, such shares of stock, securities, or assets as
may (by virtue of such consolidation, merger, sale,
reorganization, or reclassification) be issued or payable
with respect to, or in exchange for, a number of outstanding
shares of the Company's Common Stock equal to the number of
Warrant Shares immediately theretofore so purchasable
hereunder had such consolidation, merger, sale,
reorganization, or reclassification not taken place, and in
any such case appropriate provision shall be made with
respect to the rights and interests of the Holder to the end
that the provisions hereof (including, without limitation,
provisions for adjustments of the Warrant Exercise Price)
shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, or assets
thereafter deliverable upon the exercise of this Warrant.
The Company shall not effect any such consolidation, merger,
or sale unless, prior to, or simultaneously with, the
consummation thereof, the successor person or persons
purchasing such assets or succeeding or resulting from such
consolidation, merger, reorganization, or reclassification
shall assume by written instrument, executed and mailed or
delivered to the Holder, the obligation to deliver to the
Holder such shares of stock, securities, or assets as, in
accordance with the foregoing provisions, the Holder may be
entitled to receive.
(b) In the event that the Company shall make any
distribution of its assets upon, or with respect to, its
Common Stock, as a liquidating or partial liquidating
dividend, or other than as a dividend payable out of
earnings or any surplus legally available for dividends
under the laws of the State of Minnesota, the Holder shall,
upon the exercise of this Warrant after the record date for
such distribution or, in the absence of a record date, after
the date of such distribution, receive, in addition to the
Warrant Shares subscribed for, the amount of such assets
(or, at the option of the Company, a sum equal to the value
thereof at the time of distribution as determined in good
faith by the Board of Directors) that would have been
distributed to the Holder if the Holder had exercised this
Warrant immediately prior to the record date for such
distribution or, in the absence of a record date,
immediately prior to the date of such distribution.
6. Fractional Shares. Fractional shares shall not be
issued upon the exercise of this Warrant, but in any case where
the Holder would, except for the provisions of this Section, be
entitled under the terms hereof to receive a fractional share,
the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay an amount in
cash equal to the sum of (a) the excess, if any of the Market
Price of such fractional share over the proportional part of the
Warrant Exercise Price represented by such fractional share plus
(b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this
Section, the term "Market Price" with respect to shares of Common
Stock of any class or series means the last reported sale price
or, if none, the average of the last reported closing bid and
asked prices on any national securities exchange or on The Nasdaq
Stock Market (NASDAQ), or if not listed on a national securities
exchange or on NASDAQ, the average of the last reported closing
bid and asked prices as reported by market makers in such Common
Stock on the over-the-counter market or, if not listed on a
national securities exchange or on NASDAQ or quoted by market
makers, the fair market value as determined in good faith by the
Company's Board of Directors.
7. Common Stock. As used herein, the term "Common Stock"
shall mean and include the Company's currently authorized shares
of Common Stock and shall also include any capital stock of any
class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding-up of the Company.
8. No Voting Rights. This Warrant shall not entitle the
Holder to any voting rights or other rights as a shareholder of
the Company.
9. Restrictions on Transfer of the Warrant and the Warrant
Shares.
(a) The Holder, by acceptance hereof, acknowledges
that neither this Warrant nor the Warrant Shares have been
registered under the Securities Act of 1933, as amended (the
"Securities Act") or applicable state securities laws and
certifies that the Warrant is being acquired for investment,
for the Holder's own account, and not for distribution or
sale. The Holder further acknowledges that similar
representations may be required prior to the delivery of
Warrant Shares following exercise of the Warrant.
(b) The Holder, by acceptance hereof, agrees to give
written notice to the Company before transferring this
Warrant or any Warrant Shares of the Holder's intention to
do so, describing briefly the manner of any proposed
transfer. Promptly upon receiving such written notice, the
Company shall present copies thereof to the Company's cou
nsel, and if in the opinion of such counsel the proposed
transfer complies with federal and state securities laws and
may be effected without registration or qualification (under
any federal or state law), the Company, as promptly as
practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer or
dispose of the Warrant or Warrant Shares in accordance with
the written notice.
If, in the opinion of Company's counsel referred to in
this Section 9, the proposed transfer of the Warrant or any
Warrant Shares described in the written notice given
pursuant to this Section 9 may not be effected without
registration or qualification under federal or state
securities laws, the Company shall promptly give written
notice thereof to the Holder, and the Holder will limit the
Holder's activities in respect to such as, in the opinion of
such counsel, are permitted by law.
(c) An appropriate legend in substantially the form
set forth at the end of this Warrant respecting restrictions
upon the transfer of the Warrant and the Warrant Shares
shall be endorsed on all certificates for the Warrant and
the Warrant Shares. In addition, the Company's transfer
agent shall place a stop order on the Company's transfer
books with regard to the Warrant and the Warrant Shares.
(d) Any legend endorsed on a certificate pursuant to
Section 9(c) will be removed, and the Company will issue a
new certificate without such legend if the Warrant Shares
represented by such certificate are being disposed of by the
Holder pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 under the Securities
Act or similar rule then in effect. In addition, if the
Holder delivers to the Company an opinion of counsel
acceptable to the Company to the effect that no subsequent
transfer of the Warrant Shares will require registration
under the Securities Act, the Company will promptly upon
such contemplated transfer deliver new certificates
evidencing such Warrant Shares that do not bear the legend
set forth in Section 9(c).
10. Subject to the provisions of Section 9, this Warrant
and all rights hereunder are transferable, in whole or in part,
at the principal office of the Company by the Holder in person or
by duly authorized attorney, upon surrender of the Warrant
properly endorsed to any person or entity who represents in
writing that he/it is acquiring the Warrant for investment and
without any view to the sale or other distribution thereof. Each
holder of this Warrant, by taking or holding the same, consents
and agrees that the bearer of this Warrant, when endorsed, may be
treated by the Company and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company,
any notice to the contrary notwithstanding; but until such
transfer on such books, the Company may treat the registered
owner hereof as the owner for all purposes.
11. Limitation on Return on Investment. In the event the
Holder sells some or all of the Warrant Shares at a price per
share exceeding the Target Price corresponding to the Warrant
Exercise Price for this Warrant set forth in Schedule I to this
Warrant (the "Target Price") (as adjusted to reflect any stock
splits, stock dividends, or similar events affecting the Common
Stock, either before or after the exercise of the Warrants), all
amounts received by the Holder for such Warrant Shares in excess
of the Target Price per share (as adjusted to reflect any stock
splits, stock dividends, or similar events affecting the Common
Stock, either before or after the exercise of the Warrants) shall
be remitted to the Company within five business days after
receipt of Holder of such funds.
12. Right of Redemption. If at any time more than two
years following the exercise of this Warrant the Market Price per
share of the Common Stock (as defined in Section 6 hereof) equals
or exceeds the Target Price (as adjusted to reflect any stock
splits, stock dividends, or similar events affecting the Common
Stock, either before or after the exercise of the Warrants) for a
period of twenty consecutive business days, the Company, at its
option, may redeem some or all of the Warrant Shares from the
Holder for the Target Price per share (as adjusted to reflect any
stock splits, stock dividends, or similar events affecting the
Common Stock, either before or after the exercise of the
Warrants).
13. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, APA Optics, Inc. has caused this Warrant
to be signed by its duly authorized officer and this Warrant to
be dated , 199 .
APA OPTICS, INC.
By
Anil K. Jain, President
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, OR TRANSFERRED IN THE ABSENCE OF
EITHER AN EFFECTIVE REGISTRATION UNDER THE 1933 ACT AND
UNDER ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION IS
EXEMPT FROM REGISTRATION UNDER THE 1933 ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS.
SCHEDULE I
Warrant
Warrant Exercise Maximum Target
Year Factor Price ROI Price
1 $ 4.00 $ 4.00 $ 3.00 $11.00
2 5.00 5.00 3.75 13.75
3 6.00 6.00 4.50 16.50
4 7.00 7.00 5.25 19.25
5 8.00 8.00 6.00 22.00
WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented
by such Warrant for, and to purchase thereunder,
of the shares of Common Stock of APA Optics, Inc. to which such
Warrant relates and herewith makes payment of $
therefor in cash or by certified check, and requests that such
shares be issued and be delivered to the undersigned at the
address set forth below.
Dated:
(Signature)
(Address)
(Taxpayer's I.D. Number)
NOTE: If the shares are to be issued to a person other than the
holder, please contact the Company for further
instructions.
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto the purchase right represented by
the within Warrant to purchase of the shares of
Common Stock of APA Optics, Inc. to which such Warrant relates
and appoints attorney to transfer such purchase
right on the books of APA Optics, Inc. with full power of
substitution in the premises.
Dated:
Signature
____________________________
Name
____________________________
Address
____________________________
