PALOMAR MEDICAL TECHNOLOGIES, INC.
00 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
November 16, 1998
Fleet National Bank
Xxx Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Gentlemen:
This letter agreement will set forth certain understandings between
Palomar Medical Technologies, Inc., a Delaware corporation (the "Borrower") and
Fleet National Bank (the "Bank") with respect to Revolving Loans (hereinafter
defined) to be made by the Bank to the Borrower and with respect to letters of
credit which may hereafter be issued by the Bank for the account of the
Borrower. In consideration of the mutual promises contained herein and in the
other documents referred to below, and for other good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. Reference to Documents; Star Sale. Reference is made to (i) that
certain $10,000,000 face principal amount promissory note (the "Revolving Note")
of even date herewith made by the Borrower and payable to the order of the Bank,
(ii) that certain Inventory, Accounts Receivable and Intangibles Security
Agreement and that certain Supplementary Security Agreement Security Interest in
Goods and Chattels, each of even date herewith, from the Borrower to the Bank
(collectively, the "Borrower's Security Agreement"), (iii) collateral
assignments and notices of collateral assignment (collectively, the "Borrower's
Intellectual Property Security Agreements") from the Borrower to the Bank
relating to the Borrower's registered trademarks, patents and copyrights, if
any, (iv) that certain Guaranty Agreement of even date herewith (the "Personal
Guaranty") from A. Xxxx Xxxxxxxxxx (the "Personal Guarantor") to the Bank, (v)
that certain Inventory, Accounts Receivable and Intangibles Security Agreement
and that certain Supplementary Security Agreement - Security Interest in Goods
and Chattels, each of even date herewith, from Star Medical Technologies, Inc.
("Star") to the Bank (collectively, "Star's Security Agreement"), (vi)
collateral assignments and notices of collateral assignment (collectively,
"Star's Intellectual Property Security Agreements") from Star to the Bank
relating to Star's registered trademarks, patents and copyrights, if any, and
(vii) that certain Guaranty Agreement of even date herewith (the "Star
Guaranty") from Star to the Bank. The Bank acknowledges that nothing in this
letter agreement or in any Security Agreement or in any Intellectual Property
Security Agreement will in any event be deemed to prevent the sale of Star on or
prior to March 31, 1999 for cash consideration which shall result, after all
payments owed to Coherent, Inc., in at least $40,000,000 in net proceeds to the
Borrower on a pre-tax
basis, provided that proceeds of such sale are applied to reduce the Aggregate
Bank Liabilities to the extent necessary so that, after giving effect to such
sale and the release of the Star Security Agreement, the Aggregate Bank
Liabilities will not exceed the then remaining Borrowing Base. As provided in
ss.3.11 below, the security interest of the Bank in the assets of Star will be
released in order to permit the aforesaid sale on the terms described above.
1.2. The Borrowing; Revolving Note. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
ss.5.2 or ss.6.7; provided, however, that (1) the aggregate principal amount of
Revolving Loans outstanding shall at no time exceed the Maximum Revolving Amount
(hereinafter defined) and (2) the Aggregate Bank Liabilities (hereinafter
defined) shall at no time exceed the Borrowing Base (hereinafter defined).
Within such limits, and subject to the terms and conditions hereof, the Borrower
may obtain Revolving Loans, repay Revolving Loans and obtain Revolving Loans
again on one or more occasions. The Revolving Loans shall be evidenced by the
Revolving Note and interest thereon shall be payable at the times and at the
rate provided for in the Revolving Note. Overdue principal of the Revolving
Loans and, to the extent permitted by law, overdue interest shall bear interest
at a fluctuating rate per annum which at all times shall be equal to the sum of
(i) four (4%) percent per annum plus (ii) the per annum rate otherwise payable
under the Revolving Note (but in no event in excess of the maximum rate from
time to time permitted by then applicable law), compounded monthly and payable
on demand. The Borrower hereby irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to the Revolving Note or on the books of the
Bank, at or following the time of making each Revolving Loan and of receiving
any payment of principal, an appropriate notation reflecting such transaction
and the then aggregate unpaid principal balance of the Revolving Loans. The
amount so noted shall constitute presumptive evidence as to the amount owed by
the Borrower with respect to principal of the Revolving Loans. Failure of the
Bank to make any such notation shall not, however, affect any obligation of the
Borrower or any right of the Bank hereunder or under the Revolving Note. All
payments of interest, principal and any other sum payable hereunder and/or under
the Revolving Note shall be made to the Bank, in lawful money of the United
States in immediately available funds, at its office at Xxx Xxxxxxx Xxxxxx,
Xxxxxx, XX 00000 or to such other address as the Bank may from time to time
direct. All payments received by the Bank after 2:00 p.m. on any day shall be
deemed received as of the next succeeding Business Day. All monies received by
the Bank shall be applied first to fees, charges, costs and expenses payable to
the Bank under this letter agreement, the Revolving Note and/or any of the other
Loan Documents, next to interest then accrued on account of any Revolving Loans
or letter of credit reimbursement obligations and only thereafter to principal
of the Revolving Loans and letter of credit reimbursement obligations. All
interest and fees payable hereunder and/or under the Revolving Note shall be
calculated on the basis of a 360-day year for the actual number of days elapsed.
1.3. Repayment; Renewal. The Borrower shall repay in full all Revolving
Loans and all interest thereon upon the first to occur of: (i) the Expiration
Date or (ii) an acceleration under
section 5.2(a) following an Event of Default. The Borrower may repay, at any
time, without penalty or premium, the whole or any portion of any Revolving
Loan. In addition, if at any time the Borrowing Base is in an amount which is
less than the then outstanding Aggregate Bank Liabilities, the Borrower will
forthwith prepay so much of the Revolving Loans as may be required (or arrange
for the termination of such letters of credit as may be required) so that the
Aggregate Bank Liabilities will not exceed the Borrowing Base. The Bank may, at
its sole discretion, renew the financing arrangements described in this letter
agreement by extending the Expiration Date in a writing signed by the Bank and
accepted by the Borrower. Neither the inclusion in this letter agreement or
elsewhere of covenants relating to periods of time after the Expiration Date,
nor any other provision hereof, nor any action (except a written extension
pursuant to the immediately preceding sentence), non-action or course of dealing
on the part of the Bank will be deemed an extension of, or agreement on the part
of the Bank to extend, the Expiration Date.
1.4. Advances and Payments. The proceeds of all Revolving Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Revolving Loan will be used by the Borrower
solely (i) for working capital purposes, (ii) to pay principal of and interest
on the Coherent Notes when same becomes due, (iii) to pay interest on the
Restructured Subordinated Notes as same becomes due and (iv) to pay when due the
5% per annum fee described in clause (i) of ss.4.4 below to the extent (but only
to the extent) that such fee is classified as indebtedness in accordance with
generally accepted accounting principles and is not deemed to be a dividend.
The Bank may charge any general deposit account of the Borrower at the
Bank with the amount of all payments of interest, principal and other sums due,
from time to time, under this letter agreement and/or the Revolving Note and/or
with respect to any letter of credit; and will thereafter notify the Borrower of
the amount so charged. The failure of the Bank so to charge any account or to
give any such notice shall not affect the obligation of the Borrower to pay
interest, principal or other sums as provided herein or in the Revolving Note or
with respect to any letter of credit.
Whenever any payment to be made to the Bank hereunder or under the
Revolving Note or with respect to any letter of credit shall be stated to be due
on a day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and interest payable on each such date shall include
the amount thereof which shall accrue during the period of such extension of
time. All payments by the Borrower hereunder and/or in respect of the Revolving
Note and/or with respect to any letter of credit shall be made net of any
impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank.
1.5. Letters of Credit. At the Borrower's request, the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Bank Liabilities will in no event exceed the
lesser of (i) $10,000,000 or (ii) the then effective Borrowing Base.
Any such letter of credit will be issued for such fee and upon such terms and
conditions as may be agreed to by the Bank and the Borrower at the time of
issuance. The Borrower hereby authorizes the Bank, without further request from
the Borrower, to cause the Borrower's liability to the Bank for reimbursement of
funds drawn under any such letter of credit to be repaid from the proceeds of a
Revolving Loan to be made hereunder. The Borrower hereby irrevocably requests
that such Revolving Loans be made.
1.6. Conditions to Advance. Prior to the making of the initial Revolving
Loan or the issuance of any letter of credit hereunder, the Borrower shall
deliver to the Bank duly executed copies of this letter agreement, the Security
Agreements, the Guaranties, the Intellectual Property Security Agreements, the
Revolving Note and the documents and other items listed on the Closing Agenda
delivered herewith by the Bank to the Borrower, all of which, as well as all
legal matters incident to the transactions contemplated hereby, shall be
satisfactory in form and substance to the Bank and its counsel.
Without limiting the foregoing, any Revolving Loan or letter of credit
issuance (including the initial Revolving Loan or letter of credit issuance) is
subject to the further conditions precedent that on the date on which such
Revolving Loan is made or such letter of credit is issued (and after giving
effect thereto):
(a) All statements, representations and warranties of the Borrower
and/or Star made in this letter agreement and/or in any Security Agreement shall
continue to be correct in all material respects as of the date of such Revolving
Loan or the date of issuance of such letter of credit, as the case may be.
(b) All covenants and agreements of the Borrower and/or Star contained
herein and/or in any of the other Loan Documents shall have been complied with
in all material respects on and as of the date of such Revolving Loan or the
date of issuance of such letter of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time
or both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower and/or Star from that disclosed in the financial
statements then most recently furnished to the Bank.
Each request by the Borrower for any Revolving Loan or for the issuance
of any letter of credit, and each acceptance by the Borrower of the proceeds of
any Revolving Loan or delivery of a letter of credit, will be deemed a
representation and warranty by each of the Borrower and Star that at the date of
such Revolving Loan or the date of issuance of such letter of credit, as the
case may be, and after giving effect thereto all of the conditions set forth in
the foregoing clauses (a)-(d) of this ss.1.6 will be satisfied. Each request for
a Revolving Loan or letter of credit issuance will be accompanied by a borrowing
base certificate on a form satisfactory to the Bank,
executed by the chief financial officer of the Borrower, unless such a
certificate shall have been previously furnished setting forth the Borrowing
Base as at a date not more than 20 days prior to the date of the requested
borrowing or the requested letter of credit issuance, as the case may be.
II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties. In order to induce the Bank to
enter into this letter agreement and to make Revolving Loans hereunder and/or
issue letters of credit hereunder, the Borrower warrants and represents to the
Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted, to grant
the security interests contemplated by the Borrower's Security Agreement and the
Borrower's Intellectual Property Security Agreements and to enter into and
perform this letter agreement and the other Loan Documents. The Borrower is duly
qualified to do business and is in good standing in Massachusetts and is also
duly qualified to do business in and is in good standing in each other
jurisdiction in which the Borrower maintains any facility, sales office,
warehouse or other location, and in each other jurisdiction where the failure so
to qualify could (singly or in the aggregate with all other such failures) have
a material adverse effect on the financial condition, business or prospects of
the Borrower, all such jurisdictions being listed on item 2.1(a) of the attached
Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,
except as shown on said item 2.1(a) of the attached Disclosure Schedule. The
Borrower is not a member of any partnership or joint venture, except as shown on
said item 2.1(a) of the attached Disclosure Schedule.
(b) At the date of this letter agreement, no Person is known by the
Borrower to own, of record and/or beneficially, 5% or more of the outstanding
shares of any class of capital stock of the Borrower, except as set forth on
item 2.1(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings (other than
filings under the Uniform Commercial Code), registration, consent or
approval under, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent under any indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or any of its properties
may be bound or affected or require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any lien,
security interest or other encumbrance (other than in favor of the
Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms, except as enforceability may be limited by
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and by rules of law governing specific performance, injunctive relief
and other equitable remedies.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could hinder or
prevent the consummation of the transactions contemplated hereby or call into
question the validity of this letter agreement or any of the other Loan
Documents or any action taken or to be taken in connection with the transactions
contemplated hereby or thereby or which in any single case or in the aggregate
might result in any material adverse change in the business, prospects,
condition, affairs or operations of the Borrower or any Subsidiary.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Except as described on item 2.1(f) of the attached
Disclosure Schedule, neither the Borrower nor any Subsidiary of the Borrower is
in material violation of any term of any mortgage, indenture or judgment, decree
or order, or any other instrument, contract or agreement to which it is a party
or by which any of its property is bound.
(g) The Borrower has filed (and has caused each of its Subsidiaries to
file) all federal, state and local tax returns, reports and estimates required
to be filed by the Borrower and/or by any such Subsidiary. All such filed
returns, reports and estimates have been completed in accordance with applicable
law and the Borrower or the relevant Subsidiary has paid all taxes, assessments,
impositions, fees and other governmental charges required to be paid in respect
of the periods covered by such returns, reports or estimates. No deficiencies
for any tax, assessment or governmental charge have been asserted or assessed,
and the Borrower knows of no material tax liability or basis therefor.
(h) The Borrower is in compliance (and each Subsidiary of the Borrower
is in compliance) with all requirements of law, federal, state and local, and
all requirements of all governmental bodies or agencies having jurisdiction over
it, the conduct of its business, the use of its properties and assets, and all
premises occupied by it, failure to comply with any of which could (singly or in
the aggregate with all other such failures) have a material adverse effect upon
the assets, business, financial condition or prospects of the Borrower or any
such Subsidiary. Without limiting the foregoing, the Borrower has all the
franchises, licenses, leases, permits,
certificates and authorizations needed for the conduct of its business and the
use of its properties and all premises occupied by it, as now conducted, owned
and used.
(i) The audited financial statements of the Borrower as at December 31,
1997 and the management-generated statements of the Borrower as at June 30,
1998, each heretofore delivered to the Bank, are complete and accurate and
fairly present in all material respects the financial condition of the Borrower
as at the respective dates thereof and for the periods covered thereby. Neither
the Borrower nor any of the Borrower's Subsidiaries has any liability,
contingent or otherwise, not disclosed in the aforesaid financial statements or
in any notes thereto that could materially affect the financial condition of the
Borrower. Since June 30, 1998, there has been no material adverse development in
the business, condition or prospects of the Borrower, and the Borrower has not
entered into any transaction other than in the ordinary course.
(j) The principal place of business and chief executive offices of the
Borrower are located at 00 Xxxxxxxx Xxxxxx, Xxxxxxxxx, XX 00000. All of the
books and records of the Borrower are located at said address. Except as
described on item 2.1(j) of the attached Disclosure Schedule, no assets of the
Borrower are located at any other address. Said item 2.1(j) of the attached
Disclosure Schedule sets forth the names and addresses of the record owners of
all premises where any material amount of Collateral is located.
(k) The Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises ("Intellectual
Property") now being used to conduct its business, described on item 2.1(k) of
the attached Disclosure Schedule. None of the Intellectual Property owned by the
Borrower is represented by a registered copyright, trademark, patent or other
federal or state registration, except as shown on said item 2.1(k). To the best
knowledge of the Borrower, the conduct of the Borrower's business as now
operated does not conflict with valid patents, licenses, copyrights, trademarks,
trade names or franchises of others in any manner that could materially
adversely affect the business, prospects, assets or condition, financial or
otherwise, of the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can reasonably be foreseen by the Borrower at the date hereof,
may have a material adverse effect on the financial condition, business,
prospects or properties of the Borrower.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any covenants and agreements contained in the
Borrower's Security Agreement or elsewhere, the Borrower agrees that so long as
the financing arrangements
contemplated hereby are in effect or any Revolving Loan or any of the other
Obligations shall be outstanding or any letter of credit issued hereunder shall
be outstanding:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business and in good standing in
Massachusetts. The Borrower will qualify to do business and will remain
qualified and in good standing (and the Borrower will cause each Subsidiary of
the Borrower to qualify and remain qualified and in good standing) in each
jurisdiction in which the failure so to qualify could (singly or in the
aggregate with all other such failures) have a material adverse effect on the
financial condition, business or prospects of the Borrower or any such
Subsidiary. The Borrower will comply (and will cause each Subsidiary of the
Borrower to comply) with its charter documents and by-laws. The Borrower will
comply with (and will cause each Subsidiary of the Borrower to comply with) all
applicable laws, rules and regulations (including, without limitation, ERISA and
those relating to environmental protection) other than (i) laws, rules or
regulations the validity or applicability of which the Borrower or such
Subsidiary shall be contesting in good faith by proceedings which serve as a
matter of law to stay the enforcement thereof and (ii) those laws, rules and
regulations the failure to comply with any of which could not (singly or in the
aggregate) have a material adverse effect on the financial condition, business
or prospects of the Borrower or any such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets in good working order and condition, making
all necessary repairs thereto and replacements thereof. The Borrower will
maintain all such insurance as may be required under the Borrower's Security
Agreement and will also maintain, with financially sound and reputable insurers,
insurance with respect to its property and business against such liabilities,
casualties and contingencies and of such types and in such amounts as shall be
reasonably satisfactory to the Bank from time to time and in any event all such
insurance as may from time to time be customary for companies conducting a
business similar to that of the Borrower in similar locales, with the Bank to be
named as first loss payee on all policies relating to any Collateral; provided,
however, that so long as no Event of Default has occurred and is continuing, (i)
returned and unearned premiums may be paid directly to and may be retained by
the Borrower and (ii) insurance proceeds from any casualty damages totalling
$50,000 or less may be paid directly to and may be retained by the Borrower.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any such Subsidiary, except any of the foregoing
which is being contested in good
faith and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and for which the Borrower has established and is
maintaining adequate reserves. The Borrower will pay, and will cause each of its
Subsidiaries to pay, in a timely manner, all lease obligations, all trade debt,
purchase money obligations, equipment lease obligations and all of its other
material Indebtedness. The Borrower will perform and fulfill all material
covenants and agreements under any leases of real estate, agreements relating to
purchase money debt, equipment leases and other material contracts. The Borrower
will maintain in full force and effect, and comply with the terms and conditions
of, all permits, permissions and licenses necessary or desirable for its
business.
3.4. Accounts. The Borrower will maintain its principal depository and
operating accounts with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary) enter into any other lines of business, businesses or
ventures.
3.6. Reporting Requirements. The Borrower will furnish to the Bank:
(i) Within 90 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for
the Borrower, including therein consolidated and consolidating balance
sheets of the Borrower and Subsidiaries as at the end of such fiscal
year and related consolidated and consolidating statements of income,
stockholders' equity and cash flow for the fiscal year then ended. The
annual consolidated financial statements shall be certified by
independent public accountants selected by the Borrower and reasonably
acceptable to the Bank, such certification to be in such form as is
generally recognized as "unqualified" (except that the annual audit may
be subject to a "going concern" qualification substantially similar to
that issued by the Borrower's accountants in connection with the
Borrower's fiscal 1997 financial statements).
(ii) Within 30 days after the end of each month,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries and related consolidated and consolidating income
statements, unaudited but complete and fairly stated and prepared in
accordance with generally accepted accounting principles consistently
applied fairly presenting the financial condition of the Borrower as at
the dates thereof and for the periods covered thereby (except that such
monthly statements need not contain footnotes) and certified as being
fairly stated (subject to normal year-end audit adjustments, which
shall not be material) by the chief financial officer of the Borrower,
such balance sheets to be as at the end of such month and such income
statements to be for such month and for the fiscal year to date, in
each case together with a comparison to budget.
(iii) At the time of delivery of each annual or monthly
statement of the Borrower, a certificate executed by the chief
financial officer of the Borrower stating that he or she has reviewed
this letter agreement and the other Loan Documents and has no knowledge
of any default by the Borrower in the performance or observance of any
of the provisions of this letter agreement or of any of the other Loan
Documents or, if he or she has such knowledge, specifying each such
default and the nature thereof. Each financial statement given as at
the end of any fiscal quarter of the Borrower will also set forth the
calculations necessary to evidence compliance with ss.3.7.
(iv) Monthly, within 20 days after the end of each month,
(A) an aging report in form satisfactory to the Bank covering all
Receivables of the Borrower and (prior to the consummation of the Star
Transaction) all Receivables of Star outstanding as at the end of such
month, and (B) a certificate of the chief financial officer of the
Borrower setting forth the Borrowing Base as at the end of such month,
all in form reasonably satisfactory to the Bank.
(v) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any annual, special or interim audits of the books of
the Borrower and any "management letter" prepared by such accountants.
(vi) As soon as possible and in any event within five days
of the occurrence of any Event of Default or any event which, with the
giving of notice or passage of time or both, would constitute an Event
of Default, the statement of the Borrower setting forth details of each
such Event of Default or event and the action which the Borrower
proposes to take with respect thereto.
(vii) Promptly (and in any event within 30 days) after
service of legal process upon the Borrower or the Borrower otherwise
having knowledge thereof, notice of all actions, suits and proceedings
before any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, to which the Borrower
or any Subsidiary of the Borrower is a party; provided, however, that
the Borrower will not be deemed required by this clause (vii) to give
notice of any such action, suit or proceeding filed against the
Borrower or any such Subsidiary which seeks monetary damages only in an
amount of $100,000 or less.
(viii) Promptly upon filing any registration statement or
listing application (or any supplement or amendment to any registration
statement or listing application) with the Securities and Exchange
Commission ("SEC") or any successor agency or with any stock exchange
or with the National Association of Securities Dealers quotations
system, a copy of same.
(ix) A copy of each periodic or current report filed with
the SEC or any successor agency and each annual report, proxy statement
and other communication sent
to shareholders or other securityholders generally, such copy to be
provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders, as the case may be.
(x) Promptly upon applying for, or being granted, a federal
or state registration for any copyright, trademark or patent or
purchasing any registered copyright, trademark or patent, written
notice to the Bank describing same, together with all such documents as
may be required to give the Bank a fully perfected first priority
security interest in each such copyright, trademark or patent.
(xi) Promptly after the Borrower has knowledge thereof,
written notice of any development or circumstance which may reasonably
be expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
(xii) Promptly upon request, such other information
respecting the financial condition, operations, Receivables, inventory,
machinery or equipment of the Borrower or any Subsidiary as the Bank
may from time to time reasonably request.
3.7. Profitability. The Borrower's results for its fiscal quarter ended
September 30, 1998 will show a consolidated quarterly Net Loss not to equal or
exceed $3,500,000. The Borrower will incur a consolidated quarterly Net Loss not
to equal or exceed $2,000,000 for its fiscal quarter ending December 31, 1998.
The Borrower will achieve consolidated quarterly Net Income of greater than
$1.00 for each of its fiscal quarters ending March 31, 1999 and June 30, 1999.
The Borrower will achieve consolidated quarterly Net Income of greater than
$500,000 for its fiscal quarter ending September 30, 1999. The Borrower will
achieve consolidated quarterly Net Income of greater than $750,000 for its
fiscal quarter ending December 31, 1999 and for each fiscal quarter thereafter.
3.8. Books and Records. The Borrower will maintain (and will cause each
of its Subsidiaries to maintain) complete and fairly stated books, records and
accounts which will at all times fairly reflect all of its transactions in
accordance with generally accepted accounting principles consistently applied.
The Borrower will, at any reasonable time and from time to time upon reasonable
notice and during normal business hours (and at any time and without any
necessity for notice following the occurrence of an Event of Default), permit
the Bank, and any agents or representatives thereof, to examine and make copies
of and take abstracts from the records and books of account of, and visit the
properties of the Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its officers, directors and/or independent
accountants, all of whom are hereby authorized and directed to cooperate with
the Bank in carrying out the intent of this ss.3.8. Each financial statement of
the Borrower hereafter delivered pursuant to this letter agreement will be
complete and will fairly present the financial condition of the Borrower as at
the date thereof and for the periods covered thereby.
3.9. Landlord's Waiver. Prior to the Bank making the first Revolving
Loan, the Borrower will obtain, and will thereafter maintain in effect at all
times, waivers from the owners of all premises in which any material amount of
Collateral is located, such waivers to be in form and substance satisfactory to
the Bank.
3.10. Y2K Compliance. The Borrower will review the software which it
uses in its business (and which its Subsidiaries use in their respective
businesses) for "Year 2000" compliance. The Borrower will, on or before June 30,
1999, have completed all steps necessary to assure that such software will
continue to function in the manner intended without interruption of service or
other difficulty resulting from the "Year 2000 problem". The Borrower will, at
the request of the Bank, provide such reports and such other information as the
Bank may reasonably request in respect of the Borrower's program to assure such
Year 2000 compliance.
3.11. Agreements as to Star. As used herein, the term "Star
Transaction" means the sale by the Borrower of all or substantially all of the
stock or assets of Star to a Person unrelated to the Borrower for cash
consideration which results (after payment of all amounts owed to Coherent,
Inc.) in at least $40,000,000 in net proceeds to the Borrower on a pre-tax
basis. The Borrower presently intends to complete the Star Transaction and to
receive such proceeds on or before March 31, 1999. The Bank agrees that if the
Star Transaction is consummated and such net proceeds are received on or before
March 31, 1999, the Bank will, upon the payment of so much of the Revolving
Loans as may be required so that the Aggregate Bank Liabilities will not exceed
the Borrowing Base calculated without reference to any Receivables of Star,
release the Star Security Agreement and the Star Intellectual Property Security
Agreement and terminate the Star Guaranty.
3.12. Agreements as to CTI. At all times on and after the CTI
Compliance Date, all of the affirmative and negative covenants in Articles III
and IV will be deemed to apply to CTI as a "Subsidiary" of the Borrower. The
Borrower will promptly notify the Bank of the occurrence of the CTI Compliance
Date. Immediately following the CTI Compliance Date, the Borrower will obtain
from CTI and deliver to the Bank (i) a guaranty by CTI of the obligations of the
Borrower under this letter agreement, the Revolving Note and the other Loan
Documents, (ii) security agreements granting to the Bank a security interest in
all assets of CTI, together with all filings needed to perfect such security
interest and appropriate landlord's waivers, (iii) certificates of appropriate
governmental authorities as to the legal existence, qualification and good
standing of CTI, (iv) a Secretary's Certificate as to CTI's charter documents
and by-laws, the incumbency and signatures of CTI's officers, and the
resolutions of CTI's Board of Directors (and, if necessary, stockholders)
approving the aforesaid guaranty and security agreements, and (v) an opinion of
CTI's counsel in form and substance satisfactory to the Bank, all of the
documents described in clauses (i) - (v) of this sentence to be satisfactory in
form and substance to the Bank.
3.13. Agreements as to PEC. At all times on and after the PEC
Compliance Date, all of the affirmative and negative covenants in Articles III
and IV will be deemed to apply to PEC as a "Subsidiary" of the Borrower. The
Borrower will promptly notify the Bank of the occurrence of the PEC Compliance
Date. Immediately following the PEC Compliance Date, the Borrower will
obtain from PEC and deliver to the Bank (i) a guaranty by PEC of the obligations
of the Borrower under this letter agreement, the Revolving Note and the other
Loan Documents, (ii) security agreements granting to the Bank a security
interest in all assets of PEC, together with all filings needed to perfect such
security interest and appropriate landlord's waivers, (iii) certificates of
appropriate governmental authorities as to the legal existence, qualification
and good standing of PEC, (iv) a Secretary's Certificate as to PEC's charter
documents and by-laws, the incumbency and signatures of PEC's officers, and the
resolutions of PEC's Board of Directors (and, if necessary, stockholders)
approving the aforesaid guaranty and security agreements, and (v) an opinion of
PEC's counsel in form and substance satisfactory to the Bank, all of the
documents described in clauses (i) - (v) of this sentence to be satisfactory in
form and substance to the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any covenants and agreements contained in the
Borrower's Security Agreement or elsewhere, the Borrower agrees that so long as
the financing arrangements contemplated hereby are in effect or any Revolving
Loan or any of the other Obligations shall be outstanding or any letter of
credit issued hereunder shall be outstanding:
4.1. Indebtedness. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness (nor allow any of its Subsidiaries to create,
incur, assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without limitation, the
Indebtedness represented by the Revolving Note and any Indebtedness in
respect of letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any Subsidiary
(other than for money borrowed or for purchase money Indebtedness with
respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) incurred in
the future to equipment vendors and/or lessors for equipment hereafter
purchased or leased by the Borrower for use in the Borrower's business,
provided that the total of Indebtedness permitted under this clause
(iv) (exclusive of presently-existing financing permitted under clause
(v) of this ss.4.1) will not exceed $250,000 in the aggregate
outstanding at any one time;
(v) other Indebtedness existing at the date hereof (including, without
limitation, the Coherent Notes and certain amounts owed to Coherent,
Inc. in respect of prepaid
invoices), but only to the extent set forth on item 4.1 of the attached
Disclosure Schedule and without any increase thereof; and
(vi) any guaranties or other contingent liabilities expressly permitted
pursuant to section 4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges or levies on
property of the Borrower or any of its Subsidiaries if the same shall
not at the time be delinquent or thereafter can be paid without
interest or penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course
of business for sums not yet due or which are being contested in good
faith and by appropriate proceedings which serve as a matter of law to
stay the enforcement thereof and as to which adequate reserves have
been made;
(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (iv) of
ss.4.1; provided that no such Lien will extend to any property of the
Borrower other than the specific items of equipment financed;
(vi) a Lien on inventory of Star securing the Coherent Notes;
(vii) a Lien on certain specified accounts receivable of the Borrower
(more particularly described on item 4.2 of the attached Disclosure
Schedule) securing the amounts owed to Coherent, Inc. for prepaid
invoices as described in clause (v) of ss.4.1; or
(viii) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
4.3. Guaranties. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including,
without limitation, liable by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise invest
in any debtor or otherwise to assure any creditor against loss) (and will not
permit any of its Subsidiaries so to assume, guaranty or become directly or
contingently liable) in connection with any indebtedness of any other Person,
except (i) guaranties by endorsement for deposit or collection in the ordinary
course of business and (ii) guaranties existing at the date hereof and described
on item 4.3 of the attached Disclosure Schedule.
4.4. Dividends. The Borrower will not, without the prior written consent
of the Bank, make any distributions to its shareholders, pay any dividends
(other than dividends payable solely in capital stock of the Borrower) or
redeem, purchase or otherwise acquire, directly or indirectly any of its capital
stock, except that (i) the Borrower may, without being deemed to be in violation
of this ss.4.4, pay to certain of its stockholders a fee at the rate of 5% per
annum (payable quarterly) on the amount invested by such stockholders
($10,200,000 in the aggregate) in the equity of the Borrower in February 1998
and July 1998, and (ii) the Borrower may, without being deemed to be in
violation of this ss.4.4, complete the presently-contemplated redemption of
Series H Preferred Stock of the Borrower for an aggregate principal amount not
in excess of $450,000; provided that in no event will any payment to be made
under clause (i) or clause (ii) of this sentence be funded, in whole or in part,
with the proceeds of any Revolving Loan.
4.5. Loans and Advances. The Borrower will not make (and will not permit
any Subsidiary to make) any loans or advances to any Person, including, without
limitation, the Borrower's directors, officers and employees, except (i) travel
advances and other expense advances made to officers and employees in the
ordinary course and repaid in the ordinary course and (ii) other loans and
advances to officers and employees in an aggregate amount not to exceed $25,000
outstanding at any one time.
4.6. Investments. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase any stock or securities of any
Person (nor will the Borrower permit any of its Subsidiaries to invest in,
purchase or hold any such stock or securities) except (i) readily marketable
direct obligations of, or obligations guarantied by, the United States of
America or any agency thereof, (ii) other investment grade debt securities,
(iii) mutual funds, the assets of which are primarily invested in items of the
kind described in the foregoing clauses (i) and (ii) of this ss.4.6, (iv)
deposits with or certificates of deposit issued by the Bank and any other
obligations of the Bank or the Bank's parent, (v) deposits in any other bank
organized in the United States having capital in excess of $100,000,000, and
(vi) investments in any Subsidiaries now existing or hereafter created by the
Borrower pursuant to ss.4.7 below; provided that in any event the Tangible Net
Worth of the Borrower alone (exclusive of its investment in Subsidiaries and any
debt owed by any Subsidiary to the Borrower) will not be less than 90% of the
consolidated Tangible Net Worth of the Borrower and Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not, without the
prior written consent of the Bank, form or acquire any Subsidiary or make any
other acquisition of the stock of
any other Person or of all or substantially all of the assets of any other
Person. The Borrower will not become a partner in any partnership.
4.8. Merger; Disposition of Assets. The Borrower will not, without the
prior written consent of the Bank, merge or consolidate with any Person, or
sell, lease, transfer or otherwise dispose of any material portion of its assets
(whether in one or more transactions), other than (i) sale of inventory in the
ordinary course, (ii) the sale of Star to Coherent, Inc. pursuant to the Star
Transaction on or before March 31, 1999 and (iii) a sale or transfer of any
Intellectual Property of the Borrower so long as (A) such sale or transfer could
not have a materially adverse effect on the business, condition or prospects of
the Borrower and (B) the Borrower gives the Bank not less than 20 days' prior
written notice of each such sale or transfer, in such detail as shall be
reasonably acceptable to the Bank. The Bank specifically acknowledges that this
letter agreement contemplates and permits the sale of Star to Coherent, Inc.
pursuant to the Star Transaction on or before March 31, 1999, with the Bank's
security interests in Star's assets to be released under the circumstances
described in ss.3.11 above. The Bank also consents to the granting by the
Borrower, on commercially reasonable terms, of one or more sublicenses of the
Borrower's rights under a certain patent license from Massachusetts General
Hospital to the Borrower with respect to laser hair removal.
4.9. Affiliate Transactions. The Borrower will not, without prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms'-length transaction with any Person not an
affiliate; provided that nothing in this ss.4.9 shall be deemed to prohibit the
payment of salary or other similar payments to any officer or director of the
Borrower at a level consistent with the salary and other payments being paid at
the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or indirectly, controls or is controlled by or is under
common control with the Borrower; any officer or director or former officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity interest having voting power
(under ordinary circumstances) of any of the other Persons described above; and
any member of the immediate family of any of the foregoing. "Control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of any Person, whether through ownership
of voting equity, by contract or otherwise.
4.10. Change of Address, etc. The Borrower will not change its name or
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
ss.2.1(j) above, nor will the Borrower remove any books or records from such
address, nor will the Borrower keep any Collateral belonging to
the Borrower at any location other than the premises described in ss.2.1(j)
without, in each instance, giving the Bank at least 30 days' prior written
notice and providing all such financing statements, certificates and other
documentation as the Bank may request in order to maintain the perfection and
priority of the security interests granted or intended to be granted pursuant to
the Borrower's Security Agreement. The Borrower will not change its fiscal year
or methods of financial reporting unless, in each instance, prior written notice
of such change is given to the Bank and prior to such change the Borrower enters
into amendments to this letter agreement in form and substance satisfactory to
the Bank in order to preserve unimpaired the rights of the Bank and the
obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any known release or known
threat of release of any hazardous material or oil at or from any site or vessel
owned, occupied or operated by the Borrower or any Subsidiary of the Borrower,
and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements of applicable federal, state and local law relating to such
use, storage or transportation, follows the protective and safety procedures
that a prudent businessperson conducting a business the same as or similar to
that of the Borrower or such Subsidiary (as the case may be) would follow, and
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Revolving Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. Subordinated Debt. The Borrower will not directly or indirectly
make any optional or voluntary prepayment or purchase of Subordinated Debt or
modify, alter or add any provisions with respect to payment of Subordinated
Debt. In any event, the Borrower will not
make any payment of any principal of or interest on any Subordinated Debt at any
time when there exists, or if there would result therefrom, any Event of Default
hereunder. Without limitation of the foregoing, the Restructured Subordinated
Notes shall contain subordination provisions satisfactory to the Bank and shall
in any event provide that no payment (of principal, interest, fees and/or any
put or repurchase price) shall be made with respect to any of the Restructured
Subordinated Notes at any time when there exists any Default or Event of Default
or any Default or Event of Default would result therefrom.
V. DEFAULT AND REMEDIES
5.1. Events of Default. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note on or before the date when due; or the Borrower
shall fail to pay when due any amount owed to the Bank in respect of any letter
of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Revolving Loan or letter of credit shall at any time prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.6 or 3.7 or Article IV; or
(d) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.1, 3.3, 3.11, 3.12 or 3.13 and such
default shall continue uncured for 30 days after the Borrower first knows of (or
reasonably should know of) such default or of the events or circumstances giving
rise to such default; or
(e) The Borrower shall default in the performance or observance of any
other term, covenant or agreement contained in this letter agreement and such
default has not been cured within 30 days after notice thereof shall have been
given to the Borrower; or
(f) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(g) Any default shall exist and remain unwaived or uncured with respect
to any other Indebtedness of the Borrower or any Subsidiary of the Borrower in
excess of $250,000 in aggregate principal amount or with respect to any
instrument evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $250,000
in aggregate principal amount shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
then currently permits the acceleration of the maturity of any such Indebtedness
by the holder of holders thereof; or
(h) The Borrower or Star shall be dissolved, or the Personal Guarantor
shall die, or any Guarantor shall become insolvent, or the Borrower or any
Subsidiary of the Borrower or any Guarantor shall cease paying its or his debts
as they mature or shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for the Borrower or for any
Subsidiary of the Borrower or for any Guarantor or for a substantial part of the
property of the Borrower or of any such Subsidiary or of any Guarantor, or
bankruptcy, reorganization, arrangement, insolvency or similar proceedings shall
be instituted by or against the Borrower or any such Subsidiary or any Guarantor
under the laws of any jurisdiction (except for an involuntary proceeding filed
against the Borrower or any Subsidiary of the Borrower or any Guarantor which is
dismissed within 60 days following the institution thereof); or
(i) Any attachment, execution or similar process relating to an amount
in excess of $250,000 shall be issued or levied against any of the property of
the Borrower or any Subsidiary and such attachment, execution or similar process
shall not be paid, stayed, released, vacated or fully bonded within 20 days
after its issue or levy; or
(j) Any final uninsured judgment in excess of $250,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and shall not be paid, vacated, bonded or stayed within 30 days
after its entry; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
(l) Any Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(m) The security interests and liens of the Bank in and on any of the
Collateral shall for any reason (other than due to payment in full of all
amounts secured thereby or due to written release by the Bank) not be fully
perfected liens and security interests; or
(n) At any time, 50% or more of the outstanding shares of voting stock
of the Borrower shall be owned by any Person or by any "group" (as defined in
the Securities Exchange
Act of 1934, as amended, and the regulations thereunder), other than by one or
more of the Persons listed on item 5.1(n) of the attached Disclosure Schedule;
or
(o) Any default shall exist under any Guaranty or any Guaranty shall
for any reason not be in full force and effect (except, as to the Star Guaranty,
if same is terminated pursuant to ss.3.11 above); or
(p) There shall occur any other material adverse change in the
condition (financial or otherwise), operations, properties, assets, liabilities
or earnings of the Borrower or any Guarantor.
5.2. Rights and Remedies on Default. Upon the occurrence of any Event of
Default (continuing beyond the expiration of any applicable notice and/or grace
period, if any), in addition to any other rights and remedies available to the
Bank hereunder or otherwise, the Bank may exercise any one or more of the
following rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Revolving Note
then outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Revolving
Note, under the Security Agreements, under the Intellectual Property Security
Agreements, under the Guaranties or any of same and under each and any other
agreement with the Bank; and exercise all other rights and remedies which the
Bank may have under applicable law.
5.3. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default (continuing beyond the expiration of any
applicable notice and/or grace period, if any), the Bank is hereby authorized at
any time or from time to time, without presentment, demand, protest or other
notice of any kind to the Borrower or to any other Person, all of which are
hereby expressly waived, to set off and to appropriate and apply any and all
deposits and any other Indebtedness at any time held or owing by the Bank or any
affiliate thereof to or for the credit or the account of the Borrower against
and on account of the obligations and liabilities of the Borrower to the Bank
under this letter agreement or otherwise, irrespective of whether or not the
Bank shall have made any demand hereunder and although said obligations,
liabilities or claims, or any of them, may then be contingent or unmatured and
without regard for the availability or adequacy of other collateral. As further
security for the Obligations, the Borrower also grants to the Bank a security
interest with respect to all its deposits and all securities or other property
in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence of any Event of Default, the Bank may exercise all rights and
remedies of a secured party under the Uniform Commercial Code. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE
BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
5.4. Letters of Credit. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
VI. MISCELLANEOUS
6.1. Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses (including, without limitation, reasonable legal fees) of the Bank
in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreements, the Revolving Note and all other instruments
and documents to be delivered in connection with any Revolving Loan or any
letter of credit issued hereunder and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreements, the Revolving
Note and all other instruments and documents delivered or to be delivered
hereunder or in connection herewith, all whether or not legal action is
instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Security Agreements, the
Revolving Note and all other instruments and documents to be delivered in
connection with any Obligation. Any fees, expenses or other charges which the
Bank is entitled to receive from the Borrower under this Section shall bear
interest from the date of any demand therefor until the date when paid at a rate
per annum equal to the sum of (i) four (4%) percent plus (ii) the per annum rate
otherwise payable under the Revolving Note (but in no event in excess of the
maximum rate permitted by then applicable law).
6.2. Capital Adequacy. If the Bank shall have determined that the
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy
(whether or not having the force of law) has or would have the effect of
reducing the return on the Bank's capital with respect to the Revolving Loans,
the within-described revolving loan facility and/or letters of credit issued for
the account of the Borrower to a level below that which the Bank could have
achieved (taking into consideration the Bank's policies with respect to capital
adequacy immediately before such adoption, phase-in, change or compliance and
assuming that the Bank's capital was then fully utilized) but for such adoption,
phase-in, change or compliance by any amount deemed by the Bank to be material:
(i) the Bank shall promptly after its determination of such occurrence give
notice thereof to the Borrower; and (ii) the Borrower shall pay forthwith to the
Bank as an additional fee such amount as the Bank certifies to be the amount
that will compensate it for such reduction with respect to the Revolving Loans,
the within-described revolving loan facility and/or such letters of credit.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall in any way
reduce any obligation of the Borrower to the Bank under this Section.
6.3. Facility Fees. With respect to the within arrangements for
Revolving Loans, the Borrower will pay to the Bank, at the time of execution and
delivery of this letter agreement, a non-refundable fee of $10,000. The Borrower
will also pay to the Bank with respect to the within arrangements for Revolving
Loans, on the last day of each calendar quarter (commencing on December 31,
1998) as long as the within-described Revolving Loan arrangements are in effect
and on the Expiration Date or earlier date of termination of such Revolving Loan
arrangements, a non-refundable commitment fee computed quarterly in arrears on
the daily average unused portion of the Bank's total revolving commitment during
the calendar quarter (or partial calendar quarter) then ended. Such commitment
fee will be payable at a rate of 0.5% per annum based on such unused portion of
the Bank's total revolving commitment and will be appropriately prorated for any
partial calendar quarter. As used herein, the Bank's "total revolving
commitment" will be deemed to be equal to the Maximum Revolving Credit as in
effect from time to time and the "unused portion" on any day means that amount
by which (x) the then effective Maximum Revolving Credit exceeds (y) the total
of (1) the aggregate principal amounts of the Revolving Loans outstanding at
that day and (2) the then total undrawn amounts of all letters of credit issued
hereunder and then outstanding, whether such excess results from the Bank not
making Revolving Loans or issuing letters of credit up to the Maximum Revolving
Credit, from the repayment of Revolving Loans or the termination of letters of
credit or from any other circumstance. In addition, if the within-described
revolving financing arrangements are cancelled or terminated prior to November
16, 1999 by the Borrower for any reason (not including termination by the Bank
due to the Borrower's default), the Borrower shall forthwith upon such
cancellation or termination pay to the Bank a sum equal to all of the commitment
fees
which would have become due, absent such cancellation or termination, pursuant
to the immediately preceding three sentences with respect to the period
beginning on the date of such cancellation or termination and continuing through
November 16, 1999, assuming, for the purposes of this calculation, that no
Revolving Loans or letters of credit would be outstanding during such period.
The fees described in this Section are in addition to any balances and fees
required by the Bank or any of its affiliates in connection with any other
services now or hereafter made available to the Borrower.
6.4. Other Agreements. The provisions of this letter agreement are not
in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or in any such other agreement.
6.5. Governing Law. This letter agreement and the Revolving Note shall
be governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
Palomar Medical Technologies, Inc.
00 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx, Director of Finance
with a copy so mailed or delivered to:
Palomar Medical Technologies, Inc.
00 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
If to the Bank:
Fleet National Bank
High Technology Division
One Federal Street
Mail Code: MA XX XX0X
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxx, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or registered mail, return receipt requested, addressed as aforesaid.
6.7. Binding Effect; Assignment; Termination. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participation in this letter agreement, the Revolving Loans, the Revolving Note
and/or the letters of credit issued hereunder. Without limitation of the
foregoing generality:
(i) The Bank may at any time pledge all or any portion of
its rights under the Loan Documents (including any
portion of the Revolving Note) to any of the 12
Federal Reserve Banks organized under Section 4 of
the Federal Reserve Act, 12 U.S.C. Section 341. No
such pledge or the enforcement thereof shall release
the Bank from its obligations under any of the Loan
Documents.
(ii) The Bank shall have the unrestricted right at any
time and from time to time, and without the consent
of or notice to the Borrower, to grant to one or more
banks or other financial institutions (each, a
"Participant") participating interests in the Bank's
obligation to lend hereunder and/or any or all of the
Revolving Loans held by the Bank hereunder. In the
event of any such grant by the Bank of a
participating interest to a Participant, whether or
not upon notice to the Borrower, the Bank shall
remain responsible for the performance of its
obligations hereunder and the Borrower shall continue
to deal solely and directly with the Bank in
connection with the Bank's rights and obligations
hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time
to time to prospective assignees and Participants;
provided that the Bank shall require any such
prospective assignee or Participant to
agree in writing to maintain the confidentiality of
such information to the same extent as the Bank would
be required to maintain such confidentiality.
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank together with payment of the sum (if any) due under the penultimate
sentence of ss.6.3; provided that no such termination will release or waive any
of the Bank's rights or remedies or any of the Borrower's obligations under this
letter agreement or any of the other Loan Documents unless and until the
Borrower has paid in full the Revolving Loans and all interest thereon and all
fees and charges payable in connection therewith and all letters of credit
issued hereunder have been terminated.
6.8. Consent to Jurisdiction. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the
Revolving Note. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in such a court and any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. The Borrower agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be enforced in any court of proper
jurisdiction by a suit upon such judgment, provided that service of process in
such action, suit or proceeding shall have been effected upon the Borrower in
one of the manners specified in the following paragraph of this ss.6.8 or as
otherwise permitted by law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this ss.6.8 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in ss.6.6 (as such address may be changed from time to time pursuant to said
ss.6.6) or (ii) by serving a copy thereof upon it at its address set forth in
ss.6.6 (as such address may be changed from time to time pursuant to said
ss.6.6).
6.9. Severability. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any extent to be invalid or unenforceable, the remainder of
this letter agreement, and the application of such provision to Persons,
properties or circumstances other than those as to which it has been held
invalid and unenforceable, shall not be affected thereby, and each provision of
this letter agreement shall be valid and enforced to the fullest extent
permitted by law.
6.10. Replacement Note. Upon receipt of an affidavit of an officer of
the Bank as to the loss, theft, destruction or mutilation of the Revolving Note
or of any other Loan Document which is not of public record and, in the case of
any such mutilation, upon surrender and cancellation of such Revolving Note or
other Loan Document, the Borrower will issue, in lieu thereof, a replacement
Revolving Note or other Loan Document in the same principal amount (as to the
Revolving Note) and in any event of like tenor.
6.11. Usury. All agreements between the Borrower and the Bank are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the Revolving Note or otherwise, shall
the amount paid or agreed to be paid to the Bank for the use or the forbearance
of the Indebtedness represented by the Revolving Note exceed the maximum
permissible under applicable law. In this regard, it is expressly agreed that it
is the intent of the Borrower and the Bank, in the execution, delivery and
acceptance of the Revolving Note, to contract in strict compliance with the laws
of The Commonwealth of Massachusetts. If, under any circumstances whatsoever,
performance or fulfillment of any provision of the Revolving Note or any of the
other Loan Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable law, then
the obligation so to be performed or fulfilled shall be reduced automatically to
the limits of such validity, and if under any circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Revolving Note and not to
the payment of interest. The provisions of this ss.6.11 shall control every
other provision of this letter agreement and of the Revolving Note.
6.12. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, THE REVOLVING NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE REVOLVING LOANS AS
CONTEMPLATED HEREIN.
VII. DEFINED TERMS
7.1. Definitions. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"ACH Transactions" - Any automated clearinghouse transactions which may
be initiated by the Bank for the Borrower.
"Aggregate Bank Liabilities" - At any time, the sum of (i) the
principal amount of all Revolving Loans then outstanding, plus (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, plus (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Borrowing Base" - As determined at any time, the sum of (i) 80% of the
aggregate principal amount of the Qualified Receivables of the Borrower and/or
Star then outstanding, plus (ii) 90% of the aggregate principal amount of the
L/C-Backed Foreign Receivables of the
Borrower and/or Star then outstanding, plus (iii) 85% of the aggregate principal
amount of the Insured Receivables of the Borrower and/or Star then outstanding,
plus (iv) 100% of the principal amount of (A) any certificate of deposit
hereafter issued by the Bank and purchased from the Bank by the Borrower which
is pledged to the Bank by instruments satisfactory in form and substance to the
Bank and in which the Bank has a fully perfected first priority security
interest or (B) any deposit account now or hereafter established by the Borrower
with the Bank, which account is blocked as to withdrawals by the Borrower, is
pledged to the Bank by instruments satisfactory in form and substance to the
Bank and in which the Bank has a fully perfected first priority security
interest.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank.
"Coherent Notes" - Promissory notes of the Borrower dated May 22, 1998
and June 19, 1998 in the aggregate original principal amount of $4,000,000,
payable to the order of Coherent, Inc.
"Collateral" - All property now or hereafter owned by the Borrower
and/or Star (until the release of Star's Collateral pursuant to ss.3.11) or in
which the Borrower and/or Star (until the release of Star's Collateral pursuant
to ss.3.11) now or hereafter has any interest which is described as "Collateral"
in any of the Security Agreements or in ss.7.2(b) below or in Star's Guaranty.
From and after the date when CTI and/or PEC has executed and delivered a
security agreement pursuant to ss.3.12 and/or ss.3.13, the term "Collateral"
shall also refer to all property and interests now or hereafter owned by CTI
and/or PEC, as the case may be.
"CTI" - Cosmetic Technology International, Inc., a Delaware
corporation.
"CTI Compliance Date" - The first to occur of: (i) that date when the
total assets of CTI (valued in accordance with generally accepted accounting
principles consistently applied) are equal to or greater than 5% of the total
consolidated assets (valued in accordance with generally accepted accounting
principles consistently applied) of the Borrower and Subsidiaries or (ii) the
end of any fiscal quarter of the Borrower in which the net revenues (exclusive
of any extraordinary items) of CTI for such fiscal quarter are equal to or
greater than 5% of the total consolidated net revenues (exclusive of any
extraordinary items) of the Borrower and Subsidiaries for such fiscal quarter.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" - March 31, 2000, unless extended by the Bank, which
extension may be given or withheld by the Bank in its sole discretion.
"Guaranties" - Collectively, (i) the Personal Guaranty and (ii) the
Star Guaranty (but only until the Star Guaranty is released pursuant to
ss.3.11).
"Guarantors" - Collectively, (i) the Personal Guarantor and (ii) Star
(but only until the release of the Star Guaranty pursuant to ss.3.11).
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness, is to be determined, and
shall also include guaranties, endorsements (other than for collection in the
ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Insured Receivable" - Any Receivable now or hereafter owed to the
Borrower or Star which satisfies all of the criteria set forth below to be a
"Qualified Receivable" except that the relevant customer may be located inside
or outside the United States; provided that such Receivable is insured by credit
insurance in form and substance satisfactory to the Bank and issued by Eximbank
or another insurer satisfactory to the Bank. In any event, "Insured Receivables"
shall not be deemed to include any of the Qualified Receivables nor any of the
L/C-Backed Foreign Receivables.
"Intellectual Property" - As defined in ss.2.1(k).
"Intellectual Property Security Agreements" - Collectively, the
Borrower's Intellectual Property Security Agreements and Star's Intellectual
Property Security Agreements.
"L/C-Backed Foreign Receivable" - Any Receivable now or hereafter owed
to the Borrower or Star which satisfies all of the criteria set forth below to
be a "Qualified Receivable" except that the relevant customer is located outside
the United States; provided that such Receivable is secured by a letter of
credit in form and substance satisfactory to the Bank and issued by a commercial
bank satisfactory to the Bank. In any event, "L/C-Backed Foreign Receivables"
shall not be deemed to include any of the Qualified Receivables nor any of the
Insured Receivables.
"Loan Documents" - Each of this letter agreement, the Revolving Note,
the Security Agreements, the Intellectual Property Security Agreements, the
Guaranties and each other instrument, document or agreement evidencing,
securing, guaranteeing or relating in any way to any of the Revolving Loans or
any of the letters of credit issued hereunder, all whether now existing or
hereafter arising or entered into.
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) the Maximum Revolving Credit exceeds (y) the
sum of (i) all then undrawn amounts of letters of credit issued by the Bank for
the account of the Borrower plus (ii) all
amounts then drawn on any such letter of credit which at said date shall not
have been reimbursed to the Bank by the Borrower.
"Maximum Revolving Credit" - $10,000,000.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"Obligations" includes, without limitation, any liabilities of the Borrower now
existing or hereafter arising with respect to any ACH Transactions.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"PEC" - Palomar Electronics Corp., a Delaware corporation.
"PEC Compliance Date" - The first to occur of: (i) that date when the
total assets of PEC (valued in accordance with generally accepted accounting
principles consistently applied) are equal to or greater than 5% of the total
consolidated assets (valued in accordance with generally accepted accounting
principles consistently applied) of the Borrower and Subsidiaries or (ii) the
end of any fiscal quarter of the Borrower in which the net revenues (exclusive
of any extraordinary items) of PEC for such fiscal quarter are equal to or
greater than 5% of the total consolidated net revenues (exclusive of any
extraordinary items) of the Borrower and Subsidiaries for such fiscal quarter.
"Person" - An individual, corporation, company, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Receivables" - Only those Receivables of the Borrower (or
Star, while the Star Guaranty, the Star Security Agreement and the Star
Intellectual Property Security Agreements remain in effect) which arise out of
bona fide sales made to customers of the Borrower (or Star, while the Star
Guaranty, the Star Security Agreement and the Star Intellectual Property
Security Agreements remain in effect) (which customers are located in the United
States and are unrelated to the Borrower or Star) in the ordinary course of the
Borrower's (or Star's) business and which remain unpaid no more than 90 days
past the respective invoice dates of such Receivables, the payment of which is
not in dispute. Unless the Bank in its sole discretion otherwise determines with
respect to any Receivable, a Receivable which would otherwise be a Qualified
Receivable shall be deemed not to be a Qualified Receivable (i) if the Bank does
not have a fully perfected first priority security interest in such Receivable
(except that Coherent, Inc. may have a prior security interest in certain
Receivables of Star); (ii) if such Receivable is not free and clear of all
adverse interests in favor of any Person other than the Bank (except that
Coherent, Inc. may have a prior security interest in certain Receivables of
Star); (iii) if such Receivable is subject to any deduction, off-set, contra
account, counterclaim or condition; (iv) if a field examination made by the Bank
fails to confirm that such Receivable exists and satisfies all of the criteria
set forth herein to be a Qualified Receivable; (v) if such Receivable is not
properly invoiced at the date of sale; (vi) if the customer or account debtor
has disputed liability or made any claim with respect to the Receivable or the
merchandise covered thereby or with respect to any other Receivable due from
said customer to the Borrower or Star; (vii) if the customer or account debtor
has filed a petition for bankruptcy or any other application for relief under
the Bankruptcy Code or has effected an assignment for the benefit of creditors,
or if any petition or any other application for relief under the Bankruptcy Code
has been filed against said customer or account debtor, or if the customer or
account debtor has suspended business, become insolvent, ceased to pay its debts
as they become due, or had or suffered a receiver or trustee to be appointed for
any of its assets or affairs; (viii) if the customer or account debtor has
failed to pay other Receivables so that an aggregate of 25% of the total
Receivables owing to the Borrower and/or Star by such customer or account debtor
has been outstanding for more than 90 days past their respective due dates; (ix)
if such Receivable is owed by the United States government or any agency or
department thereof (unless assigned to the Bank under the Federal Assignment of
Claims Act); or (x) if the Bank reasonably believes that collection of such
Receivable is insecure or that it may not be paid by reason of financial
inability to pay or otherwise, or that such Receivable is not for any reason
suitable for use as a basis for borrowing hereunder. In no event will "Qualified
Receivables" be deemed to include any L/C-Backed Foreign Receivables nor any
Insured Receivables.
"Receivables" - All of the Borrower's (or Star's, while the Star
Guaranty, the Star Security Agreement and the Star Intellectual Property
Security Agreements remain in effect) present and future accounts, accounts
receivable and notes, drafts, acceptances and other instruments representing or
evidencing a right to payment for goods sold or for services rendered.
"Restructured Subordinated Notes" - The Company's 4.5% Subordinated
Convertible Debentures due 2003, denominated in Swiss Francs, as same are
modified by the settlement of the litigation entitled Banca Commerciale Lugano,
et al. v. Palomar Medical Technologies, Inc. described in item 2.1(e) of the
attached Disclosure Schedule.
"Security Agreements" - Collectively, the Borrower's Security Agreement
and Star's Security Agreement.
"Star" - Star Medical Technologies, Inc., a California corporation,
being a Subsidiary of the Borrower.
"Star Transaction" - As defined in ss.3.11.
"Subordinated Debt" - Any Indebtedness of the Borrower which is
expressly subordinated, pursuant to a subordination agreement in form and
substance satisfactory to the Bank, to all Indebtedness now or hereafter owed by
the Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances); provided, however, that CTI will not be
deemed to be a Subsidiary of the Borrower for the purposes of this letter
agreement (other than compliance with ss.3.6 and ss.3.7) until the occurrence of
the CTI Compliance Date, if same ever occurs, and PEC will not be deemed to be a
Subsidiary of the Borrower for the purposes of this letter agreement (other than
compliance with ss.3.6 and ss.3.7) until the occurrence of the PEC Compliance
Date, if same ever occurs.
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person and (ii) any
assets representing amounts due from any officer or employee of such Person or
from any Subsidiary of such Person) minus the total liabilities of such Person.
Total intangible assets shall be deemed to include, but shall not be limited to,
the excess of cost over book value of acquired businesses accounted for by the
purchase method, formulae, trademarks, trade names, patents, patent rights and
deferred expenses (including, but not limited to, unamortized debt discount and
expense, organizational expense, capitalized software costs and experimental and
development expenses).
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
7.2. Borrower's Security Agreement. (a) The Borrower acknowledges and
agrees that the "Obligations" described in and secured by the Borrower's
Security Agreement include, without limitation, all of the obligations of the
Borrower under the Revolving Note and/or this letter agreement and/or with
respect to any letter of credit which may be issued by the Bank for the account
of the Borrower and/or with respect to any ACH Transaction.
(b) The Borrower's Security Agreement is hereby modified to provide as
follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of
the Borrower's files, books and records (including, without limitation,
all electronically recorded data) all whether now owned or existing or
hereafter acquired, created or arising. The Borrower hereby grants to
the Bank a security interest in all such Collateral in order to secure
the full and prompt payment and performance of all of the Obligations.
(ii) That, upon the occurrence of any Event of Default (as
defined in ss.5.1 of this letter agreement), the Bank may, at any time,
notify account debtors of the Borrower
that the Collateral has been assigned to the Bank and that payments by
such account debtors shall be made directly to the Bank. At any time
after the occurrence of an Event of Default, the Bank may collect the
Borrower's Receivables, or any of same, directly from account debtors
and may charge the collection costs and expenses to the Borrower.
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/
-----------------------------
Name: Xxxxxx X. Xxxxxx
Title: Chief Financial Officer
Accepted and agreed:
FLEET NATIONAL BANK
By
Its
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries;
partnerships and joint ventures
Item 2.1(b) 5% Stockholders
Item 2.1(e) Litigation
Item 2.1(f) Violation of mortgages, indentures, etc.
Item 2.1(j) Locations of Collateral owned by Borrower; record owners of
premises where Collateral owned by Borrower is located
Item 2.1(k) Intellectual Property
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 5.1(n) Permitted 50% Stockholders
