Document:

Exhibit 10.5

 

CASH
COLLATERAL AGREEMENT

 

This
Agreement is made as of this 2nd day of December, 2003 by and between Chase
Corporation having an address of 26 Summer Street, Bridgewater, Massachusetts
(“Pledgor”) and Citizens Bank of Massachusetts having an address of 28 State
Street, Boston, MA  02109 (“Lender”).

 

RECITALS

 

1.                                       In
a transaction of even date herewith, Lender is making a loan to Sunburst
Electronic Manufacturing Solutions, Inc., a Massachusetts corporation having an
address of 70 Pleasant Street, West Bridgewater, MA (the “Borrower”) in the
original principal amount of $2,000,000.00 (the “Loan”).

 

2.                                       The
Loan is evidenced by a certain Revolving Demand Line of Credit Note of even
date herewith from Borrower to Lender in the original amount of $2,000,000.00
(the “Note”) and is secured by, among other things, a Security Agreement of
even date herewith (the “Security Agreement”) by Borrower to Lender.

 

3.                                       As
a condition to making the Loan, Pledgor has delivered to Lender a certain
Limited Guaranty of even date herewith (the “Guaranty”) and Lender requires
Pledgor to deposit with Lender the sum of $500,000.00 to be held with Lender in
an interest-bearing deposit account (to be selected by Pledgor), Account No.
                              
(the “Cash Collateral”) as security for the prompt and timely payment and
performance of Pledgor’s obligations under the Guaranty and Borrower’s
obligations under the Note, the Loan Agreement and all other instruments
executed in connection with the Loan (hereinafter collectively referred to as
the “Loan Documents”) upon the terms and conditions hereinafter provided.

 

4.                                       Pledgor
has agreed to deposit the Cash Collateral with Lender to be held by Lender as
security for the prompt and timely payment and performance of Pledgor’s and
Borrower’s obligations under the Loan Documents upon the terms and conditions
hereinafter set forth.

 

AGREEMENT

 

For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Pledgor and Lender hereby agree as follows:

 

1.                                       The
terms used herein shall have the same meanings as defined in the Guaranty.  In order to secure the Pledgor’s full and
timely payment and performance of the Guaranteed Obligations (as defined in the
Guaranty), Pledgor hereby grants, assigns and transfers to Lender all of
Pledgor’s right, title and interest in and to all sums now on deposit or
subsequently deposited by Pledgor from time to time with Lender including,
without limitation, the Cash Collateral, and all renewals, substitutions and
replacements thereof, and any other proceeds of any collateral covered by any
of the Loan Documents and all interest (if any) earned on any of

 

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such sums (collectively,
the “Collateral”).  Pledgor shall not be
permitted to make withdrawals from any accounts into which the Cash Collateral
is held or deposited.

 

2.                                       This
Agreement shall become operative immediately and shall terminate upon the
termination of the Guaranty.  Upon
termination of this Agreement, Lender shall return the Cash Collateral to
Pledgor.

 

3.                                       Pledgor
has not and will not hereafter enter into any agreement under which any
deduction or offset may be claimed against, or permit any other lien or
encumbrance to exist with respect to any monies deposited with the Lender,
except in favor of Lender.

 

4.                                       Pledgor
will do, make, execute and deliver to Lender all such further acts, things,
deeds, assurances and other documents as the Lender may request to vest in and
assure to the Lender its rights hereunder in any of the Collateral.

 

5.                                       Subject
to the terms of the Guaranty, and regardless of the adequacy of any other
collateral, any and all deposits or other sums at any time credited by or due
from the Lender to Pledgor may at any time be applied to or set off against
Obligations on which the Pledgor is primarily liable (including without
limitation Pledgor’s obligations under the Loan Documents) and may, at or after
the maturity thereof, be applied to or set off against Obligations on which the
Pledgor is secondarily liable.

 

6.                                       The
Pledgor shall pay to the Lender on demand any and all expenses, including
reasonable counsel fees, incurred or paid by the Lender in protecting or
enforcing its rights with respect to the Collateral.

 

7.                                       The
Pledgor waives demand, notice, protest, notice of acceptance of this Agreement,
notice of loans made, credit extended, collateral received or delivered or
other action taken in reliance hereon and all other demands and notices of any
description.  Lender shall have no duty
as to the collection or protection of the Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto beyond the safe custody thereof.  Lender shall not be deemed to have waived
any of its rights upon or under the Obligations or the Collateral unless such
waiver be in writing and signed by Lender. 
No delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or other rights.  A waiver on any one occasion shall not be construed as a bar to
or waiver of any right on any future occasion.

 

8.                                       This
Agreement and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the law of the
Commonwealth of Massachusetts.  This
Agreement is intended to take effect as a sealed instrument.

 

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EXECUTED as an instrument
under seal as of the day and year first above written.

 

	
   

  	
  CHASE
  CORPORATION

  
	
   

  	
   

  	
   

  
	
  /s/ Paula M
  Myers

  	
   

  	
  By:

  	
  /s/ Everett
  Chadwick

  	
   

  
	
  Witness

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Everett Chadwick

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Treasurer

  	
   

  
										

 

3Exhibit
4.1

 

EXECUTION COPY

 

 

US$
7,000,000.00

 

 

 

LOAN
AGREEMENT

 

 

between

 

 

CORIMON,
C.A.

 

as
Borrower

 

 

and

 

 

BANCARACAS
INTERNATIONAL BANKING CORPORATION

 

as
Lender

 

 

 

OCTOBER
1, 2001

 

 

LOAN
AGREEMENT

 

THIS
LOAN AGREEMENT
(the “Agreement”) dated as of October 1, 2001, between CORIMON, C.A.
(the “Borrower”), a corporation organized and existing in accordance
with the laws of the Bolivarian Republic of Venezuela (“Venezuela”) and
BANCARACAS INTERNATIONAL BANKING CORPORATION 
(the “Lender”), a banking entity organized and existing in
accordance with the laws of Puerto Rico.

 

WHEREAS, the Borrower has requested the Lender to
make a loan in one or more drawings not in excess of U.S.$ 7,000,000.00 in the
aggregate; and

 

WHEREAS, the Lender is prepared to make a loan
in favor of the Borrower in accordance with the terms and subject to the
conditions set forth in this Agreement.

 

NOW, THEREFORE, the parties agree as follows:

 

1.                                      Loan.

 

The Lender agrees, subject to the terms and conditions
set forth in this Agreement, to make a loan (the “Loan”) to the Borrower
in one or more drawings not in excess of U.S.$ 7,000,000.00 in the aggregate
during a term beginning on the date hereof through October 30, 2001 (the “Disbursement
Period”); provided  that the Lender’s obligation to make a
disbursement under the Loan shall be subject to the purchase (on the date of
such disbursement) by one or more investors (each a “Participant”) of
participations in the Promissory Note issued by the Borrower with respect to
such disbursement for a 100% of such Promissory Note.  For purposes hereof, “Dollars” and “U.S.$” mean the legal
currency of the United States of America.

 

2.                                      Promissory Note.

 

The Loan shall be evidenced by one or more promissory
notes (each a “Promissory Note,” and collectively the “Promissory
Notes”) drawn payable to the Lender, dated as of the applicable
disbursement date, substantially in the form of “Exhibit A” hereto, and
with maturity in accordance with Section 6 of this Agreement; provided  that
the Lender and the Borrower may specify terms and conditions different from
those set forth in Exhibit A, which shall, to the extent so specified, or to
the extent inconsistent with the terms and conditions set forth in such Exhibit
A, replace or modify such terms and conditions.

 

In the event that any Promissory Note shall be lost,
stolen, destroyed or mutilated, the Borrower shall promptly execute and deliver
in replacement thereof a new Promissory Note in the same principal amount and
with the same maturity date; provided that in the case of mutilation, the
Lender shall surrender to the Borrower such mutilated Promissory Note.

 

The Borrower agrees to execute and deliver to the
Lender such additional Promissory Notes as the Lender may from time to time
request, for the purpose of full or partial substitution of an existing
Promissory Note, in such principal denominations as may be requested by the
Lender.

 

 

3.                                      Maximum Term and Prepayments.

 

All and any amounts payable in connection with any
Promissory Note shall be paid no later than eighteen (18) months from the issue
date set forth in such Promissory Note. The Borrower shall have the right to
prepay any Promissory Note, at any time or from time to time, provided that:
(a) the Borrower shall give the Lender a ten (10) Business Day notice of each
such prepayment; and, (b) that such prepayment be made only on the last day of
an Interest Period.

 

4.             Manner
of Borrowings.

 

On each
disbursement date, the Lender shall credit the amount of the net proceeds of
the respective drawing under the Loan to the general deposit account of the
Borrower with the Lender account number 20283, in immediately available funds,
against delivery to the Lender of the applicable Promissory Note payable to the
order of the Lender in the principal amount of such Promissory Note.

 

5.                                      Conditions Precedent.

 

As conditions precedent to the making of each drawing
under the Loan, the following conditions shall have been complied with, on or
before the applicable disbursement date, to the satisfaction of the Lender:

 

(1)                                  The Lender shall have received in form
and substance to its satisfaction:

 

(a)                                  The applicable Promissory Note.

 

(b)                                 Copies of all approvals or authorizations
necessary or advisable to effect the transactions contemplated by this
Agreement.

 

(c)                                  An opinion from legal counsel to the
Borrower, in the form of Exhibit B to this Agreement regarding the
legality, validity and enforceability of this Agreement, the applicable
Promissory Note and any other document or instrument issued in connection with
the Loan.

 

(d)                                 An opinion from legal counsel to the
Lender, in the form of Exhibit C to this Agreement, regarding the
legality, validity and enforceability of this Agreement and the applicable
Promissory Note.

 

(2)                                  The Lender shall have received full payment
of all fees, costs and expenses incurred by the Lender and due pursuant to this
Agreement or any other agreement, document or instrument related hereto;

 

(3)                                  All representations and warranties made
by the Borrower in this Agreement or any other document or instrument issued in
connection herewith shall be true and correct as of each disbursement date with
the same effect as though such representations and warranties had been made on
and as of such date; and

 

(4)                                  Prior to or concurrently with the execution
of this Agreement, the Borrower shall have certified to the Lender the name of
the officer or officers of the Borrower authorized to sign this Agreement and
the Promissory Notes, together with a true specimen of

 

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signatures of such
officer or officers.  The Lender may
conclusively rely on such certification until it shall have received written
notice from the Borrower to the contrary.

 

(5)                                  In addition, as condition precedent to
making the initial drawing under the Loan, the Lender shall have received
evidence that (i) the Borrower has appointed as its agent for service of
process the person so specified in Section 12 of this Agreement, (ii) such
appointment has been made on the terms and in the manner required hereunder and
(iii) such agent has accepted the appointment and has agreed to forward to the
Borrower all legal process addressed to the Borrower received by it.

 

6.                                      Payment of Principal and Interest.

 

(1)                                 Principal:

 

The Borrower shall repay the principal amount of all
Promissory Notes in Dollars on the date specified in the applicable Promissory
Note (the “Maturity Date”).  The
Borrower shall wire transfer or cause to be wire transferred, to the account
specified in Section 8 hereof, at least one Business Day prior to the Maturity
Date, such amount as is necessary to pay the principal amount of the applicable
Promissory Note.

 

(2)                                 Interest:

 

(a)                                  The Borrower shall pay interest in
arrears, at least one Business Day prior to every Interest Payment Date (as
defined herein) on the outstanding principal amount of the applicable
Promissory Note, at the rate per annum specified in such Promissory Note.  For purposes hereof, “Interest Payment
Date” means the interest payment date(s) set forth in the applicable
Promissory Note, and “Business Day” means a day on which banks are not
required or authorized by law or executive order to close in Puerto Rico,
Venezuela, and New York City, United States of America.

 

(b)                                 All interest will be calculated based on
a year of 360 days consisting of 12 months of 30 days each, and in the case of
incomplete months, the number of actual days elapsed.

 

(c)                                  In the event that the Borrower fails to
pay any of its obligations under any Promissory Note on the applicable Maturity
Date, the Borrower will pay late payment interest at the annual rate specified
in the applicable Promissory Note (payable on demand) over the interest rate
per annum set forth in such Promissory Note. 
The Borrower must also reimburse the Lender for all costs and expenses,
including collection costs and expenses and attorney’s fees and disbursements,
incurred by the Lender in connection with the enforcement or attempted
enforcement of this Agreement, the applicable Promissory Note, or any
instrument or document issued in connection herewith or the transactions
contemplated hereby or thereby.

 

3

 

7.                                      Evidence of Indebtedness.

 

The Borrower’s obligations under the Loan shall be
evidenced by this Agreement, the applicable Promissory Note and any other
document or instrument issued in connection therewith and the records of the
Lender.  The records of the Lender,
absent manifest error, shall be prima facie evidence of the Loan, accrued
interest thereon and any other amount payable to the Lender under this
Agreement or in connection with any Promissory Note.

 

8.                                      Payments to the Lender.

 

All payments to the Lender under the Loan, this
Agreement, the applicable Promissory Note, or under any other instrument or
document issued under this Agreement, will be made only and exclusively in
Dollars, in immediately available funds, by transfer to the account of the
Lender with Chase Manhattan Bank, New York, New York, ABA No. 021000021,
account number 001-1-977287, or at such other place as the Lender may from time
to time instruct the Borrower in writing, free and clear of any deductions,
including deductions for withholdings of taxes, levies, duties or charges of
any nature now or hereafter imposed, levied, collected, withheld or assessed by
the government of Venezuela (all of which will be for the sole account of the
Borrower), and without any reduction or deduction for any set-off, recoupment
or counterclaim.

 

If a payment to be made under the Loan, this
Agreement, the applicable Promissory Note or any document issued in connection
therewith, shall be due on a day which is not a Business Day, such payment
shall be made on the immediately succeeding Business Day and the extension of
the respective payment date shall be taken into account in computing the amount
of interest or fees then due and payable under this Agreement, the Loan, the
applicable Promissory Note or any document related thereto.

 

The Lender shall apply payments received under this
Agreement or the applicable Promissory Note in the following order of priority:
(i) amounts due hereunder (other than interest and principal), (ii) late
payment interest, (iii) interest, and (iv) principal.

 

9.                                      Representations and Warranties.

 

The Borrower represents and warrants to the Lender
that:

 

(1)                                  It
is a corporation duly organized, validly existing and in good standing under
the laws of Venezuela, and has the corporate power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted.

 

(2)                                  It
has the power, and has taken all necessary action (including any necessary
stockholder action) to authorize, execute, deliver and perform in accordance
with their respective terms this Agreement, the applicable Promissory Note and
any other document or instrument to be issued in connection hereto.  This Agreement has been duly executed and
delivered by the Borrower, and the applicable Promissory Note and any other
documents or instruments to be issued in connection hereto when executed by the
Borrower and delivered to the Lender will, constitute the legal, valid and
binding obligation of the Borrower,

 

4

 

enforceable against the
Borrower in accordance with their terms. 
The execution, delivery and performance in accordance with their
respective terms by the Borrower of this Agreement, the applicable Promissory
Note and any other documents or instruments to be issued in connection hereto,
do not and will not (i) require any governmental approval or any other consent
or approval, other than governmental approvals and other consents and approvals
that have been obtained and are in full force and effect, or (ii) violate or
conflict with, result in a breach of, constitute a default under, any contract
to which the Borrower is a party or by which the Borrower or its properties may
be bound or any law, rule, regulation, enactment, decision, judgment, decree or
order.

 

(3)                                  All
governmental authorizations and actions of any kind, if any, necessary to authorize
this Agreement, required for the validity or enforceability against the
Borrower of this Agreement, have been obtained or performed and are valid and
subsisting in full force and effect.

 

The above representations will be deemed to be true on
the applicable disbursement date and at any time that the Borrower executes any
document or instrument in connection with this Agreement.

 

10.                               Covenants.

 

(1)                                   Financial Statements. 
The Borrower shall deliver to the Lender:

 

(a)  as soon as
available and in any event within 45 days after the end of each quarterly
fiscal period of each fiscal year of the Borrower, consolidated and
consolidating statements of income, retained earnings and changes in financial
position (or of cash flow, as the case may be) of the Borrower and its
consolidated subsidiaries for such period and for the period from the beginning
of the respective fiscal year to the end of such period, and the related
consolidated and consolidating balance sheets as at the end of such period,
setting forth in each case in comparative form the corresponding consolidated
and consolidating figures for the corresponding period in the preceding fiscal
year, accompanied by a certificate of a senior financial officer of the
Borrower, which certificate shall state that said financial statements fairly
present the consolidated and consolidating financial condition and results of
operations, as the case may be, of the Borrower and its consolidated
subsidiaries in accordance with generally accepted accounting principles,
consistently applied, as at the end of, and for, such period (subject to normal
year-end audit adjustments);

 

(b)  as soon as
available and in any event within 90 days after the end of each fiscal year of
the Borrower, consolidated and consolidating statements of income, retained
earnings and changes in financial position (or of cash flow, as the case may
be) of the Borrower and its consolidated subsidiaries for such year and the
related consolidated and consolidating balance sheets as at the end of such
year, setting forth in each case in comparative form the corresponding
consolidated and consolidating figures for the preceding fiscal year, and
accompanied (i) in the case of said consolidated statements and balance sheet,
by

 

5

 

an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that
said consolidated financial statements fairly present the consolidated
financial condition and results of operations of the Borrower and its
consolidated subsidiaries as at the end of, and for, such fiscal year, and a
certificate of such accountants stating that, in making the examination
necessary for their opinion, they obtained no knowledge, except as specifically
stated, of any Default and (ii) in the case of said consolidating statements
and balance sheet, by a certificate of a senior financial officer of the
Borrower, which certificate shall state that said consolidating financial
statements fairly present the consolidating financial condition and results of
operations of the Borrower and its consolidated subsidiaries in accordance with
generally accepted accounting principles, consistently applied, as at the end
of, and for, such fiscal year;

 

(c)  promptly
upon their becoming available, copies of all registration statements and
regular periodic reports, if any, which the Borrower shall have filed with the
Comisión Nacional de Valores (or any governmental agency substituted therefore)
or any securities exchange; and

 

(d)  promptly
upon the mailing thereof to the shareholders of the Borrower generally, copies
of all financial statements, reports and proxy statements so mailed;

 

(2)                                                                                 Litigation.  The Borrower will promptly give to the
Lender notice of all legal or arbitral proceedings, and of all proceedings by
or before any governmental or regulatory authority or agency, and any material
development in respect of such legal or other proceeding affecting the Borrower
or any subsidiary, except proceedings which would reasonably be expected not to
have, if adversely determined, a material adverse effect on the consolidated
financial condition, operations, business or prospects taken as a whole of the
Borrower and its consolidated subsidiaries.

 

(3)                                                                             Corporate Existence, Etc  The
Borrower will, and will cause each of its subsidiaries to:  preserve and maintain its corporate
existence and all of its material rights, privileges and franchises (provided
that nothing in this Section 10.3 shall prohibit any transaction expressly
permitted under Section 10.5 hereof); comply with the requirements of all
applicable laws, rules, regulations and orders of governmental or regulatory
authorities if failure to comply with such requirements would materially and
adversely affect the consolidated financial condition, operations, business or
prospects taken as a whole of the Borrower and its consolidated subsidiaries;
pay and discharge all taxes, assessments and governmental charges or levies
imposed on it or on its income or profits or on any of its property prior to
the date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good
faith and by proper proceedings and against which adequate reserves are being
maintained; maintain all of its properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted; and permit
representatives of the Lender, during normal business hours, to examine, copy
and

 

6

 

make extracts from its
books and records, to inspect its properties, and to discuss its business and
affairs with its officers, all to the extent reasonably requested by the
Lender.

 

(4)                                                                                 Insurance.  The Borrower will, and will cause each of
its subsidiaries to, keep insured by financially sound and reputable insurers
all property of a character usually insured by corporations engaged in the same
or similar business similarly situated against loss or damage of the kinds and
in the amounts customarily insured against by such corporations and carry such
other insurance as is usually carried by such corporations.

 

(5)                                                                                 Prohibition
of Fundamental Changes.  The
Borrower will not, nor will it permit any of its major subsidiaries to
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution).  The Borrower will not,
and will not permit any of its subsidiaries to, convey, sell, lease, transfer
or otherwise dispose of, in one transaction or a series of transactions, all or
a substantial part (more than 60%, taken as a whole) of its business or assets,
whether now owned or hereafter acquired (including, without limitation,
receivables and leasehold interests, but excluding (i) any inventory or other
assets sold or disposed of in the ordinary course of business and (ii) obsolete
or worn-out property, tools or equipment no longer used or useful in its
business so long as the amount thereof sold in any single fiscal year by the
Borrower and its subsidiaries shall not have a fair market value in excess of
$1,000,000.00).

 

(6)                                                                                 Changes
in Control.  The Borrower shall not
permit, without the prior written consent of the Lender, any significant change
(in the sole opinion of the Lender) in the control of the capital stock of the
Borrower or the composition of the Borrower’s board of directors.

 

11.                               Taxes.

 

(a)                                  The Borrower shall (i) pay such amounts
(the “Additional Amounts”) as may be necessary to ensure that the net
amounts receivable by the holder of any Promissory Note after any withholding
or deduction for on account of any Taxes (as define below), shall equal the
respective amounts of principal and interest that would have been receivable in
respect of such Promissory Note in the absence of such withholding or deduction,
and (ii) pay the full amount of any Taxes to the relevant authority promptly
and promptly  (but in no event later
than 45 days after paying any such Taxes) furnish the original receipt
therefore or a certified copy thereof to the Lender; provided however that the
Borrower shall not be required to pay (1) any taxes imposed on or measured by
the income or capital of the Lender in the jurisdiction (or any political
subdivision of such jurisdiction) of incorporation of the Lender, or to which
the Lender is subject, (2) any taxes imposed on or measured by the income or
capital of the Lender by the jurisdiction (or any political subdivision of such
jurisdiction) in which the principal place of business or residence of the
Lender is located, or (3) any other taxes imposed by any jurisdiction outside
of Venezuela (except for taxes arising under such jurisdiction as a result of
any action taken by the Borrower).  As
used herein,

 

7

 

“Taxes” means
taxes, levies, duties or charges of any nature now or hereafter imposed,
levied, collected, withheld or assessed by the government of Venezuela or any
political subdivision or taxing authority thereof or therein.

 

(b)                                 Without limiting the foregoing, the
Borrower will indemnify the Lender against, and reimburse the Lender upon
demand for, any Taxes which the Lender shall be obligated to pay or shall have
paid with respect to any Promissory Note, the Loan or this Agreement.  Notwithstanding anything to the contrary
(including, without limitation, the provisions set forth in Section 13, if
the Lender pays any Taxes or other amounts reimbursable under this
Section 10 in a currency other than Dollars, the Dollar amount to be
reimbursed hereunder by the Borrower shall be the Dollar amount disbursed by
the Lender on the date of payment of such Taxes or other amounts, to pay such
Taxes or other amounts.

 

(c)                                  All payments by the Borrower of interest
hereunder and under the applicable Promissory Note are currently subject to
withholding of Venezuelan income tax at a rate of 4.95%.  The Borrower will pay such amounts as may be
necessary in order to ensure that the net amounts receivable by the holder of
each Promissory Note after the above withholding, at the rate in effect at the
time of payment, shall equal the respective amount of interest which would have
been receivable in respect of such Promissory Note in the absence of such
withholding.  Other than as set forth
above, no withholding or similar taxes are required to be paid in respect of,
or deducted from, any payment required to be made by the Borrower under this
Agreement or any Promissory Note.

 

12.                               Payment in the Event of a Foreign Exchange Restriction.

 

In the event of any foreign exchange restriction or
prohibition in Venezuela, any and all payments in respect of the Loan will be
made, to the extent permitted by such restriction or prohibition, in Dollars
through (i) the sale of Brady Bonds of any series or of any other public
or private bond issued in Dollars and traded in any international market in an
amount and face value sufficient so that once sold for a price in Dollars in
any international market other than Venezuela, at the Lender’s option, will
yield, net of any taxes, expenses and commissions that will apply in connection
with the sale of such securities, a sum in Dollars equal to the U.S. Dollar
amount on the applicable Promissory Note or (ii) any other legal mechanism for
the acquisition of Dollars in any exchange market.  All costs, including any taxes, relative to such operations to
obtain Dollars will be borne by the Borrower.

 

If, under such exchange control system, there exists
an official controlled exchange rate and a free market exchange rate,
including, in the case of a free market exchange rate, the possibility or
requirement of obtaining Dollars through the purchase of Brady Bonds or any
other public or private debt instruments, the Borrower shall be obligated to
purchase Dollars in the most expeditious manner to meet its obligations
hereunder, even if as a result of such obligation, the Borrower would need to
obtain Dollars in the free market at a higher exchange rate than the official
controlled exchange rate, and even if the acquisition of Dollars would be, or
could be, effected through the purchase of such Brady Bonds or public or
private debt instruments, and even of the acquisition of Dollars would be, or
could be, effected through the purchase of such Brady Bonds or public or
private debt instruments.

 

8

 

13.                               Law and Jurisdiction.

 

This Agreement, the Promissory Notes and all other
related instruments and documents shall be governed by and construed and
interpreted in accordance with the laws of Puerto Rico.

 

              Each
of the parties hereto expressly submits to the non exclusive jurisdiction of
the courts sitting in San Juan, Puerto and in addition, the Borrower expressly
submits to the competent courts of the City of Caracas, Venezuela, for the
resolution of all disputes about the interpretation, performance and enforcement
of this Agreement, the applicable Promissory Note and the instruments and
documents issued in connection herewith. 
The Borrower hereby waives to the fullest possible extent the defense of
an inconvenient forum.

 

14.                               Judgment Currency.

 

If a judgment relating to any sum due hereunder or
under any related document is to be awarded in a currency (the “Second
Currency”) other than Dollars, a conversion from the Second Currency into
Dollars shall be made at the rate of exchange prevailing on the business day
preceding the day on which such judgment is given.  For purposes of this paragraph “rate of exchange,” means
the rate at which the Borrower is able in accordance with normal borrowing
practices on such date to purchase Dollars in New York, New York, United States
of America, or, if not possible, at any other place where the Borrower may
complete the exchange of the Second Currency for Dollars.  In the event that there is a change in the
rate of exchange prevailing between the Business Day on which the conversion
for the purposes of obtaining judgment is made and the date on which payment of
the amount due is in fact made, or if any premium or other charge is incurred
under exchange control or any other legislation or regulation on the
conversion, the Borrower will pay such additional amount (if any) as may be
necessary to ensure that the amount paid is, on the date of payment, the amount
in the Second Currency that, when converted at the rate of exchange prevailing
on the date of payment, equals the Dollar amount with respect to which judgment
was given.  The Borrower shall furnish
to the Lender a statement regarding the exchange rate in effect on the date of
payment and the additional costs incurred by the Borrower.  Any amount due from the Borrower under this
paragraph will be due as a separate debt and will not be affected by judgment
being obtained for any other sums due under or in respect of the Loan or any
related document.  In the event that
after making the conversion referred to in the second preceding sentence, the
Lender shall recover an amount greater than the amount then owing to it, it
shall promptly refund such excess to the Borrower.

 

15.                               Increased Costs.

 

(a)                                  If, due to either (i) the introduction
of, or any change on, or after the date hereof (including, without limitation,
any change by way of imposition or increase of reserve requirements, other than
any reserves referred to in paragraph (c) below) in or in the interpretation of
any law or regulation or (ii) the compliance with any request, guideline or
directive arising after the date hereof from any central bank or other
governmental authority (whether or not having the force of law), there shall be
any increase in the cost to the holder of any Promissory Note of holding,
owning or maintaining such Promissory Note or any reduction in any amount
received or receivable by such holder hereunder or under such Promissory Note,
then upon written request therefore, the Borrower shall pay to such holder such

 

9

 

additional amount or
amounts as shall be sufficient to compensate such holder for such increased
costs or reductions.  Such request
(showing the amounts owed and setting forth in reasonable detail the basis for
the calculations thereof) shall, absent manifest error, be final and conclusive
and binding on all the parties hereto for all purposes.

 

(b)                                 If the adoption or introduction on, or
after the date hereof, of any change in any applicable law concerning capital
adequacy, or any change in interpretation or administration thereof by any
governmental authority, central bank or comparable agency, in each case
introduced or changed after the date hereof, will have the effect of increasing
the amount of capital required or expected to be maintained by the holder of
any Promissory Note or any corporation controlling such holder based on the
existence of such holder’s obligations hereunder, or shall have or would have
the effect of reducing the rate of return on such holder’s capital as a consequence
of holding such Promissory Note to a level below that which such holder could
have obtained but for such adoption, change or compliance (taking into
consideration such holder’s policies with respect to capital adequacy), then,
upon written request therefore, the Borrower shall pay to such holder such
additional amounts as shall be required to compensate such holder or such other
corporation for the increased cost to such holder or such other corporation for
the reduction in the rate of return to such holder or such other corporation as
a result of such increase of capital. 
Such request (showing the amounts owed and setting forth in reasonable
detail the basis for the calculations thereof) shall, absent manifest error, be
final and conclusive and binding on all the parties hereto for all purposes.

 

(c)                                  The holder of the applicable Promissory
Note shall notify the Borrower of any event occurring after the date hereof
entitling such holder to compensation under paragraph (a) or (b) of this
Section 14 as promptly as practicable, but in any event within 45 days, after
such holder obtains actual knowledge thereof; provided that if the
holder of such Promissory Note fails to give such notice within 45 days after
it obtains actual knowledge of such an event, such holder shall, with respect
to compensation payable pursuant to this Section 14 in respect of any costs
resulting from such event, only be entitled to payment under this Section 14
for costs incurred from and after the date 45 days prior to the date that such
holder does give such notice.  The
holder of the applicable Promissory Note will furnish to the Borrower a
certificate setting forth in reasonable detail the basis and amount of each
request by such holder for compensation under paragraph (a) or (b) of this
Section 14.

 

16.                               Setoff.

 

The Borrower agrees that, in addition to (and without
limitation of) any right of setoff, banker’s lien or counterclaim the Lender
may otherwise have, the Lender shall be entitled, at its option, to off-set
balances (general or special, time or demand, provisional or final) held by it
for the account of the Borrower at any of the Lender’s offices, in Dollars or
in any other currency, against any amount payable by the Borrower under this
Agreement which is not paid when due (regardless of whether such balances are
then due to the Borrower), in which case it shall

 

10

 

promptly notify Borrower
thereof, provided that the Lender’s failure to give such notice shall
not affect the validity thereof.

 

17.                               Assignment.

 

This Agreement shall be binding upon, and shall inure
to the benefit of, the Borrower, the Lender and their respective successors and
assigns, except that the Borrower may not assign, delegate or transfer its
rights and/or obligations hereunder or under any Promissory Note; provided
that the Borrower may assign, delegate or transfer its rights and/or
obligations hereunder and under any Promissory Note to an affiliate of the
Borrower with the prior written consent of the Lender (which consent shall not
be unreasonably withheld).  The Lender
may assign all or part (in which case the assignee(s) shall become the Lender
hereunder), and, if in part, only if by other assignments the Lender is
assigning 100% thereof, or sell participations in, all or any part of this
Agreement and any Promissory Note to any Participant.  The Lender may furnish any information concerning the Borrower in
the possession of the Lender from time to time to assignees and participants
(including prospective assignees and participants); provided that the
Lender shall require any such prospective assignee or such participant
(prospective or otherwise) to agree in writing to maintain the confidentiality
of such information.

 

18.                               Amendments and Waivers.

 

No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the Lender
and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.  No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof or preclude any other or further exercise thereof or the
exercise of any other right.  The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

 

All factual information (taken as a whole) heretofore
or contemporaneously furnished by the Borrower to the Lender for purposes of,
or in connection with, this Agreement, the Promissory Notes or any transaction
contemplated herein, and all other such factual information (taken as a whole)
hereafter furnished by the Borrower to the Lender was true and accurate in all
material respects on the date as of which such information is dated or
certified and not materially incomplete by omitting to state any fact necessary
to make such information (taken as a whole) not misleading at such time in
light of the circumstances under which such information was provided.

 

20.                               Use
of Proceeds.

 

The Borrower will use the proceeds of the Loan for
general corporate purposes.

 

21.                               Administration Fee.

 

The Borrower shall pay to
the Lender and administration fee equal to one percent (1%) per annum over the
amount of the Loan, payable in arrears on each Interest Payment Date

 

11

 

22.                               Costs and Expenses.

 

The Borrower promptly shall reimburse the Lender for
all reasonable expenses incurred by the Lender (including, without limitation
the amount of reasonable attorney’s fees, costs and expenses) in connection
with the negotiation, preparation and execution of this Agreement.  The Borrower shall further pay upon demand
all costs and expenses of the Lender (including, without limitation, attorney’s
fees and expenses) incurred in connection with the preservation of any rights
of the Lender, or the enforcement of, or legal advise in respect of the rights
and responsibilities of the Lender under this Agreement, the Promissory Notes
and the other instruments and documents to be delivered hereunder.  The Borrower shall further reimburse the
Lender on demand for any and all liabilities, obligations, losses, damages,
penalties, judgments, and related costs, expenses or disbursements of any kind
or nature whatsoever which may be imposed on or incurred by the Lender
hereunder; provided that the Borrower shall not be liable for any such amount
resulting from the gross negligence or willful misconduct of the Lender.

 

The Borrower shall also pay the Lender on demand for
all losses, costs and expenses incurred as a result of any repayment of the
Loan, or any part thereof, other than on the Interest Payment Date.

 

23.                               Entire Agreement.

 

This Agreement and the attachments hereto set forth
the entire agreement of the Borrower and the Lender as to the scope of the
obligations of the parties hereto and supersede all prior agreements,
representations and understandings, if any, relating to the subject matter
hereof.

 

24.                               Severability.

 

Any provision of this Agreement or of any instrument
or document issued in connection herewith that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions thereof or affecting the validity or enforceability of
such provision in any other jurisdiction. 
To the extent permitted by applicable law, the Borrower hereby waives
any provision of applicable law that renders any provision of this Agreement or
of any instrument or document issued in connection herewith prohibited or
unenforceable in any respect.

 

25.                               Notices.

 

All communications and notices under this Agreement,
including reports, shall be given in writing by personal delivery, telegram or
facsimile, in either English or Spanish addressed to the appropriate party at
the address set forth under its name on the signature page of this Agreement or
at such other address as such party may designate in writing to the other
party, and shall be deemed given when received by the recipient.

 

26.                               Headings.

 

The headings of the sections of this Agreement are for
the convenience of reference only and in no way define, limit or affect the
scope or meaning of this Agreement or of any of its provisions.

 

12

 

27.                               Counterparts.

 

This Agreement may be signed by the parties hereto in
any number of separate counterparts, each of which shall be an original, with
the same effect as if the signatures thereto were upon the same instruments.

 

13

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