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Construction Loan Agreement, Dated As of April 28, 2000

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EXHIBIT 10.18


CONSTRUCTION LOAN AGREEMENT


This AGREEMENT made as of the 28th day of April, 2000 by and between IPG PHOTONICS CORPORATION, a Delaware corporation with its principal place of business at 660 Main Street, Sturbridge, Massachusetts 01566 (the "Borrower") and FAMILY BANK, FSB, a federal savings bank, at its office at 370 Main Street, Worcester, Massachusetts 01608 (the "Lender").


WITNESSETH:


In consideration of the mutual covenants herein contained and other good and valuable consideration, receipt whereof is hereby acknowledged, the parties hereto hereby agree as follows:


1. RECITALS


1.1 Borrower owns certain real estate located on Old Webster Road, Oxford, Massachusetts (hereinafter referred to as the "Premises") and more particularly described in Exhibit A annexed hereto, and proposes to incur certain costs and expenses in connection with the construction of two office/assembly buildings on the Premises (hereinafter called the "Improvements") in accordance with (i) the plans, drawings, and specifications described in Exhibit B annexed hereto, and (ii) plans, drawings and specifications to be developed and prepared after the date hereof which future plans, drawings and specifications and all amendments must be approved in writing by Lender prior to the use thereof by Borrower (all such existing and future plans, drawings and specifications being hereinafter collectively referred to as the "Plans"); and


1.2 Borrower simultaneously herewith is executing or causing to be executed and delivering to Lender:


1.2.1 a Promissory Note dated of even date herewith by Borrower in the principal amount of $6,500,000.00 (the "Note");


1.2.2 a Mortgage and Security Agreement dated of even date herewith by Borrower with respect to the Premises (the "Mortgage");


1.2.3 a Collateral Assignment of Construction Contract dated of even date herewith by Borrower (the "Construction Assignment");


1.2.4 a Collateral Assignment of Architect's Contract and Plans and Specifications dated of even date herewith by Borrower (the "Architect and Plans and Specifications Assignment");


1.2.5 a Collateral Assignment of Licenses, Permits and Agreements dated of even date herewith by Borrower (the "Permits Assignment");


1.2.6 UCC Financing Statements against Borrower to be filed with the Massachusetts Secretary of State, the Clerks of the Towns of Oxford and Sturbridge, and the Worcester District Registry of Deeds (the "Financing Statements");


1.2.7 Unlimited Guaranty dated of even date herewith with respect to the obligations of Borrower to Lender by IP Fibre Devices (UK) Limited (the


"Corporate Guaranty");


1.2.8 Unlimited Guaranty dated of even date herewith with respect to the obligations of Borrower to Lender by Valentin P. Gapontsev (the "Individual Guaranty"); and


1.2.9 an Assignment of Life Insurance Policy as Collateral with respect to a life insurance policy on the life of Valentin P. Gapontsev in the minimum amount of $3,000,000.00 (the "Life Insurance Assignment").


(The Note, the Mortgage, the Construction Assignment, the Architect and Plans and Specifications Assignment, the Permits Assignment, the Financing Statements, the Corporate Guaranty, the Individual Guaranty and the Life Insurance Assignment are hereinafter collectively referred to as the "Security Instruments".)


1.3 Borrower has entered into an agreement dated March 10, 2000 (hereinafter referred to as the "Construction Contract") with Aho Construction, Inc. (hereinafter referred to as the "Contractor") to construct the Improvements (including all development and site work) on the Premises; and


1.4 Lender is willing to lend to Borrower sums of money to be evidenced by the Note of Borrower (the "Loan") upon the terms and covenants and subject to the conditions hereinafter set forth.


2. AGREEMENTS


2.1 Lender's Agreement to Advance Proceeds


Lender agrees (provided the terms, conditions, covenants and agreements hereof shall be observed and performed, and subject to the conditions hereinafter set forth) to make advances to Borrower of the proceeds of the Note from time to time up to a total amount not exceeding the principal amount thereof, such proceeds being hereinafter referred to as the "Loan Proceeds." The Loan Proceeds shall be advanced to finance construction of the Improvements.


2.2 Conditions Precedent


As conditions precedent to Lender's obligation to make advances from time to time of the Loan Proceeds, Borrower shall, at the time of the advance in question:


2.2.1 hold marketable title to the Premises in fee simple and full possession thereof, free and clear of all liens and encumbrances except such as are approved by Lender in writing and except such permitted exceptions as are set forth in Exhibit C annexed hereto;


2.2.2 have granted to Lender a fully perfected first mortgage on the Premises and Improvements, a fully perfected first security interest in accordance with the Uniform Commercial Code in the accounts receivable and inventory of the Borrower and the fixtures of the Borrower located or to be located on the Premises, an assignment of licenses, permits, agreement, plans and specifications pertaining to the Improvements and an assignment of leases and rents with respect to the Premises to secure the Note of Borrower and the obligations of Borrower under this Agreement;


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2.2.3 have delivered to Lender a mortgagee's title insurance policy in the face amount of Six Million Five Hundred Thousand and 00/100 Dollars ($6,500,000.00) issued by First American Title Insurance Company (hereinafter referred to as the "Title Insurance Company") in the form of the American Land Title Association's standard form of mortgagee title insurance policy (or in such other form as may be required by statute); said policy to show no prior liens or encumbrances except and particularly approved in writing by Lender; to contain only standard exceptions, excluding, without limitation, any exceptions for lack of a survey or mechanics' and materialmen's liens, and to be in all respects satisfactory to Lender;


2.2.4 have entered into and delivered to Lender a written Construction Contract with Contractor, which Contract and Contractor first shall have been approved in writing by Lender, a collateral assignment of the Construction Contract in a form acceptable to Lender, and a performance bond issued by a surety acceptable to Lender and naming Lender as loss payee, securing performance of the Construction Contract;


2.2.5 have delivered to Lender evidence in form and substance satisfactory to Lender, that all public utilities necessary for the construction and operation of the Improvements upon the Premises for their intended purposes are available at the boundaries of the Premises and there is no impediment or restriction to connecting any of such facilities to the Improvements;


2.2.6 have delivered to Lender a certified survey showing the location and dimensions of the proposed Improvements, utilities, parking areas, rights-of-way and all easements affecting the Premises, and the points of access to the main road upon which the Premises front and including a certification that all proposed Improvements, if constructed in accordance with the Plans, will be in full compliance with all zoning laws and regulations applicable thereto;


2.2.7 have delivered to Lender an opinion of Borrower's counsel, in form and substance satisfactory to Lender, that the Loan has been duly authorized by Borrower; that the Note and the Security Instruments are binding obligations of Borrower or the guarantors, as applicable; that construction and operation of the Improvements, as contemplated hereunder, will not violate any applicable zoning or building code, law, ordinance or other governmental regulation; that all necessary action required by federal, state and/or local law to be taken pursuant to the construction and completion of the Improvements has been taken; and containing such other opinions as Lender may request;


2.2.8 have delivered to Lender written assurances satisfactory to Lender from Borrower's engineer, and Contractor that Lender shall have the same rights as Borrower to the continued use of the Plans and all services related thereto for the construction of the Improvements;


2.2.9 not be in default with respect to any of the provisions of this Agreement to be performed or observed;


2.2.10 have submitted to Lender all subcontractors' subcontracts requested by Lender; Lender reserving the right at any time to require submission of subcontracts from (i) each and every subcontractor and material supplier whose bid represents ten percent (10%) or more of the total construction costs and (ii) a sufficient number of subcontractors and material suppliers whose bids collectively represent not less than seventy percent (70%) of the total costs of construction, and Lender reserving the right to approve or


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disapprove of each such subcontractor and subcontract;


2.2.11 have qualified for a first advance hereunder within thirty (30) days from the date hereof or such other date as may be agreed upon in writing by the parties hereto; and


2.2.12 have delivered to Lender copies of all partial waiver and subordination forms, releases, notices of contract, notices of identification, statements of account, statements of claim and other documents relating to the Improvements or the Premises by whomsoever filed.


2.3 Representations of Borrower


Borrower represents and warrants to Lender:


2.3.1 that at least one copy of the Plans has been deposited with Lender;


2.3.2 that the Plans have been filed with all governmental authorities having jurisdiction, that it has obtained all necessary approvals thereof and all necessary building, zoning, parking, street opening, access, and other permits from said authorities, and that construction and operation of the Improvements on the Premises will not violate (i) any zoning, building code, subdivision, or land use ordinance, regulation or law promulgated by any governmental agency, department or subdivision, including without limiting the generality of the foregoing, the United States Environmental Protection Agency and the Massachusetts Department of Environmental Protection or (ii) any restrictions of any kind affecting the Premises;


2.3.3 that all utilities and services necessary for the operation of the Improvements for their intended purpose (including, without limitation, water, gas, electricity, telephone, and storm and sanitary sewer facilities) are available at the boundary of the Premises, can be tapped into or installed by Borrower, and are of sufficient capacity to adequately meet all needs and requirements necessary for the operation of the Improvements for their intended purposes;


2.3.4 that there is unrestricted access for the passage of motor vehicles to and from the Premises to and from the main road upon which the Premises fronts and all required curb cut or access permits (if any) have been obtained;


2.3.5 that no part of the Premises is located in a designated flood hazard area (as defined in the Flood Disaster Protection Act of 1973, as amended by the National Flood Insurance Reform Act of 1994);


2.3.6 that all test borings and other engineering studies normally performed by prudent developers of similar projects on similar type land have been performed and have yielded results normally considered favorable to permit the utilization and development of the Premises for the purpose herein referred to;


2.3.7 that there are no easements across or affecting the Premises which will have any adverse effect upon the operation of the Improvements for their intended purpose, nor which will in any way interfere with the construction of the Improvements on the Premises;


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2.3.8 that Borrower is the true, sole and lawful owner of the Premises, is lawfully seized and possessed of the same in fee simple, and has good right, full power and lawful authority to mortgage, grant, bargain, sell and convey the same and the Security Instruments, when properly filed and recorded, will all create valid liens on the Premises;


2.3.9 that the execution and delivery of, and the performance by Borrower of its obligations under this Agreement, the Note, and the Security Instruments have been authorized by all appropriate action; and that said instruments, upon delivery, will be the valid and binding obligations of Borrower, enforceable in accordance with their respective terms, and will not violate or conflict with any other agreements or instruments to which Borrower is a party or by which Borrower is bound;


2.3.10 that no litigation or proceedings are pending or threatened against Borrower or the Premises, or any properties adjacent to the Premises, which would or might affect the validity or priority of the lien of the Mortgage or other security for the Note on the Premises or which could or might materially affect Borrower's ability to perform this Agreement;


2.3.11 that the making of the Loan or Lender's acquisition of the Note or any of the Security Instruments will not subject Lender to any claim for a brokerage commission;


2.3.12 that all financial statements and other information furnished to the Lender by the Borrower and the guarantors in connection with the Loan, the Premises and the Improvements are true, accurate and complete in all material respects and fairly present the financial condition of the Borrower and the guarantors as of the respective dates of such statements;


2.3.13 that neither the Borrower nor any of the guarantors is subject to any contingent liabilities or obligations (whether for taxes, long-term commitments or otherwise) which are not accurately reflected in financial information furnished to the Lender in connection with the Loan; and


2.3.14 that each Borrower and guarantor has filed all required tax returns and paid all applicable federal, state and local taxes.


Each of the foregoing representations and warranties shall survive the making of the Loan and each advance of the Loan Proceeds hereunder, and Borrower shall indemnify and hold harmless Lender from and against any loss, damage or liability attributable to the breach thereof, including all fees and expenses incurred in the defense or settlement of any claim arising therefrom against Lender.


2.4 Covenants of Borrower


Until payment in full of the Note and all other sums required to be paid by Borrower under the Security Instruments and this Agreement, Borrower shall:


2.4.1 cause the Improvements to be constructed, equipped and completed, diligently and continuously and with all reasonable dispatch, in accordance with all laws, rules, regulations and requirements of all governmental authorities having jurisdiction with respect to the Improvements, the appropriate Board of Fire Underwriters, and the Plans and any modifications and additions to the Plans which may be deemed necessary or desirable by Lender


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and/or Lender's construction representative, which modifications and additions to the Plans, Borrower agrees to provide within ten (10) days after Lender's request therefor;


2.4.2 in any event, cause the Improvements to be completed and ready for operation and occupancy on or before April 28, 2001 (the "Construction Completion Date");


2.4.3 make no material changes or amendments to the Plans and make no change orders without the prior written approval of Lender;


2.4.4 with respect to any amendments or supplements to the Plans, to which Lender shall have given its prior written approval, file all such amendments and supplements with, and obtain all necessary approvals from, all governmental authorities having jurisdiction thereof and promptly deliver true copies thereof to Lender;


2.4.5 permit Lender and its representatives to enter upon the Premises and inspect the Improvements at all times during normal business hours and examine all detailed plans, shop drawings, specifications and other books and records relating to the Premises and the Improvements;


2.4.6 not enter into any lease with respect to the Premises (excepting equipment leases) without first having submitted to the Lender a copy of said lease together with a duly executed subordination of lease agreement;


2.4.7 within five (5) days after construction of the foundation has been completed, deliver a certificate from an engineer or surveyor satisfactory to Lender to the effect that no part of the foundation or Improvements encroaches on any adjoining parcel of land, that the foundation is located on the Premises in accordance with the Plans, and that all Improvements then constructed are contained within the boundaries of the Premises and are in compliance with all applicable setback (front, side, and rear) requirements;


2.4.8 permit Lender to erect an appropriate sign on the Premises at such location as Lender, in its discretion, may determine, indicating that the Improvements are being financed by Lender;


2.4.9 furnish or cause to be furnished to Lender:


2.4.9.1 as soon as available, but in any event upon filing with applicable taxing authorities, a copy of each federal and state tax return of Borrower and any guarantors;


2.4.9.2 as soon as available, but in any event within fifteen (15) days after the close of each fiscal month: (a) a statement of stockholders' equity and a statement of changes in cash flow of Borrower for such fiscal month; (b) income statement of Borrower for such fiscal month; and (c) balance sheets of Borrower as of the end of such fiscal month-all such statements to be in reasonable detail, including all supporting schedules and comments and any management letters issued with respect to Borrower; the statements and balance sheets to be certified as accurate and complete by the President or chief financial officer of Borrower and acceptable to Lender in accordance with generally accepted accounting principles, such statement to present fairly the financial position and results of operations of Borrower;


2.4.9.3 as soon as available, but in any event within forty-


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five (45) days after the close of each fiscal quarter: (a) a statement of stockholders' equity and a statement of changes in cash flow of IP Fibre Devices (UK) Limited for such fiscal quarter; (b) income statement of 113 Fibre Devices (UK) Limited for such fiscal quarter; and (c) balance sheets of IP Fibre Devices (CK) Limited as of the end of such fiscal quarter - all such statements to be in reasonable detail, including all supporting schedules and comments and any management letters issued with respect to IP Fibre Devices (UK) Limited; the statements and balance sheets to be certified as accurate and complete by the President or chief financial officer of IP Fibre Devices (UK) Limited and acceptable to Lender in accordance with generally accepted accounting principles, such statement to present fairly the financial position and results of operations of IP Fibre Devices (UK) Limited and to be stated in United States dollars;


2.4.9.4 as soon as available, but in any event within ninety (90) days after the close of each fiscal year: (a) a statement of stockholders' equity and a statement of changes in cash flow of each of Borrower and IP Fibre Devices (UK) Limited for such fiscal year: (b) income statement of each of Borrower and IP Fibre Devices (UK) Limited for such fiscal year; and (c) balance sheets of each of Borrower and IP Fibre Devices (UK) Limited as of the end of such fiscal year-all such statements to be in reasonable detail,
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