MODIFICATION NO. 3 TO LOAN AND SECURITY AGREEMENT

 

A.           PFG and Borrower have entered into that certain Loan and Security Agreement, dated as of February 8, 2013 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”), pursuant to which PFG has made available to Borrower, among other credit accommodations, a term loan in the original principal amount of Two Million Five Hundred Thousand Dollars ($2,500,000).

 

B.           PFG and Borrower entered into that certain Forbearance Agreement dated as of February 10, 2014 (the “Forbearance”) to address a Borrower financial covenant default under Section 5 of the Schedule to the Loan Agreement, and the Forbearance Period under the Forbearance expired on the First Modification Effective Date (as defined below).

 

C.           PFG and Borrower entered into that certain Waiver and Modification dated March 5, 2014 (the “First Modification Effective Date” and such Waiver and Modification, the “First Modification”) to permit a waiver of past defaults and to temporally reset financial covenants.

 

D.           PFG and Borrower entered into that certain Modification No. 2 to Loan and Security Agreement dated April 30, 2014 (the “Second Modification Effective Date” and such Waiver and Modification, the “Second Modification”) to make certain modifications to the financial covenants set forth in Section 5 of the Schedule.

 

E.           Borrower has notified PFG that it has raised additional equity financing and PFG is willing to make certain changes to the financial covenants and waive certain fees due to the consummation of the equity financing as described by Borrower;

 

NOW THEREFORE, in consideration of the agreements and covenants contained herein, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.           DESCRIPTION OF EXISTING INDEBTEDNESS:  Among other Obligations and indebtedness which may be owing by Borrower to PFG, Borrower is indebted to PFG pursuant to, among other documents, the Loan Agreement.  The Loan Agreement provides for a term loan in the principal amount of $2,500,000, of which $1,547,619 in principal amount (the “Loan”) is outstanding on the date hereof.  Defined terms used but not otherwise defined herein shall have the same meanings set forth in the Loan Agreement.

 

 

2.           DESCRIPTION OF COLLATERAL. Repayment of Obligations is secured by the Collateral, as described in the Loan Agreement and in the Intellectual Property Security Agreement and Collateral Agreements and Notices of even date with the Loan Agreement (the “IP Security Agreements”). Hereinafter, the above-described Loan Agreement, IP Security Agreements, Cross Corporate Continuing Guaranty and Security Agreement and Representations and Warranties, together with all other documents securing repayment of the Indebtedness or otherwise executed in connection with the Loan Agreement shall be referred to as the "Existing Loan Documents".

3.           MODIFICATIONS TO LOAN AGREEMENT.

 

     Minimum EBITDA:      Borrower shall maintain EBITDA measured monthly on a rolling (trailing) three-month basis for the month ending the date set forth below and each of the immediately prior two months ending on the last day of each such month, of not less than the amounts set forth in the table below for the each of the monthly periods specified with the date ranges below:

shall be amended to read as from the Third Modification Effective Date as follows:

 

	Month Ending	Min EBITDA
	June 30, 2014	$(850,000)
	July 31, 2014 – September 30, 2014	$(300,000)
	October 31, 2014 – December 31, 2014	$1.00
	January 31, 2015 - March 31, 2015	$100,000
	FY 2016	To be agreed upon by Borrowers and PFG, based on Board approved plan, but no less than $100,000 for each rolling 6-month period.

3.4         Liquidity. As from the Third Modification Effective Date, the required Liquidity Ratio set forth in Section 5 of the Schedule to the Loan Agreement for the month of June 2014 and each month thereafter shall be “2.00 to 1.00”.

8.            CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the Loan Agreement, PFG is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents, including as to its proper authorization and execution by Borrower.  Except as expressly modified pursuant to this Third Modification, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  PFG's agreement to modify the Loan Agreement pursuant to this Third Modification in no way shall obligate PFG to make any future consents, waivers or modifications to the Obligations.  Nothing in this Third Modification shall constitute a satisfaction of the Obligations or a waiver of any default under the Existing Loan Documents.  It is the intention of PFG and Borrower to retain as liable parties all makers and guarantors of Obligations under the Existing Loan Documents.  Unless expressly released herein, no maker, endorser, or guarantor will be released by virtue of this Third Modification.  The terms of this paragraph apply not only to this Third Modification, but also to all subsequent loan modification agreements.

9.            CONDITIONS.  The effectiveness of this Third Modification is conditioned the following (whether satisfied on or before the Third Modification Effective Date or thereafter, if performance is specified to occur after the Third Modification Effective Date:

 

9.1           Execution and Delivery.  Borrower and Guarantor shall have duly executed and delivered a counterpart of this Third Modification to PFG on or before June ___, 2014.

 

9.2           Payment of PFG Expenses.  Borrower shall pay upon invoice all PFG Expenses (including all reasonable attorneys’ fees and expenses) incurred in connection with this Third Modification.

 

9.3           Updates to Borrower Information. If required to render the Representations as last delivered to PFG true, correct, accurate and complete as of the date hereof, Borrower shall have delivered to PFG true and current information and versions of such documents.

 

9.4           Constitutional and Authority Documents. To the extent the same may have been modified or superseded or are no longer accurate since the date of the Loan Agreement, PFG shall have received copies, certified by a duly authorized officer of each Borrower, to be true and complete as of the date hereof, of each of (i) the governing documents of each Borrower as in effect on the date hereof, (ii) any necessary resolutions of each Borrower authorizing the execution and delivery of this Third Modification, the other documents executed in connection herewith and each Borrower’s performance of all of the transactions contemplated hereby, and (iii) an incumbency certificate giving the name and bearing a specimen signature of each individual who shall be so authorized on behalf of each Borrower.

9.5           Additional Fee Under First Modification. Borrower shall have paid, when due, the Additional Fee set forth in Section 11 of the First Modification.

For the avoidance of doubt, the failure of any of the conditions set forth in this Section 9, unless waived by PFG in its sole discretion, shall constitute an Event of Default.

 

 

10.           RELEASE.  Each Borrower and each Guarantor (each, a “Releasor”) hereby forever relieves, releases, and discharges PFG and each of its present or former employees, officers, directors, agents, representatives, attorneys (the “Indemnitees”), from any and all possible claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description or character, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning of time through and including the date of execution of this Third Modification, which any Releasor or any of their respective partners, members, officers, agents or employees may now or hereafter have against the Indemnitees, if any, and irrespective of whether any of the foregoing arise out of contract, tort, violation of laws or regulations or otherwise, breach of fiduciary duty, breach of any duty of fair dealing, breach of confidence, breach of funding commitment, undue influence, duress, economic coercion, violation of any federal or state securities or Blue Sky laws or regulations, conflict of interest, negligence, bad faith, malpractice, violations of the racketeer Influenced and Corrupt Organizations Act, intentional or negligent infliction of mental distress, tortious interference with contractual relations, tortuous interference with corporate governance or prospective business advantage, deceptive trade practices, libel, slander, conspiracy or any claim relating to the Existing Loan Documents or the transactions contemplated therein (collectively “Released Claims”). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner connected with or related to the Existing Loan Documents, the Recitals hereto, any instruments, agreements or documents executed in connection with any of the foregoing or the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing.  In furtherance of this release, each Releasor expressly acknowledges and waives any and all rights under Section 1542 of the California Civil Code, which provides as follows: “A general release does not extend to claims which the creditor does not know or expect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.” By entering into this release, each Releasor recognizes that no facts or representations are ever absolutely certain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention of each Releasor hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if any Releasor should subsequently discover that any fact that it relied upon in entering into this release was untrue, or that any understanding of the facts was incorrect, no Releasor shall be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances. Each Releasor acknowledges that it is not relying upon and has not relied upon any representation or statement made by PFG with respect to the facts underlying this release or with regard to any of such party’s rights or asserted rights. This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Each Releasor acknowledges that the release contained herein constitutes a material inducement to PFG to enter into this Third Modification, and that PFG would not have done so but for PFG’s expectation that such release is valid and enforceable in all events.  Each Releasor hereby represents and warrants to PFG, and PFG is relying thereon, as follows: (i) except as expressly stated in this Third Modification, neither PFG nor any agent, employee or representative of PFG has made any statement or representation to any Releasor regarding any fact relied upon by any Releasor in entering into this Third Modification; (ii) each Releasor has made such investigation of the facts pertaining to this Third Modification and all of the matters appertaining thereto, as it deems necessary; (iii) the terms of this Third Modification are contractual and not a mere recital; (iv) this Third Modification has been carefully read by each Releasor, the contents hereof are known and understood by each Releasor, and this Third Modification is signed freely, and without duress, by each Releasor; (v) each Releasor represents and warrants that it is the sole and lawful owner of all right, title and interest in and to every claim and every other matter which it releases herein, and that it has not heretofore assigned or transferred, or purported to assign or transfer, to any person, firm or entity any claims or other matters herein released. Borrower shall indemnify PFG, defend and hold it harmless from and against all claims based upon or arising in connection with prior assignments or purported assignments or transfers of any claims or matters released herein.

 

 

11.           MISCELLANEOUS.  The quotation marks around modified clauses set forth herein and any differing font styles, if any, in which such clauses are presented herein are for ease of reading only and shall be ignored for purposes of construing and interpreting this Third Modification. The Recitals to this Third Modification are expressly incorporated by reference herein.

12.           INTEGRATION; CONSTRUCTION.  This Third Modification, the Second Modification, the First Modification, the Forbearance and the Loan Documents and any documents executed in connection herewith or therewith or pursuant hereto or thereto contain the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, offers and negotiations, oral or written, with respect thereto and no extrinsic evidence whatsoever may be introduced in any judicial or arbitration proceeding, if any, involving this Third Modification; except that any financing statements or other agreements or instruments filed by PFG with respect to Borrower shall remain in full force and effect. The title of this Third Modification, section headings and quotation marks around amended provisions are for the readers’ convenience only and shall be ignored for purposes of integration into the Loan Agreement. This Modification shall be deemed effective as against any and all Borrower parties that execute and deliver this Forbearance, and the failure of any such Borrower to so execute and deliver shall not affect the enforceability of this Third Modification against each Borrower party that does. Each party hereto has been represented by counsel of their choosing and any claim, defense or rule of construction to the effect that this Third Modification or any other Loan Document should be construed against any party shall not apply and is expressly disclaimed.

13.           INCORPORATION OF PROVISIONS. The provisions of Section 8 of the Loan Agreement are incorporated by reference herein and made applicable to this Third Modification.

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IN WITNESS WHEREOF, the parties have caused this Third Modification to be executed and delivered as of the Third Modification Effective Date.