EXHIBIT 10.25
AMENDMENT TO TERM NOTE
AND NINTH AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO TERM NOTE AND NINTH AMENDMENT TO LOAN AGREEMENT
("Amendment") is made as of July 25, 2003, by and between U.S. BANK NATIONAL
ASSOCIATION, a national banking association ("Bank") and QUALMARK CORPORATION, a
Colorado corporation ("Borrower").
RECITALS:
A. Bank made a revolving loan to Borrower, as evidenced by that
certain Promissory Note dated December 22, 1998 made by Borrower payable to Bank
in the original principal amount of $3,000,000 (the "Original Revolving Note"),
as amended and supplemented by that certain Modification/Extension Agreement
effective as of August 23, 1999 between Bank and Borrower (the "First
Amendment"), that certain Second Amendment to Promissory Notes and Fifth
Amendment to Loan Agreement dated as of February 1, 2001 (the "Second
Amendment"), that certain Third Amendment to Promissory Notes and Sixth
Amendment to Loan Agreement dated as of June 29, 2001 (the "Third Amendment"),
that certain Fourth Amendment to Promissory Notes and Seventh Amendment to Loan
Agreement dated as of January 31, 2002 (the "Fourth Amendment"), that certain
Covenant Waiver and Amendment to Credit Agreement dated October 18, 2002 (the
"10/02 Amendment") and that certain Fifth Amendment to Promissory Notes and
Eighth Amendment to Loan Agreement dated as of January 23, 2003 (the "Fifth
Amendment"). Pursuant to the First Amendment, the principal amount of the
Revolving Note was reduced to $2,000,000. Pursuant to the Second Amendment, the
principal amount of the Revolving Note was reduced to $1,000,000. Pursuant to
the 10/02 Amendment, the principal amount of the Revolving Note was reduced to
$750,000. Pursuant to the Fifth Amendment, the principal amount of the Revolving
Note was reduced to $500,000. The Original Revolving Note, as amended and
supplemented by the First Amendment, the Second Amendment, the Third Amendment,
the Fourth Amendment, the 10/02 Amendment and the Fifth Amendment is hereinafter
called the "Revolving Note."
B. Bank made a term loan to Borrower, as evidenced by that
certain Promissory Note dated December 22, 1998 made by Borrower payable to Bank
in the original principal amount of $2,000,000 (the "Original Term Note"), as
amended and supplemented by that certain Modification/Extension Agreement
effective as of August 23, 1999 between Bank and Borrower (the "Amendment to
Term Note"), the Second Amendment, the Third Amendment, the Fourth Amendment,
that certain Covenant Waiver and Amendment to Credit Agreement dated July 18,
2002 (the "7/02 Amendment"), the 10/02 Amendment and the Fifth Amendment.
Pursuant to the Amendment to Term Note, the principal amount of the Term Note
was reduced to $1,261,017.47. Pursuant to the Second Amendment, the principal
amount of the Term Note was increased to $2,000,000.00. Pursuant to the Fifth
Amendment, the principal amount of the Term Note was increased to $1,110,000.00.
The Original Term Note, as amended and supplemented by the Amendment to Term
Note, the Second Amendment, the Third Amendment, the Fourth Amendment, the 7/02
Amendment, the 10/02 Amendment and the Fifth Amendment is hereinafter called the
"Term Note."
C. The Revolving Note and the Term Note (collectively, the
"Notes") are subject to the provisions of that certain Revolving Credit and Term
Loan Agreement dated as of December 22, 1998 between Borrower and Bank, as
amended by (i) Waiver and Amendment to Loan Agreement dated as of Xxxxx 00,
0000, (xx)
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Second Amendment to Loan Agreement dated as of August 23, 1999, (iii)
Third Amendment to Loan Agreement dated as of March 31, 2000, (iv) Fourth
Amendment to Loan Agreement dated as of August 2, 2000, (v) the Second
Amendment, (vi) the Third Amendment, (vii) the Fourth Amendment, (viii) the 7/02
Amendment, (ix) the 10/02 Amendment and (x) the Fifth Amendment (as so amended,
the "Loan Agreement").
D. All obligations of the Borrower to Bank are secured by a
security interest in (among other collateral) the Borrower's inventory,
equipment, rights to payment and general intangibles pursuant to Borrower's
Security Agreement between Borrower and Bank and the Addendum thereto, each
dated December 22, 1998 and that certain Business Security Agreement dated
January 23, 2003 (collectively, the "Security Agreements"), and that security
interest has been properly perfected. In addition, Borrower specifically
assigned six (6) trademarks and ten (10) patents pursuant to an Assignment of
Security Interest in United States Trademarks and Patents (the "Assignment," and
collectively with the Security Agreements, the "Security Documents") dated as of
December 22, 1998 between Borrower, as assignor, and Bank, as assignee. The
Assignment was properly recorded with the United States Patent and Trademark
Office effective on January 14, 1999.
E. Borrower and Bank desire to amend and supplement the Term Note
and the Loan Agreement, all as specifically hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals, the
agreements set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Incorporation of Recitals. The foregoing recitals are hereby
incorporated herein and made a part hereof.
2. Confirmation of Indebtedness. The outstanding principal
balance under the Revolving Note as of July 24, 2003 is $500,000.00. The
outstanding principal balance under the Term Note as of July 24, 2003 is
$780,000.00. Interest has and continues to accrue under the Notes in accordance
with the terms thereof.
3. Amendment to Term Note. The terms of the Term Note are changed
as follows:
A. Borrower will pay all accrued interest under the Term
Note, plus $60,000 in principal, on July 31, 2003 and on or
before the last day of each month thereafter through and
including February 28, 2004. All principal remaining
outstanding under the Term Note and all interest accrued
thereon remains payable in full on March 15, 2004.
4. Amendment to Loan Agreement. The Loan Agreement is amended as
follows:
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A. Section 1.02.4 of the Loan Agreement is amended by
deleting the first sentence thereof and replacing it with the
following:
"Borrower agrees to repay the Term Loan made hereunder in
monthly payments in the amount of $60,000, and the final
installment of all unpaid principal and accrued interest due
and payable in full at the final maturity of the Term Loan,
which will be March 15, 2004, subject to acceleration upon the
occurrence of an Event of Default."
B. Section 5.09 is deleted in its entirety and replaced
with the following:
"5.09 Financial Condition. Maintain the financial condition of
Borrower, determined in accordance with GAAP, so that it meets
the following requirements all measured on a calendar year
basis beginning January 1, 2003 and ending on the dates set
forth below:
(a) Borrower's Tangible Net Worth will be not
less than:
$1,575,000.00 As of September 30, 2003
-----------------------------------------------
$1,675,000.00 As of December 31, 2003
-----------------------------------------------
(b) Borrower's ratio of EBITDA to interest
expense will be not less than:
2.00:1 As of September 30, 2003
-----------------------------------------------
2.00:1 As of December 31, 2003
-----------------------------------------------
(c) Borrower's ratio of EBITDA to Debt Service
will not be less than:
..5 As of September 30, 2003
-----------------------------------------------
..6 As of December 31, 2003
-----------------------------------------------
(d) Borrower's ratio of Debt to annualized
EBITDA will not be more than:
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3:1 As of September 30, 2003
-----------------------------------------------
2:1 As of December 31, 2003
-----------------------------------------------
For purposes of this Section 5.09, "Tangible Net
Worth" means stockholders' equity (including
preferred stock) less intangible assets, and "Debt
Service" means interest expense plus all mandatory
principal payments on Debt.
EBITDA shall be calculated on a year to date basis
beginning January 1, 2003 for each applicable period.
Notwithstanding the foregoing, Bank agrees to waive
Borrower's future non-compliance (if any) with
covenants set forth in section 5.09(d) if, and only
if, the Borrowing Base (as defined herein) furnished
by the Borrower from time to time exceeds the then
current principal amount outstanding under the
Revolving Credit Line."
5. Limited Waiver. Subject to the Borrower's agreement hereto,
Bank hereby waives any default that has occurred by reason of Borrower's failure
to comply with the covenants set forth in section 5.09 of the Loan Agreement as
of June 30, 2003.
6. Conditions to Effectiveness of Amendment. This Amendment shall
become effective as of the date first above written when the Bank shall have
received and, as applicable, executed each of the following: (i) an original of
this Amendment, duly executed by the Borrower; (ii) an extension fee equal to
$3,200.00; (iii) attorneys' fees incurred by Bank equal to $1,000.00; (iv) an
original counterpart of a Warrant to purchase 25,000 shares of common stock of
the Borrower, in form and content acceptable to the Bank; and (v) such
additional information or documentation as the Bank may require. If the Bank has
not received all of the foregoing on or before July 30, 2003, then the Bank's
offer to make the agreements set forth herein may be terminated, at the Bank's
option, by giving notice to the Borrower.
7. General Release. Borrower, for and on behalf of itself and its
legal representatives, heirs, successors and assigns, does hereby waive,
release, relinquish and forever discharge Bank and its past and present
directors, officers, agents, employees, parents, subsidiaries, affiliates,
insurers, attorneys, representatives and assigns, and each and all thereof
(collectively, the "Released Parties"), of and from any and all manner of action
or causes of action, suits, claims, demands, judgments, damages, levies, and the
execution of whatsoever kind, nature and/or description arising on or before the
date hereof, including, without limitation, any claims, losses, costs or
damages, including compensatory and punitive damages, in each case whether known
or unknown, liquidated or unliquidated, fixed or contingent, direct or indirect,
which Borrower, or its legal representatives, heirs, successors or assigns, ever
had or now has or may claim to have against any of the Released Parties, with
respect to any matter whatsoever, including, without limitation, this Amendment
and any
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other instruments and agreements executed by Borrower in connection herewith,
arising on or before the date hereof.
8. Effect of Amendment; Representations and Warranties;
Nonwaiver. Bank and Borrower agree that the Term Note and the Loan Agreement, as
amended by this Amendment, the Revolving Note and the Security Documents remain
in full force and effect. Borrower represents and warrants that its has the
power and legal right and authority to enter into this Amendment, and that
neither this Amendment, nor the agreements contained herein, contravene or
constitute a default under any agreement, instrument or indenture to which
Borrower is a party or signatory, or, to the best knowledge of Borrower, any
other agreement or requirement of law. Borrower represents and warrants that no
consent, approval or authorization of or registration or declaration with any
party, including but not limited to any governmental authority, is required in
connection with the execution and delivery by Borrower of this Amendment, or the
performance of its obligations herein described.
9. Ratification of Notes, Loan Agreement and Security Documents.
All of the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations under the Term Note and the
Loan Agreement, all as amended and supplemented by this Amendment, the Revolving
Note and the Security Documents are hereby ratified and affirmed in all respects
by Borrower. Borrower further represents and warrants that the Security
Documents continue to secure the obligations of Borrower under the Term Note and
the Loan Agreement, all as amended and supplemented by this Amendment, as well
as the Revolving Note.
10. Further Assurances. The Borrower shall promptly correct any
defect or error that may be discovered in any Security Document or in the
execution, acknowledgment or recordation thereof. Promptly upon request by the
Bank, the Borrower also shall do, execute, acknowledge, deliver, record,
re-record, file, re-file, register and re-register, any and all deeds,
conveyances, mortgages, deeds of trust, trust deeds, assignments, estoppel
certificates, financing statements and continuations thereof, notices of
assignment, transfers, certificates, assurances and other instruments as Bank
may reasonably require from time to time in order: (a) to carry out more
effectively the purposes of the Security Documents; (b) to perfect and maintain
the validity, effectiveness and priority of any security interests intended to
be created by the Security Documents; (c) to grant the Bank, to secure the
Notes, a perfected lien in any intellectual property or other assets owned by
the Borrower; and (d) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm unto Bank the rights granted now or hereafter
intended to be granted to Bank under any Security Document or under any other
instrument executed in connection with any Security Document or that the
Borrower may be or become bound to convey, mortgage or assign to Bank in order
to carry out the intention or facilitate the performance of the provisions of
any Security Document. The Borrower shall furnish evidence satisfactory to Bank
of every such recording, filing or registration.
11. Merger and Integration, Superseding Effect. This Amendment
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes and has merged into it all
prior and written agreements in the same subjects by and between the parties
hereto with the effect that this Amendment shall control.
12. Counterparts. This Amendment may be executed in different
counterparts with the same effect as if the signatures thereon were in the same
instrument, and will be effective upon delivery of all such counterparts to
Bank.
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13. Governing Law. THE LAWS OF THE STATE OF COLORADO GOVERN THIS
AMENDMENT.
14. Advice of Counsel. Borrower acknowledges and agrees that it
has received the advice of independent counsel selected by it, or the
opportunity to obtain such advice, before entering into this Amendment and any
other instruments and agreements executed by Borrower in connection herewith,
and has not relied upon Bank or any of its officers, directors, employees,
agents or attorneys concerning any aspect of the transactions contemplated by
this Amendment or any of the other said instruments and agreements.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
and delivered as of the date and year first above written.
U.S. BANK NATIONAL ASSOCIATION
By /s/ Xxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxx X. Xxxxxxx, Vice President
QUALMARK CORPORATION
By /s/ Xxxxxxx Xxxxxxx
----------------------------------------
Xxxxxxx Xxxxxxx, Chief Financial Officer
STATE OF COLORADO )
) ss.
COUNTY OF Denver )
The foregoing instrument was acknowledged before me this 28 day of
July, 2003, by Xxxxxxx Xxxxxxx, the Chief Financial Officer of Qualmark
Corporation, a Colorado corporation, on behalf of the corporation.
/s/ Xxx Xxxxxxx
----------------------
Notary Public
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