FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
FIRST
AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This FIRST Amendment to Loan and Security Agreement is entered into as of March __, 2018 (the “Amendment”), by and between HERITAGE BANK OF COMMERCE (“Bank”), and PRECISION OPINION, INC. (“Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of September 13, 2017, as amended from time to time (the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Borrower acknowledges that there are existing and uncured Events of Default arising from (i) Borrower’s failure to comply with (i) the Asset Coverage Ratio covenant set forth in Section 6.9(b) of the Agreement for the period ended December 31, 2017 and January 31, 2018 and (ii) the EBITDA covenant set forth in Section 6.9(a)(ii) of the Agreement for the period ending December 31, 2017 (collectively, the “Existing Defaults”). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Agreement after the date hereof, Bank waives the Existing Default. Bank does not waive Borrower’s obligations under such section after the date hereof and as amended herein, and Bank does not waive any other failure by Borrower to perform its Obligations under the Loan Documents.
2. Section 3.2(a) is amended and restated in its entirety to read as follows:
(a) timely receipt by Bank of the Advance Request Form as provided in Section 2.1, along with a Borrowing Base Certificate signed by a Responsible Officer in substantially the form of Exhibit C hereto;
3. Section 2.3(a)(i) of the Agreement is amended and restated in its entirety to read as follows:
(i) Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding Daily Balance thereof, at a rate equal to four percent (4.0%) above the Prime Rate.
4. The fourth sentence in Section 2.3(d) is amended and restated in its entirety to read as follows:
Within two Business Days after clearance of any checks, Bank shall credit any amounts paid into the Bancontrol Account first against any amounts outstanding under the Revolving Facility, and then any remaining balance of such amount shall be credited to Borrower’s operating account.
5. The following is added as a new subsection (j) to the end of Section 6.3:
(j) Borrower shall provide to Bank a rolling twelve (12) week cash flow forecast on the Monday of each week.
6. Section 6.9(a) of the Agreement is amended and restated in its entirety to read as follows:
(a) Performance to Plan – EBITDA. Measured on the last day of each quarter, Borrower’s trailing three (3) month EBITDA shall not negatively deviate by more than 25% from Borrower’s projected EBITDA for such period as set forth in Borrower’s Financial Plan, which for 2018 is attached hereto as Exhibit E and set forth below.
| Period Ending | Projected trailing 3 month EBITDA | Minimum Required trailing 3 month EBITDA | ||||||
| March 31, 2018 | $ | 282,399 | $ | 211,799 | ||||
| June 30, 2018 | $ | 1,088,871 | $ | 816,653 | ||||
| September 30, 2018 | $ | 668,853 | $ | 501,640 | ||||
| December 31, 2018 | $ | 729,399 | $ | 547,049 | ||||
7. Section 6.9(b) of the Agreement is amended and restated in its entirety to read as follows:
(b) Asset Coverage Ratio. Borrower shall maintain a minimum ratio of (i) unrestricted cash maintained at Bank plus Eligible Accounts plus Eligible Unbilled Accounts to (ii) all Obligations owing to Bank of at least 1.25 to 1.00, measured on the last day of each month.
8. Exhibit D to the Agreement is replaced in its entirety with the Exhibit D attached hereto.
9. Exhibit E to the Agreement is replaced in its entirety with the Exhibit E attached hereto.
10. On the date hereof Bank has earned a waiver and amendment fee in the amount of $15,000 (the “Waiver Fee”), which Bank has agreed can be paid in two installments, fifty percent (50%) of the Waiver Fee shall be paid on the date hereof, and the remaining fifty percent (50%) shall be paid on the earlier of the date all Credit Extensions are due and payable or are repaid or the thirtieth (30th) day after the date hereof. Failure to timely pay the Waiver Fee shall constitute an Event of Default to which no cure period automatically applies.
11. Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that except as set forth above, no Event of Default has occurred and is continuing.
1 2 . Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.
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13 . This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original hereof. Notwithstanding the foregoing, Borrower shall deliver all original signed documents no later than ten (10) Business Days following the date of execution.
14 . As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:
(a) this Amendment, duly executed by Borrower;
(b) affirmation and amendment to Subordination Agreement executed by Xxxxxxx Xxxxxx and Xxxxxxx Rebel;
(c) unconditional guaranty executed by Xxxxx X. Xxxxxx;
(d) subordination agreement executed by Xxxxx X. Xxxxxx;
(e) a waiver and amendment fee equal to $15,000, plus an amount equal to all Bank Expenses incurred through the date of this Amendment; and
(f) such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.
[signature page follows]
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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.
| PRECISION OPINION, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| HERITAGE BANK OF COMMERCE | ||
| By: | ||
| Name: | ||
| Title: | ||
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Exhibit D
Compliance Certificate
| TO: | HERITAGE BANK OF COMMERCE |
| FROM: | PRECISION OPINION, INC. |
The undersigned authorized officer of Precision Opinion, Inc. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below and (ii) all representations and warranties of Borrower stated in the Agreement are true and correct as of the date hereof. Attached herewith are the required documents supporting the above certification. The Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under “Complies” column.
| Reporting Covenant | Required | Complies | |||
| Rolling 12 week cash flow forecast | Weekly on Monday | yes | |||
| Borrowing Base Certificate | Monthly within 15 days | Yes | No | ||
| Inventory listing | Monthly within 15 days | Yes | No | ||
| A/R & A/P Agings | Monthly within 15 days | Yes | No | ||
| Sales journal | Monthly within 15 days | Yes | No | ||
| Collections journal | Monthly within 15 days | Yes | No | ||
| Deferred revenue listing (if applicable) | Monthly within 15 days | Yes | No | ||
| Monthly financial statements | Monthly within 30 days | Yes | No | ||
| Compliance Certificate | Monthly within 30 days | Yes | No | ||
| Annual financial statements (CPA Audited) | Annually within 150 days of FYE | Yes | No | ||
| Tax returns with Schedules (CPA Prepared) | Annually within 15 days of filing | Yes | No | ||
| Annual operating projections approved by board of directors | Annually by January 31 of each year | Yes | No | ||
| 10K and 10Q | (as applicable) | Yes | No | ||
| A/R and Collateral Audit | Initial and semi-annually | Yes | No | ||
| IP Notices | As required under Section 6.10 | Yes | No | ||
| Financial Covenant | Required | Actual | Complies | ||||
| Trailing 3 month EBITDA – quarterly | Negative deviation ≤ 25% from Financial Plan | $_________% |
Yes | No | |||
| Minimum Asset Coverage Ratio – monthly | 1.25 : 1.00 | ____ : 1.00 | Yes | No | |||
| Comments Regarding Exceptions: See Attached. | BANK USE ONLY | |||
| Received by: | ||||
| Sincerely, | AUTHORIZED SIGNER | |||
| Date: | ||||
| Verified: | ||||
| SIGNATURE | AUTHORIZED SIGNER | |||
| Date: | ||||
| TITLE | ||||
| Compliance Status | Yes No | |||
| DATE | ||||
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EXHIBIT E
| 2018 Forecast - Precision Opinion | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Jan | Feb | Mar | Apr | May | June | July | Aug | Sept | Oct | Nov | Dec | Full Year | ||||||||||||||||||||||||||||||||||||||||
| Total Revenue | $ | 864,613 | $ | 867,925 | $ | 1,192,325 | $ | 2,168,887 | $ | 1,857,468 | $ | 1,624,430 | $ | 1,489,325 | $ | 1,489,325 | $ | 1,689,325 | $ | 1,769,058 | $ | 1,444,058 | $ | 1,344,058 | $ | 17,800,797 | ||||||||||||||||||||||||||
| Total Direct Costs | $ | 474,014 | $ | 494,835 | $ | 688,920 | $ | 1,347,854 | $ | 1,172,006 | $ | 948,756 | $ | 879,047 | $ | 932,243 | $ | 1,062,408 | $ | 1,106,117 | $ | 842,515 | $ | 774,718 | $ | 10,723,433 | ||||||||||||||||||||||||||
| Gross Margin | $ | 390,599 | $ | 373,090 | $ | 503,405 | $ | 821,034 | $ | 685,461 | $ | 675,673 | $ | 610,278 | $ | 557,082 | $ | 626,917 | $ | 662,941 | $ | 601,543 | $ | 569,340 | $ | 7,077,364 | ||||||||||||||||||||||||||
| 45.2 | % | 43.0 | % | 42.2 | % | 37.9 | % | 36.9 | % | 41.6 | % | 41.0 | % | 37.4 | % | 37.1 | % | 37.5 | % | 41.7 | % | 42.4 | % | 39.8 | % | |||||||||||||||||||||||||||
| Overhead Expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Las Vegas Rent | $ | 37,966 | $ | 38,000 | $ | 38,000 | $ | 32,900 | $ | 32,900 | $ | 38,000 | $ | 38,000 | $ | 38,000 | $ | 38,000 | $ | 38,000 | $ | 38,000 | $ | 38,000 | $ | 445,766 | ||||||||||||||||||||||||||
| Storage | $ | 1,622 | $ | 2,573 | $ | 2,573 | $ | 2,573 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 9,341 | ||||||||||||||||||||||||||
| Utilities | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 5,000 | $ | 5,000 | $ | 90,000 | ||||||||||||||||||||||||||
| Repairs/Maintenance | $ | 7,387 | $ | 2,500 | $ | 3,500 | $ | 4,500 | $ | 7,500 | $ | 15,000 | $ | 15,000 | $ | 15,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 90,387 | ||||||||||||||||||||||||||
| Equipment Rentals | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 994 | $ | 11,925 | ||||||||||||||||||||||||||
| Travel & Entertainment | $ | 4,344 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 97,844 | ||||||||||||||||||||||||||
| Auto/Bus Expense | $ | 3,275 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 2,300 | $ | 28,575 | ||||||||||||||||||||||||||
| Professional Development | $ | 45 | $ | - | $ | - | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 45,045 | ||||||||||||||||||||||||||
| Payroll Processing | $ | 3,545 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 4,500 | $ | 53,045 | ||||||||||||||||||||||||||
| Medical/Dental Insurance | $ | 14,820 | $ | 14,750 | $ | 17,500 | $ | 17,500 | $ | 17,500 | $ | 19,000 | $ | 19,000 | $ | 19,000 | $ | 19,000 | $ | 19,000 | $ | 19,000 | $ | 19,000 | $ | 215,070 | ||||||||||||||||||||||||||
| Liab. Insurance/Workers Comp | $ | 11,181 | $ | 4,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 75,181 | ||||||||||||||||||||||||||
| Insurance | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 6,917 | $ | 83,009 | ||||||||||||||||||||||||||
| Contrbutions | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 12,000 | ||||||||||||||||||||||||||
| Legal Fees | $ | 2,654 | $ | 6,500 | $ | 3,500 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 5,000 | $ | 57,654 | ||||||||||||||||||||||||||
| Accounting/Professional | $ | - | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 3,500 | $ | 38,500 | ||||||||||||||||||||||||||
| Consulting | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 6,000 | $ | 72,000 | ||||||||||||||||||||||||||
| Advertising/Promotion | $ | 613 | $ | 2,750 | $ | 5,000 | $ | 5,000 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 7,500 | $ | 73,363 | ||||||||||||||||||||||||||
| Subscriptions/Dues | $ | 1,769 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 2,500 | $ | 29,269 | ||||||||||||||||||||||||||
| Employee Recruiting | $ | 750 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 11,750 | ||||||||||||||||||||||||||
| Office Supplies | $ | 5,279 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 5,500 | $ | 65,779 | ||||||||||||||||||||||||||
| Posatage/Shipping | $ | 2,124 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 1,500 | $ | 18,624 | ||||||||||||||||||||||||||
| Bank Serve Charges | $ | 720 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 1,200 | $ | 13,920 | ||||||||||||||||||||||||||
| Nevada Modified Business Tax | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 10,000 | $ | 12,000 | $ | 12,000 | $ | 12,000 | $ | 15,000 | $ | 15,000 | $ | 15,000 | $ | 141,000 | ||||||||||||||||||||||||||
| Depreciation | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 29,113 | $ | 349,357 | ||||||||||||||||||||||||||
| Amortization | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 41,608 | $ | 499,295 | ||||||||||||||||||||||||||
| Interest Expense | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Heritage Bank Line | $ | 13,033 | $ | 8,000 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 8,500 | $ | 106,033 | ||||||||||||||||||||||||||
| Super G Term | $ | 43,561 | $ | 43,561 | $ | 43,561 | $ | 36,450 | $ | 33,906 | $ | 31,271 | $ | 28,539 | $ | 25,708 | $ | 22,776 | $ | 19,735 | $ | 16,586 | $ | 13,323 | $ | 358,978 | ||||||||||||||||||||||||||
| Shareholder Notes | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 8,333 | $ | 100,000 | ||||||||||||||||||||||||||
| $ | 263,652 | $ | 262,100 | $ | 267,600 | $ | 262,888 | $ | 268,271 | $ | 279,736 | $ | 279,004 | $ | 276,173 | $ | 263,241 | $ | 263,200 | $ | 255,051 | $ | 251,788 | $ | 3,192,708 | |||||||||||||||||||||||||||
| 30.5 | % | 30.2 | % | 22.4 | % | 12.1 | % | 14.4 | % | 17.2 | % | 18.7 | % | 18.5 | % | 15.6 | % | 14.9 | % | 17.7 | % | 18.7 | % | 17.9 | % | |||||||||||||||||||||||||||
| Overhead Salaries | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Management | $ | 164,519 | $ | 185,967 | $ | 185,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 195,967 | $ | 2,300,156 | ||||||||||||||||||||||||||
| Payroll Taxes | $ | 15,077 | $ | 18,597 | $ | 18,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 19,597 | $ | 228,641 | ||||||||||||||||||||||||||
| $ | 179,596 | $ | 204,564 | $ | 204,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 215,564 | $ | 2,528,797 | |||||||||||||||||||||||||||
| Total Overhead Expense | $ | 443,248 | $ | 466,664 | $ | 472,164 | $ | 478,452 | $ | 483,835 | $ | 495,300 | $ | 494,568 | $ | 491,737 | $ | 478,805 | $ | 478,764 | $ | 470,615 | $ | 467,352 | $ | 5,721,505 | ||||||||||||||||||||||||||
| Operating Income | $ | (52,649 | ) | $ | (93,573 | ) | $ | 31,241 | $ | 342,581 | $ | 201,626 | $ | 180,373 | $ | 115,710 | $ | 65,345 | $ | 148,112 | $ | 184,177 | $ | 130,928 | $ | 101,988 | $ | 1,355,859 | ||||||||||||||||||||||||
| -6.1 | % | -10.8 | % | 2.6 | % | 15.8 | % | 10.9 | % | 11.1 | % | 7.8 | % | 4.4 | % | 8.8 | % | 10.4 | % | 9.1 | % | 7.6 | % | 7.6 | % | |||||||||||||||||||||||||||
| EBITDA | $ | 83,000 | $ | 37,042 | $ | 162,357 | $ | 466,586 | $ | 323,087 | $ | 299,199 | $ | 231,803 | $ | 178,607 | $ | 258,442 | $ | 291,466 | $ | 235,068 | $ | 202,865 | $ | 2,769,522 | ||||||||||||||||||||||||||
| 9.6 | % | 4.3 | % | 13.6 | % | 21.5 | % | 17.4 | % | 18.4 | % | 15.6 | % | 12.0 | % | 15.3 | % | 16.5 | % | 16.3 | % | 15.1 | % | 15.6 | % | |||||||||||||||||||||||||||
| T3M EBITDA | $ | 282,399 | $ | 1,088,871 | $ | 668,853 | $ | 729,399 | ||||||||||||||||||||||||||||||||||||||||||||
| Required 75% | $ | 211,799 | $ | 816,653 | $ | 501,640 | $ | 547,049 | ||||||||||||||||||||||||||||||||||||||||||||
| Allowable Variance | $ | 70,600 | $ | 272,218 | $ | 167,213 | $ | 182,350 | ||||||||||||||||||||||||||||||||||||||||||||
