Exhibit 4.1
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (herein called this
"Amendment") made as of the 22nd day of August, 2005 by and between Comerica
Bank ("Bank") and Citadel Security Software, Inc., a Delaware corporation
("Borrower").
RECITALS
1. Borrower and Bank have entered into that certain Loan and Security
Agreement dated as of April 15, 2004 (as from time to time amended, modified or
supplemented, the "Original Agreement") for the purposes and consideration
therein expressed, pursuant to which Bank made loans to Borrower as therein
provided.
2. Borrower and Bank desire to amend the Original Agreement for the
purposes contained herein.
3. In consideration of the premises and the mutual covenants and
agreements contained herein and in the Original Agreement, in consideration of
the loans that may hereafter be made by Bank to Borrower, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
Definitions and References
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Sec. 1.1. Terms Defined in the Original Agreement. Unless the context
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otherwise requires or unless otherwise expressly defined herein, the terms
defined in the Original Agreement shall have the same meanings whenever used in
this Amendment.
Sec. 1.2. Other Defined Terms. Unless the context otherwise requires, the
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following terms when used in this Amendment shall have the meanings assigned to
them in this Section 1.2.
"Amendment" means this Fourth Amendment to Loan and Security
Agreement.
"Loan and Security Agreement" means the Original Agreement as amended
hereby.
ARTICLE II
Amendment to Original Agreement
Sec. 2.1. Tranche C Equipment Advances. The second sentence of Section
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2.2(d)(ii) of the Original Agreement is hereby amended in its entirety to read
as follows:
Beginning on October 1, 2005, and on the first day of each calendar month
thereafter through the Tranche C Maturity Date, Borrower shall make a
principal payment of $72,727, plus all accrued
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interest; on the Tranche C Maturity Date, all amounts due in connection
with the Tranche C Equipment Advances made under this Section 2.1(d) shall
be immediately due and payable.
Sec. 2.2. Financial Covenants. Section 6.7 of the Original Agreement is
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hereby amended in its entirety to read as follows:
6.7 Financial Covenant. Borrower shall at all times maintain the
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following financial ratio and covenant to be measured as of the close of
business each Business Day
Minimum Cash. At all times, a balance of Cash at Bank and its
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Affiliates covered by a control agreement of not less than $1,500,000.
Sec. 2.3. Exhibits. Exhibit E to the Original Agreement is hereby amended
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in its entirety to read as set forth in Exhibit E attached hereto.
Sec. 2.4. Covenant Waiver. The covenant contained in Section 6.7 of the
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Loan and Security Agreement will not be tested during the period beginning on
August 15, 2005 and ending on the earlier to occur of (i) the closing of
additional equity by Borrower, or (ii) September 30, 2005.
ARTICLE III
Conditions of Effectiveness
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Sec. 3.1. Effective Date. This Amendment is effective as of the date
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first above written if and only if Bank has received, at Bank's office:
(a) a duly executed original of this Amendment;
(b) an amendment fee in the amount of $2,000, in good and immediately
available funds; and
(c) a Warrant to purchase 20,000 shares of Borrower's Common Stock at
an exercise price of $1.56 per share on Bank's form with a 7-year
maturity, inclusive of certain provisions to include but not be
limited to, assignability to Bank's affiliates and a net exercise
provision.
ARTICLE IV
Representations and Warranties
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Sec. 4.1. Representations and Warranties of Borrower. In order to induce
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Bank to enter into this Amendment, Borrower represents and warrants that:
(a) The representations and warranties contained in Section 5 of
the Original Agreement are true and correct at and as of the time of the
effectiveness hereof.
(b) Borrower is duly authorized to execute and deliver this
Amendment and is and will continue to be duly authorized to borrow and to
perform its obligations under the Loan and Security Agreement. Borrower has
duly taken all corporate action necessary to authorize the
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execution and delivery of this Amendment and to authorize the performance
of the obligations of Borrower hereunder.
(c) The execution and delivery by Borrower of this Amendment, the
performance by Borrower of its obligations hereunder and the consummation
of the transactions contemplated hereby do not and will not conflict with
any provision of law, statute, rule or regulation or of the articles of
incorporation and bylaws of Borrower, or of any material agreement,
judgment, license, order or permit applicable to or binding upon Borrower,
or result in the creation of any lien, charge or encumbrance upon any
assets or properties of Borrower. Except for those which have been duly
obtained, no consent, approval, authorization or order of any court or
governmental authority or third party is required in connection with the
execution and delivery by Borrower of this Amendment or to consummate the
transactions contemplated hereby.
(d) When duly executed and delivered, each of this Amendment and the
Loan and Security Agreement will be a legal and binding instrument and
agreement of Borrower, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency and similar laws applying to creditors'
rights generally and by principles of equity applying to creditors' rights
generally.
ARTICLE V
Miscellaneous
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Sec. 5.1. Ratification of Agreements. The Original Agreement as hereby
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amended is hereby ratified and confirmed in all respects. Any reference to the
Loan and Security Agreement in any Loan Document is now a reference to the
Original Agreement as hereby amended. The execution, delivery and effectiveness
of this Amendment does not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Bank under the Loan and Security
Agreement or any other Loan Document, or constitute a waiver of any provision of
the Loan and Security Agreement or any other Loan Document.
Sec. 5.2. Survival of Agreements. All representations, warranties,
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covenants and agreements of Borrower in this Amendment survive the execution and
delivery of this Amendment and the performance hereof, including without
limitation the making or granting of the Credit Extensions, and will survive
until all of the Obligations are paid in full. All statements and agreements
contained in any certificate or instrument delivered by Borrower under this
Amendment or under the Loan and Security Agreement to Bank constitute
representations and warranties by, or agreements and covenants of, Borrower
under this Amendment and under the Loan and Security Agreement.
Sec. 5.3. Loan Documents. This Amendment is a Loan Document, and all
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provisions in the Loan and Security Agreement pertaining to Loan Documents apply
hereto.
Sec. 5.4. Governing Law. This Amendment is governed by and construed in
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accordance with the laws of the State of California and any applicable laws of
the United States of America in all respects, including construction, validity
and performance.
Sec. 5.5. Counterparts. This Amendment may be separately executed in
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counterparts and by the different parties hereto in separate counterparts, each
of which when so executed constitutes one and the same Amendment.
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THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
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IN WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
CITADEL SECURITY SOFTWARE, INC.
By: /s/ Xxxxxx X. Xxxxxxx
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Name: Xxxxxx X. Xxxxxxx
Title: Chairman & CEO
COMERICA BANK
By: /s/ Xxxxx Xxxxxxx
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Name: Xxxxx Xxxxxxx
Title: SVP
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EXHIBIT E
COMPLIANCE CERTIFICATE
TO: COMERICA BANK
FROM: CITADEL SECURITY SOFTWARE INC.
The undersigned authorized officer of Citadel Security Software Inc.
("Borrower") 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, including without limitation the ongoing
registration of intellectual property rights in accordance with Section 6.8,
except as noted below and (ii) all representations and warranties of Borrower
stated in the Agreement are true and correct in all material respects 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
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10KSB and 10QSB (as applicable) Yes No
A/R & A/P Agings, Borrowing Base Cert. Monthly within 10 days Yes No
A/R Audit As Required Yes No
IP Report Quarterly within 30 days Yes No
Financial Projections By November 30 Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
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BEGINNING 10/1/05
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Minimum Cash $1,500,000 $____________ Yes No
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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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