EXHBIT 10.34
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement ("Loan Modification") is entered into as
of December 12, 2005, by and between Partners for Growth, L.P., a Delaware
limited partnership with its principal place of business at 000 Xxxxxxx Xxxxxx,
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 ("PFG") and each of Qualmark Corporation, a
Colorado corporation and Qualmark ACG Corporation, a Colorado corporation, with
their principal place of business at 0000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxx
00000 ("Borrower").
WHEREAS, Borrower has existing credit facilities with PFG and Silicon
Valley Bank ("SVB") and Borrower proposes to borrow additional funds from SVB of
up to $2,000,000 (the "Additional SVB Loan")
WHEREAS, PFG and Borrower desire to modify certain of the Existing Loan
Documents (as defined below) to accommodate the Additional SVB Loan;
NOW THEREFORE, the parties hereby agree as follows:
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to PFG, Borrower is indebted to PFG pursuant to, among other
documents, a Loan and Security Agreement, dated November 12, 2004, as it may be
amended from time to time (the "Loan Agreement"). The Loan Agreement provides
for a Term Loan in the original principal amount of One Million Dollars
($1,000,000) and an ability to request, subject to satisfaction of certain
conditions, an addition term loan of One Million Dollars ($1,000,000). Defined
terms used but not otherwise defined herein shall have the same meanings as set
forth in the Loan Agreement.
2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the
Collateral, as described in the Loan Agreement and in the Intellectual Property
Security Agreement. Hereinafter, the above-described security documents,
including the Cross-Corporate Continuing Guaranty of even date therewith,
together with all other documents securing repayment of the Indebtedness, shall
be referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
(a) Use of Proceeds of Additional SVB Loan. The parties acknowledge that
the conditions and requirements of Section 8(f) of the Loan Agreement have been
duly met and satisfied. The proceeds of the Additional SVB Loan are to be used
by Borrower exclusively to acquire the assets of LING Electronics from Satcon
Power Systems, Inc., a Delaware corporation, pursuant to that certain asset
purchase agreement dated on or about December 9, 2005 (the "LING Assets") and
for no other purpose. The LING Assets shall upon acquisition by Borrower become
a part of PFG's Collateral, subject to the rights of the Senior Lender.
(b) The parties acknowledge the increased financial risk to PFG and the
value of its security interest in Borrower's Collateral resulting from the
Additional SVB Loan. On or before the date hereof, Borrower shall have wired to
PFG the sum of $350,000, which sum shall be held by PFG as additional security
for the obligations of Borrower under the Loan Agreement and this Loan
Modification (the "Deposit"). The Deposit shall not bear interest or affect the
accrual of interest on the Loan. PFG shall not be required to segregate the
Deposit from its general business accounts and the Deposit shall be solely
within PFG's dominion and control. Without any obligation to return the Deposit
in whole or in part, PFG will review Borrower's consolidated quarterly financial
performance and financial position on a calendar quarterly basis commencing
March 31, 2006 and at such time(s), re-evaluate, in its sole, good faith
discretion, its need to retain all or part of the Deposit as security for the
Obligations. At the Maturity Date, the then amount of the Deposit shall be
applied to the outstanding Obligations or, if PFG converts the Loan, shall be
promptly returned to Borrower.
(c) The effectiveness of this Loan Modification is expressly conditional on
there being in effect a duly-executed amended Subordination Agreement between
PFG and SVB.
(d) The "Senior Debt Limit" specified in Section 8(a)(2) of the Schedule to
the Loan Agreement entitled "ADDITIONAL PROVISIONS - SENIOR DEBT LIMIT" is
hereby amended to be $4,450,000.
(e) From and after the date of this Loan Modification, interest shall be
paid quarterly in advance on the first day of each calendar quarter (and for the
first such quarter, including a pro rata amount from the date hereof until
December 31, 2005). From and after the date hereof, interest shall be paid not
in cash but in the Common Stock of Qualmark Corporation, provided however, if
Borrower declares and pays cash dividends on its Series B Preferred Stock and/or
its Series C Preferred Stock (but only for so long as it pays such dividends in
cash rather than stock), subject to not less than ninety (90) days notice to PFG
of the intention to make such
payment in cash, Borrower shall commence to pay interest in cash as set forth in
the Loan Agreement rather than in Securities as set forth in this Section 3(e).
The number of Securities to be issued by Borrower to PFG each calendar quarter
shall be determined according to the following formula:
Y * A
X = 0.25 * ------
B
Where
X = the number of shares of Common Stock to be issued to PFG
Y = the Applicable Interest Rate at the commencement of each calendar
quarter
A = the aggregate principal amount of all outstanding Loans
B = the agreed Conversion Price, initially $1.66, as adjusted from
time to time to reflect stock splits, combinations,
reclassifications and similar events affecting the Common Stock
For example only, the parties acknowledge that the Applicable Interest Rate
on the date hereof is seven percent (7%). For the calendar quarter commencing
January 1, 2006, Borrower would issue PFG 10,542 shares of its Common Stock (7%
times $1,000,000 principal of Loan outstanding, divided by the Conversion Price
($1.66), divided by 4 (0.25) to render a quarterly (rather than annual) number
of shares of Common Stock.
In the event that PFG converts any or all of its Loan during a period in
which PFG has been issued Securities in advance of interest being earned in full
for such period, a pro rata adjustment of the number of Securities to be issued
in the next quarterly period shall be made, and if the Loan is converted in
whole, then PFG shall transfer to Borrower that number of Securities as
represents such overpaid interest, all upon the formula set forth above.
The term "Applicable Interest Rate" means the Interest Rate as of the
commencement of each calendar quarter, as adjusted (from time to time, if at
all) pursuant to the Interest Rate Reset provision of this Schedule.
4. REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
(a). Representations, Warranties and Covenants of Borrower. Borrower
represents and warrants to, and covenants with, PFG that:
(i) Corporate Power; Authorization. Borrower has all requisite corporate
power and has taken all requisite corporate action to execute and deliver this
Loan Modification, to sell and issue its Common Stock (the "Securities") and to
carry out and perform all of its obligations hereunder. This Loan Modification
has been duly authorized, executed and delivered on behalf of Borrower and
constitutes the valid and binding agreement of Borrower, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization or similar laws relating to or affecting the
enforcement of creditors' rights generally and as limited by equitable
principles generally. The person executing this Loan Modification is a duly
authorized officer of Borrower with all necessary legal authority to bind
Borrower generally and with the specific legal authority to cause Borrower to
enter into this Loan Modification.
(ii) Validity of Securities. The Securities, when issued in lieu of
interest as provided for in Section 3(e) of this Loan Modification, will be
validly authorized and issued, fully paid and nonassessable. The issuance and
delivery of the Securities are not subject to preemptive or any similar rights
of the stockholders of Borrower (which have not been duly waived) or any liens
or encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws; and when such Securities are
issued in accordance with the terms of this Loan Modification, such securities
will be, at each such issuance, validly issued and outstanding, nonassessable
and free of any liens or encumbrances except for restrictions on transfer
provided for herein or under applicable federal and state securities laws. Such
securities will be deemed fully paid in whole or in part to the extent that such
Securities have been issued for interest on the Loan that has in fact accrued
during each applicable period.
(iii) Capitalization. The authorized capital stock of Borrower consists as
of the date hereof of the following: (1) 4,418,000 shares of its Common Stock,
4,417,706 of which are issued and outstanding, (2) 2,000,000 shares of
convertible redeemable preferred stock, 1,000,000 shares of which have been
designated as Series B Preferred Stock, 711,786 shares of which are issued and
outstanding, and 3,000 of which have been designated as Series C Preferred
Stock, 1,247 shares of which are issued and outstanding, (3) debt convertible
into 602,000 shares of Common Stock and (4) options to purchase 750,000 of
Borrower's Common Stock.
(iv) No Conflict. The execution and delivery of this Loan Modification does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Restated Certificate of Incorporation or Bylaws, as amended, or
any mortgage, indenture, lease or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Borrower, its properties or assets,
the effect of which would have a material adverse effect on Borrower or
materially impair or restrict its power to perform its obligations as
contemplated hereby or thereby.
(v) Governmental and other Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority or other person or entity is required on
the part of Borrower in connection with the execution, delivery and performance
of this Loan Modification or the offer, issuance, sale and delivery of the
Securities, except such filings as shall have been made prior to and shall be
effective on and as of the Closing and except any notices of sale required to be
filed with the Securities and Exchange Commission under Regulation D of the
Securities Act or such post-closing filings as may be required under applicable
state securities laws, all of which will be filed within applicable periods
therefor. Based upon the representations made by PFG below, the offer and
sale of the Securities to PFG will be exempt from the registration requirements
of the Securities Act and from the qualification requirements of any applicable
state securities laws.
(b) Representations and Warranties of PFG. PFG hereby represents and
warrants to Borrower as of the Closing Date as follows:
(i) Investment Experience. PFG is an "accredited investor" within the
meaning of Rule 501 under the Securities Act, and was not organized for the
specific purpose of acquiring the Securities. PFG is aware of Borrower's
business affairs and financial condition and has acquired sufficient information
about Borrower to reach an informed and knowledgeable decision to acquire the
Securities. PFG has such business and financial experience as is required to
give it the capacity to protect its own interests in connection with the
purchase of the Securities.
(ii) Investment Intent. PFG is purchasing the Securities for investment for
its own account only and not with a view to, or for resale in connection with,
any "distribution" thereof within the meaning of the Securities Act.
(iii) Authorization. PFG has all requisite power and has taken all
requisite action to execute and deliver each of this Loan Modification and to
carry out and perform all of its obligations hereunder. This Loan Modification
has been duly authorized, executed and delivered on behalf of PFG and
constitutes the valid and binding agreement of PFG, enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally and as limited by equitable principles generally.
The consummation of the transactions contemplated herein and the fulfillment of
the terms herein will not result in a breach of any of the terms or provisions
of PFG's partnership agreement or other relevant organizational documents.
5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
6. PAYMENT OF LOAN FEE AND EXPENSES. Borrower shall pay all of PFG's costs and
expenses, including attorneys' fees, incurred in connection with this Loan
Modification and the Additional SVB Loan..
7. NO DEFENSES. Borrower agrees that, as of the date hereof, it has no defenses
against the obligations to pay any amounts under the Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, PFG is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification, the terms of the
Existing Loan Documents remain unchanged and in full force and effect. PFG's
agreement to modifications to the existing Indebtedness and the consent to the
Additional SVB Loan pursuant to this Loan Modification in no way shall obligate
PFG to make any future consents, waivers or modifications to the Indebtedness.
Nothing in this Loan Modification shall constitute a satisfaction of the
Indebtedness 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 endorsers of Existing Loan Documents, unless the party is expressly
released by PFG in writing. Unless expressly released herein, no maker,
endorser, or guarantor will be released by virtue of this Loan Modification. The
terms of this Section 8 apply not only to this Loan Modification, but also to
all subsequent loan modification agreements.
9. CONDITIONS. The effectiveness of this Loan Modification is conditioned upon :
(a) evidence of the consent of the Board of Directors of Borrower and, to the
extent required, the stockholders of Borrower, to this Loan Modification and the
issue of Securities to PFG; (b) PFG's receipt of a fully executed counterpart
hereof, (c) PFG's receipt of a duly-executed amendment to the Subordination
Agreement between PFG and the Senior Lender; (d) PFG's receipt of an update to
the Representations of Borrower, including without limitation, an update to
reflect the acquisition of the LING Assets, and Borrower's cooperation in making
such additional filings as may be deemed necessary by PFG to perfects its
security interest the LING Assets, once acquired by Borrower; (e) use of the
proceeds of the Additional SVB Loan as set forth in Section 3(a) of this Loan
Modification; and (f) the truth and accuracy of the Representations and
Warranties of Borrower set forth in Section 4 of this Loan Modification.
10. MISCELLANEOUS. The quotation marks around modified clauses set forth herein
and any differing font styles in which such clauses are presented herein are for
ease of reading only and shall be ignored for purposes of construing and
interpreting this Loan Modification.
This Loan Modification is executed as of the date first written above.
Borrower: PARTNERS FOR GROWTH, L.P.
QUALMARK CORPORATION
By /s/ Xxxxxxx Xxxxxxx By /s/ Xxxxxx Xxxx
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President or Vice President Name: Xxxxxx Xxxx
Title: Manager, Partners for Growth, LLC
Its General Partner
By /s/ Xxxxxxx Xxxxxxx
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Secretary or Ass't Secretary
Borrower:
QUALMARK ACG CORPORATION
By /s/ Xxxxxxx Xxxxxxx
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President or Vice President
By /s/ Xxxxxxx Xxxxxxx
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Secretary or Ass't Secretary
