FOURTH LOAN MODIFICATION AGREEMENT
EXHIBIT
10.1
FOURTH
LOAN MODIFICATION AGREEMENT
This
Fourth Loan Modification Agreement (this “Loan Modification Agreement”) is
entered into as of July 2, 2009, by and among (a) SILICON VALLEY BANK, a California corporation,
with its principal place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx,
Xxxxxxxxxx 00000 and with a loan production office located at One Newton
Executive Park, Suite’ 00, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
(“Bank”) and (b) PARADIGM HOLDINGS, INC.,
a Wyoming corporation, with offices at 0000 Xxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx
00000 (“Holdings”), PARADIGM SOLUTIONS
CORPORATION, a Maryland corporation, with offices at 0000 Xxx Xxxx
Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000 (“Solutions”), XXXXXXXX TECHNOLOGY SOLUTIONS LLC, a Maryland
limited liability company, with offices at 00000 Xxxxxxx Xxxxx, Xxxxx 000,
Xxxxx, Xxxxxxxx 00000 (“Xxxxxxxx”) and TRINITY
INFORMATION MANAGEMENT SERVICES, a Nevada corporation, with offices at
0000 Xxx Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000 (“Trinity”) (hereinafter,
Holdings, Solutions, Xxxxxxxx and Trinity are jointly and severally,
individually and collectively, referred to as “Borrower”).
1. DESCRIPTION OF EXISTING INDEBTEDNESS AND
OBLIGATIONS. Among other indebtedness and obligations which may be owing
by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement
dated as of March 13, 2007, evidenced by, among other documents, a certain Loan
and Security Agreement (working capital line of credit) dated as of March 13,
2007, among Borrower and Bank, as amended by a certain First Loan Modification
Agreement dated as of August 11, 2008, as further amend by a certain Second Loan
Modification Agreement dated as of March 18, 2009, and as further amended by a
certain Third Loan Modification Agreement dated as of May 4, 2009 (as amended,
the “Loan Agreement”). Capitalized terms used but not otherwise defined herein
shall have the same meaning as in the Loan Agreement.
2. DESCRIPTION OF COLLATERAL. Repayment
of the Obligations is secured by (a) the Collateral as described in the Loan
Agreement, (b) the Intellectual Property Collateral as described in a certain
Intellectual Property Security Agreement dated as of March 13, 2007 between Bank
and Holdings (the “Holdings IP Security Agreement”), (c) the Intellectual
Property Collateral as described in a certain Intellectual Property Security
Agreement dated as of March 13, 2007 between Bank and Solutions (the “Solutions
IP Security Agreement”), (d) the Intellectual Property Collateral as described
in a certain Intellectual Property Security Agreement dated as of July 5, 2007
between Bank and Xxxxxxxx (the “Xxxxxxxx IP Security Agreement”), and (e) the
Intellectual Property Collateral as described in a certain Intellectual Property
Security Agreement dated as of September 5, 2007 between Bank and Trinity (the
“Trinity IP Security Agreement”) (together with any other collateral security
granted to Bank, the “Security Documents”). Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Obligations shall
be referred to as the “Existing Loan Documents”.
3. DESCRIPTION OF CHANGE IN
TERMS.
A. Modifications
to Loan Agreement.
1 The Loan
Agreement shall be amended by deleting the following text appearing in Section
2.2.4 thereof:
“Borrower
will pay to Bank a collateral handling fee equal to (a) 0.125% per month of the
Financed Receivable Balance for each Financed Receivable outstanding based upon
Federal Agency Accounts, Subcontractor Accounts and Unbilled Accounts based upon
a 360 day year, and (b) 0.25% per month of the Financed Receivable Balance for
Financed Receivables outstanding based upon HUD Accounts based upon a 360 day
year (the “Collateral Handling Fee”).”
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and
inserting in lieu thereof the following:
“Borrower
will pay to Bank a collateral handling fee equal to (a) 0.20% per month of the
Financed Receivable Balance for each Financed Receivable outstanding based upon
Federal Agency Accounts and Subcontractor Accounts based upon a 360 day year,
and (b) 0.25% per month of the Financed Receivable Balance for Financed
Receivables outstanding based upon Unbilled Accounts based upon a 360 day year
(the “Collateral Handling Fee”).”
2 The Loan
Agreement shall be amended by deleting the following text appearing in Section
5.3 thereof:
“ (f) There are no
defenses, offsets, counterclaims or agreements for which the Account Debtor may
claim any deduction or discount;”
and
inserting in lieu thereof the following:
“ (f) There are no
defenses, offsets, counterclaims or agreements for which the Account Debtor may
claim any deduction or discount other than certain “prompt payment” discounts
set forth in certain customer contracts;”
3 The
Loan Agreement shall be amended by deleting the following text appearing in
Section 5.4 thereof:
“In
addition, Borrower represents and warrants that there are no discounts, offsets
or other rights of any Account Debtor under any Unbilled Account.”
and
inserting in lieu thereof the following:
“In
addition, Borrower represents and warrants that there are no discounts, offsets
or other rights of any Account Debtor under any Unbilled Account other than
certain “prompt payment” discounts set forth in certain customer
contracts.”
4 The Loan
Agreement shall be amended by deleting the following, appearing as Section 5.6
thereof:
“ 5.6 Litigation. There
are no actions or proceedings pending or, to the knowledge of Borrower’s
Responsible Officers or legal counsel, threatened by or against Borrower or any
Subsidiary in which an adverse decision could reasonably be expected to cause a
Material Adverse Change.”
and
inserting in lieu thereof the following:
“ 5.6 Litigation. Except
as set forth on the Perfection Certificate, there are no actions or proceedings
pending or, to the knowledge of Borrower’s Responsible Officers or legal
counsel, threatened by or against Borrower or any Subsidiary in which an adverse
decision could reasonably be expected to cause a Material Adverse
Change.”
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5 The Loan
Agreement shall be amended by deleting the following text appearing in Section
5.9 thereof:
“Borrower
and each Subsidiary have timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP.”
and
inserting in lieu thereof the following:
“Borrower
and each Subsidiary have timely filed all required material tax returns and
paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP.”
6 The Loan
Agreement shall be amended by deleting the following text appearing in Section
6.2(c) thereof:
“The
charge to Borrower for the foregoing inspections and audits shall be $750 per
person per day (or such higher amount as shall represent Bank’s then-current
standard charge for the same), plus reasonable out-of-pocket
expenses.”
and
inserting in lieu thereof the following:
“The
charge to Borrower for the foregoing inspections and audits shall be $850 per
person per day (or such higher amount as shall represent Bank’s then-current
standard charge for the same), plus reasonable out-of-pocket
expenses.”
7 The Loan
Agreement shall be amended by deleting the following, appearing as Section 6.7
thereof:
“ 6.7 Financial Covenants.
Borrower
shall maintain at all times, to be tested as of the last day of each month,
unless otherwise noted, on a consolidated basis with respect to Borrower and its
Subsidiaries:
(a) EBITDA Loss.
EBITDA minus unfunded capital expenditures loss as of and for the three month
period (or periods) ending on (i) January 31, 2007 and February 28, 2007 of not
more than $1,000,000, and (ii) August 31, 2008 of not more than
$50,000.
(b) EBITDA Gain.
EBITDA minus unfunded capital expenditures as of and for the three month period
(or periods) ending on (i) March 31, 2007, April 30, 2007 and May 31, 2007, of
at least $1.00, (ii) June 30, 2007, July 31, 2007, August 31, 2007, September
30, 2007, October 31, 2007 and November 30, 2007, of at least $250,000.00, (iii)
December 31, 2007, January 31, 2008, February 29, 2008, March 31, 2008, April
30, 2008, May 31, 2008, June 30, 2008 and July 31, 2008, of at least
$500,000.00, (iv) September 30, 2008, of at least $75,000, (v) October 31, 2008,
of at least $150,000, (vi) November 30, 2008, of at least $250,000, (vii)
December 31, 2008, of at least $400,000, and (viii) January 31, 2009 and as of
and for the three month
period ending of the last day of each month thereafter, of at least
$500,000.00.
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Notwithstanding
the foregoing, (a) EBITDA Losses incurred from January 1, 2007 through February
28, 2007 will be excluded from the EBITDA calculation with respect to the three
month periods ending on February 28, 2007 and March 31, 2007, and (b) EBITDA
Losses incurred from February 1, 2007 through February 28, 2007 will be excluded
from the EBITDA calculation with respect to the three month period ending on
April 30, 2007. As used herein, “EBITDA Losses” shall be defined as the lesser
of (i) $275,000.00, and (ii) the actual expenses incurred by the discontinued
commercial business of Borrower during the period(s) referenced
above.”
and
inserting in lieu thereof the following:
“ 6.7 Financial Covenants.
Borrower
shall maintain at all times, to be tested as of the last day of each month,
unless otherwise noted, on a consolidated basis with respect to Borrower and its
Subsidiaries:
(a) EBITDA Loss.
EBITDA minus unfunded capital expenditures loss as of and for the three month
period (or periods) ending on (i) January 31, 2007 and February 28, 2007, of not
more than $1,000,000, and (ii) August 31, 2008, April 30, 2009, May 31, 2009,
and June 30, 2009, of not more than $50,000.
(b) EBITDA Gain.
EBITDA minus unfunded capital expenditures as of and for the three month period
(or periods) ending on (i) March 31, 2007, April 30, 2007 and May 31, 2007, of
at least $1.00, (ii) June 30, 2007, July 31, 2007, August 31, 2007, September
30, 2007, October 31, 2007 and November 30, 2007, of at least $250,000.00, (iii)
December 31, 2007, January 31, 2008, February 29, 2008, March 31, 2008, April
30, 2008, May 31, 2008, June 30, 2008 and July 31, 2008, of at least
$500,000.00, (iv) September 30, 2008, of at least $75,000.00 (v) October 31,
2008, of at least $150,000.00 (vi) November 30, 2008, of at least $250,000.00,
(vii) December 31, 2008, of at least $400,000.00, (viii) January 31, 2009,
February 28, 2009, and March 31, 2009, of at least $500,000.00, (ix) July 31,
2009 and August 31, 2009, of at least $1.00, (x) September 30, 2009, of at least
$100,000.00, (xi) October 31, 2009 and November 30, 2009, of at least
$250,000.00, and (xii) December 31, 2009 and as of and for the three month
period ending of the last day of each month thereafter, of at least
$500,000.00.
Notwithstanding
the foregoing, (a) EBITDA Losses incurred from January 1, 2007 through February
28, 2007 will be excluded from the EBITDA calculation with respect to the three
month periods ending on February 28, 2007 and March 31, 2007, and (b) EBITDA
Losses incurred from February 1, 2007 through February 28, 2007 will be excluded
from the EBITDA calculation with respect to the three month period ending on
April 30, 2007. As used herein, “EBITDA Losses” shall be defined as the lesser
of (i) $275,000.00, and (ii) the actual expenses
incurred by the discontinued commercial business of Borrower during the
period(s) referenced above.”
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8 The Loan
Agreement shall be amended by deleting the following text appearing in Section
7.6 thereof:
“or (b)
pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock.”
and
inserting in lieu thereof the following:
“or (b)
pay any dividends or make any distribution or payment or redeem, retire or
purchase any capital stock; provided, however, Borrower shall be permitted to
(1) make cash payments to Xxxx Capital Partners, LP and/or EREF PARA LLC
(together with any transferees of such parties, the “Investors”) in connection
with redemptions and repurchases contemplated by that certain Paradigm Holdings,
Inc. Certificate of Designations of Series A-1 Senior Preferred Stock (the
“Certificate of Designations”), that certain Preferred Stock Purchase Agreement
(the “Preferred Stock Purchase Agreement”) among Holdings, Xxxx Capital
Partners, LP (“Xxxx”) and each of the other purchasers identified on the
signature pages thereto (each a “Purchaser” and collectively with Xxxx, the
“Purchasers”) dated on or about February 27, 2009 and those certain Class A
Warrants and Class B Warrants issued to the Purchasers pursuant to the Preferred
Stock Purchase Agreement, so long as, at the time of any such payment, (i) no
Event of Default exists or would exist after giving effect to such payment, (ii)
Borrower has performed in accordance with at least one hundred percent (100.0%)
of its board-approved revenue plan, (iii) Borrower has performed at least twenty
percent (20.0%) above its board¬approved EBITDA plan, and (iv) Borrower will
have at least One Million Dollars ($1,000,000.00) in unrestricted and
unencumbered cash after each such payment, (2) make monthly cash dividend
payments to the Investors in an amount not to exceed five percent (5.0%) per
annum of the Stated Value (as defined below) per share of the outstanding shares
of Series A-I Senior Preferred Stock, provided, however, the aggregate amount of
such payments made in any month shall not exceed Thirty-Five Thousand Dollars
($35,000.00) and provided further, however, no such payments may be made while
there is an Event of Default or if an Event of Default would exist after giving
effect to any such payment, (3) accrue an additional dividend of seven and a
half percent (7.5%) per annum on the Series A-I Senior Preferred Stock to be
paid by adding such amount to the Stated Value per share of the outstanding
shares of Series A¬I Senior Preferred Stock and (4) make non-cash redemptions or
non-cash repurchases in exchange for capital stock of Borrower. As used herein,
“Stated Value” for each share of Series A-1 Senior Preferred Stock shall
initially be One Thousand Dollars ($1,000.00). Notwithstanding the foregoing,
pursuant to the terms of the Certificate of Designations, in lieu of paying a
cash dividend under (2) above, Borrower may add the amount otherwise payable as
a cash dividend to the Stated Value per share of the outstanding shares of
Series A-I Senior Preferred Stock or pay such dividend in shares of Borrower’s
common stock.”
9 The Loan
Agreement shall be amended by deleting the following definitions appearing in
Section 13.1 thereof:
“ “Applicable Rate” is (a) with respect to
Financed Receivables based upon Federal Agency Accounts, Subcontractor Accounts
and Unbilled Accounts, a per annum rate equal to the Prime Rate plus one percent
(1.0%), and (b) with respect to Financed Receivables based upon HUD Accounts, a
per annum rate equal to the Prime Rate plus two percent (2.0%).”
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“ “EBITDA” shall mean (a) Net Income, plus (b)
Interest Expense, plus (c) to the extent deducted in the calculation of Net
Income, depreciation expense and amortization expense (including FAS 123r
expenses and goodwill impairments), plus (d) income tax expense, plus (e)
severance and restructuring expenses not to exceed $250,000.00 in any calendar
year.”
“ “Maturity Date” is June 12, 2009.”
“ “Prime Rate” is Bank’s most recently announced
“prime rate,” even if it is not Bank’s lowest rate.”
and
inserting in lieu thereof the following:
“ “Applicable Rate” is (a) with respect to
Financed Receivables based upon Federal Agency Accounts and Subcontractor
Accounts, a per annum rate equal to the Prime Rate plus one and one-half of one
percent (1.50%), and (b) with respect to Financed Receivables based upon
Unbilled Accounts, a per annum rate equal to the Prime Rate plus two percent
(2.0%).”
“ “EBITDA” shall mean (a) Net Income, plus (b)
Interest Expense, plus (c) to the extent deducted in the calculation of Net
Income, depreciation expense and amortization expense (including FAS 123r
expenses and goodwill impairments), plus (d) income tax expense.”
“ “Maturity Date” is June 11, 2010.”
“ “Prime Rate” is the greater of (a) four and
one-half of one percent (4.50%), and (b) Bank’s most recently announced “prime
rate,” even if it is not Bank’s lowest rate.”
10 The
Compliance Certificate appearing as Exhibit B to the Loan Agreement is hereby
replaced with the Compliance Certificate attached as Schedule I
hereto.
4. FEES. Borrower shall pay to Bank a
modification fee equal to Forty-Five Thousand Dollars ($45,000.00) which fee
shall be due on the date hereof and shall be deemed fully earned as of the date
hereof. Borrower shall also reimburse Bank for all reasonable legal fees and
expenses incurred in connection with this amendment to the Existing Loan
Documents.
5. RATIFICATION OF IP SECURITY
AGREEMENTS.
(a) Holdings
hereby ratifies, confirms and reaffirms, all and singular, the terms and
conditions of the Holdings IP Security Agreement and acknowledges, confirms and
agrees that the Holdings IP Security Agreement contains an accurate and complete
listing of all Intellectual Property Collateral as defined therein.
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(b) Solutions
hereby ratifies, confirms and reaffirms, all and singular, the terms and
conditions of the Solutions IP Security Agreement and acknowledges, confirms and
agrees that the Solutions IP Security Agreement contains an accurate and
complete listing of all Intellectual Property Collateral as defined
therein.
(c) Xxxxxxxx
hereby ratifies, confirms and reaffirms, all and singular, the terms and
conditions of the Xxxxxxxx IP Security Agreement and acknowledges, confirms and
agrees that the Xxxxxxxx IP Security Agreement contains an accurate and complete
listing of all Intellectual Property Collateral as defined therein.
(d) Trinity
hereby ratifies, confirms and reaffirms, all and singular, the terms and
conditions of the Trinity IP Security Agreement and acknowledges, confirms and
agrees that the Trinity IP Security Agreement contains an accurate and complete
listing of all Intellectual Property Collateral as defined therein.
6. RATIFICATIONS OF PERFECTION
CERTIFICATES.
(a) Holdings
hereby ratifies, confirms and reaffirms, all and singular, the terms and
disclosures contained in a certain Perfection Certificate dated as of March 13,
2007 between Holdings and Bank, and acknowledges, confirms and agrees the
disclosures and information Holdings provided to Bank in the Perfection
Certificate have not changed, as of the date hereof, except as set forth on
Schedule
2.
(b) Solutions
hereby ratifies, confirms and reaffirms, all and singular, the terms and
disclosures contained in a certain Perfection Certificate dated as of March 13,
2007 between Solutions and Bank, and acknowledges, confirms and agrees the
disclosures and information Solutions provided to Bank in the Perfection
Certificate have not changed, as of the date hereof, except as set forth on
Schedule
2.
(c) Xxxxxxxx
hereby ratifies, confirms and reaffirms, all and singular, the terms and
disclosures contained in a certain Perfection Certificate dated as of July 5,
2007 between Xxxxxxxx and Bank, and acknowledges, confirms and agrees the
disclosures and information Xxxxxxxx provided to Bank in the Perfection
Certificate have not changed, as of the date hereof, except as set forth on
Schedule
2.
(d) Trinity
hereby ratifies, confirms and reaffirms, all and singular, the terms and
disclosures contained in a certain Perfection Certificate dated as of September
5, 2007 between Trinity and Bank, and acknowledges, confirms and agrees the
disclosures and information Trinity provided to Bank in the Perfection
Certificate have not changed, as of the date hereof, except as set forth on
Schedule
2.
7. CONSISTENT CHANGES. The Existing Loan
Documents are hereby amended wherever necessary to reflect the changes described
above.
8. RATIFICATION OF LOAN DOCUMENTS.
Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of
all security or other collateral granted to the Bank, and confirms that the
indebtedness secured thereby includes, without limitation, the
Obligations.
9. NO DEFENSES OF BORROWER. Borrower
hereby acknowledges and agrees that Borrower has no offsets, defenses, claims,
or counterclaims against Bank with respect to the Obligations, or otherwise, and
that if Borrower now has, or ever did have, any offsets, defenses, claims, or
counterclaims against Bank, whether known or unknown,
at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby
RELEASES Bank from any liability thereunder.
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10. CONTINUING VALIDITY. Borrower
understands and agrees that in modifying the existing Obligations, Bank 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 Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank’s agreement to modifications
to the existing Obligations pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Obligations.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers of Existing Loan Documents, unless the party is expressly
released by Bank in writing. No maker will be released by virtue of this Loan
Modification Agreement.
11. COUNTERSIGNATURE. This Loan
Modification Agreement shall become effective only when it shall have been
executed by Borrower and Bank.
[The
remainder of this page is intentionally left blank]
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This Loan
Modification Agreement is executed as of the date first written
above.
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BORROWER:
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BANK:
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SILICON
VALLEY BANK
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By:
/s/ Xxxxxxx Xxxxxxx
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By:
/s/ Xxxxxxxxx Xxxxxx
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Name:
Xxxxxxx Xxxxxxx
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Name:
Xxxxxxxxx Xxxxxx
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Title:
SVP and CFO
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Title:
VP
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PARADIGM
SOLUTIONS CORPORATION
By:
/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx
Xxxxxxx
Title: SVP
and CFO
XXXXXXXX
TECHNOLOGY SOLUTIONS LLC
By:
/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx
Xxxxxxx
Title: Manager
TRINITY
INFORMATION MANAGEMENT SERVICES
By:
/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx
Xxxxxxx
Title: SVP
and CFO
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