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EXHIBIT 10.19
SECOND AMENDMENT TO PROMISSORY NOTES
AND FIFTH AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO PROMISSORY NOTES AND FIFTH AMENDMENT TO LOAN
AGREEMENT ("Amendment") is made as of February 1, 2001, 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
"Amendment to Revolving Note"). Pursuant to the Amendment to Revolving Note,
the principal amount of the Revolving Note was reduced to $2,000,000. The
Original Revolving Note, as amended and supplemented by the Amendment to
Revolving Note, 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").
Pursuant to the Amendment to Term Note, the principal amount of the Term Note
was reduced to $1,261,017.47. The Original Term Note, as amended and
supplemented by the Amendment to Term Note, 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)
Second Amendment to Loan Agreement dated as of August 23, 1999, (iii) Third
Amendment to Loan Agreement dated as of March 31, 2000, and (iv) Fourth
Amendment to Loan Agreement dated as of August 2, 2000 (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 (the "Security Agreement"), 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 Agreement, 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.
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E. Borrower and Bank desire to amend and supplement the Revolving Note,
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 January 29, 2001 is $2,000,000. The outstanding
principal balance under the Term Note as of January 29, 2001 is $811,107.47.
Interest has and continues to accrue under the Notes in accordance with the
terms thereof.
3. Amendments to Revolving Note. The terms of the Revolving Note are
changed as follows:
A. The principal amount of the Revolving Note is hereby reduced
to $1,000,000.
B. The maturity date of the Revolving Note is extended to March 15,
2002. All principal remaining outstanding under the Revolving
Note and all interest accrued thereon is payable in full on
March 15, 2002.
C. Borrower will pay all accrued interest under the Revolving Note
on March 31, 2001. Commencing on April 1, 2001, Borrower will
pay all accrued interest on the last day of each calendar month
until maturity.
D. The outstanding principal balance of the Revolving Note shall be
reduced to an amount which results after $2,000,000 is
subtracted from (x), with (x) being equal to the sum of:
i. $5,000 extension fee due as part of this Amendment;
ii. $750 in attorneys' fees incurred by Bank as part of this
Amendment;
iii. all amounts currently due under the Revolving Note; and
iv. all amounts currently due under the Term Note.
E. Borrower authorizes Bank to debit its account number
103656099183 with the Bank for all sums due under the Revolving
Note.
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4. Amendments to Term Note. The terms of the Term Note are changed as
follows:
A. The principal amount of the Term Note is hereby increased
to $2,000,000.
B. The maturity date of the Term Note is extended to March 15,
2002. All principal remaining outstanding under the Term Note
and all interest accrued thereon is payable in full on March
15, 2002.
C. Borrower will pay all accrued interest under the Term Note,
plus $35,000 in principal, on March 31, 2001. Commencing on
April 1, 2001, Borrower agrees to pay all interest accrued
under the Term Note, plus $35,000.00 in principal, on the last
day of each month until maturity.
D. Borrower authorizes Bank to debit its account number
103656099183 with the Bank for all sums due under the Term
Note.
5. Amendment to Loan Agreement. The Loan Agreement is amended as
follows:
A. Section 1.01.1 of the Loan Agreement is amended by changing
the figure "$2,000,000" to the figure "$1,000,000."
B. Section 1.01.4 of the Loan Agreement is amended by deleting
the last sentence thereof and replacing it with the following:
"Borrower will pay all accrued interest on March 31, 2001.
Commencing on April 1, 2001, accrued interest shall be due and
payable (i) for LIBOR Rate Advances and Reference Rate
Advances, on the last day of each calendar month, (ii) at
final maturity of the Line Note, and (iii) on demand after
such maturity."
C. The definition of "EBITDA" contained in section 1.01.5 of
the Loan Agreement is deleted in its entirety and replaced
with the following:
"EBITDA" means the amount of earnings before interest, taxes,
depreciation and amortization, measured on a quarterly basis."
D. Section 1.01.6 of the Loan Agreement is amended by changing
the date "December 22, 2001" to "March 15, 2002."
E. Section 1.02.1 of the Loan Agreement is deleted in its
entirety and replaced with the following:
"Commitment. Subject to the following terms and conditions,
Bank agrees to make a loan to Borrower (the "Term Loan") in
the maximum aggregate amount of $2,000,000, the proceeds of
which shall be used for general corporate purposes.
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Borrower acknowledges that the Term Loan has been fully
advanced, and that the Bank has no obligation to advance any
additional amount under the Term Loan."
F. Section 1.02.3 of the Loan Agreement is amended by deleting
the last sentence thereof and replacing it with the following:
"Borrower will pay all accrued interest on March 31, 2001.
Commencing on April 1, 2001, accrued interest shall be due and
payable (i) on the last day of each calendar month, (ii) at
final maturity of the Term Loan, and (iii) on demand after
such maturity."
G. 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 $35,000, each due on the
last day of each calendar month, commencing March 31, 2001,
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, 2002, subject to
acceleration upon the occurrence of an Event of Default."
H. The following is added as section 1.03.3 of the Loan
Agreement:
"1.03.3 Direct Debit. Borrower authorizes Bank to debit its
account number 103656099183 with the Bank for all sums due
under the Term Note and the Revolving Note."
I. 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 determined on a quarterly basis
as of the end of each fiscal quarter and, where indicated, for
the preceding or trailing 12 month period (the "TTMP"):
(a) Commencing with the quarter ending December
31, 2000 and thereafter:
i. Borrower's Tangible Net Worth will
be not less than $3,400,000 as of
the end of each fiscal quarter; and
ii. Borrower's ratio of Free Cash Flow
to Debt Service will be not less
than 1.1:1 for the TTMP.
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(b) Commencing with the quarter ending December
31, 2000 and continuing through the quarter
ending June 30, 2001:
i. Borrower's EBITDA will not be less
than $350,000 at 3/31/01 and
6/30/01.
(c) Commencing with the quarter ending June 30,
2001 and continuing through the quarter
ending March 31, 2002:
i. Borrower's EBITDA will not be less
than $400,000 at 9/30/01, 12/31/01
and 3/31/02.
For purposes hereof, "Free Cash Flow" means EBITDA
less cash taxes, cash capital expenditures and cash
dividends; "Debt Service" means interest expense plus
all mandatory principal payments on Debt; and
"Tangible Net Worth" means stockholders' equity less
intangible assets."
6. Limited Waiver. Subject to the Borrower's agreement hereto, Bank
hereby waives any default which 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
December 31, 2000.
7. 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
$5,000; (iii) attorneys' fees incurred by Bank equal to $750.00; and (iv) such
additional information or documentation as the Bank may require. If the Bank has
not received all of the foregoing on or before February 9, 2001, 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.
8. 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 other instruments and agreements executed by Borrower in connection
herewith, arising on or before the date hereof.
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9. Effect of Amendment; Representations and Warranties; Nonwaiver. Bank
and Borrower agree that the Term Note, the Revolving Note and the Loan
Agreement, all as amended by this Amendment, 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.
10. Ratification of Notes, Loan Agreement and Security Documents. All
of the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations under the Revolving Note, the
Term Note, the Loan Agreement, all as amended and supplemented by this
Amendment, 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 Revolving
Note, the Term Note, the Loan Agreement, all as amended and supplemented by this
Amendment.
11. 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.
12. 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.
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13. 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.
14. Governing Law. THE LAWS OF THE STATE OF COLORADO GOVERN THIS
AMENDMENT.
15. 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.
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
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Xxxxxx X. Xxxxxxx, Vice President
QUALMARK CORPORATION
By /s/ XXXXXXX X. XXXXXXXX
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Xxxxxxx X. Xxxxxxxx President/CEO
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(Print Name and Title)
STATE OF )
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) ss.
COUNTY OF )
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The foregoing instrument was acknowledged before me this ___ day of
February, 2001, by _________________________, the _________________________ of
Qualmark Corporation, a Colorado corporation, on behalf of the corporation.
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Notary Public
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