SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
SECOND
AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (herein called this "Amendment")
made as of the 30 day of March, 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 to amend the financial
covenants.
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
§ 1.1.
Terms
Defined in the Original Agreement. Unless
the context 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.
§ 1.2.
Other
Defined Terms. Unless
the context otherwise requires, the following terms when used in this Amendment
shall have the meanings assigned to them in this Section 1.2.
"Amendment"
means this Second Amendment to Loan and Security Agreement.
"Loan and
Security Agreement" means the Original Agreement as amended hereby.
ARTICLE
II
Amendment
to Original Agreement
§ 2.1.
Financial
Covenants. Section
6.7 of the Original Agreement is hereby amended in its entirety to read as
follows:
6.7
Financial
Covenants.
Borrower shall at all times maintain the following financial ratios and
covenants, to be measured as of the last day of each calendar month until
December 31, 2005, and at all times thereafter, as of the last day of each
fiscal quarter of Borrower, unless stated otherwise:
(a)
Liquidity
Ratio. A ratio
of Liquidity to all Indebtedness of at least 1.5 to 1.0.
(b)
Minimum
Cash. At all
times, a balance of Cash at Bank and its Affiliates covered by a control
agreement of not less than $2,000,000.
(c)
Minimum
Adjusted EBITDA.
Borrower’s negative Adjusted EBITDA for the periods set forth below may not
exceed the following amounts for the applicable period:
|
Period |
Maximum
Negative Adjusted EBITDA |
|
3
month period ending 3/31/05 |
($4,000,000) |
|
6
month period ending 6/30/05 |
($2,300,000) |
Borrower’s
Adjusted EBITDA for the periods set forth below shall not be less than the
following amounts for the applicable period:
|
Period |
Adjusted
EBITDA |
|
9
month period ending 9/30/05 |
$750,000 |
|
12
month period ending 12/31/05 |
$1,500,000 |
§ 2.2.
Definitions. The
following definitions are hereby added to Exhibit A to the Original Agreement in
the correct alphabetical order:
“Adjusted
EBITDA” means, with respect to any fiscal period, EBITDA plus deferred revenue
for such period.
“Liquidity”
means the balance of Cash held with Bank and its Affiliates plus 80% of Eligible
Accounts.
§ 2.3.
Exhibits. Exhibit
E to the Original Agreement is hereby amended in its entirety to read as set
forth in Exhibit E attached hereto.
2
§ 2.4.
Address.
Borrower’s address set forth in Section 10 of the Original Agreement is replaced
with the following:
5420
Xxxxxx B Xxxxxxx Fwy (I-635)
0 Xxxxxxx
Xxxxxx
Xxxxx
0000
Xxxxxx,
XX 00000
§ 2.5.
Waiver. Bank
hereby waives any Event of Default caused by Borrower’s failure to comply with
the covenants set forth in Section 6.7 of the Original Agreement for any period
ending prior to the date of this Amendment.
ARTICLE
III
Conditions
of Effectiveness
§ 3.1.
Effective
Date. This
Amendment is effective as of the date first above written if and only if Bank
has received, at Bank's
office:
(a) a duly
executed original of this Amendment; and
(b) a Warrant
to purchase 18,050 shares of Borrower’s Common Stock at an exercise price of
$1.79 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.
§ 3.2.
Bank
Expenses. Borrower
shall pay to Bank all unpaid Bank Expenses incurred through the date of this
Amendment. Bank acknowledges it has received the non-refundable $15,000.00
restructure fee.
ARTICLE
IV
Representations
and Warranties
§ 4.1.
Representations
and Warranties of Borrower. In
order to induce Bank to enter into this Amendment, except as set forth on Annex
A hereto, 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 execution and delivery of this Amendment and to
authorize the performance of the obligations of Borrower
hereunder.
3
(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
§ 5.1.
Ratification
of Agreements. The
Original Agreement as hereby 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.
§ 5.2.
Survival
of Agreements. All
representations, warranties, 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.
§ 5.3.
Loan
Documents. This
Amendment is a Loan Document, and all provisions in the Loan and Security
Agreement pertaining to Loan Documents apply hereto.
§ 5.4.
Governing
Law. This
Amendment is governed by and construed in 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.
4
§ 5.5.
Counterparts. This
Amendment may be separately executed in counterparts and by the different
parties hereto in separate counterparts, each of which when so executed
constitutes one and the same Amendment.
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.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
5
IN
WITNESS WHEREOF, this Amendment is executed as of the date first above
written.
|
CITADEL
SECURITY SOFTWARE, INC. | |
|
By: |
/s/ Xxxxxx X. Xxxxxxx |
|
Name:
Xxxxxx X. Xxxxxxx | |
|
Title:
Chairman and CEO | |
|
COMERICA
BANK | |
|
By: |
/s/ Xxxxx Xxxxxxx |
|
Name:
Xxxxx Xxxxxxx | |
|
Title:
SVP |
6
EXHIBIT
E
COMPLIANCE
CERTIFICATE
|
TO: |
COMERICA
BANK |
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 | |
|
|
|||
|
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 | |
|
|
||||
|
Liquidity
Ratio |
1.50
to 1.0 |
____
to 1.0 |
Yes |
No |
|
Minimum
Cash |
$2,000,000 |
$____________ |
Yes |
No |
|
Adjusted
EBITDA |
3
months ended 3/31/05 |
$____________ |
Yes |
No |
|
Loss
not to exceed ($4,000,000) |
||||
|
6
months ended 6/30/05 |
$____________ |
Yes |
No | |
|
Loss
not to exceed ($2,300,000) |
||||
|
|
9
months ended 9/30/05 |
$____________ |
Yes |
No |
|
|
≥
$750,000 |
|||
|
|
12
months ended 12/31/05 |
$____________ |
Yes |
No |
|
|
≥
$1,500,000 |
|||
|
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 |
|||
Annex
A
Section
5.6 of Original Agreement
In
January 2005, six putative securities class action lawsuits were filed against
us and our chief executive officer and chief financial officer in the Xxxxxx
Xxxxxx Xxxxxxxx Xxxxx, Xxxxxxxx Xxxxxxxx xx Xxxxx: (1) Xxxx X. Xxxxx,
Individually and On Behalf of All Others Similarly Situated, Plaintiff, v.
Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and Xxxxxxx Xxxxxxxx,
Defendants, Civil Action No. 3:05-CV-0100-D, filed January 14, 2005; (2) Xxxx
Xxxxxx, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v. Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and Xxxxxxx Xxxxxxxx,
Defendants, Civil Action No. 3:05-CV-0142-D, filed January 24, 2005; (3) Xxxx
Xxxxxxx, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v. Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and Xxxxxxx Xxxxxxxx,
Defendants, Civil Action No. 3:05-CV-0157-D, filed January 25, 2004; (4) Xxxxxxx
Xxxxxxx, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v. Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and Xxxxxxx Xxxxxxxx,
Defendants, Civil Action No. 3:05-CV-0184-H, filed January 26, 2004; (5) Xxxxxx
Xxxxxxxx, Xx., Individually and On Behalf of All Others Similarly Situated,
Plaintiff, v. Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and Xxxxxxx
Xxxxxxxx, Defendants, Civil Action No. 3:05-CV-0203-D, filed January 28, 2004;
and (6) Xxxxxxx Xxxx, Individually and On Behalf of All Others Similarly
Situated, Plaintiff, v. Citadel Security Software Inc., Xxxxxx X. Xxxxxxx and
Xxxxxxx Xxxxxxxx, Defendants, Civil Action No. 3:05-CV-0297-D, filed January 2_,
2004. Any of these lawsuits could have a Material Adverse Effect on
Borrower.
