SECOND LOAN MODIFICATION AGREEMENT
EXHIBIT
10.5
SECOND
LOAN
MODIFICATION AGREEMENT
This
Second
Loan
Modification Agreement (this “Loan Modification Agreement”) is entered into as
of __April,
3rd____________,
2007,
by and
among
(i) SILICON
VALLEY BANK,
a California corporation and with a loan production office located at One Xxxxxx
Executive Park, Suite 200, 0000 Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000
(“Bank”), and (ii) TECHNEST
HOLDINGS, INC.,
a Nevada corporation, with offices at 0 XxXxxxxx Xx., Xxxxx Xxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000 (“Technest”), E-OIR
TECHNOLOGIES, INC.,
a Virginia corporation, with offices at 00000 Xxxxxxxxxxxx Xxx., Xxxxx 000,
Xxxxxxxxxxxxxx, Xxxxxxxx 00000 (“EOIR”), and GENEX
TECHNOLOGIES INCORPORATED,
a Maryland corporation, with offices at 00000 Xxxxx Xxxx Xxxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxxxx 00000 (“Genex”) (hereinafter, Technest, EOIR and Genex 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 August
4, 2006, evidenced by, among other documents, a certain Loan and Security
Agreement dated as of August 4, 2006, between Borrower and Bank,
as amended by a certain First Loan Modification Agreement dated as of February
14, 2007, between Borrower and Bank
(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 the Collateral as described in the Loan
Agreement and the Intellectual Property Collateral as described in a certain
Intellectual Property Security Agreement dated August 4, 2006 (the “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.
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A.
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Modifications
to Loan Agreement.
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1
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The
Loan Agreement shall be amended by deleting the following text, appearing
in Section 2.2 thereof:
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“ (a) Interest
Rate.
Subject to Section 2.2(b), the principal amount of Term Advances outstanding
shall initially accrue interest at a floating per annum rate equal to two and
three-quarters of one percentage points (2.75%) above the Prime Rate, which
interest shall be payable monthly. Upon the Borrower’s achieving a Fixed Charge
Coverage Ratio of at least 1.75 to 1.0 for three (3) consecutive fiscal quarters
after the Effective Date, the principal amount of Term Advances outstanding
shall accrue interest at a floating per annum rate equal to two percentage
points (2.00%) above the Prime Rate, which interest shall be payable monthly.
Upon the Borrower’s achieving a Fixed Charge Coverage Ratio of at least 2.0 to
1.0 for three (3) consecutive fiscal quarters after the Effective Date, the
principal amount of Term Advances outstanding shall accrue interest at a
floating per annum rate equal to one and one-half of one percentage points
(1.50%) above the Prime Rate, which interest shall be payable
monthly.”
and
inserting in lieu thereof the following:
“ (a) Interest
Rate.
Subject to Section 2.2(b), the principal amount of Term Advances outstanding
shall initially accrue interest at a floating per annum rate equal to three
and
one-half of one percentage points (3.50%) above the Prime Rate, which interest
shall be payable monthly. Upon the Borrower’s achieving a monthly
Fixed Charge Coverage Ratio measured on May 31, 2007, and on the last day of
each subsequent month, for the three (3) month period ending on the last day
of
such month, of (i) at least 1.0:1.0 but less than 1.25:1.0, then, during such
month, the principal amount of Term Advances outstanding shall accrue interest
at a floating per annum rate equal to three and one-quarter of one percentage
points (3.25%) above the Prime Rate, which interest shall be payable monthly,
(ii) at least 1.25:1.0 but less than 1.5:1.0, then, during such month, the
principal amount of Term Advances outstanding shall accrue interest at a
floating per annum rate equal to three percentage points (3.0%) above the Prime
Rate, which interest shall be payable monthly, and (iii) at least 1.5:1.0,
then,
during such month, the principal amount of Term Advances outstanding shall
accrue interest at a floating per annum rate equal to two and three-quarters
of
one percentage points (2.75%) above the Prime Rate, which interest shall be
payable monthly.
Notwithstanding the foregoing, if Borrower achieves a monthly
Fixed Charge Coverage Ratio measured on May 31, 2007, and on the last day of
each subsequent month, for the three (3) month period ending on the last day
of
such month, of at least 1.25:1.0 (which calculation is inclusive of the
principal and interest payments due to Shelter Island Opportunity Fund, LLC
during such period, and, without such inclusion, would be at least 1.5:1.0),
then, during such month, the principal amount of Term Advances outstanding
shall
accrue interest at a floating per annum rate equal to two and three-quarters
of
one percentage points (2.75%) above the Prime Rate. In
addition, upon the Borrower’s achieving a Fixed Charge Coverage Ratio of at
least (a) 1.75 to 1.0 for three (3) consecutive fiscal quarters after the
Effective Date, the principal amount of Term Advances outstanding shall accrue
interest at a floating per annum rate equal to two percentage points (2.00%)
above the Prime Rate, which interest shall be payable monthly, and (b) 2.0
to
1.0 for three (3) consecutive fiscal quarters after the Effective Date, the
principal amount of Term Advances outstanding shall accrue interest at a
floating per annum rate equal to one and one-half of one percentage points
(1.50%) above the Prime Rate, which interest shall be payable
monthly.”
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2
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The
Loan Agreement shall be amended by deleting the following text, appearing
in Section 6.7 thereof:
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“ (b) Fixed
Charge Coverage Ratio.
A
monthly Fixed Charge Coverage Ratio measured on the last day of every month,
for
the three (3) month period ending on the last day of such month, of at least
1:0
to 1:0 through periods ending November 30, 2006; at least 1.25:1.0 for periods
ending on December 31, 2006 through May 31, 2007; and at least 1.50:1.0 for
all
periods thereafter.”
and
inserting in lieu thereof the following:
“ (b) Fixed
Charge Coverage Ratio.
A
monthly Fixed Charge Coverage Ratio measured on the last day of every month,
for
the three (3) month period ending on the last day of such month, of at least
(i)
1:0 to 1:0 through periods ending November 30, 2006, (ii) 1.25:1.0 for the
periods ending on December 31, 2006 and January 31, 2007, (iii) 1.0:1.0 for
the
period ending on May 31, 2007, (iv) 1.25:1.0 for the periods ending on June
30,
2007 and July 31, 2007, and (v) 1.50:1.0 for the period ending August 31, 2007
and for all periods thereafter.
(c) EBITDA.
Monthly
EBITDA of at least (i) $1.00 for the month ending February 28, 2007, (ii)
$65,000.00 for the month ending March 31, 2007, and (iii) $150,000.00 for the
month ending April 30, 2007.”
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3
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The
Loan Agreement shall be amended by deleting the following definition,
appearing alphabetically in Section 13
thereof:
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“ “EBITDA”
shall mean earnings before interest, taxes, depreciation and
amortization.”
and
inserting in lieu thereof the following:
“ “EBITDA”
shall mean earnings before interest, taxes, depreciation and amortization,
plus,
for the months of March 2007, April 2007 and May 2007, any portion of the
Restructuring Fees paid to Bank during such month.”
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4
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The
Loan Agreement shall be amended by inserting the following definition,
appearing alphabetically in Section 13
thereof:
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“ “2007
Loan Modification Agreements”
are,
collectively, (a) the Second Loan Modification Agreement dated as of April
3,
2007 in connection with this Agreement, and (b) the Second Loan Modification
Agreement dated as of April 3, 2007 in connection with the Receivables Loan
and
Security Agreement.”
“ “Restructuring
Fees”
are
commitment or facility fees, in an amount not to exceed $150,000, which are
contractually due and owing to Bank pursuant to the 2007 Loan Modification
Agreements.”
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5
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The
Compliance Certificate appearing as Exhibit
C
to the Loan Agreement is hereby replaced with the Compliance Certificate
attached as Exhibit
A
hereto.
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B.
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Waiver.
Bank hereby waives Borrower’s existing default under the Loan Agreement by
virtue of Borrower’s failure to comply with the financial covenant set
forth in Section 6.7(b) (relative to Borrower’s Fixed Charge Coverage
Ratio) thereof as of the three-month period ending January 31, 2007.
Bank’s waiver of Borrower’s compliance of said affirmative covenant shall
apply only to the foregoing specific
period.
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4. FEES.
Borrower
shall pay to Bank a commitment fee equal to Twenty Five Thousand Dollars
($25,000.00), which fee shall be earned as of the date hereof and shall be
due
and payable as follows: (a) $5,000.00 on the date hereof; (b) $10,000.00 upon
the earlier to occur of (i) April 15, 2007, (ii) the early termination of the
Loan Agreement, and (iii) the occurrence of an Event of Default; and (c)
$10,000.00 upon the earlier to occur of (i) May 15, 2007, (ii) the early
termination of the Loan Agreement, and (iii) the occurrence of an Event of
Default. 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 AGREEMENT.
Except as set forth on Exhibit
A
to the First Loan Modification Agreement, Borrower hereby ratifies, confirms
and
reaffirms, all and singular, the terms and conditions of the IP Security
Agreement and acknowledges, confirms and agrees that the IP Security Agreement
contains an accurate and complete listing of all Intellectual Property
Collateral as defined therein.
6. RATIFICATION
OF PERFECTION CERTIFICATES.
Except
as set forth on Exhibit
A
to the First Loan Modification Agreement, Technest hereby ratifies, confirms
and
reaffirms, all and singular, the terms and disclosures contained in a certain
Perfection Certificate dated as of August 4, 2006 between Technest and Bank,
and
acknowledges, confirms and agrees the disclosures and information Borrower
provided to Bank in the Perfection Certificate have not changed, as of the
date
hereof. Except as set forth on Exhibit
A
to the First Loan Modification Agreement, EOIR hereby ratifies, confirms and
reaffirms, all and singular, the terms and disclosures contained in a certain
Perfection Certificate dated as of August 4, 2006 between EOIR and Bank, and
acknowledges, confirms and agrees the disclosures and information EOIR provided
to Bank in the Perfection Certificate have not changed, as of the date hereof.
Except as set forth on Exhibit
A
to the First Loan Modification Agreement, Genex hereby ratifies, confirms and
reaffirms, all and singular, the terms and disclosures contained in a certain
Perfection Certificate dated as of August 4, 2006 between Genex and Bank, and
acknowledges, confirms and agrees the disclosures and information Genex provided
to Bank in the Perfection Certificate have not changed, as of the date
hereof.
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.
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. JURISDICTION/VENUE.
Borrower accepts for itself and in connection with its properties,
unconditionally, the exclusive jurisdiction of any state or federal court of
competent jurisdiction in the Commonwealth of Massachusetts in any action,
suit,
or proceeding of any kind against it which arises out of or by reason of this
Loan Modification Agreement; provided, however, that if for any reason Bank
cannot avail itself of the courts of the Commonwealth of Massachusetts, then
venue shall lie in Santa Xxxxx County, California. NOTWITHSTANDING THE
FOREGOING, THE BANK SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING
AGAINST THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION
WHICH THE BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE
COLLATERAL OR TO OTHERWISE ENFORCE THE BANK’S RIGHTS AGAINST THE BORROWER OR ITS
PROPERTY.
12. 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]
This
Loan
Modification Agreement is executed as a sealed instrument under the laws of
the
Commonwealth of Massachusetts as of the date first written above.
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BORROWER:
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BANK:
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TECHNEST
HOLDINGS, INC.
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SILICON
VALLEY BANK
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By:
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By:
Gage Xxxxxxx
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Name:
Xxxx Xxxxxxx
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Name
Gage Xxxxxxx
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Title:
Chief Financial Officer
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Title:
Vice President
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E-OIR
TECHNOLOGIES, INC.
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By:
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Name:
Xxxx Xxxxxxx
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Title:
Chief Financial Officer
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GENEX
TECHNOLOGIES INCORPORATED
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By:
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Name:
Xxxx Xxxxxxx
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Title:
Chief Financial Officer
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The
undersigned, XXXXXXXX TECHNOLOGIES, INC., ratifies, confirms and reaffirms,
all
and singular, the terms and conditions of: (a) a certain Unconditional Guaranty
dated as of August 4, 2006 (the “Guaranty”), and (b) a certain Stock Pledge
Agreement dated as of August 4, 2006 (the “Stock Pledge Agreement”) and
acknowledges, confirms and agrees that the Guaranty and Stock Pledge Agreement
each shall remain in full force and effect and shall in no way be limited by
the
execution of this Loan Modification Agreement, or any other documents,
instruments and/or agreements executed and/or delivered in connection
herewith.
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XXXXXXXX
TECHNOLOGIES, INC.
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By:
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Name:
Xxxx Xxxxxxx
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Title:
Chief Financial Officer
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Exhibit
A
EXHIBIT
C
COMPLIANCE
CERTIFICATE
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TO:
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SILICON
VALLEY BANK
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Date:
_________________________
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FROM:
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(A)
TECHNEST HOLDINGS, INC.
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(B)
E-OIR TECHNOLOGIES, INC.
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(C)
GENEX TECHNOLOGIES INCORPORATED
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The
undersigned authorized officer of Technest Holdings, Inc., E-OIR Technologies,
Inc. and Genex Technologies Incorporated (“Borrower”) certifies that under the
terms and conditions of the Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending
_______________ with all required covenants except as noted below, (2) there
are
no Events of Default, (3) all representations and warranties in the
Agreement are true and correct in all material respects on this date except
as
noted below; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified
or
modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such
date,
(4)
Borrower, and each of its Subsidiaries, has timely filed all required tax
returns and reports, and Borrower
has timely paid all foreign, federal, state and local taxes, assessments,
deposits and contributions owed by Borrower
except
as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any of
its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies
that
these are prepared in accordance with generally GAAP consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The undersigned acknowledges that no borrowings may be requested
at
any time or date of determination that Borrower is not in compliance with any
of
the terms of the Agreement, and that compliance is determined not just at the
date this certificate is delivered. Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.
Please
indicate compliance status by circling Yes/No under “Complies”
column.
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Reporting
Covenant
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Required
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Complies
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Monthly
financial statements with
Compliance
Certificate
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Monthly
within 30 days
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Yes
No
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Annual
financial statement (CPA Audited) + XX
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XXX
within 120 days
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Yes
No
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10-Q,
10-K and 8-K
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Within
5 days after filing with SEC
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Yes
No
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Deferred
Revenue Report, Funded Backlog schedules, A/R & A/P
Agings
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Monthly
within 30 days
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Yes
No
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__________________________
The
following Intellectual Property was registered after the Effective Date (if
no
registrations, state “None”)
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Financial
Covenant
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Required
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Actual
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Complies
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Maintain
on a Monthly Basis:
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Minimum
Quick Ratio*
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_____:1.0
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_____:1.0
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Yes
No
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Minimum
Fixed Charge Coverage Ratio**
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_____:1.0
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_____:1.0
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Yes
No
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EBITDA***
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$_______
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$_______
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*As
set
forth in Section 6.7(a) of the Loan and Security Agreement.
**As
set
forth in Section 6.7(b) of the Loan and Security Agreement.
***As
set
forth in Section 6.7(c) of the Loan and Security Agreement.
The
following financial covenant analyses and information set forth in Schedule
1
attached hereto are true and accurate as of the date of this
Certificate.
The
following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)
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Technest
Holdings, Inc.
By:
__________________________
Name:
________________________
Title:
_________________________
E-OIR
Technologies, Inc.
By:
__________________________
Name:
________________________
Title:
_________________________
Genex
Technologies Incorporated
By:
__________________________
Name:
________________________
Title:
_________________________
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BANK
USE ONLY
Received
by: _____________________
authorized
signer
Date:
_________________________
Verified:
________________________
authorized
signer
Date:
_________________________
Compliance
Status: Yes
No
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Schedule
1 to Compliance Certificate
Financial
Covenants of Borrower
Dated: ____________________
In
the
event of a conflict between this Schedule and the Loan Agreement, the terms
of
the Loan Agreement shall control.
I. Quick
Ratio
(Section
6.7(a))
Required: _____:1.00
Actual:
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A.
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Aggregate
value of the unrestricted cash at Bank and cash equivalents of
Borrower
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$
_________
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B.
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Aggregate
value of the net billed accounts receivable of Borrower
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$
_________
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C.
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Quick
Assets (the sum of lines A and B)
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$
_________
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D.
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Aggregate
value of liabilities of Borrower (including all Indebtedness) but
excluding Subordinated Debt permitted by Bank to be paid by Borrower
to
Affiliates
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$
_________
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E.
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Current
Liabilities (line D)
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$
_________
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F.
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Quick
Ratio (line C divided by line E)
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Is line F equal to or greater than ___:1:00?
______
No, not in compliance ______
Yes, in compliance
II. Fixed
Charge Coverage Ratio (See
definitions and Section 6.7(b))
Required:
_________
Actual:
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A.
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Borrower’s
EBITDA, plus non-cash stock compensation expenses and other non-cash
expenses as reasonably determined by Borrower and allowed by Bank,
plus Restructuring Fee
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$
________
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B.
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The
sum of Borrower’s
principal and interest payments on all debt, cash taxes, dividends
and
unfunded capital expenditures (not including amounts
paid to Xxxxxxxx pursuant to clause (c) of Section 7.8)
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$
________
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C.
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Fixed
Charge Coverage Ratio (line A divided by Line B)
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_____:1.00
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Is line C less than or equal to ____:1.00?
_____
No, not in compliance _____
Yes, in compliance
III. EBITDA
(see definitions and Section 6.7(c))
Required:
_____
Actual:
_____
______
No, not in compliance ______
Yes, in compliance
