Exhibit 10.2

 

FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

 

This First Amendment to Loan and Security Agreement is entered into as of March
__, 2019 (the “Amendment”), by and between CATASYS, INC. (“Parent”), ANXIOLITIX,
INC. (“Anxiolitix”), CATASYS HEALTH, INC. (“Catasys Health”), and HERITAGE BANK
OF COMMERCE (“Bank”). Parent, Anxiolitix and Catasys Health are also
individually referred to herein as “Borrower” and collectively referred to as
the “Borrowers”.

 

RECITALS

 

Borrowers and Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of June 14, 2018 and as amended from time to time (the
“Agreement”). The parties desire to amend the Agreement in accordance with the
terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1.            The following definitions are added to Section 1.1 of the
Agreement in alphabetical order:

 

“Billings” means the aggregate dollar value of the invoices generated by Parent
and sent to its customers during a measurement period as a result of services
rendered, or products sold, by Parent to such customers during such measurement
period.

 

“Horizon” means Horizon Technology Finance Corporation and its Affiliates.

 

“Horizon Loan Agreement” means that certain Amended and Restated Venture Loan
and Security Agreement by and between Borrowers and Horizon dated as of February
__, 2019.

 

“Required Remaining Months Liquidity Amount” means, as of the last day of each
month (the “Measurement Date”), an amount equal to the sum of (a) the whole
value of the aggregate net operating loss of Borrowers (on a consolidated basis,
without giving effect to any losses arising from stock-related compensation
expenses and warrants) during the three (3) consecutive months ending on the
Measurement Date plus (b) all principal and interest scheduled to be paid under
all Indebtedness (including Indebtedness owing to Bank and Indebtedness owing to
Horizon under the Horizon Loan Agreement) during the three (3) consecutive
months immediately following the Measurement Date.

 

2.            The following definition in Section 1.1 of the Agreement is
amended and restated in its entirety to read as follows:

 

“Remaining Months Liquidity” means the amount of Borrowers’ unrestricted cash
maintained in their accounts with Bank plus the amount available for borrowing
under the Revolving Facility (subject to Section 2.1(a)(iii) of this Agreement)
plus the “Revolving Loan Availability Amount” as defined in the Horizon Loan
Agreement.

 

3.            Clauses (a) and (e) of the defined term “Permitted Indebtedness”
set forth in Section 1.1 of the Agreement are amended and restated in their
entirety to read as follows:

 

(a) Indebtedness of Borrowers in favor of Bank arising under this Agreement, any
other Loan Document or any other agreement between a Borrower and Bank;

 

(e) Indebtedness in an aggregate amount not to exceed $15,000,000 in principal,
plus any accrued interest, owing to Horizon pursuant to the Horizon Loan
Agreement, subject to an intercreditor agreement in form and substance
reasonably satisfactory to Bank;

 

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4.            Clause (a) of the defined term “Permitted Liens” set forth in
Section 1.1 of the Agreement is amended and restated in its entirety to read as
follows:

 

(a) Any Liens existing on the Closing Date and disclosed in the Schedule or
arising under this Agreement, the other Loan Documents, or any other agreement
between a Borrower and Bank;

 

5.            The following is added to as a new subsection (iii) to the end of
Section 2.1(a) of the Agreement:

 

(iii) Notwithstanding anything to the contrary set forth in this Section 2.1, no
Advances shall be available to be made to Borrowers, and Borrowers shall not
request any Advances, (A) until after Borrowers’ Billings for a three (3)
consecutive calendar month period is at least Ten Million Dollars ($10,000,000);
and (B) Borrowers’ Remaining Months Liquidity, immediately prior to such Advance
request and after giving effect to the funding of such Advance is at least the
Required Remaining Months Liquidity Amount.

 

6.            The following is added as a new subsection (b) to the end of
Section 2.1 of the Agreement:

 

(b) Bank Services. From time to time, Borrowers may request, and Bank may
provide, various bank services to Borrowers, including automated clearing house
transactions, controlled disbursement accounts and check cashing services and
the issuance of letters of credit (“Bank Services”), subject to Borrower’s
execution and delivery of Bank’s standard agreements with respect to such Bank
Services. Any amounts a Borrower owes Bank pursuant to such Bank Services shall
be deemed to be Obligations hereunder, and may be secured by cash collateral in
such amounts and on terms reasonably acceptable to Bank.

 

7.            The following is added as a new subsection (j) to the end of
Section 6.3 of the Agreement:

 

(j) within thirty (30) days after the last day of each month, a Billings report.

 

8.            Section 6.9(c) of the Agreement is amended and restated in its
entirety to read as follows:

 

(c) Remaining Months Liquidity.

 

(i)      Borrowers’ Remaining Months Liquidity, measured on a monthly basis
beginning with the month ending June 30, 2019 (as reported by Borrowers on
financial statements to be delivered no later than July 30, 2019) and continuing
until the date on which Borrowers receive cash proceeds of not less than Ten
Million Dollars ($10,000,000) from the sale of Parent’s equity securities, shall
be at least the greater of (x) Four Million Dollars ($4,000,000) and (y) the
Required Remaining Months Liquidity Amount.

 

(ii)     Commencing on the date on which Borrowers receive cash proceeds of not
less than Ten Million Dollars ($10,000,000) as a result of the sale of Parent’s
equity securities, and continuing until the repayment in full of the
Obligations, Borrowers shall, on the last day of each calendar month, maintain a
Remaining Months Liquidity in an aggregate amount not less than the Required
Remaining Months Liquidity Amount.

 

9.            The form of Compliance Certificate previously provided to
Borrowers on the Closing Date is replaced in its entirety with the form of
Compliance Certificate separately provided to Borrowers by Bank on or around the
date hereof.

 

10.           Each Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct as of the date of
this Amendment, and that no Event of Default has occurred and is continuing.

 

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11.           Unless otherwise defined, all initially capitalized terms in this
Amendment shall be as defined in the Agreement. The Agreement, as amended
hereby, shall be and remain in full force and effect in accordance with its
respective terms and hereby is ratified and confirmed in all respects. Except as
expressly set forth herein, the execution, delivery, and performance of this
Amendment shall not operate as a waiver of, or as an amendment of, any right,
power, or remedy of Bank under the Agreement, as in effect prior to the date
hereof. Each Borrower ratifies and reaffirms the continuing effectiveness of all
agreements entered into in connection with the Agreement.

 

12.           This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one instrument. In the event that any signature is delivered by facsimile
transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
facsimile or “.pdf” signature page were an original hereof. Notwithstanding the
foregoing, Borrowers shall deliver all original signed documents no later than
ten (10) Business Days following the date of execution.

 

13.           As a condition to the effectiveness of this Amendment, Bank shall
have received, in form and substance satisfactory to Bank, the following:

 

(a)     this Amendment, duly executed by Borrowers;

 

(b)     amended and restated intercreditor agreement executed by Horizon;

 

(c)     payment of an amendment fee equal to $2,500, plus an amount equal to all
Bank Expenses incurred through the date of this Amendment; and

 

(d)     such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.

 

 

BORROWERS:

         

CATASYS, INC.

         

By:

     

Name:

     

Title:

                   

ANXIOLITIX, INC.

         

By:

     

Name:

     

Title:

                   

CATASYS HEALTH, INC.

         

By:

     

Name:

     

Title:

                     

BANK:

         

HERITAGE BANK OF COMMERCE

         

By:

     

Name:

     

Title:

   

 

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