Exhibit 10.1

[socketmobile.jpg]

 

 

FOURTH BUSINESS FINANCING MODIFICATION AGREEMENT
AND FORBEARANCE AGREEMENT

 

This Fourth Business Financing Modification Agreement and Forbearance Agreement
(this “BFMA”) is entered into as of June 4, 2018, by and between Socket Mobile,
Inc., a Delaware corporation (“Borrower”), and Western Alliance Bank, an Arizona
corporation, successor in interest to Bridge Bank, National Association
(“Lender”).

 

1.              DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness
which may be owing by Borrower to Lender, Borrower is indebted to Lender
pursuant to, among other documents, a Business Financing Agreement, dated
February 27, 2014, by and between Borrower and Lender, as amended by that
certain Business Financing Modification Agreement, dated as of February 26,
2016, that certain Business Financing Modification Agreement, dated as of March
20, 2017, and that certain Business Financing Modification Agreement, dated as
of January 31, 2018 (as so amended, the “Business Financing Agreement”).
Capitalized terms used without definition herein shall have the meanings
assigned to them in the Business Financing Agreement.

 

Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the “Obligations” and the Business Financing Agreement and any and all other
documents executed by Borrower in favor of Lender shall be referred to as the
“Existing Documents.”

 

By notice to Borrower dated April 12, 2018, Lender notified Borrower that
Borrower failed to comply with Sections 4.12(b) and (c) of the Business
Financing Agreement as at March 31, 2018 (as more particularly set forth in such
notice (collectively, the “Existing Defaults”).

 

Borrower has requested that Lender forbear from exercising its rights and
remedies with respect to the Existing Defaults until June 30, 2018, and Lender
has agreed with such request, subject to the terms and conditions set forth in
this BFMA.

 

2.             DESCRIPTION OF CHANGE IN TERMS.

 

A.Modifications to Business Financing Agreement:

 

(i)                  Section 1.1 of the Business Financing Agreement is hereby
amended in its entirety as follows:

 

1.1 Advances. Subject to the terms and conditions of this Agreement, from the
date on which this Agreement becomes effective until the Maturity Date, Lender
will make Advances to Borrower not exceeding the Credit Limit (subject at all
times to the Domestic Credit Limit and the EXIM Credit Limit) or the Borrowing
Base (subject at all times to the Domestic Borrowing Base and EXIM Borrowing
Base), whichever is less; provided that in no event shall Lender be obligated to
make any Advance that results in an Overadvance or while any Overadvance is
outstanding. Amounts borrowed under this Section may be repaid and reborrowed
during the term of this Agreement. It shall be a condition to each Advance that
(a) an Advance Request acceptable to Lender has been received by Lender,
accompanied by updated reporting required by Sections 4.8(g), (h), and (i)(ii),
each updated to no earlier than 2 business days prior to the date of the Advance
Request, and otherwise meeting the requirements of Sections 4.8(g), (h), and
(i)(ii), (b) all of the representations and warranties set forth in Section 3
are true and correct on the date of such Advance as though made at and as of
each such date, and (c)   no Default has occurred and is continuing, or would
result from such Advance.

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(ii)                Section 1.9 of the Business Financing Agreement is hereby
amended by adding the following sentence at the end thereof:

 

If at any time the Line of Credit is terminated or otherwise ceases to exist,
Borrower shall immediately secure in cash the entire Cash Management Sublimit on
terms acceptable to Lender.

 

(iii)               Section 1.10 of the Business Financing Agreement is hereby
amended in its entirety as follows:

 

1.10 Foreign Exchange Facility. Subject to and upon the terms and conditions of
this Agreement and any other agreement that Borrower may enter into with Lender
in connection with foreign exchange transactions (“FX Contracts”) and subject to
the availability under the Domestic Credit Limit and the Domestic Borrowing
Base, Borrower may request Lender to enter into FX Contracts with Borrower,
which shall be due no later than the Maturity Date unless cash secured on terms
satisfactory to Lender. Borrower shall conduct all its United States foreign
currency exchange business through Lender. The entire FX Amount will be treated
as an Advance for purposes of determining availability under the Domestic Credit
Limit and shall decrease, on a dollar-for-dollar basis, the amount available for
other Advances. Borrower shall pay any standard issuance and other fees that
Lender notifies Borrower will be charged for issuing and processing FX Contracts
for Borrower. The FX Amount shall at all times be equal to or less than FX
Sublimit. The “FX Amount” shall equal the amount determined by multiplying (i)
the aggregate amount, in United States Dollars, of FX Contracts between Borrower
and Lender outstanding as of any date of determination by (ii) the applicable
Foreign Exchange Reserve Percentage as of such date. The “Foreign Exchange
Reserve Percentage” shall be a percentage as determined by Lender, in its sole
discretion from time to time. If at any time the EXIM Line of Credit is
terminated or otherwise ceases to exist, Borrower shall immediately secure in
cash all obligations under the Foreign Exchange Facility on terms acceptable to
Lender.

 

(iv)              Sections 1.12(b) and (c) of the Business Financing Agreement
are hereby amended in their entirety as follows:

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(b)Borrower shall pay monthly principal reduction payments on the Term Advance,
each in an amount equal to $88,888.89, due and payable on the 1st day of each
month, commencing May 1, 2018. In addition to the foregoing, as soon as
practicable but in no event later than June 30, 2018, Borrower shall make one or
more principal reduction payments on the Term Advance in a minimum aggregate
amount sufficient to reduce the Term Advance balance to $1,000,000.

 

(c)Until such time as the outstanding principal balance of the Term Advance has
been reduced to $1,000,000 (or less), Borrower shall also pay to Lender 25% of
the Excess Cash Flow earned during each and every fiscal quarter during the
fiscal year ending December 31, 2018, commencing with respect to the fiscal
quarter ending March 31, 2018. Each such payment of Excess Cash Flow shall be
due concurrent with Borrower's delivery of its monthly financial statements for
the months ending March 31, 2018, June 30, 2018, September 30, 2018 and December
31, 2018 pursuant to Section 4.8(b) but in no event later than 30 days after the
end of each fiscal quarter, and shall be based upon the Excess Cash Flow for the
applicable fiscal quarter ended on such dates. Lender shall apply such Excess
Cash Flow toward principal payments owing on the Term Advance in accordance with
Section 1.12(b) in inverse order of maturity.

  

(v)                Section 2.2(h) of the Business Financing Agreement is hereby
amended in its entirety as follows:

 

(h)        Maintenance Fee. The accrued and unpaid Maintenance Fee shall be due
and payable within 10 calendar days after each Month End until such time that no
Events of Default exist for 2 consecutive fiscal quarters.

 

(vi)              Sections 4.8(g), (h) and (i) of the Business Financing
Agreement are hereby amended in their entirety as follows:

 

(g)Within 5 days after the 15th and last day of each calendar month, and with
each Advance Request, (i) a domestic borrowing base certificate, in form and
substance satisfactory to Lender and in substantially the form attached hereto
as Exhibit B, setting forth Domestic Eligible Receivables and Receivable Amounts
thereof as of the 15th and last day of the month, or as of no earlier than 2
business days prior to the date of the Advance Request, as applicable, and (ii)
an EXIM borrowing base certificate, in form and substance satisfactory to Lender
and in substantially the form attached hereto as Exhibit C, setting forth EXIM
Eligible Receivables and Receivable Amounts thereof, as of the 15th and last day
of the month.

 

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(h)Within 5 days after the 15th and last day of each calendar month, and with
each Advance Request, (i) a detailed aging of Borrower’s domestic receivables by
invoice date, together with payable aging by invoice date, and (ii) a detailed
aging of Borrower’s EXIM domestic receivables by due date, together with a
payable aging by due date, in each case as of the 15th and last day of the
month, or as of no earlier than 2 business days prior to the date of the Advance
Request, as applicable.

 

(i)(i) Within 10 days after the last day of each calendar month, distributor
sell-through reports, in form and substance acceptable to Lender, (ii) within 5
days after the 15th and last of each calendar month, and with each Advance
Request, (x) a deferred revenue report, (y) sales journal and cash receipts
journal, and (z) such other matters as Lender may request, in each case as of
the 15th and last day of the month, or as of no earlier than 2 business days
prior to the date of the Advance Request, as applicable.

 

(vii)             A new Section 4.8(l) is hereby added to the Business Financing
Agreement immediately following Section 4.8(k) thereof as follows:

 

(1)On Thursday of each week until such time that no Events of Default exist for
2 consecutive fiscal quarters, a 13 week cash flow projection.

 

(viii)           Section 4.12(a) of the Business Financing Agreement is hereby
amended in its entirety as follows:

 

(a)Asset Coverage Ratio not at any time less than the ratio indicated in the
table below opposite the applicable period in which the test date occurs, to be
tested at the end of each month:

 

Period: Minimum Asset Coverage Ratio Date of Fourth Amendment – June 29, 2018
0.85 to 1.00

June 30, 2018 – September 29,

2018

1.00 to 1.00

September 30, 2018 – December

30, 2018

1.10 to 1.00 December 31, 2018 and thereafter 1.25 to 1.00

 

(ix)              Section 4.12(b) of the Business Financing Agreement is hereby
amended in its entirety as follows:

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(a)The sum or Borrower’s unrestricted cash on deposit with Lender plus
availability under Section 1.1 at any time to be less than the lesser of

(i)            $1,000,000 or (ii) the outstanding principal balance of the Term
Advance, to be tested daily.

 

(x)Section 4.12(c) of the Business Financing Agreement is hereby deleted.

 

(xi)              The following defined term in Section 12.1 of the Business
Financing Agreement is hereby amended in its entirety as follows:

 

“Advance Rate” means (i) up to 80% (or up to 85% during the period commencing
the effective date of the Fourth Amendment through and including the due date
hereunder for Lender’s receipt of the borrowing base certificates due for
October 15, 2018 pursuant to Section 4.8(g)) in the case of Domestic Eligible
Receivables, and (ii) up to 80% in the case of EXIM Eligible Receivables, or in
each case, such greater or lesser percentage as Lender may from time to time
establish in its sole discretion upon notice to Borrower.

 

(xii)             The following defined terms are hereby added to Section 12.1
of the Business Financing Agreement in alphabetical order:

 

“Existing Defaults” is defined in the Fourth Amendment. “Forbearance Maturity
Date” means June 30, 2018.

“Forbearance Period” means the period of time commencing on the date of
effectiveness of the Fourth Amendment and continuing thereafter until the
earlier of (a) the Forbearance Maturity Date or (b) the occurrence of any
Forbearance Termination Event.

 

“Forbearance Termination Event” means the occurrence of any Event of Default
other than the Existing Defaults.

 

“Fourth Amendment” means that certain Fourth Business Financing Modification
Agreement and Forbearance Agreement, dated as of June 4, 2018, between the
Borrower and the Lender, amending this Agreement.

 

“Maintenance Fee” means the amount equal to 0.10 percentage points per month of
the ending daily Account Balance for the relevant period.

 

(xiii)           The following defined terms in Section 12.1 of the Business
Financing Agreement are hereby deleted:

 

                           “Capital Expenditures”

                           “Capital Lease”

                           “Capital Lease Obligations”

                           “Cash Flow”

                           “EBITDA”

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“Non-Financed Capital Expenditures”

“Term Advance Termination Fee”

“Fixed Charge Coverage Ratio”

“Total Funded Debt to EBITDA Ratio”

 

(xiv)           Exhibit A attached to the Business Financing Agreement is hereby
replaced with Exhibit A attached hereto.

 

3.             CONSISTENT CHANGES. The Existing Documents are each hereby
amended wherever necessary to reflect the changes described above.

 

4.              PAYMENT OF FEES. Upon execution hereof, Borrower shall pay
Lender a loan modification fee in the amount of $5,000, plus reimbursement for
all out-of-pocket expenses.

 

5.               ACKNOWLEDGMENT BY BORROWER OF EXISTING DEFAULTS. Borrower
hereby acknowledges that, as of the date hereof, each Existing Default has
occurred and is continuing. Borrower hereby waives the right to contest the
occurrence, existence, accuracy, or materiality of any Existing Default.

 

6.              LIMITED FORBEARANCE.

 

A.                 Subject to the terms and conditions of this BFMA, Lender
agrees to forbear from the exercise of its rights and remedies under the
Business Financing Agreement that arise solely from the occurrence and/or
continuation of any Existing Default until the expiration of the Forbearance
Period. THE FORBEARANCE GRANTED HEREIN IS A CONDITIONAL, LIMITED, TEMPORARY
FORBEARANCE RELATING SOLELY TO THE EXISTING DEFAULTS AND SHALL BE IN EFFECT ONLY
UNTIL THE EXPIRATION OF THE FORBEARANCE PERIOD.

 

B.                 Nothing set forth herein shall be considered as a waiver by
Lender of any Existing Default (which Events of Default Lender will suffer to
exist only upon the terms set forth in this BFMA) or of any other Event of
Default which may have occurred or which may be disclosed to or be discovered by
Lender prior to the date of this BFMA. Subject to the following sentence,
immediately following the expiration of the Forbearance Period, at Lender's
election and without notice to Borrower, Lender may enforce any or all of its
rights and remedies under the Business Financing Agreement and the other
Existing Documents, at law, or in equity.

 

C.                 Notwithstanding Section 6.A. of this BFMA, Lender reserves
the right at any time to impose default interest in accordance with the Business
Financing Agreement as a result of the Existing Defaults.

 

D.                 Borrower shall notify Lender within one business day
following its obtaining notice or knowledge of the occurrence of any Forbearance
Termination Event.

 

E.                  In the event that on or before the Forbearance Maturity Date
the outstanding principal balance of the Term Advance has been reduced to
$1,000,000 (or less), and no Forbearance Termination Event has occurred and is
continuing, the Existing Defaults shall be deemed automatically waived without
further action required by Lender. Any such waiver shall be effective only in
that specific instance and for the specific purpose for which it is given, and
such waiver shall not entitle Borrower to any other or further waiver in any
similar or other circumstances.

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7.            RATIFICATION OF EXISTING INDEBTEDNESS, LENDER'S SECURITY INTEREST
IN THE COLLATERAL, ETC. Borrower ratifies and reaffirms:

 

(i)     The validity and effectiveness of the Business Financing Agreement and
the other Existing Documents in light of the terms and provisions of this BFMA.
This acknowledgment and confirmation shall in no way be deemed to constitute a
requirement or admission by Lender that any such acknowledgment or confirmation
is required to maintain the effectiveness of the Business Financing Agreement
and the other Existing Documents, no such acknowledgment and confirmation being
so required. The Agreement and the other Existing Documents as modified hereby
shall remain in full force and effect;

 

(ii)Lender's perfected security interest in all Collateral;

 

(iii)    Borrower's obligations, liabilities, and duties under the Business
Financing Agreement and the other Existing Documents are absolute and
unconditional and are not subject to any present defenses, setoffs, claims, or
counterclaims, and any such present defenses, setoffs, claims, and counterclaims
are hereby expressly waived by Borrower;

 

(iv)    Lender has at no time directed or participated in any aspect of the
management of Borrower or the conduct of Borrower's business; Borrower has made
all of its business decisions independently of Lender, and Lender has limited
its actions to those solely of a lender of money; and notwithstanding any other
provision of this BFMA, the Business Financing Agreement, the Existing
Documents, or any other contract or instrument between Borrower and Lender: (i)
the relationship between Lender and Borrower shall be limited to the
relationship of a lender to a borrower in a commercial loan transaction; (ii)
Lender shall not be construed as a partner, joint venturer, alter-ego, manager,
controlling person, or other business associate or participant of any kind of
Borrower, and Lender does not intend to assume any such status at any time;
(iii) Lender has not engaged in any activities in connection with the Business
Financing Agreement which are outside the scope of the activities of a lender of
money within the meaning of Section 3434 of the California Civil Code or any
similar law, and Lender does not intend to assume at any time any responsibility
to any person in connection with any activities of or services rendered by
Borrower; and (iv) Lender shall not be deemed responsible for (or a participant
in) any acts, omissions, or decisions of Borrower;

 

(v)    Neither the requirements of good faith and fair dealing nor any other
theory, concept, or argument shall require Lender (i) to impart upon Borrower
any further or greater benefits, (ii) to suffer any prejudice or impairment of
any kind whatsoever, (iii) to suffer or permit any loss of or to the collateral
or any of Lender's rights, remedies, and interests, or (iv) to tolerate any
noncompliance with this BFMA, the Business Financing Agreement or the Existing
Documents, because Lender has bargained for and given valuable consideration for
this BFMA and its creation of express, explicit, and objective limits of what
benefits Lender is willing to provide to Borrower, and what, in return, Borrower
are required to provide to Lender; and

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(vi)    This BFMA, the Business Financing Agreement and the Existing Documents
provide a clear statement of Lender's requirements and obligations and creates
an agreed upon standard of performance that Lender is entitled to rely upon in
exercising and enforcing its remedies under the Business Financing Agreement and
the Existing Documents.

 

8.              TOLLING OF STATUTE OF LIMITATIONS.

 

A.                 Any and all statutes of limitations applicable to any and all
rights, causes of action, claims and remedies, or equitable claim or laches,
which Lender has or might have against Borrower arising out of or relating to
the circumstances and events described in the recitals shall be and hereby are
tolled and suspended effective at all times on and after the date of this BFMA.

 

B.                 Except for the tolling of the statute of limitations
applicable to Lender's rights, causes of action, claims and remedies against
each other party set forth above, nothing in this Section 8 is intended to
modify or amend the obligations of Borrower to Lender, or to be any waiver,
estoppel or election as to any right, claim, defense or objection of any Lender.
Any and all substantive rights of Lender are hereby expressly preserved.

 

C.                 It is expressly understood and agreed that nothing in this
Section 8 shall operate or be construed to defeat or diminish Lender's right to
file actions or assess claims against Borrower (in conformance with the terms of
this BFMA), without prior verbal or written notice, or any issue, including but
not limited to the matters discussed hereinabove.

 

9.              NO DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that,
as of this date, it has no defenses against the obligations to pay any amounts
under the Obligations. Borrower acknowledges that Lender would not enter into
this BFMA without Borrower’s assurance that it has no claims against Lender or
any of Lender’s officers, directors, employees or agents. Except for the
obligations arising hereafter under this BFMA, each Borrower releases Lender,
and each of Lender’s and entity’s officers, directors and employees from any
known or unknown claims that Borrower now has against Lender of any nature,
including any claims that Borrower, its successors, counsel, and advisors may in
the future discover they would have now had if they had known facts not now
known to them, whether founded in contract, in tort or pursuant to any other
theory of liability, including but not limited to any claims arising out of or
related to the Business Financing Agreement or the transactions contemplated
thereby. Borrower waives the provisions of California Civil Code section 1542,
which states:

 

A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM OR HER, MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH
THE DEBTOR.

 

The provisions, waivers and releases set forth in this section are binding upon
Borrower and its shareholders, agents, employees, assigns and successors in
interest. The provisions, waivers and releases of this section shall inure to
the benefit of Lender and its agents, employees, officers, directors, assigns
and successors in interest. The provisions of this section shall survive payment
in full of the Obligations, full performance of all the terms of this BFMA and
the Business Financing Agreement, and/or Lender’s actions to exercise any remedy
available under the Business Financing Agreement or otherwise.

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10.              CONTINUING VALIDITY. Borrower understands and agrees that in
modifying the existing Obligations, Lender is relying upon Borrower’s
representations, warranties, and agreements, as set forth in the Existing
Documents. Except as expressly modified pursuant to this BFMA, the terms of the
Existing Documents remain unchanged and in full force and effect. Lender’s
agreement to modifications to the existing Obligations pursuant to this BFMA in
no way shall obligate Lender to make any future modifications to the
Obligations. Nothing in this BFMA shall constitute a satisfaction of the
Obligations. It is the intention of Lender and Borrower to retain as liable
parties all makers and endorsers of Existing Documents, unless the party is
expressly released by Lender in writing. No maker, endorser, or guarantor will
be released by virtue of this BFMA. The terms of this paragraph apply not only
to this BFMA, but also to any subsequent Business Financing Modification
Agreements.

 

11.              CONDITIONS. The effectiveness of this BFMA is conditioned upon
payment of the fees and expenses set forth in Section 4 above and the execution
hereof by Lender and Borrower.

 

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12.              NOTICE OF FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY
REPRESENTS AND AGREES THAT: (A) THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES, (B) THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES, AND (C) THIS WRITTEN AGREEMENT MAY NOT BE CONTRADICTED BY
EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR
UNDERSTANDINGS OF THE PARTIES.

 

BORROWER: LENDER:    

SOCKET MOBILE, INC.

WESTERN ALLIANCE BANK,
an Arizona corporation

 

By: /s/ David W. Dunlap
Name: David W. Dunlap
Title: CFO

 

By:
Name:
Title:

 

 

 

 

 

 

 

 

 

 

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Exhibit A

Form of Compliance Certificate