Exhibit 10.19
 
[img001.jpg]
 
 
Borrowing Base Rider
 
 
THIS BORROWING BASE RIDER (“Rider”) is made as of the effective date of
September 28, 2013, by and between BREKFORD CORP., a Delaware corporation (the
“Borrower”) with an address at 7020 Dorsey Road, Suite C, Hanover, MD  21076,
and PNC BANK, NATIONAL ASSOCIATION (the “Bank”), with an address at 8593
Baltimore National Pike, Ellicott City, Maryland  21043. This Rider is
incorporated into and made part of that certain Loan Agreement dated as of June
28, 2012 (as amended by that certain First Amendment to Loan Documents dated as
of December 21, 2012 by and between the Borrower and the  Bank (the “First
Amendment”), by that certain Second Amendment to Loan Documents dated of even
date herewith by and between the Borrower and the Bank (the “Second Amendment”)
and as otherwise amended, restated, modified, substituted, extended, and renewed
from time to time, the “Loan Agreement”) and promissory note dated as of June
28, 2012 (as amended by the First Amendment and the Second Amendment and as
amended, restated, modified, substituted, extended, and renewed from time to
time, the “Note”) and also into certain other financing documents and security
agreements executed by and between the Borrower and the Bank (all such
documents, as amended, restated, modified, substituted, extended, and renewed
from time to time, including this Rider are collectively referred to as the
“Loan Documents”).  All initially capitalized terms not otherwise defined in
this Rider shall have the same meanings assigned to such terms in the other Loan
Documents.

Pursuant to the Loan Documents, the Bank has extended a “Facility” or “Loans”
(as defined in the Loan Documents) to the Borrower, under which the Borrower may
borrow, repay and reborrow funds at any time prior to the Expiration Date (such
Facility or Loans being referred to herein as the “Facility”).  As a condition
to the Bank’s willingness to extend the Facility to the Borrower, the Bank and
the Borrower are entering into this Rider in order to set forth their agreement
regarding the maximum amount which may be outstanding under the Facility at any
time, and for the other purposes set forth below.

NOW, THEREFORE, with the foregoing background deemed incorporated by reference
and made a part hereof, the parties hereto, intending to be legally bound,
covenant and agree as follows:

1.           Limitations on Borrowings Under Facility.  Notwithstanding any
provision to the contrary in any of the other Loan Documents, at no time shall
the aggregate principal amount of indebtedness outstanding at any one time under
the Facility exceed the Borrowing Base (as hereinafter defined) at such
time.  If at any time the aggregate principal amount of indebtedness outstanding
under the Facility exceeds the limitations set forth in this Section 1 for any
reason, then the Borrower shall immediately repay the amount of such excess to
the Bank in immediately available funds.

2.           Borrowing Base Certificates.  In addition to any and all provisions
of the other Loan Documents which establish conditions to the Borrower’s ability
to request and obtain any advance under the Facility, the Borrower may not
request an advance under the Facility unless a Borrowing Base Certificate (as
hereinafter defined) shall have been delivered to the Bank on or before the 15th
day of each month.

3.           Certain Defined Terms.  In addition to the words and terms defined
elsewhere in this Rider or in the other Loan Documents, the following words and
terms, as used in this Rider, shall have the following meanings:

“Account” shall mean an “account” or a “general intangible” as defined in the
Uniform Commercial Code as in effect in the jurisdiction whose Law governs the
perfection of the Bank’s security interest therein, whether now owned or
hereafter acquired or arising.

“Account Debtor” shall mean, with respect to any Account, each Person who is
obligated to make payments to the Borrower on such Account.

“Affiliate” of the Borrower or any Account Debtor shall mean (a) any Person who
(either alone or with a group of Persons, and either directly or indirectly
through one or more intermediaries) is in control of, is controlled by or is
under common control with the Borrower or such Account Debtor, (b) any director,
officer, partner, employee or agent of the Borrower or such Account Debtor, and
(c) any member of the immediate family of any natural person described in the
preceding clauses (a) and (b).  A Person or group of Persons shall be deemed to
be in control of the Borrower or an Account Debtor when such Person or group of
Persons possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the Borrower or such Account Debtor,
whether through the ownership of voting securities, by contract or otherwise.

 
1

--------------------------------------------------------------------------------

 
“Borrowing Base” at any time shall mean the lesser of (a) $3,000,000 and (b) the
sum of (i) eighty percent (80%) of Qualified Accounts at such time and (ii)
fifty percent (50%) of Qualified Inventory at such time; provided, however,
that, if the blank in this proviso clause is completed, the total amount of
advances allocable to Qualified Inventory shall not exceed $500,000.00 at any
time.  The value of Qualified Accounts and Qualified Inventory at any time shall
be determined by reference to the most recent Borrowing Base Certificate
delivered by the Borrower to the Bank.

“Borrowing Base Certificate” shall mean each Borrowing Base Certificate to be
delivered by the Borrower to the Bank pursuant to Section 2 of this Rider, in
substantially the form attached as Exhibit A to this Rider, executed by the
Borrower and with blanks appropriately completed, as amended, supplemented or
otherwise modified from time to time.

“Eligible Location” shall mean one of the addresses in the United States of
America at which the Borrower maintains, keeps or stores Inventory, as listed in
the Security Agreement executed and delivered by the Borrower and the Bank in
connection with the Facility, and, if such location is leased by the Borrower,
for which the Bank has received a landlord’s waiver acceptable to the Bank.  The
Borrower and the Bank may agree jointly to add other addresses of the Borrower
to such list at any time by executing and delivering a substitute list of
addresses under said Security Agreement.  The Bank may in its discretion at any
time determine that any address on such list shall no longer be an Eligible
Location, by giving written notice of such determination to the Borrower.

“Inventory” shall mean “inventory” as defined in the Uniform Commercial Code as
in effect in the jurisdiction whose Law governs the perfection of the Bank’s
security interest therein, whether now owned or hereafter acquired and wherever
located.

“Law” shall mean any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
Official Body.

“Lien” shall mean any mortgage, pledge, security interest, bailment,
encumbrance, claim, lien or charge of any kind, including any agreement to give
any of the foregoing, any conditional sale or other title retention agreement
and any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code.

“Official Body” shall mean any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of any government or political subdivision, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

“Person” shall mean an individual, sole proprietorship, corporation, partnership
(general or limited), trust, business trust, limited liability company,
unincorporated organization or association, joint venture, joint-stock company,
Official Body, or any other entity of whatever nature.

“Qualified Accounts” shall mean Accounts which are and at all times continue to
be acceptable to the Bank in its sole discretion.  Standards of acceptability
include but are not limited to the following conditions:

(a)           The Account duly complies with all applicable Laws, whether
Federal, state or local, including but not limited to usury Laws, the Federal
Truth in Lending Act, the Federal Consumer Credit Protection Act, the Fair
Credit Billing Act, and Regulation Z of the Board of Governors of the Federal
Reserve System;

(b)           The Account was not originated in, and is not subject to the Laws
of, a jurisdiction whose Laws would make the account or the grant of the
security interest in the Account to the Bank unlawful, invalid or unenforceable;

(c)           The Account was originated by the Borrower in connection with the
sale of goods or the rendering of services by the Borrower in the ordinary
course of business under an enforceable contract, and such sale has been
consummated and such goods have been delivered or such services have been
rendered so that the performance of such contract has been completed by the
Borrower and by all parties other than the Account Debtor;

(d)           The Account is evidenced by a written invoice or other
documentation and arises from a contract, all of which are in form and substance
satisfactory to the Bank;

(e)           The Account does not arise out of a contract with, or order from,
an Account Debtor that, by its terms, forbids or makes void or unenforceable the
grant of the security interest by the Borrower to the Bank in and to the Account
arising with respect thereto;

(f)           The title of the Borrower to the Account and, except as to the
Account Debtor, to any related goods is absolute and is not subject to any Lien
except Liens in favor of the Bank;

(g)           The Account provides for payment in United States Dollars by the
Account Debtor;

 
2

--------------------------------------------------------------------------------

 
(h)           The Account shall have amounts owing that are not less than the
amounts represented by the Borrower;

(i)           The portion of the Account for which income has not yet been
earned or which constitutes unearned discount, service charges or deferred
interest shall be ineligible;

(j)           The Account shall be eligible only to the extent that it is not
subject to any defense, claim of reduction, counterclaim, set-off, recoupment,
or any dispute or claim for credits, allowances or adjustments by the Account
Debtor because of returned, inferior, damaged goods or unsatisfactory services,
or for any other reason;

(k)           The goods the sale of which gave rise to the Account were shipped
or delivered or provided to the Account Debtor on an absolute sale basis and not
on a bill and hold sale basis, a consignment sale basis, a guaranteed sale
basis, a sale or return basis, or on the basis of any other similar terms making
the Account Debtor’s payment obligations conditional;

(l)           The Account Debtor has not returned, rejected or refused to
retain, or otherwise notified the Borrower of any dispute concerning, or claimed
nonconformity of, any of the goods from the sale of which the Account arose;

(m)           No default exists under the Account by any party thereto, and all
rights and remedies of the Borrower under the Account are freely assignable by
the Borrower;

(n)           The Account has not been outstanding for more than ninety (90)
days past the invoice date (or, in the case of Accounts owing from the Mayor
and  City Council of Baltimore or any related agency thereof, one hundred and
eighty (180) days past the invoice date) and is not subject to “dating” terms;

(o)           The Account shall be ineligible if 50% or more of the accounts of
the related Account Debtor and its Affiliates are more than ninety (90) days
past due from the date of original invoice therefor (or, in the case of Accounts
owing from the Mayor and City Council of Baltimore or any related agency
thereof, one hundred and eighty (180) days past due from the date of original
invoice therefor);

(p)           The Account shall be ineligible to the extent that the aggregate
amount of all the Accounts of the Account Debtor and its Affiliates exceed 20%
of all of the Borrower’s Accounts; provided, however, that this subsection (p)
shall not apply to Accounts owing from the Mayor and City Council of Baltimore
or any related agency thereof;

(q)           The Borrower has not received any note, trade acceptance, draft,
chattel paper or other instrument with respect to, or in payment of, the
Account, unless, if any such instrument has been received, the Borrower
immediately notifies the Bank and, at the Bank’s request, endorses or assigns
and delivers such instrument to the Bank;

(r)           The Borrower has not received any notice of (i) the death of the
Account Debtor, if an individual, or of a partner or member thereof if a
partnership or a limited liability company, (ii) the filing by or against the
Account Debtor of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or any similar proceeding, or (iii)
any assignment by the Account Debtor for the benefit of creditors.  Upon receipt
by the Borrower of any such notice, it will give the Bank prompt written notice
thereof;

(s)           The Account Debtor is not an Affiliate of the Borrower;

(t)           The Account shall be ineligible if the related Account Debtor is
domiciled in any country other than the United States of America or the Province
of Ontario, Canada, or a Province of Canada which has adopted and has in effect
the Personal Property Security Act, unless such Account is supported by a
documentary letter of credit, duly assigned to and in the possession of the
Bank, from a financial institution acceptable to the Bank and the terms and
conditions of which are acceptable to the Bank;

(u)           The Account shall be ineligible if the Account Debtor is an
Official Body, unless the Borrower shall have taken all actions deemed necessary
by the Bank in order to perfect the Bank’s security interest therein, if the
Bank has so requested, including but not limited to any notices or filings
required under the Assignment of Claims Act of 1940, as amended, or other
applicable Laws;

(v)           The Bank has not deemed such Account ineligible because of
uncertainty about the creditworthiness of the Account Debtor (including, without
limitation, unsatisfactory past experiences of the Borrower or the Bank with the
Account Debtor or unsatisfactory reputation of the Account Debtor) or because
the Bank otherwise makes a determination that the collateral value of the
Account to the Bank is impaired or that the Bank’s ability to realize such value
is insecure;

 
3

--------------------------------------------------------------------------------

 
(w)           The Account shall be eligible only to the extent that the amount
owing on the Account is not a Payment Intangible; and

(x)           The Account shall comply with the additional eligibility
standards, if any, which are set forth on Exhibit B to this Rider.Standards of
acceptability shall be fixed and may be revised from time to time solely by the
Bank in its exclusive judgment.  In the case of any dispute about whether an
Account is or has ceased to be a Qualified Account, the decision of the Bank
shall be final.

“Qualified Inventory” shall mean the Borrower’s Inventory of saleable raw
materials and finished goods manufactured or acquired by the Borrower in the
ordinary course of business, subject to its control or sole possession, stored
in an Eligible Location and in a manner acceptable to the Bank, valued at the
lower of cost or market value (determined on a first-in, first-out basis), which
is not subject to any Lien except Liens in favor of the Bank, which complies
with the additional eligibility standards, if any, which are set forth on
Exhibit B to this Rider, and which is and at all times continues to be
acceptable to the Bank.  Standards of acceptability shall be fixed and may be
revised from time to time exclusively by the Bank in its sole discretion.  In
the case of any dispute about whether Inventory is or has ceased to be Qualified
Inventory, the decision of the Bank shall be final.

“Payment Intangible” shall mean a “payment intangible” as defined in the Uniform
Commercial Code as in effect in the jurisdiction whose Law governs the
perfection of the Bank’s security interest in the Accounts.

4.           Governing Law.  This Rider will be interpreted and the rights and
liabilities of the parties hereto determined in accordance with the laws of the
State where the Bank’s office indicated above is located, excluding its
conflicts of laws rules.

5.           Counterparts.  This Rider may be signed in any number of
counterpart copies and by the parties hereto on separate counterparts, but all
such copies shall constitute one and the same instrument.  Delivery of an
executed counterpart of a signature page to this Agreement by facsimile
transmission shall be effective as delivery of a manually executed
counterpart.  Any party so executing this Agreement by facsimile transmission
shall promptly deliver a manually executed counterpart, provided that any
failure to do so shall not affect the validity of the counterpart executed by
facsimile transmission.

[Signatures follow on the next page.]
 
 
4

--------------------------------------------------------------------------------

 
 
WITNESS the due execution hereof as a document under seal, as of the date first
written above.
 
WITNESS:
BREKFORD CORP., a Delaware corporation
 
   
/s/___________________________________
By: /s/ Chandra (C.B.) Brechin_________(SEAL)
 
      Chandra (C.B.) Brechin
      Chief Executive Officer
 
 
 
/s/___________________________________
 
 
 
By: /s/ Scott Rutherford_______________(SEAL)
 
       Scott Rutherford
       President

 
PNC BANK, NATIONAL ASSOCIATION
       
/s/___________________________________
By: /s/ Stephen D. Palmer_____________(SEAL)
 
      Stephen D. Palmer
 
      Senior Vice President

 
5

--------------------------------------------------------------------------------

 
 
EXHIBIT A
TO BORROWING BASE RIDER
 
[img001.jpg]

Borrowing Base Certificate
 
THIS BORROWING BASE CERTIFICATE, dated as of _________________  _____, _______,
is executed and delivered by the undersigned borrower (the “Borrower”) in favor
of PNC BANK, NATIONAL ASSOCIATION (the “Bank”), pursuant to a letter agreement
or loan agreement dated as of December 21, 2012 (including any Borrowing Base
Rider executed pursuant thereto and made a part thereof, and as amended or
otherwise modified from time to time, the “Agreement”).  All initially
capitalized terms used in this Certificate shall have the meanings assigned to
them in the Agreement.  To induce the Bank to make loans and other financial
accommodations available to the Borrower under the Agreement, the Borrower
hereby certifies, represents and warrants to the Bank, as of the date hereof,
that (a) the person signing below is an authorized officer or representative of
the Borrower; (b) the statements below concerning the collateral securing the
Obligations are true and complete; (c) the eligible collateral described below
represents only Qualified Accounts and Qualified Inventory; (d) the Borrower is
in compliance with all of the terms and provisions of the Agreement and the
other Loan Documents; (e) all of the Borrower's representations and warranties
in the Agreement and the other Loan Documents are true and correct; and (f) no
Event of Default has occurred and is continuing or exists.
 
1. Collateral Availability
                 
A.  Accounts Receivable
 
C.  Other Assets
              1.   Beginning A/R Balance  $_____________ 15.  Other Collateral
Value  $_____________   2.   Changes to A/R Balance $_____________ 16.  Advance
Percentage or Cap  ___% / $______   3.   Total A/R      $_____________
17.  Other Borrowing Availability
    4.   Ineligible A/R  $_____________ (L15 X L16)  $_____________  
5.   Qualified A/R (L3 - L4)  $_____________
18.  Total Availability
    6.   Advance Percentage    ______% (Sum of L7, L14 & L17) $_____________  
7.   A/R Borrowing Availability
              (L5 X L6)   $_____________
2.  Borrowing Availability
                  19.  Maximum Line Amount   $_____________  
B.  Inventory
  20.  Total Availability (L18)  $_____________      
21.  Maximum Borrowing Capacity
    8.   Beginning Inventory Balance   $_____________ (lesser of L19 and L20) 
$_____________   9.   Changes to Inventory Balance  $_____________
22.  Outstanding Principal Balance  $_____________   10. Total Inventory      
$_____________ 23. L/C’s, other items to be covered $_____________  
11.  Ineligible Inventory   $_____________
24.  Available to Borrow
    12. Qualified Inventory (L10 - L11) $_____________ L21 - L22 - L23
$_____________   13.  Advance Percentage or Cap  ___% / $______ 25.  Advance
Request  $_____________  
14.  Inv. Borrowing Availability
  26.  New Line Balance $_____________          (lesser of L12 X L13 or cap)
$_____________ 27.  Collateral Coverage $_____________            

 
Dated:
______________________________                                              ___________________________________
(Borrower Name)

Certificate
No.:______________________________                                By:  ______________________________________
Print Name: ________________________________
Title:_____________________________________

 
6

--------------------------------------------------------------------------------