Exhibit 10.1

 

FIRST AMENDMENT TO

LOAN AND SECURITY AGREEMENT, JOINDER, AND MODIFICATION TO LOAN DOCUMENTS

 

This First Amendment to Loan and Security Agreement, Joinder and Modification to
Loan Documents (this “Amendment”) is entered into as of September 25, 2014, by
and among MODERN SYSTEMS CORPORATION, a Delaware corporation, formerly known as
BluePhoenix Solutions USA, Inc., a Delaware corporation (“Modern”) and BP-AT
Acquisition Corporation, a Delaware corporation (“BP-AT”, and collectively with
Modern, “Borrowers”, and each individually, a “Borrower”), and COMERICA BANK
(“Bank”).

 

RECITALS

 

WHEREAS, BluePhoenix Solutions USA, Inc. and Bank entered into a Loan and
Security Agreement dated as of October 2, 2013 (as it may be amended from time
to time, “Agreement”);

 

WHEREAS, on August 7, 2014, BluePhoenix Solutions USA, Inc. filed a Certificate
of Amendment of Certificate of Incorporation, whereby changing its name to
Modern Systems Corporation, a Delaware corporation (the “Name Change
Amendment”);

 

WHEREAS, notwithstanding any provisions of the Loan Documents to the contrary,
Borrower has requested that Bank consent to the Name Change Amendment and
refrain from exercising its rights and remedies under the Loan Documents. Bank
hereby consents to the Amendment, subject to the terms and conditions set forth
below;

 

WHEREAS, Modern owns one hundred percent (100%) of the ownership interests of
BP-AT and BP-AT desires to become a party to the Agreement and certain Loan
Documents (as defined in the Agreement) under the terms and conditions set forth
herein;

 

WHEREAS, the parties desire to amend the Agreement further in accordance with
the terms of this Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1.           Incorporation by Reference. The Recitals and the documents referred
to therein are incorporated herein by this reference. Except as otherwise noted,
the terms not defined herein shall have the meaning set forth in the Loan
Documents.

 

2.            Modification to the Loan Documents. Subject to the satisfaction of
the conditions precedent as set forth herein, the Loan Documents are hereby
modified as set forth below:

 

(a)      Wherever the name BluePhoenix Solutions USA, Inc., a Delaware
corporation, is used in the Loan Documents, it shall hereafter mean Modern
Systems Corporation, a Delaware corporation.

 

3.             Joinder.

 

(a)      By execution and delivery of this Agreement, BP-AT shall, and does
hereby, become a Borrower (as defined in the Agreement) under the Agreement and
the applicable Loan Documents as if an original signatory thereto.

 

(b)      BP-AT further: (i) acknowledges and agrees that it has read the
Agreement and the Loan Documents, (ii) consents to all of the provisions of the
Agreement and the Loan Documents relating to a Borrower; and (iii) acknowledges
and agrees that this Amendment and the Agreement have been freely executed
without duress and after an opportunity was provided to BP- AT for review of
this Amendment by competent legal counsel of their choice.

 

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(c)       The parties hereto agree that all references to “Borrower” shall mean
and refer to Modern and BP-AT individually and collectively.

 

4. Amendments to Agreement.

 

(a)       Exhibit A to the Agreement is amended by adding (in the appropriate
alphabetical order) or amending and restating, as applicable, the following
defined terms to read in their entirety as follows:

 

“ ‘BP-AT’ means BP-AT Acquisition Corporation, a Delaware corporation, and its
successors and assigns.”

 

“ ‘Liquidity’ means the sum of Borrowers’ Cash at Bank plus eighty percent (80%)
of Eligible Accounts.”

 

“ ‘Merger’ means the transactions contemplated under the Agreement and Plan of
Merger dated as of August 5, 2014 among Borrowers, Sophisticated Business
Systems, Inc. (‘SBS’), Parent, Scott Miller, as Stockholder Representative, and
certain stockholders of SBS.”

 

“ ‘Modern’ means Modern Systems Corporation, a Delaware corporation, and its
successors and assigns.”

 

“ ‘Non-Formula Revolving Line’ means a Credit Extension of up to Two Million
Dollars ($2,000,000).”

 

“ ‘Non-Formula Revolving Line Maturity Date’ means December 31, 2015.”

 

“ ‘Revolving Line’ means a Credit Extension of up to (a) Five Hundred Thousand
Dollars ($500,000) and (b) upon the Revolving Line Increase Effective Date, and
provided no Event of Default has occurred and is continuing, One Million Five
Hundred Thousand Dollars ($1,500,000).”

 

“ ‘Revolving Line Increase Effective Date’ means the date on which Bank receives
evidence satisfactory to it of the closing of the Merger.”

 

“ ‘Revolving Line Maturity Date’ means December 31, 2015.”

 

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(b)      The first paragraph of Section 6.2 of the Agreement is amended and
restated to read in its entirety as follows:

 

“6.2     Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (i) as soon as available, but in any event within thirty (30) days after
the end of each calendar month, a company prepared consolidated and
consolidating balance sheet and income statement covering Modern’s and each
Subsidiaries’ operations during such period, prepared in accordance with GAAP,
and in a form reasonably acceptable to Bank and certified by a Responsible
Officer; (ii) as soon as available, but in any event within one hundred fifty
(150) days after the end of each fiscal year of Borrower, company prepared
consolidated and consolidating financial statements of Borrower, together with a
balance sheet and income statement covering Modern’s and each Subsidiaries’
operations during such period, prepared in accordance with GAAP, and in a form
reasonably acceptable to Bank and certified by a Responsible Officer; (iii) as
soon as available, but in any event within one hundred fifty (150) days after
the end of each fiscal year of Parent, commencing with the fiscal year ending
December 31, 2014, company prepared consolidating financial statements of
Parent, together with a balance sheet and income statement covering Parent’s and
each Subsidiaries’ operations during such period, prepared in accordance with
GAAP, and in a form reasonably acceptable to Bank and certified by an officer of
Parent; (iv) as soon as available, but in any event within one hundred fifty
(150) days after the end of Parent’s fiscal year, audited consolidated financial
statements of Parent prepared in accordance with GAAP, consistently applied,
together with an opinion which is unqualified (including no going concern
comment or qualification) or otherwise consented to in writing by Bank on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (v) if applicable, copies of all statements,
reports and notices sent or made available generally by Borrower to its security
holders or to any holders of Subordinated Debt and all reports on Forms 10-K and
10-Q filed with the Securities and Exchange Commission; (vi) promptly upon
receipt of notice thereof, a report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of Two Hundred Fifty Thousand Dollars ($250,000) or
more; (vii) as soon as available, but in any event not later than January 31 of
each year, Borrower’s financial and business projections and budget for the then
current or immediately following (as applicable) year, with evidence of approval
thereof by Borrower’s board of directors; (viii) such budgets, sales
projections, operating plans or other financial information generally prepared
by Borrower in the ordinary course of business as Bank may reasonably request
from time to time; and (ix) within thirty (30) days of the last day of each
fiscal quarter, a report signed by Borrower, in form reasonably acceptable to
Bank, listing any applications or registrations that Borrower has made or filed
in respect of any Patents, Copyrights or Trademarks and the status of any
outstanding applications or registrations, as well as any material change in
Borrower’s Intellectual Property Collateral, including but not limited to any
subsequent ownership right of Borrower in or to any Trademark, Patent or
Copyright not specified in Exhibits A, B, and C of any Intellectual Property
Security Agreement delivered to Bank by Borrower in connection with this
Agreement.”

 

(c)       Section 6.7 of the Agreement is amended and restated to read in its
entirety as follows:

 

“6.7   Financial Covenants. Borrower shall maintain the following financial
ratios and covenants:

 

(a)     Bank Debt Liquidity Coverage. Tested monthly as of the last day of each
month, commencing on the Revolving Line Increase Effective Date, a ratio of
Liquidity to all Indebtedness, other than Indebtedness that is guaranteed, to
Bank of at least 1.10 to 1.00.”

 

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(d)       New Article 14 is added to the Agreement immediately after Article 13
thereof to read in its entirety as follows:

 

“14.     CO-BORROWER PROVISIONS.

 

14.1   Primary Obligation. This Agreement is a primary and original obligation
of each Borrower and shall remain in effect notwithstanding future changes in
conditions, including any change of law or any invalidity or irregularity in the
creation or acquisition of any Obligations or in the execution or delivery of
any agreement between Bank and any Borrower. Each Borrower shall be liable for
existing and future Obligations as fully as if all of all Credit Extensions were
advanced to such Borrower. Bank may rely on any certificate or representation
made by any Borrower as made on behalf of, and binding on, all Borrowers,
including without limitation Disbursement Request Forms, Borrowing Base
Certificates and Compliance Certificates. Furthermore, the successful operation
of each Borrower is dependent on the continued successful performance of the
integrated group of Borrowers, such that each Borrower will benefit from any
Credit Extensions Bank makes to another Borrower.

 

14.2   Enforcement of Rights. Borrowers are jointly and severally liable for the
Obligations and Bank may proceed against one or more of the Borrowers to enforce
the Obligations without waiving its right to proceed against any of the other
Borrowers.

 

14.3   Borrowers as Agents. Each Borrower appoints the other Borrower as its
agent with all necessary power and authority to give and receive notices,
certificates or demands for and on behalf of both Borrowers, to act as
disbursing agent for receipt of any Credit Extensions on behalf of each Borrower
and to apply to Bank on behalf of each Borrower for Credit Extensions, any
waivers and any consents. This authorization cannot be revoked, and Bank need
not inquire as to each Borrower’s authority to act for or on behalf of Borrower.

 

14.4   Subrogation and Similar Rights. Notwithstanding any other provision of
this Agreement or any other Loan Document, each Borrower irrevocably waives all
rights that it may have at law or in equity (including, without limitation, any
law subrogating the Borrower to the rights of Bank under the Loan Documents) to
seek contribution, indemnification, or any other form of reimbursement from any
other Borrower, or any other Person now or hereafter primarily or secondarily
liable for any of the Obligations, for any payment made by the Borrower with
respect to the Obligations in connection with the Loan Documents or otherwise
and all rights that it might have to benefit from, or to participate in, any
security for the Obligations as a result of any payment made by the Borrower
with respect to the Obligations in connection with the Loan Documents or
otherwise. Any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section 14.4 shall be null and void. If
any payment is made to a Borrower in contravention of this Section 14.4, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.

 

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14.5   Waivers of Notice. Except as otherwise provided in this Agreement, each
Borrower waives notice of acceptance hereof; notice of the existence, creation
or acquisition of any of the Obligations; notice of an Event of Default; notice
of the amount of the Obligations outstanding at any time; notice of intent to
accelerate; notice of acceleration; notice of any adverse change in the
financial condition of any other Borrower or of any other fact that might
increase the Borrower’s risk; presentment for payment; demand; protest and
notice thereof as to any instrument; default; and all other notices and demands
to which the Borrower would otherwise be entitled. Each Borrower waives any
defense arising from any defense of any other Borrower, or by reason of the
cessation from any cause whatsoever of the liability of any other Borrower.
Bank’s failure at any time to require strict performance by any Borrower of any
provision of the Loan Documents shall not waive, alter or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Nothing
contained herein shall prevent Bank from foreclosing on the Lien of any deed of
trust, mortgage or other security instrument, or exercising any rights available
thereunder, and the exercise of any such rights shall not constitute a legal or
equitable discharge of any Borrower. Each Borrower also waives any defense
arising from any act or omission of Bank that changes the scope of the
Borrower’s risks hereunder.

 

14.6   Subrogation Defenses. Each Borrower hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any other
Borrower and waives all benefits which might otherwise be available to it under
California Civil Code Sections 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821,
2822, 2838, 2839, 2845, 2847, 2848, 2849, 2850, 2899 and 3433 and California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory
provisions are now in effect and hereafter amended, and under any other similar
statutes now and hereafter in effect.

 

14.7    Right to Settle, Release.

 

(a)   The liability of Borrowers hereunder shall not be diminished by (i) any
agreement, understanding or representation that any of the Obligations is or was
to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, of rights, if any, which
Bank may now or hereafter have against any other Person, including another
Borrower, or property with respect to any of the Obligations.

 

(b)   Without affecting the liability of any Borrower hereunder, Bank may (i)
compromise, settle, renew, extend the time for payment, change the manner or
terms of payment, discharge the performance of, decline to enforce, or release
all or any of the Obligations with respect to a Borrower, (ii) grant other
indulgences to a Borrower in respect of the Obligations, (iii) modify in any
manner any documents relating to the Obligations with respect to a Borrower,
(iv) release, surrender or exchange any deposits or other property securing the
Obligations, whether pledged by a Borrower or any other Person, or (v)
compromise, settle, renew, or extend the time for payment, discharge the
performance of, decline to enforce, or release all or any obligations of any
guarantor, endorser or other Person who is now or may hereafter be liable with
respect to any of the Obligations.

 

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14.8   Subordination. All indebtedness of a Borrower now or hereafter arising
held by another Borrower is subordinated to the Obligations and the Borrower
holding the indebtedness shall take all actions reasonably requested by Lender
to effect, to enforce and to give notice of such subordination.”

 

(e)       Notwithstanding anything to the contrary set forth in the Agreement,
Borrowers acknowledge and agree that Eligible Accounts shall not include any
Accounts owing to BP-AT, or any successor in interest to BP-AT, until Bank
receives an audit of Accounts, the results of which are satisfactory to Bank.

 

(f)       Exhibit E to the Agreement is deleted and replaced with Exhibit E
attached hereto.

 

5.       Borrowers acknowledge and agree that upon the closing of the Merger,
they shall promptly execute and deliver to Bank all documents (including without
limitation, an amendment to the Agreement) and provide to Bank all information
reasonably requested by Bank in connection therewith.

 

6.       No course of dealing on the part of Bank or its officers, nor any
failure or delay in the exercise of any right by Bank, shall operate as a waiver
thereof, and any single or partial exercise of any such right shall not preclude
any later exercise of any such right. Bank’s failure at any time to require
strict performance by any Borrower of any provision shall not affect any right
of Bank thereafter to demand strict compliance and performance. Any suspension
or waiver of a right must be in writing signed by an officer of Bank.

 

7.       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.

 

8.       Each Borrower represents and warrants that the representations and
warranties contained in the Agreement are true and correct in all material
respects as of the date of this Amendment except to the extent such
representation or warranty expressly relates to an earlier date, and that
(except as set forth in the waiver letter between Borrowers and Bank dated as of
the date hereof) no Event of Default has occurred and is continuing.

 

9.       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 each Borrower;         (b)a Certificate of
the Secretary of each Borrower with respect to incumbency and resolutions
authorizing the execution and delivery of this Amendment;         (c)an amended
and restated guaranty, executed by Columbia Pacific Opportunity Fund, L.P.;  
      (d)a guaranty, executed by Prescott Group Aggressive Small Cap Master
Fund;         (e)resolutions and incumbency certifications executed by each
guarantor;         (f)all reasonable Bank Expenses incurred through the date of
this Amendment, which may be debited from any of Borrower’s accounts with Bank;
and         (g)such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.

 

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10.       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.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, and, with respect to BP-AT, intending to be legally bound by
the terms of the Agreement and any of other documents executed in connection
therewith, Borrowers and Bank have executed and delivered this First Amendment
to Loan and Security Agreement and Joinder as of the date first set forth above.

 

  MODERN SYSTEMS CORPORATION, a Delaware corporation, formerly known as
BluePhoenix Solutions USA, Inc.         By: /s/ Rick Rinaldo         Printed
Name: Rick Rinaldo         Title: CFO         BP-AT ACQUISITION CORPORATION,
a Delaware corporation         By: /s/ Rick Rinaldo         Printed Name: Rick
Rinaldo         Title: CFO         COMERICA BANK         By: /s/ Michael
Fishback         Printed Name: Michael Fishback         Title: Vice President

 

 

 

 

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