Exhibit 10.1

 

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is
effective this 28th day of December, 2017, by and among GUARANTY BANK AND TRUST
COMPANY, a Colorado bank (“Bank”), and BIRNER DENTAL MANAGEMENT SERVICES, INC.,
a Colorado corporation (“Borrower”). Bank and Borrower may sometimes be referred
to herein as “Party” or, collectively, “Parties”.

 

RECITALS

 

A.          WHEREAS, Borrower and Bank entered into a Loan and Security
Agreement dated as of March 29, 2016, as amended by the Amendment to Loan and
Security Agreement dated July 29, 2016, the Second Amendment to Loan and
Security Agreement dated November 14, 2016, the Third Amendment to Loan and
Security Agreement dated December 9, 2016, and the Fourth Amendment to Loan and
Security Agreement and Forbearance Agreement dated March 30, 2017 (together with
all further amendments thereto, the “Loan Agreement”) pursuant to which Bank
made available to Borrower certain Revolving Loans and Term Loans;

 

B.          WHEREAS, defaults have occurred under the Loan Agreement
(collectively, the “Existing Defaults”), including by reason of Borrower’s
failure (i) to maintain a Maximum Total Cash Flow Leverage Ratio of not more
than 3.15x as of December 31, 2016, as required by Section 10.1 of the Loan
Agreement, (ii) to maintain a Fixed Charge Coverage Ratio of at least 1.35 to
1.00 as of December 31, 2016, as required by Section 10.3 of the Loan Agreement,
(iii) to produce EBITDA of at least $650,000 for the fourth quarter of 2016 and
of at least $870,000 for the second quarter of 2017, as required by Section 10.4
of the Loan Agreement, (iv) to reduce the principal amount of the outstanding
Term Loans by at least $500,000 on June 30, 2017 and by at least $500,000 on
September 30, 2017, as required under the Loan Agreement and (v) to pay the
Obligations in full when Bank declared all Obligations of Borrower to be
immediately due and payable;

 

C.         WHEREAS, as a result of the Existing Defaults, Bank (i) has declared
its commitments to Borrower to be terminated, (ii) is entitled to charge
interest on all Obligations of Borrower at the Default Rate effective as of
December 31, 2016, (iii) has declared all Obligations of Borrower to be
immediately due and payable and (iv) has terminated all of Bank’s obligations to
Borrower under the Loan Documents;

 

D.         WHEREAS, Borrower and the Permitted Holders (as defined below) have
agreed that the Permitted Holders will make an investment in Borrower in a
minimum amount of $5,000,000 in immediately available funds pursuant to the Palm
Ventures Subordinated Debt Documents and subject to the Palm Ventures
Subordination Agreement (as each such term is defined below); and

 

E.          WHEREAS, Borrower requested that, subject to certain conditions
precedent including without limitation the consummation of the investment
described in Recital D hereof and execution and delivery of the Palm Ventures
Subordination Agreement, Bank amend the Loan Agreement, reinstate Bank’s
obligations under the Loan Documents and waive the Existing Defaults, and the
Bank is willing to do so in accordance with and subject to the terms and
conditions set forth in this Amendment.

 

   

 

 

AGREEMENT

 

NOW THEREFORE, in consideration of the mutual promises, payments, amendments and
modifications contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Parties hereto
agree as follows:

 

1.          Definitions. Capitalized terms used herein and in the recitals
hereto, but not defined herein or therein, shall have the meaning given them in
the Loan Documents.

 

2.          Loan Documents Effect; Conflicts; Affirmation. Except as otherwise
provided in this Amendment or, as applicable, as amended (or amended and
restated) by a separate agreement or instrument in connection herewith, all
other terms and conditions set forth in the Loan Agreement, the Revolving Note,
the Term Note and all other Loan Documents remain in full force and effect, with
the same effect as if all such terms and conditions were rewritten in full
herein and each of them is hereby ratified and confirmed by Borrower and Bank.
In the event of any conflict or inconsistency between the provisions of this
Amendment and the provisions of the Loan Agreement, the Revolving Note, the Term
Note or any other Loan Document, the provisions of this Amendment in each case
shall govern and control to the extent of such conflict or inconsistency.
Borrower hereby affirms and ratifies the Loan Documents, acknowledges that there
is no defense to or offset against payment or performance of Borrower’s
obligations under the Loan Documents, and waives any and all defenses,
counterclaims, offsets and any other matter of avoiding, reducing, or limiting
the validity and enforceability of the Loan Documents or any of Borrower’s
obligations under the Loan Documents. All references in the Loan Agreement to
“this Agreement” shall be deemed to refer to the Loan Agreement as amended to
date, including hereby; and any and all references in the other Loan Documents
to the Loan Agreement shall be deemed to refer to the Loan Agreement as amended
to date, including hereby. Borrower and Bank intend that this Amendment shall
not in any manner (a) constitute the refinancing, refunding, payment or
extinguishment of the Obligations evidenced by the existing Loan Documents; (b)
be deemed to evidence a novation of the outstanding balance of the Obligations;
or (c) affect, replace, impair, or extinguish the creation, attachment,
perfection or priority of the Liens on the Collateral granted pursuant to the
Loan Agreement or any of the other Loan Documents evidencing, governing or
creating a Lien on the Collateral. Borrower hereby ratifies and reaffirms any
and all grants of the Liens to Bank on the Collateral as security for the
Obligations, and acknowledges and confirms that the grants of the Liens to Bank
on the Collateral: (i) represent continuing Liens on all of the Collateral, (ii)
secure all of the Obligations, and (iii) represent valid first Liens on all of
the Collateral, subject only to Permitted Liens. The Loan Agreement, as amended
by this Amendment, will be construed as one agreement.

 

3.          Waiver of Defaults. Upon the effectiveness of this Amendment, and
subject to the terms and conditions set forth in this Amendment, Bank hereby
waives the Existing Defaults. This waiver shall be effective only in this
specific instance and for the specific purpose for which it is given, and this
waiver shall not entitle Borrower or any other Person to any other or further
waiver in any similar or other circumstances.

 

4.          Waiver of Default Interest, Fees and Penalties. Upon the
effectiveness of this Amendment, and subject to the terms and conditions set
forth in this Amendment, Bank hereby waives all unpaid interest accrued at the
Default Rate as of the date hereof and all unpaid late fees and penalties
accrued as of the date hereof. This waiver shall be effective only with respect
to the amount accrued as of the date of this Amendment and only in this specific
instance and for the specific purpose for which it is given, and this waiver
shall not entitle Borrower or any other Person to any other or further waiver in
any similar or other circumstances in the future.

 

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5.           Amendments to Loan Agreement. The Loan Agreement is amended as
follows:

 

5.1         Section 1.1 is hereby amended by replacing the interest rate table
in the definition of Applicable Margin with the following:

 

“Funded Debt / EBITDA   LIBOR SPREAD Greater than 3.0   LIBOR + 3.75% Less than
or equal to 3.0 but greater than 2.5   LIBOR + 3.25% Less than or equal to 2.5
but greater than 2.0   LIBOR + 2.90% Less than or equal to 2.0   LIBOR + 2.50%”

 

5.2         Section 1.1 is hereby further amended by amending and restating the
following definitions to read in their entirety as follows:

 

“Cash Available for Debt Service” shall mean, for any period, an amount
determined by reducing EBITDA by federal, state and local income taxes paid or
payable in cash and by Capital Expenditures (excluding Digitization Capital
Expenditures).

 

“Capital Expenditures” shall mean all unfinanced expenditures (including without
limitation Digitization Capital Expenditures and Maintenance Capital
Expenditures) which, in accordance with GAAP, would be required to be
capitalized and shown on the consolidated balance sheet of the Borrower, but
excluding expenditures made in connection with the replacement, substitution or
restoration of assets to the extent financed (i) from insurance proceeds (or
other similar recoveries) paid on account of the loss of or damage to the assets
being replaced or restored or (ii) with awards of compensation arising from the
taking by eminent domain or condemnation of the assets being replaced.

 

“Change in Control” shall mean that the Borrower shall, directly or indirectly,
in one or more related transactions, (i) consolidate or merge with or into
(whether or not the Borrower is the surviving corporation) another Person, or
(ii) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of the Borrower to another Person, or (iii)
allow another Person (other than a Permitted Holder) to make a purchase, a
tender offer or an exchange offer that is accepted by such number of holders of
outstanding shares of common Capital Securities of the Borrower resulting in
such Person (together with any Affiliates of such Person) holding more than 50%
of the outstanding common Capital Securities of the Borrower following such
purchase, tender offer or exchange offer, or (iv) consummate a stock purchase
agreement or other business combination (including a reorganization,
recapitalization, spin-off or scheme of arrangement) with another Person (other
than a Permitted Holder) resulting in such other Person (together with any
Affiliates of such Person) holding more than 50% of the outstanding common
Capital Securities of the Borrower following such stock purchase agreement or
other business combination, or (v) reorganize, recapitalize or reclassify its
common Capital Securities, except for stock splits and stock dividends that do
not affect the relative ownership of the shareholders of the Borrower and for
which adjustments are made under the conversion and other applicable provisions
of the Palm Ventures Subordinated Debt Documents to the extent permitted under
the Palm Ventures Subordination Agreement, or an event (vi) where a Person
(other than a Permitted Holder), or a group of Persons (other than the Permitted
Holders) acting together acquires more than 50% of the common Capital Securities
of the Borrower, measured by total voting power, or (vii) the Borrower is
liquidated or dissolved, or (viii) during any 12-month period, a majority of the
board of directors of the Borrower ceases to be comprised of existing board
members at the beginning of the period and any new directors whose election was
approved by at least two-thirds of the directors then still in office.

 

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“EBITDA” shall mean, for any period, an amount equal to the sum of (a)
consolidated Net Income for such period plus (b) the following to the extent
deducted in calculating such consolidated Net Income: (i) Interest Charges for
such period, (ii) federal, state and local income Taxes for such period, (iii)
depreciation and amortization expense for such period, (iv) non-cash stock
compensation expense for such period, (v) all other non-recurring charges
(including, without limitation, location closure costs, proxy contest costs and
legal costs) approved in advance by Bank, in its reasonable discretion, and (vi)
losses for such period from the sale or other disposition of property less (c)
the following to the extent included in calculating such consolidated Net
Income: (i) non-cash gains for such period and (ii) gains for such period from
the sale or other disposition of property.

 

“Fixed Charge Coverage Ratio” or “FCCR” means, as of the end of any fiscal
quarter, the quotient obtained by dividing Cash Available for Debt Service over
the preceding 12 months, by Total Debt Service for the same period; provided,
that (i) FCCR for the period ending June 30, 2016 shall be based on the prior
six months and (ii) FCCR for the period ending September 30, 2016 shall be based
on the prior nine month period.

 

“Loan Documents” shall mean each of the agreements, documents, instruments and
certificates set forth in Section 3.1 hereof, and any and all such other
instruments, documents, certificates and agreements from time to time executed
and delivered by the Borrower, any guarantor or any of the Borrower’s
Subsidiaries for the benefit of the Bank pursuant to any of the foregoing
(including the Palm Ventures Subordination Agreement), and all amendments,
restatements, supplements and other modifications thereto.

 

 4 

 

 

“Permitted Liens” shall mean (a) Liens for Taxes, assessments or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith by appropriate proceedings and, in each
case, for which it maintains adequate reserves in accordance with GAAP and in
respect of which no Lien has been filed; (b) Liens arising in the ordinary
course of business (such as (i) Liens of carriers, warehousemen, mechanics and
materialmen and other similar Liens imposed by law, and (ii) Liens in the form
of deposits or pledges incurred in connection with worker's compensation,
unemployment compensation and other types of social security (excluding Liens
arising under ERISA) or in connection with surety bonds, bids, performance bonds
and similar obligations) for sums not overdue or being contested in good faith
by appropriate proceedings and not involving any advances or borrowed money or
the deferred purchase price of property or services, which do not in the
aggregate materially detract from the value of the property or assets of the
Borrower or materially impair the use thereof in the operation of the Borrower’s
business and, in each case, for which it maintains adequate reserves in
accordance with GAAP and in respect of which no Lien has been filed; (c) Liens
that constitute purchase money security interests on any property securing Debt
incurred for the purpose of financing all or any part of the cost of acquiring
such property, provided that any such Lien attaches to such property within
twenty (20) days of the acquisition thereof and attaches solely to the property
so acquired; (d) Liens granted to the Bank hereunder and under the other Loan
Documents; (e) Liens securing other Debt not exceeding $100,000 and (f) Liens in
favor of the Permitted Holders under the Palm Ventures Subordinated Debt
Documents.

 

“Revolving Loan Commitment” shall mean the lesser of (a) Two Million and 00/100
Dollars ($2,000,000.00), or (b) eighty percent (80%) of the dollar amount of
outstanding Eligible Accounts.

 

“Revolving Loan Maturity Date” shall mean March 31, 2023, unless extended by the
Bank pursuant to any modification, extension or renewal note executed by
Borrower and accepted by Bank in its sole and absolute discretion in
substitution for the Revolving Note.

 

“Subordinated Debt” shall mean that portion of the Debt of the Borrower
(including without limitation the Palm Ventures Subordinated Debt) which is
subordinated to the Obligations in a manner satisfactory to the Bank, including
right and time of payment of principal and interest.

 

“Term Loan Commitment” shall mean Six Million Five Hundred Thousand and 00/100
Dollars ($6,500,000.00).

 

“Term Loan Maturity Date” shall mean March 31, 2023, unless extended by the Bank
pursuant to any modification, extension or renewal note executed by Borrower and
accepted by Bank in its sole and absolute discretion in substitution for the
Term Note.

 

“Total Debt Service” shall mean, for any period, the sum of cash interest and
mandatory principal payments on all Debt, including scheduled payments
representing the principal portion of rent under capital leases.

 

5.3         Section 1.1 is hereby further amended by adding the following new
definitions in correct alphabetical order to read in their entirety as follows:

 

“Blocked Account” means a deposit account belonging to and under the control of
the Borrower and maintained with the Bank (which may be non-interest bearing as
determined by the Bank) into which, once such deposit account is established,
all amounts in the Lockbox and the Lockbox Account shall be deposited on each
Business Day; provided that, upon the occurrence and during the continuation of
an Event of Default, such deposit account (a) shall be under the sole dominion
and control of the Bank and (b) shall not be subject to withdrawal by the
Borrower, with any amounts therein to be applied to the Obligations as the Bank
may determine in its sole discretion.

 

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“Borrower Instructions” shall have the meaning set forth in Section 2.10 hereof.

 

“Cure Amount” shall mean, with respect to a Failed Testing Period, the minimum
dollar amount (but not in excess of the minimum dollar amount) that, if added to
the calculation of EBITDA for such Failed Testing Period, would have resulted in
the Failed Financial Covenant (or Failed Financial Covenants) being equal to the
required financial covenant or covenants, as the case may be, applicable to such
Failed Testing Period, as set forth in Section 10 hereof.

 

“Digitization Capital Expenditures” shall mean Capital Expenditures made or
incurred to upgrade the systems and technology (including, without limitation,
web site upgrades) of the Borrower and its managed offices for the critical
purpose of recruitment and retention.

 

“Excess Cash Flow Amount” shall mean, for any applicable period, twenty-five
percent (25%) of the sum of (without duplication) (a) EBITDA, minus (b) the sum
of (without duplication) (i) Taxes paid in cash, (ii) Maintenance Capital
Expenditures made or incurred, (iii) cash Interest Charges, and (iv) scheduled
or required payments of principal on all Debt of Borrower (including capital
lease obligations but excluding Subordinated Debt), in each case determined for
Borrower on a consolidated basis in accordance with GAAP.

 

“Failed Financial Covenant” and “Failed Financial Covenants” shall have the
meanings set forth in Section 10.5 hereof.

 

“Failed Testing Period” shall have the meaning set forth in Section 10.5 hereof.

 

“Fifth Amendment” shall mean that certain Fifth Amendment to Loan and Security
Agreement, dated as of December 28, 2017, by and between Borrower and Bank.

 

“Lockbox” shall have the meaning set forth in Section 2.10 hereof.

 

“Lockbox Deposit Account” shall have the meaning set forth in Section 2.10
hereof.

 

“Maintenance Capital Expenditures” shall mean Capital Expenditures made or
incurred in the ordinary course of business operations to maintain or replace
existing fixed assets used to support existing business operations and maintain
or increase revenues, excluding Digitization Capital Expenditures and other
Capital Expenditures made to support new offices and new revenue initiatives.

 

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“Palm Ventures Equity” shall mean, collectively, (a) those certain shares of
Series A Convertible Preferred Stock of Borrower issued to the Permitted Holders
on December 28, 2017 for consideration of $10,000 and (b) all other shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of Borrower’s capital and all options, warrants and other
rights to acquire any of the foregoing at any time issued to or in favor of, or
acquired by, any Subordinated Creditor (as defined in the Palm Ventures
Subordination Agreement), in each case, together with all modifications thereof
and substitutions therefor.

 

“Palm Ventures Subordinated Debt” shall mean, collectively, (a) the liabilities,
obligations, and indebtedness evidenced by the Palm Ventures Subordinated Debt
Notes, in the original principal amount of $4,990,000, (b) the Palm Ventures
Equity, (c) all of the other Obligations (as defined in the Palm Ventures
Subordinated Debt Notes), and (d) to the extent permitted under the Palm
Ventures Subordination Agreement, each and every other debt, liability and
obligation of every type and description which Borrower may now or at any time
hereafter owe to any Subordinated Creditor (as defined in the Palm Ventures
Subordination Agreement), whether such debt, liability or obligation now exists
or is hereafter created or incurred, and whether it is or may be direct or
indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or joint, several or joint and several, in each
case, as amended, modified, supplemented or restated to the extent permitted by
Section 9.14.

 

“Palm Ventures Subordinated Debt Default” shall mean any of the following (or
any combination of the following): (a) the occurrence and continuation of a
default or breach under any Palm Ventures Subordinated Debt Document, after the
lapse of any applicable notice and cure periods, or (b) any acceleration of the
Palm Ventures Subordinated Debt in accordance with its terms which, for purposes
of clarity, Borrower agrees would constitute an Event of Default and a default
under the Palm Ventures Subordination Agreement.

 

“Palm Ventures Subordinated Debt Documents” shall mean, collectively, (a) each
Palm Ventures Subordinated Debt Note, (b) all instruments, certificates and
other agreements and documents evidencing or directly related to the Palm
Venture Equity, and (c) the other Subordinated Debt Agreements (as defined in
the Palm Ventures Subordination Agreement) and any documents, instruments, or
agreements given, subject to Section 9.14, in substitution of any of the
foregoing, in each case, as otherwise amended, modified, supplemented or
restated to the extent permitted by Section 9.14.

 

“Palm Ventures Subordinated Debt Notes” shall mean each Convertible Senior
Subordinated Secured Loan Note, issued by Borrower in favor of a Permitted
Holder, as in effect on December 28, 2017 or issued thereafter pursuant to
Section 10.5 hereof, and as otherwise amended, modified, supplemented or
restated to the extent permitted by Section 9.14 and each Convertible Senior
Subordinated Secured Loan Note issued by Borrower to a Permitted Holder in
replacement or exchange for such note, as otherwise amended, modified,
supplemented or restated to the extent permitted by Section 9.14.

 

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“Palm Ventures Subordination Agreement” shall mean the Subordination Agreement
by and among the Permitted Holders, Bank, and Borrower, dated as of December 28,
2017.

 

“Permitted Holders” shall mean Palm Global Small Cap Master Fund LP, a Cayman
Islands limited partnership, and Palm Active Dental, LLC, a Delaware limited
liability company, and any fund or investment vehicle that is an Affiliate of
the foregoing (and each, a “Permitted Holder”).

 

“Total Cash Flow Leverage Ratio” shall mean, for any applicable period, the
ratio of Funded Debt to EBITDA, measured on a trailing twelve month basis, on a
consolidated basis in accordance with GAAP.

 

5.4         Section 2.2 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:

 

“2.2       Term Loan.

 

(a)       Term Loan Commitment. On or about March 29, 2016, Bank agreed to
extend to Borrower, subject to the terms and conditions of this Agreement and
the other Loan Documents, and in reliance upon the representations and
warranties of Borrower set forth herein and in the other Loan Documents, a Term
Loan in an amount not to exceed $10,000,000 in the aggregate at any time. As of
December 28, 2017, after the application of the principal payments required
under Paragraph 8.6 of the Fifth Amendment, the aggregate outstanding principal
balance of the Term Loan is equal to $6,500,000. The Term Loan was used by
Borrower for working capital and general corporate purposes. The Term Loan may
be prepaid in whole or in part at any time without penalty, but shall be due in
full on the Term Loan Maturity Date, unless the credit extended under the Term
Loan is otherwise accelerated, terminated or extended as provided in this
Agreement. The amounts drawn under the Term Loan may not be reborrowed.

 

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(b)       Term Loan Principal/Interest Payments. The principal amount of the
Term Loan outstanding from time to time shall bear interest at the applicable
Term Interest Rate. Accrued and unpaid interest on the unpaid principal balance
of the Term Loan outstanding from time to time shall be due and payable monthly,
in arrears, commencing on January 1, 2018 and continuing on the first day of
each calendar month thereafter. Borrower shall pay the unpaid principal balance
of the Term Loan as follows: (i) a payment of $125,000 shall be made on the last
day of each calendar quarter in 2018, (ii) a payment of $100,000 shall be made
on or before the date which is thirty (30) days after the date the Form 10-Q for
the second fiscal quarter of 2018 is filed by Borrower with the Securities and
Exchange Commission, but only if EBITDA measured for the twelve (12) months
ending June 30, 2018 is equal to or more than $2,400,000, (iii) payments each in
the amount of $175,000 shall be made on March 31, 2019 and June 30, 2019, (iv) a
payment of $100,000 shall be made on or before the date which is thirty (30)
days after the date the Form 10-Q for the second fiscal quarter of 2019 is filed
by Borrower with the Securities and Exchange Commission, but only if EBITDA
measured for the twelve (12) months ending June 30, 2019 is equal to or more
than $3,000,000, (v) payments each in the amount of $200,000 shall be made on
September 30, 2019 and December 31, 2019, and (vi) payments each in the amount
of $250,000 shall be made on the last day of each calendar quarter thereafter,
commencing with March 31, 2020, with a final payment in an aggregate amount
equal to the unpaid principal balance of the Term Loan on the Term Loan Maturity
Date; provided that, in any event, Borrower shall make additional payments of
principal on the Term Loan needed, if any, so that the outstanding principal
balance of the Term Loan is no greater than (A) $5,750,000 as of December 31,
2018 and (B) $4,750,000 as of December 31, 2019. In addition to the foregoing,
(I) commencing with the fiscal quarter ending September 30, 2019, Borrower shall
make mandatory principal prepayments on the Term Loan, without penalty and until
the Term Loan is paid in full, equal to the Excess Cash Flow Amount for each
fiscal quarter, and (II) commencing with the fiscal year ending December 31,
2020, Borrower shall make mandatory principal prepayments on the Term Loan,
without penalty and until the Term Loan is paid in full, equal to the amount, if
any, by which the Excess Cash Flow Amount for each fiscal year (calculated based
on Borrower’s annual audited financial statements for such fiscal year provided
pursuant to Section 8.8(a)) exceeds the aggregate quarterly payments of the
Excess Cash Flow Amount made for such fiscal year. Each such mandatory principal
prepayment shall be due and payable (y) quarterly, within five (5) days after
Bank’s receipt of Borrower’s Compliance Certificate (including financial
statements (Form 10-Q or otherwise)) for such fiscal quarter provided pursuant
to Section 8.8(c) and Section 8.11, commencing with the financial statements for
the fiscal quarter ending September 30, 2019, and (z) annually, within five (5)
days after Bank’s receipt of Borrower’s annual audited financial statements for
such fiscal year provided pursuant to Section 8.8(a), commencing with the
financial statements for the fiscal year ending December 31, 2020; provided
that, in any event, after giving effect to the payments of the Excess Cash Flow
Amount in such fiscal year, Borrower shall make additional payments of principal
on the Term Loan needed, if any, so that the outstanding principal balance of
the Term Loan is no greater than (1) $3,600,000 as of December 31, 2020, (2)
$2,100,000 as of December 31, 2021, and (3) $750,000 as of December 31, 2022.
All such payments shall be applied to reduce the unpaid principal amount of the
Term Loan and be applied to installments thereof in inverse order of their
maturity. If not sooner paid, a final payment of all outstanding principal and
accrued interest shall be due and payable on the Term Loan Maturity Date. From
and after maturity, or after the occurrence and during the continuation of an
Event of Default, interest on the outstanding principal balance of the Term
Loan, at the option of Bank, may accrue at the Default Rate and shall be payable
upon demand from Bank.

 

(c)       Term Loan Optional Prepayments. Borrower may voluntarily prepay the
principal balance of the Term Loan, in whole or in part, without any prepayment
penalty whatsoever; provided that any prepayment of the entire principal balance
of the Term Loan shall include all accrued interest on the Term Loan to the date
of such prepayment.”

 

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5.5         Section 2 of the Loan Agreement is hereby amended by adding a new
Section 2.8, a new Section 2.9 and a new Section 2.10 to the end thereof to read
in their entirety as follows:

 

“2.8       Unused Line Fee. Borrower shall pay to Bank an unused line fee,
effective as of January 1, 2018 and payable quarterly, in the amount of one
quarter of one percent (0.25%) per annum, calculated on the average of the daily
unused portion of the Revolving Loan Commitment as set forth in clause (a) of
the definition of Revolving Loan Commitment. The unused line fee shall be
payable quarterly in arrears on the first Business Day of each quarter,
commencing on April 1, 2018, and on the date on which the Obligations are paid
in full.

 

2.9         Maximum Outstanding Balance. If, in any trailing four quarter
period, commencing with the period ending December 31, 2018, the Borrower’s
Capital Expenditures exceed $2,000,000, then the Borrower shall, within the next
120 days, reduce the outstanding balance under the Revolving Loan Commitment to
less than $100,000 for thirty consecutive days.

 

2.10       Lockbox; Payment of Accounts by the Borrower’s Account Debtors. The
Borrower shall instruct and direct all account debtors and other obligors to
make payments directly (i) to a post office box or lock box as the Bank may
establish or designate to the Borrower (the “Lockbox”) for deposit by a
depository bank acceptable to the Bank in its discretion into a deposit account
maintained by such depository bank (the “Lockbox Deposit Account”), or (ii) to
such depository bank by wire transfer, ACH, or other means as the Bank may
direct for deposit into the Lockbox Deposit Account as determined by the Bank in
its discretion. The Lockbox and the Lockbox Deposit Account shall be under the
sole control of the Borrower; provided, that (A) at all times before the Blocked
Account is established, the Borrower shall authorize, direct and instruct such
depository bank to remit all funds received or deposited into the Lockbox or the
Lockbox Deposit Account on a daily basis to a deposit account maintained by the
Borrower with the Bank, and (B) at all times after the Blocked Account is
established, the Borrower shall authorize, direct and instruct such depository
bank to remit all funds received or deposited into the Lockbox or the Lockbox
Deposit Account on a daily basis to the Blocked Account (the remittance
authorizations, directions and instructions set forth in this proviso are
referred to in this Agreement as the “Borrower Instructions”), which Borrower
Instructions may only be changed by the Borrower after not less than three (3)
Business Days’ prior written notice to the Bank. If the Borrower receives a
payment by check or similar instrument, such instrument shall be immediately
delivered to such depository bank in the form received without negotiation for
deposit into the Lockbox Deposit Account. If the Borrower otherwise receives a
payment or proceeds of Collateral directly, the Borrower will immediately
deposit such payment or proceeds into the Lockbox Deposit Account. Until
deposited, the Borrower shall hold all payments and proceeds without commingling
them with other funds or property. All deposits held in the Blocked Account
shall constitute proceeds of Collateral and shall not constitute the payment of
Obligations. The Bank and such depository bank are hereby authorized to receive
and open all payments and items remitted to the Lockbox and the Borrower
authorizes the Bank and such depository bank to accept, endorse and deposit on
behalf of the Borrower any checks tendered by an account debtor or any other
Person “in full payment” of its obligation to the Borrower. The Borrower shall
not assert against the Bank or such depository bank any claim arising therefrom
or from any other acceptance, endorsement or deposit permitted under this
Section 2.10, irrespective of whether such action by the Bank or such depository
bank effects an accord and satisfaction of the Borrower’s claims under Section
3-311 of the UCC or otherwise. Upon the occurrence and during the continuation
of an Event of Default, all payments made to the Blocked Account will be the
sole and exclusive property of the Bank and may be applied by the Bank in its
sole discretion on account of the Obligations and the Borrower waives any right
it may have to require the Bank to pursue any third Person for any of the
Obligations. Unless the Borrower and the Bank agree otherwise in writing, the
lockbox maintained by the Borrower at Wells Fargo Bank, N.A. as of December 28,
2017 shall constitute the Lockbox and the Borrower’s deposit account maintained
by the Borrower at Wells Fargo Bank. N.A. as of December 28, 2017 (or any
successor account thereto) shall constitute the Lockbox Deposit Account.”

 

 10 

 

 

5.6         Section 8 of the Loan Agreement is hereby amended by adding a new
Section 8.22 to the end thereof to read in its entirety as follows:

 

“8.22     Post-Closing Deliverables. The Borrower shall satisfy each of the
following requirements on or before the date specified for such requirement (or
such later date as agreed by Bank in writing in its sole discretion), in each
case in form and substance acceptable to Bank in its sole discretion:

 

(a)         On or before January 31, 2018, the Borrower shall deliver to the
Bank a fully executed landlord’s waiver and related memorandum for the lease
entered into by the Borrower with respect to its chief executive office and
principal place of business; and

 

(b)         On or before January 31, 2018, the Borrower shall establish the
Blocked Account and shall maintain the Blocked Account until the Obligations are
fully satisfied and paid in full in cash.”

 

5.7         Section 9.5 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:

 

“9.5       Issuance of Capital Securities. Borrower shall not issue or accept
any Capital Securities other than (a) any issuance of shares of Borrower’s
common Capital Securities, (b) any issuance of Capital Securities by Borrower to
the Permitted Holders pursuant to the Palm Ventures Subordinated Debt Documents
or (c) any issuance of Capital Securities by a Subsidiary to Borrower or another
Subsidiary in accordance with Section 9.6. Except as expressly permitted by this
Agreement, Borrower shall not enter into any new debt obligations, convertible
debt, mezzanine financing or other financing transactions which result in
contractual or required payment obligations.”

 

5.8         Section 9.6 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:

 

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“9.6       Distributions. Except to the extent otherwise permitted pursuant to
the Palm Ventures Subordination Agreement, Borrower shall not (a) make any
distribution or dividend (other than stock dividends), whether in cash or
otherwise, to any of its equity holders, (b) purchase or redeem any of its
equity interests or any warrants, options or other rights in respect thereof,
(c) pay any management fees or similar fees to any of its equity holders or any
Affiliate thereof, (d) pay or prepay (i) interest on, principal of, or premium,
if any, (ii) amounts related to redemption, conversion, exchange, purchase,
retirement, defeasance, or sinking funds, or (iii) any other payment in respect
of any Subordinated Debt and any convertible Debt, or (e) set aside funds for
any of the foregoing.”

 

5.9         Section 9.11 of the Loan Agreement is hereby amended by adding a new
sentence to the end thereof to read in its entirety as follows:

 

“Borrower shall use a portion of the Palm Ventures Subordinated Debt proceeds to
pay in full (a) accounts payable (including lease payments for rent) that are
critically overdue as of December 31, 2017 (with such payments expected to total
approximately $1,000,000 in the aggregate) and (b) past due payroll Taxes in
order to bring such Taxes current. Borrower shall provide to Bank, on or before
January 31, 2018, a written certification from an officer of Borrower, in form
and substance acceptable to Bank in its reasonable discretion, certifying that
such payments have been made, together with an accounts payable aging report
that demonstrates such payment and evidence of such Tax payments.”

 

5.10       Section 9 of the Loan Agreement is hereby amended by adding a new
Section 9.14 to the end thereof to read in its entirety as follows:

 

“9.14     Palm Ventures Subordinated Debt. Except, in each instance, to the
extent, and in the manner, expressly permitted by the Palm Ventures
Subordination Agreement, Borrower will not: (a) make any payment (including any
principal, premium, interest, fee or charge) with respect to any of the Palm
Ventures Subordinated Debt; or (b) repurchase, redeem, defease, acquire or
reacquire for value any of the Palm Ventures Subordinated Debt. Other than as
expressly set forth in the Palm Ventures Subordination Agreement, Borrower will
not seek, agree to or permit, directly or indirectly, the amendment, waiver or
other change to any provision of any Palm Ventures Subordinated Debt Document.”

 

5.11       Section 10 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:

 

“10.1     Maximum Total Cash Flow Leverage Ratio. Borrower shall not permit its
Total Cash Flow Leverage Ratio to exceed the ratio set forth in the table below,
determined as of the end of the applicable fiscal quarter set forth opposite
thereto:

 

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Fiscal Quarter  

Maximum

Total Cash

Flow Leverage

Ratio

The fiscal quarters ending December 31, 2018 and March 31, 2019   4.50:1.00 The
fiscal quarters ending June 30, 2019 and September 30, 2019   4.00:1.00 The
fiscal quarters ending December 31, 2019, March 31, 2020, June 30, 2020 and
September 30, 2020   3.50:1.00 The fiscal quarter ending December 31, 2020 and
each fiscal quarter thereafter   3.00:1.00

 

10.2       Maximum Capital Expenditures. Borrower shall not permit the aggregate
amount of (a) Maintenance Capital Expenditures made or incurred by Borrower, as
determined for Borrower in accordance with GAAP, to exceed (i) $200,000 per
fiscal quarter in 2018 and (ii) $250,000 per fiscal quarter thereafter,
commencing with the fiscal quarter ending March 31, 2019; and (b) Digitization
Capital Expenditures made or incurred by Borrower, as determined for Borrower in
accordance with GAAP, to exceed $1,000,000 per fiscal year, commencing with the
fiscal year ending December 31, 2018.

 

10.3       Minimum Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed
Charge Coverage Ratio of not less than (a) 1.10:1.00 for the fiscal quarter
ending March 31, 2019, (b) 1.10:1.00 for the fiscal quarter ending June 30,
2019, and (c) 1.25:1.00 for the fiscal quarter ending September 30, 2019 and
each fiscal quarter thereafter.

 

10.4       Minimum EBITDA. Borrower shall achieve EBITDA of at least: (a)
$400,000 for the fiscal quarter ending March 31, 2018; (b) $900,000 for the two
consecutive fiscal quarters ending June 30, 2018; (c) $1,400,000 for the three
consecutive fiscal quarters ending September 30, 2018; and (d) $1,850,000 for
the four consecutive fiscal quarters ending December 31, 2018.

 

10.5       Financial Covenant Cure Provision. To the extent that Borrower is not
in compliance with a financial covenant set forth in this Section 10 (the
“Failed Financial Covenant” or if Borrower is not in compliance with more than
one financial covenant for the same period, the “Failed Financial Covenants”)
for any applicable testing period (a “Failed Testing Period”), subject to
receipt of the Cure Amount in immediately available funds pursuant to the terms
of this Section 10.5, Borrower shall have the opportunity to recalculate the
Failed Financial Covenant (or Failed Financial Covenants) for such Failed
Testing Period by increasing the amount used for the EBITDA calculation for such
Failed Testing Period by the Cure Amount. Each Cure Amount shall consist of net
proceeds in cash from new equity contributions by equity holders of Borrower or
from indebtedness advanced by one or more Permitted Holders evidenced by Palm
Ventures Subordinated Debt Notes; provided that such Palm Ventures Subordinated
Debt Notes shall provide that all payments of interest on such Palm Ventures
Subordinated Debt are made in kind, and not in cash, by capitalizing such
interest as principal of such Palm Ventures Subordinated Debt Notes. The
applicable Cure Amount must be received by Borrower by no later than fifteen
(15) Business Days after the date upon which Bank should have received, pursuant
to Section 8.11 hereof, the Compliance Certificate for the fiscal quarter that
corresponds to the last day of the applicable Failed Testing Period. A
recalculation of a Failed Financial Covenant (or Failed Financial Covenants)
pursuant to this Section 10.5 shall be deemed to render Borrower in compliance
with such Failed Financial Covenant (or Failed Financial Covenants) for such
Failed Testing Period for purposes of calculating the applicable financial
covenant(s). Under no circumstances shall any Cure Amount be included for
purposes of determining any baskets or thresholds regarding reference to, or
based on, the financial covenants. Any application of a Cure Amount as set forth
above shall be deemed to have occurred during the last fiscal quarter of such
Failed Testing Period and shall continue to be in effect (for such fiscal
quarter) for so long as such fiscal quarter continues to be part of the
financial covenant calculations. Notwithstanding anything in this Section 10.5
to the contrary, Borrower shall not be permitted to cure a Failed Financial
Covenant (or Failed Financial Covenants) (a) for two consecutive fiscal quarters
or (b) for more than three Failed Testing Periods.”

 

 13 

 

 

5.12       Section 11.12 of the Loan Agreement is hereby amended and restated to
read in its entirety as follows:

 

“11.12   Subordinated Debt. The subordination provisions of any material
Subordinated Debt shall for any reason be revoked or invalid or otherwise cease
to be in full force and effect or there occurs a Palm Ventures Subordinated Debt
Default.”

 

5.13       Section 11 of the Loan Agreement is hereby amended by adding a new
Section 11.14 to the end thereof to read in their entirety as follows:

 

“11.14   Borrower Instructions. Any change in the Borrower Instructions (whether
or not the Bank has prior notice thereof) occurs without the prior written
consent of the Bank.”

 

5.14       Section 12 of the Loan Agreement is hereby amended to delete the
phrase “In addition to the foregoing:” at the end of the first paragraph
thereof, and to insert in place thereof: “In addition to the foregoing, upon the
occurrence of an Event of Default:”.

 

5.15       Section 12.5(c) of the Loan Agreement is hereby amended and restated
to read in its entirety as follows:

 

“(c)       take possession or control of any proceeds and products of any of the
Collateral, including the proceeds of insurance thereon and/or in the Bank’s
name or in the Borrower’s name, to notify the U.S. Postal Service to change the
address for delivery of the Borrower’s mail to any address designated by the
Bank, to intercept the Borrower’s mail, to access any lockbox (including any
Lockbox) or postal box into which the Borrower’s mail is deposited, and to
receive, open and dispose of all mail addressed to the Borrower, applying all
Collateral as permitted under this Agreement and holding all other mail for the
Borrower’s account or forwarding such mail to the Borrower’s last known
address;”

 

 14 

 

 

5.16       Section 12.5(d) of the Loan Agreement is hereby amended and restated
to read in its entirety as follows:

 

“(d)       (i) extend, renew or modify for one or more periods (whether or not
longer than the original period) any Note, any other of the Obligations, any
obligation of any nature of any other obligor with respect to any Note or any of
the Obligations and/or (ii) draw upon the Revolving Loan to pay any payments not
timely delivered when due and owing under Section 2.2;”

 

6.          Representations and Warranties. Borrower hereby remakes each of the
representations and warranties contained in Section 7 of the Loan Agreement as
of the date of this Amendment, as if made in connection with this Amendment and
the Loan Agreement. In addition, Borrower represents and warrants to Bank that:

 

6.1         Except as otherwise disclosed to Bank in writing or by Borrower in
its filings with the Securities and Exchange Commission, there has been no
material adverse change in the financial condition of Borrower since September
30, 2017.

 

6.2         Borrower, as of the date hereof, does not have any claims,
counterclaims, defenses, or set-offs with respect to the Loan Documents, as
modified herein.

 

6.3         This Amendment and the other Loan Documents are the legal, valid and
binding obligation of Borrower and enforceable against Borrower in accordance
with their terms, subject to applicable bankruptcy, insolvency and other similar
laws affecting creditor’s rights and remedies.

 

6.4         The execution and delivery of this Amendment and the performance of
the Loan Documents have been duly authorized by all requisite action by or on
behalf of Borrower.

 

6.5         Immediately after giving effect to this Amendment, to Borrower’s
knowledge, no Event of Default has occurred and is continuing.

 

6.6         The execution, delivery and performance of this Amendment does not
and will not (a) require any consent, approval, authorization of, or filings
with, notice to or other act by or in respect of, any governmental authority or
any other Person (other than any consent or approval which has been obtained and
is in full force and effect); (b) conflict with (i) any provision of law or any
applicable regulation, order, writ, injunction or decree of any court or
governmental authority, (ii) the articles of incorporation or bylaws of
Borrower, or (iii) any material agreement, indenture, instrument or other
document, or any judgment, order or decree, which is binding upon Borrower or
any of its properties or assets; or (c) except as contemplated by this
Amendment, require, or result in, the creation or imposition of any Lien on any
asset of Borrower.

 

6.7         As of the date hereof, Borrower has no present intention of
commencing a case under any chapter of the United States Bankruptcy Code, nor
does Borrower intend to incur obligations in excess of its ability to pay or
discharge.

 

 15 

 

 

7.          Release and Waiver. Borrower fully, finally, and forever releases,
waives and forever discharges Bank, and its successors, assigns, directors,
officers, employees, agents, attorneys and representatives from any and all
actions, causes of action, claims, debts, demands, liabilities, obligations, and
suits of whatever kind or nature, in law or in equity, whether known or unknown,
whether absolute or contingent, whether or not accrued or presently existing,
arising out of or in any way relating to the Loan Documents, the balance owing
on the Revolving Loan or the Term Loan, or this Amendment or any negotiations,
course of conduct related hereto or to the other Loan Documents or the actions
or omissions of Bank or its representatives with respect to the Loan Documents
as of the date of this Amendment. Borrower acknowledges that it has been advised
by legal counsel, or has made a reasoned and fully informed decision not to be
so represented by counsel, and understands the significance and consequence of
this release and waiver, and Borrower expressly consents and agrees that the
releases and waivers contained herein shall be given full force and effect
according to each and all of their express terms and provisions including those
relating to demands and causes of action, if any, as well as those relating to
any other claims.

 

8.          Conditions Precedent. This Amendment, and the waiver set forth in
Paragraph 3 hereof, shall be effective when Bank shall have received an executed
original hereof, together with each of the following, each in substance and form
acceptable to Bank in its sole discretion:

 

8.1         Evidence that the Permitted Holders have made an investment in
Borrower in a minimum amount of $5,000,000 in immediately available funds
pursuant to the Palm Ventures Subordinated Debt Documents, and subject to the
Palm Ventures Subordination Agreement;

 

8.2         An Officer’s Certificate regarding Palm Ventures Subordinated Debt
Documents, duly executed by an officer of Borrower;

 

8.3         The Palm Ventures Subordination Agreement, duly executed by each
party thereto;

 

8.4         Evidence that Borrower has filed UCC-1 financing statements
regarding purchased accounts receivable;

 

8.5         A current list of equipment;

 

8.6         Receipt by Bank of $945,239.05 to repay past due principal payments
on the Term Loan and $500,000 to prepay the Term Loan;

 

8.7         Receipt by Bank of all costs and expenses as described in Paragraph
20 hereof; and

 

8.8         Such other matters as Bank may require.

 

9.          Counterparts; Facsimile Signatures. This Amendment may be executed
in any number of counterparts and by the different parties hereto on separate
counterparts and each such counterpart shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same agreement.
Receipt of an executed signature page to this Amendment by facsimile or other
electronic transmission shall constitute effective delivery thereof. Electronic
records of executed Loan Documents maintained by Bank shall deemed to be
originals thereof.

 

 16 

 

 

10.        No Release; No Implied Waivers. No maker of the Revolving Note or the
Term Note or any other Loan Document executed in conjunction therewith shall be
released by execution and delivery of this Amendment. Except as otherwise
provided in Paragraph 3 hereof, the execution of this Amendment and the
acceptance of all other agreements and instruments related hereto shall not be
deemed to be a waiver of any Event of Default under the Loan Agreement or a
waiver of any breach, default or event of default under any other Loan Document
or other document held by Bank, whether or not known to Bank and whether or not
existing on the date of this Amendment.

 

11.        Entire Agreement. This Amendment, the Loan Agreement, the other Loan
Documents and the other documents delivered in connection herewith and therewith
contain the entire agreement of the parties concerning the subject matter hereof
and thereof. No promise, representation or understanding which is not expressly
set forth in, or incorporated into, the Loan Agreement, this Amendment or the
other Loan Documents shall be enforceable by any party. All prior and
contemporaneous understandings and agreements, written or oral, express or
implied, shall be of no further force and effect to the extent inconsistent
herewith.

 

12.        Continuing Effect and Conflict. To the extent there is a conflict
between this Amendment and the Loan Agreement or the other Loan Documents, the
provisions of this Amendment shall control.

 

13.        Execution of Documents. Borrower shall execute and deliver to Bank
this Amendment and Borrower shall execute any other documents reasonably
requested by Bank simultaneously with the execution of this Amendment. All of
the Loan Documents and other materials described in this paragraph shall be
acceptable in form and substance to Bank in its sole reasonable discretion.

 

14.        Successor and Assigns. This Amendment and any related documents shall
inure to the benefit of and be binding upon the successors and permitted assigns
of the parties hereto.

 

15.        Governing Law. This Amendment shall be governed by the laws of the
State of Colorado.

 

16.        Jurisdiction and Venue. The parties hereto consent to the
jurisdiction and venue of any court located in the City and County of Denver,
State of Colorado, in the event of any litigation pertaining to this Amendment
or any other Loan Document or the enforcement of any liability, obligation,
right or remedy described therein.

 

17.        Liens on Collateral. Borrower hereby represents and warrants to and
covenants with Bank that Bank’s liens, security interests, encumbrances and
claims against the Collateral described in the Loan Agreement and the other Loan
Documents shall continue to be prior and superior to any other liens, security
interests, encumbrances or claims of any kind except for those specifically
provided otherwise in the Loan Documents.

 

18.        Severable Provisions. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction
only, be unenforceable without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.

 

 17 

 

 

19.        Headings; Interpretation. The headings of subdivisions in this
Amendment are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Amendment. Unless the context in
which used clearly requires otherwise, “or” has the inclusive meaning
represented by the phrase “and/or”.

 

20.        Costs and Expenses. Borrower hereby reaffirms its agreement under the
Loan Agreement to pay or reimburse Bank on demand for all costs and expenses
incurred by Bank in connection with the Loan Documents, including without
limitation all reasonable attorneys’ fees and other legal expenses. Without
limiting the generality of the foregoing, Borrower specifically agrees to pay
all fees and disbursements of counsel to Bank for the services performed by such
counsel in connection with the forbearance agreement and collection of debt,
together with the preparation of this Amendment and the documents and
instruments incidental hereto.

 

21.        JURY TRIAL WAIVER. BANK AND BORROWER EACH IRREVOCABLY WAIVE ITS RIGHT
TO A JURY TRIAL IN ANY ACTION OR PROCEEDING OF ANY ISSUE, CLAIM, COUNTERCLAIM OR
OTHER CAUSE OF ACTION, WHETHER IN CONTRACT OR TORT, BASED UPON OR ARISING OUT OF
THIS AMENDMENT OR THE LOAN AGREEMENT OR ANY OTHER AGREEMENT OR DEALINGS RELATING
TO THE SUBJECT MATTER OF THIS AMENDMENT OR THE LOAN AGREEMENT.

 

[The remainder of this page intentionally left blank.]

 

 18 

 

 

IN WITNESS WHEREOF, Borrower and Bank have caused this Amendment to be executed
as of the date first set forth above.

 

  BIRNER DENTAL MANAGEMENT SERVICES, INC.         By: /s/ Dennis N. Genty  
Name:  Dennis N. Genty   Title:  Chief Financial Officer       GUARANTY BANK AND
TRUST COMPANY         By: /s/ Brad Schwindt   Name:  Brad Schwindt  
Title:  Senior Vice President

 

Signature Page to Fifth Amendment to Loan and Security Agreement