Document:

ex4-4.htm

Exhibit 4.4

FIRST AMENDMENT AND MODIFICATION

TO AMENDED AND RESTATED LOAN AGREEMENT

 

THIS FIRST AMENDMENT AND MODIFICATION TO AMENDED AND RESTATED LOAN AGREEMENT (the “Amendment”) is made effective as of the 22nd day of November, 2011, by and among J & J SNACK FOODS CORP. (“Parent”), THE SUBSIDIARIES OF J & J SNACK FOODS CORP. SIGNATORY HERETO (the
“Subsidiary Borrowers”; together with Parent, each, a “Borrower” and, collectively, the “Borrowers”), THE BANKS SIGNATORY HERETO (the “Banks”) and CITIZENS BANK OF PENNSYLVANIA, as sole administrative agent and arranger for the Banks (the “Agent”).

 

BACKGROUND

 

A.           Pursuant to that certain Amended and Restated Loan Agreement dated December 1, 2006, by and among Borrowers, Banks and Agent (as the same may hereafter be further amended, modified, supplemented or restated from time to time, being referred to herein as the “Loan Agreement”), Banks agreed, inter alia, to extend to Borrowers a revolving credit facility in the maximum amount of up to Fifty Million Dollars ($50,000,000.00).

 

B.           Borrowers have requested and Banks and Agent have agreed to amend the Loan Agreement in accordance with the terms and conditions contained herein.

 

C.           All capitalized terms contained herein and not otherwise defined herein shall have the meanings set forth in the Loan Agreement.

 

NOW, THEREFORE, intending to be legally bound hereby, the parties hereto agree as follows:

 

1.           Revised Definitions.

 

(a)           The defined term “Applicable Margin” set forth in Article I of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

“Applicable Margin:  with respect to the unpaid principal balance of ABR Loans and LIBOR Loans, the face amount of all outstanding Letters of Credit and the calculation of the Commitment Fee, in each case at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below next to such Pricing Level and under the applicable column:

 

	
Pricing Level

	
Applicable Margin for

ABR Loans

	
Applicable Margin for

LIBOR Loans

	
Applicable Margin for

Letters of Credit

	
Applicable Margin for

Commitment Fee

	
Pricing Level I

	
0.50%

	
0.95%

	
0.95%

	
0.175%

	
Pricing Level II

	
0.50%

	
1.20%

	
1.20%

	
0.175%

	
Pricing Level III

	
0.50%

	
1.45%

	
1.45%

	
0.25%

	
Pricing Level IV

	
0.75%

	
1.70%

	
1.70%

	
0.25%

 

  

 

  

 

In each case, the determination of the Applicable Margin pursuant to the table set forth above shall be made on a quarterly basis based on an examination of the financial statements of the Borrowers delivered pursuant to and in compliance with Section 5.1 or Section 5.2 hereof, which financial statements, whether annual or quarterly, shall be (A) audited in the case of financial statements furnished pursuant to Section 5.1 and (B) certified by the chief financial officer of Parent in the case of financial statements furnished pursuant to Section 5.2 and shall indicate that there exists no Default or Event of Default hereunder.  Each determination of the Applicable Margin shall be
effective ten days following the date on which the financial statements on which such determination was based were received by the Agent.  In the event that the financial statements for the four full fiscal quarters most recently completed prior to such date of determination either: (i) have not been delivered to the Agent in compliance with Section 5.1 of Section 5.2 hereof, or (ii) if delivered, do not comply in form or substance with Section 5.1 or Section 5.2 hereof (in the sole judgment of the Agent), then the Agent may determine, in its reasonable judgment, the ratio referred to above that would have been in effect as at such date, and consequently, the Applicable Margin in effect for the period commencing on such date.”

 

(b)           The defined term “Commitment Termination Date” set forth in Article I of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

“Commitment Termination Date:  November 22, 2016, subject to earlier termination as provided in this Agreement.”

 

(c)           The defined term “Permitted Liens” set forth in Article I of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

“Permitted Liens:  as to any Borrower: (i) pledges or deposits by such Borrower under workers’ compensation laws, unemployment insurance laws, social security laws, or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness of such Borrower), or leases to which such Borrower is a party, or deposits to secure public or statutory obligations of such Borrower or deposits of Cash or United States Government Bonds to secure surety, appeal, performance or other similar bonds to which such Borrower is a party, or deposits
as security for contested taxes or import duties or for the payment of rent; (ii) Liens on Cash or certificates of deposit to secure (A) such Borrower’s obligations with respect to municipal sanitation requirements or (B) collateral requirements under such Borrower’s insurance policies, provided that the amount of such Cash or certificates of deposit, when taken together with Liens granted by such Borrower and any other Borrower on similar assets for similar purposes, shall not exceed an aggregate amount of Ten Million Dollars ($10,000,000.00); (iii) Liens imposed by law, such as carriers’, warehousemen’s, materialmen’s and mechanics’ liens, or Liens arising out of judgments or awards against such Borrower with respect to which such Borrower at the time shall currently be prosecuting an
appear or proceedings for review (iv) Liens for taxes not yet subject to penalties for non-payment and Liens for taxes the payment of which is being contested as permitted by Section 6.6 hereof; (v) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of, others for rights of way,, highways and railroad crossings, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties; and (vi) Liens incidental to the conduct of the business of such Borrower or to the ownership of such Borrower’s property that were not incurred in connection with Indebtedness of such Borrower, all of which Liens referred to in the preceding clause (vi) do not in the aggregate materially detract from the value of the properties to which they relate or materially impair their use in the
operation of the business taken as a whole of such Borrower, and as to all the foregoing only to the extent arising and continuing in the ordinary course of business.

 

  

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2.           Financial Covenants.   Section 6.9 of the Loan Agreement is hereby deleted in its entirety and replaced with the following:

 

“6.9  Financial Covenants.  Have or maintain, on a consolidated basis, at all times:

 

(a)           Intentionally omitted.

 

(b)           Tangible Net Worth of more than the sum of (i) $294,000,000 (less the amount by which the total consideration paid by Borrowers (including, but without duplication, the total amount of Indebtedness incurred by Borrowers) to consummate a Permitted Acquisition after the date of this Agreement exceeds the value, as shown on the Borrowers’ financial statements, of the tangible assets acquired by the Borrowers in such Permitted Acquisition (but any such reduction shall not, at any time, reduce such amount to less than $244,000,000)), plus (ii) beginning with Parent’s
fiscal quarter ending September 30, 2011, and with respect to each fiscal quarter of Parent thereafter, 50% of the Borrowers’ consolidated net income (determined in accordance with GAAP), on a cumulative basis and without any reduction for loss for each such fiscal quarter.

 

(c)           A Leverage Ratio of not more than 2.25 to 1.0.

 

(d)           Intentionally omitted.

 

(e)           A positive net income (after subtracting Interest Expense, and Federal, state and local income tax expense) for each fiscal year of the Parent.”

 

  

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3.           Amendment/References.  The Loan Agreement and the Loan Documents are hereby amended to be consistent with the terms of this Amendment. All references in the Loan Agreement and the Loan Documents to (a) the “Loan Agreement” shall mean the Loan Agreement as amended hereby; and (b) the “Loan Documents” shall include this Amendment and all other
instruments or agreements executed pursuant to or in connection with the terms hereof.

 

4.           Release.  Each Borrower acknowledges and agrees that it has no claims, suits or causes of action against Agent or any Bank and hereby remises, releases and forever discharges Agent, each Bank, and their respective officers, directors, shareholders, employees, agents, successors and assigns, and any of them, from any claims, suits or causes of action whatsoever, in law or at equity, which such Borrower has or may have arising from any act, omission or otherwise, at any time up to
and including the date of this Amendment.

 

5.           Additional Documents; Further Assurances.  Each Borrower covenants and agrees to execute and deliver to Agent, or to cause to be executed and delivered to Agent contemporaneously herewith, at the sole cost and expense of Borrowers, the Amendment and any and all documents, agreements, statements, resolutions, searches, insurance policies, consents, certificates, legal opinions and information as Agent may require in connection with the execution and delivery of this Amendment or
any documents in connection herewith, or to further evidence, effect, enforce or protect any of the terms hereof or the rights or remedies granted or intended to be granted to Agent herein or in any of the Loan Documents, or to enforce or to protect Agent’s interest in the Collateral.  All such documents, agreements, statements, etc., shall be in form and content acceptable to Agent in its sole discretion.  Each Borrower hereby authorizes Agent to file, at Borrowers’ cost and expense, financing statements, amendments thereto and other items as Agent may require to evidence or perfect Agent’s continuing security interest and liens in and against the Collateral.  Each Borrower agrees to join with Agent in notifying any third party with possession of any Collateral of Agent’s security interest therein and in obtaining an acknowledgment
from the third party that it is holding the Collateral for the benefit of Agent.  Borrowers will cooperate with Agent in obtaining control with respect to Collateral consisting of deposit accounts, investment property, letter-of-credit rights and electronic chattel paper.

 

6.           Further Agreements and Representations.  Each Borrower does hereby:

 

(a)           ratify, confirm and acknowledge that the statements contained in the foregoing Background are true and complete and that, as amended hereby, the Loan Agreement and the other Loan Documents are in full force and effect and are valid, binding and enforceable against such Borrower and its assets and properties, all in accordance with the terms thereof, as amended;

 

(b)           covenant and agree to perform all of such Borrower’s obligations under the Loan Agreement and the other Loan Documents, as amended;

 

(c)           acknowledge and agree that as of the date hereof, such Borrower has no defense, set-off, counterclaim or challenge against the payment of any Obligations or the enforcement of any of the terms of the Loan Agreement or of the other Loan Documents, as amended;

 

  

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(d)           acknowledge and agree that all representations and warranties of such Borrower contained in the Loan Agreement and/or the other Loan Documents, as amended, are true, accurate and correct on and as of the date hereof as if made on and as of the date hereof;

 

(e)           represent and warrant that no Default or Event of Default exists;

 

(f)           covenant and agree that such Borrower’s failure to comply with any of the terms of this Amendment or any other instrument or agreement executed or delivered in connection herewith, shall constitute an Event of Default under the Loan Agreement and each of the other Loan Documents; and

 

(g)           acknowledge and agree that nothing contained herein, and no actions taken pursuant to the terms hereof, are intended to constitute a novation of any of the Notes, the Loan Agreement or of any of the other Loan Documents and does not constitute a release, termination or waiver of any existing Event of Default or of any of the liens, security interests, rights or remedies granted to the Agent in any of the Loan Documents, which liens, security interests, rights and remedies are hereby expressly ratified, confirmed, extended and continued as security for all Obligations.

 

Each Borrower acknowledges and agrees that Agent and the Banks are relying on the foregoing agreements, confirmations, representations and warranties of such Borrower and the other agreements, representations and warranties of such Borrower contained herein in agreeing to the amendments contained in this Amendment.

 

7.           Fees, Cost, Expenses and Expenditures.  Borrowers will pay all of Agent’s expenses in connection with the review, preparation, negotiation, documentation and closing of this Amendment and the consummation of the transactions contemplated hereunder, including without limitation, fees, disbursements, expenses and disbursements of counsel retained by Agent and all fees related to filings, recording of documents, searches, environmental assessments and appraisal reports, whether or not the transactions contemplated hereunder are
consummated.

 

8.           No Waiver.  Nothing contained herein constitutes an agreement or obligation by Agent to grant any further amendments to the Loan Agreement or any of the other Loan Documents.  Nothing contained herein constitutes a waiver or release by Agent of any Event of Default or of any rights or remedies available to Agent under the Loan Documents or at law or in equity.

 

9.           Inconsistencies. To the extent of any inconsistencies between the terms and conditions of this Amendment and the terms and conditions of the Loan Agreement or the other Loan Documents, the terms and conditions of this Amendment shall prevail. All terms and conditions of the Loan Agreement and other Loan Documents not inconsistent herewith shall remain in full force and effect and are hereby ratified and confirmed by Borrowers.

 

  

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10.           Binding Effect.  This Amendment, upon due execution hereof, shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

11.           Governing Law.  This Amendment shall be governed and construed in accordance with the laws of the Commonwealth of Pennsylvania without regard to conflict of law principles.

 

12.           Severability.  The provisions of this Amendment and all other Loan Documents are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect.

 

13.           Modifications.  No modification of this Amendment or any of the Loan Documents shall be binding or enforceable unless in writing and signed by or on behalf of the party against whom enforcement is sought.

 

14.           Headings.  The headings of the Articles, Sections, paragraphs and clauses of this Amendment are inserted for convenience only and shall not be deemed to constitute a part of this Amendment.

 

15.           Counterparts.  This Amendment may be executed in multiple counterparts, each of which shall constitute an original and all of which together shall constitute the same agreement.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

  

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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Amendment to be executed the day and year first above written.

 

	 	
J & J SNACK FOODS CORP.

	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	 
Dennis G. Moore, Senior Vice President

	 

 

 

	
J & J Snack Foods Investment Corp.         

	
The ICEE Company                              

	
J & J Snack Foods Corp. of California  

	
J & J Snack Foods Corp./Mia           

	
J & J Snack Foods Corp. of Pennsylvania        

	
J & J Snack Foods Sales Corp.         

	
J & J Snack Foods Transport Corp.             

	
J & J Restaurant Group, L.L.C.               

	
Bakers Best Snack Food Corp.                   

	
Pretzels, Inc.                                 

	
Federal Pretzel Baking Company, L.L.C.            

	
Country Home Bakers, L.L.C.                       

	
ICEE of Hawaii, Inc.                  

	
DADDY RAY’S, Inc.                         

	
Hom/Ade Foods, Inc.                    

	
J & J Snack Foods Handhelds Corp.                   

 

 

	 	
By: 

	 	 
	 	 	 
Dennis G. Moore, Senior Vice President

	 

 

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

 

  

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CITIZENS BANK OF PENNSYLVANIA,

as Agent and as a Bank

 

	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	
Devon L. Starks, Senior Vice President

	 
	 	 	
 

 

	 
	 	
Commitment:  $25,000,000.00

	 

 

 

[SIGNATURES CONTINUE ON FOLLOWING PAGE]

 

  

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WELLS FARGO BANK, NATIONAL ASSOCIATION,

as a Bank

 

	 
	 	 	 	 
	 	
By: 

	 	 
	 	 	 	 
	 	 	
 

 

	 
	 	
Commitment:  $25,000,000.00

	 

 

 

9ex4-1.htm

Exhibit 4.1

 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO OR AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND/OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE. THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER HEREOF IN ORDER TO EFFECT A PARTIAL PAYMENT, REDEMPTION OR CONVERSION
HEREOF.  ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT SHOWN BELOW.

 

CATASYS, INC.

 

THIRD AMENDED AND RESTATED SECURED CONVERTIBLE PROMISSORY NOTE

 

	Original Issue Date: August 17, 2011	$1,205,000.00

First Amendment and Restatement Date: November 2, 2011

Second Amendment and Restatement Date: November 15, 2011

Third Amendment and Restatement Date: November 30, 2011

FOR VALUE RECEIVED, CATASYS, INC., a Delaware corporation (the “Company”), hereby promises to pay to the order of SOCIUS CAPITAL GROUP, LLC, a Delaware limited liability company, or its successors or assigns (the “Holder”) the sum of One Million and Two Hundred and Five Thousand Dollars ($1,205,000.00) in same day funds on or before 90 calendar days from the Issue Date (the
“Maturity Date”), unless this Secured Convertible Promissory Note (this “Note”) is earlier converted pursuant to Section 3 hereof.  This Note amends, restates and replaces that certain secured convertible promissory note, originally issued as of August 17, 2011, in the original principal amount of $650,000.00, that amended and restated secured convertible promissory note, issued as of November 2, 2011, in the principal amount of $810,000.00, and that second amended and restated secured convertible promissory noted, issued as of November 15, 2011, in the principal amount of $970,000.00.

 

The following terms shall apply to this Note:

 

	
1.

	
DEFINITIONS.

 

“Applicable Interest Rate” means an annual rate equal to twelve percent (12%) prior to any Event of Default, and twenty-four percent (24%) after the occurrence of any Event of Default, computed on the basis of a 365-day year and calculated using the actual number of days elapsed since the Issue Date or the date on which Interest was most recently paid.

 

“Business Day” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks are authorized by law to close in New York, New York.

 

  

  

  

 

“Common Stock” means the common stock of the Company, $0.0001 par value per share, and any securities into which such common stock may hereafter be reclassified.

 

“Conversion Date” means the date of closing of the Qualified Financing pursuant to which the Company has received at least $2,000,000.00.

 

“Highest Lawful Rate” means the maximum non-usurious rate of interest, as in effect from time to time, which may be charged, contracted for, reserved, received or collected by the Holder in connection with this Note under applicable law.

 

“Issue Date” means the date first written above.

 

“Maturity Date” has the meaning set forth in the preamble of this Note.

 

“Principal Market” means the principal securities exchange or market on which the Common Stock is listed or traded.

 

“Qualified Financing” means the first round of equity financing (which shall include any convertible debt, convertible preferred stock or other equity-linked derivative security financing) in a single or series of related transactions, which raises gross proceeds to the Company of at least Two Million Dollars ($2,000,000) in the aggregate.

 

“Qualified Financing Securities” means the Company’s securities issued and sold at the Qualified Financing.

 

“Trading Day” means a Business Day on which shares of Common Stock are purchased and sold on the Principal Market.

 

All definitions contained in this Note are equally applicable to the singular and plural forms of the terms defined.  The words “hereof,” “herein” and “hereunder” and words of similar import referring to this Note refer to this Note as a whole and not to any particular provision of this Note.  Any capitalized term used but not defined herein has the meaning specified in the Securities Purchase Agreement.

 

	
2.

	
 INTEREST.

 

(a)           Interest Rate.  This Note shall bear interest on the unpaid principal amount hereof (“Interest”) at a rate per annum equal to the Applicable Interest Rate.

 

(b)           Interest Payments.  The Company shall pay accrued and unpaid Interest (unless this Note is converted pursuant to the terms hereof) (i) on the Maturity Date and (ii) on any date on which the entire principal amount of this Note is paid in full (whether through conversion or otherwise).  The Company shall pay Interest in cash by wire transfer of immediately available funds.

 

	
3.

	
 CONVERSION.

 

(a)           Conversion upon Qualified Financing.  Upon a Qualified Financing that occurs prior to the Maturity Date, Holder may, at its sole option, by written notice convert all or any part of the entire unpaid principal amount of this Note, together with any Interest accrued but unpaid thereon, into Qualified Financing Securities (a “Financing Conversion”). Upon a Conversion, the Holder shall be entitled to receive, and shall be issued, the same type and number of Qualified
Financing Securities (the “Financing Conversion Securities”) as such Holder would have received had such Holder invested any such amount in such Qualified Financing.  The issuance of the Conversion Securities upon a Conversion shall be upon the same terms and subject to the same conditions as are applicable to the Qualified Financing Securities issued in the Qualified Financing.

 

  

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(b)           Conversion into Common Stock.  The Holder may, at its sole option, by written notice convert all or any part of the entire unpaid principal amount of this Note, together with any Interest accrued but unpaid thereon, into shares of Common Stock (a “Common Conversion”).  (Either of a Financing Conversion and Common Conversion are referred to herein as a
“Conversion.”)  Upon a Common Conversion, the Holder shall be entitled to receive, and shall be issued, the number of shares of Common Stock (the “Common Conversion Securities”) equal to the amount converted multiplied by a price per share equal to the lower of (i) $0.26 per share of Common Stock and (ii) the lowest price per share of Common Stock into which any security is convertible in any Qualified Financing (either of the Financing Conversion Securities and Common Conversion Securities are referred to herein as “Conversion Securities”).

 

(c)           Conversion Mechanics.  The Holder shall not be required to physically surrender this Note to the Company in order to effect any Conversion.  Upon a Conversion, the Holder shall be deemed to be the holder of record of the Conversion Securities upon the Conversion Date.  As soon as practicable after the Conversion Date, the Company shall, at its expense, issue and deliver to Holder (i) one or more certificates (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company)
for the applicable Conversion Securities, registered in the name of Holder, free of any and all liens, encumbrances or other impediments to clear title and (ii) if applicable, and if requested by the Holder, cash in the aggregate amount of any accrued, unpaid and unconverted Interest.  No fractional Conversion Securities shall be issued upon conversion of this Note, and any fractional Conversion Securities to which the Holder would otherwise be entitled shall be rounded up to the nearest whole Conversion Security and issued to the Holder along with the other Conversion Securities.  Upon the Conversion or payment, as applicable, of all amounts due Holder in accordance with this terms of this Note, this Note shall be cancelled and no further amounts shall be due hereunder.  Any full or partial payment or Conversion by Holder shall have no impact on the
Warrant issued pursuant to the Securities Purchase Agreement concurrently herewith.

 

	
4.

	
 EVENTS OF DEFAULT.  Upon the occurrence of any of the following events (each, an “Event of Default”):

 

(a)           the Company or any of its subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee or liquidator of itself or of its property, (ii) be unable, or admit in writing its inability, to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent, (v) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization or an arrangement with creditors to take advantage of any insolvency law, or an answer admitting the material allegations of a bankruptcy, reorganization or insolvency petition filed against it,
(vi) take corporate action for the purpose of effecting any of the foregoing, or (vii) have an order for relief entered against it in any proceeding under the United States Bankruptcy Code;

 

  

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(b)           an order, judgment or decree shall be entered, without the application, approval or consent of the Company or any of its subsidiaries, by any court of competent jurisdiction, approving a petition seeking reorganization of the Company or any of its subsidiaries, or appointing a receiver, trustee or liquidator of the Company or any of its subsidiaries, or of all or a substantial part of its assets, and such order, judgment or decree shall not be dismissed within thirty (30) consecutive days thereof;

 

(c)           the Company or any of its subsidiaries shall fail to pay as and when due any principal or Interest hereunder;

 

(d)           the Company breaches any condition or obligation under this Note, the Transaction Documents, or any other material agreement to which Company is a party, and such breach continues uncured for thirty (30) days after receipt of notice thereof; or

 

(e)           the Company  or any of its subsidiaries shall cease, substantially curtail, or substantially reduce its business operations;

 

then, and in every such event and at any time thereafter, the Holder, at its election, and without presentment, demand, notice of any kind, all of which are expressly waived by the Company, may (i) declare the entire outstanding balance of principal and Interest thereon immediately due and payable, together with all costs of collection, including attorneys’ fees, and (ii) whether or not the actions referred to in (i) above have been taken, exercise any or all of the Holder’s other rights and remedies available to the Holder under applicable law.

 

5.            HOLDER COSTS. The Company agrees to promptly pay, on demand, all of the losses, costs, and expenses (including, without limitation, attorneys’ fees and disbursements) which the Holder incurs in connection with enforcement of this Note, or the protection or preservation of the Holder’s rights under this Note, whether by judicial proceeding or otherwise.  Such costs and expenses
include, without limitation, those incurred in connection with any workout or refinancing, or any bankruptcy, insolvency, liquidation or similar proceedings.

 

6.            PREPAYMENT. This Note may be prepaid by the Company at any time prior to issuance of a notice of conversion by Holder.

 

7.            COMPANY WAIVERS. The Company hereby waives diligence, demand, presentment, protest or notice of any kind.  The Company agrees to make all payments under this Note without setoff or deduction and regardless of any counterclaim or defense.

 

8.            SECURITY. 

 

(a)           Security Interest.  As security for the due and prompt payment and performance of all payment obligations under this Note and any modifications, replacements and extensions hereof (collectively, “Secured Obligations”), the Company hereby pledges and grants a first priority security interest to the Holder on a pari passu basis with the holder of the Secured Convertible Promissory Note, dated October 5, 2011, in favor of David E. Smith, as amended and restated from time to time,  in all assets of the Company, whether now owned or
hereafter acquired, including without limitation all intellectual property, as more fully set forth on Schedule 1 hereto (collectively, the “Collateral”).

 

  

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(b)           Financing Statement; Further Assurances.  The Company agrees, concurrently with executing this Note, that the Holder may file a UCC-1 financing statement relating to the Collateral in favor of the Holder, and any similar financing statements in any jurisdiction in which the Holder reasonably determines such filing to be necessary.  The Company further agrees that at any time and from time to time the Company shall promptly execute and deliver all further instruments and documents that the Holder may request in order to perfect and protect the
security interest granted hereby, or to enable the Holder to exercise and enforce its rights and remedies with respect to any Collateral following an Event of Default.

(c)           Default.  Following an Event of Default, the Company shall deliver the Collateral, including original certificates or other instruments representing any Collateral, to the Holder to hold as secured party, and Company shall, if requested by the Holder, execute a securities account control agreement. In addition, the Holder shall have all rights of a secured party under the Uniform Commercial Code, including without limitation the right to foreclose on all or any of the Collateral, in any order.

(d)           Powers of the Holder.  The Company hereby appoints the Holder as Company’s true and lawful attorney-in-fact to perform any and all of the following acts, which power is coupled with an interest, is irrevocable until the Secured Obligations are paid and performed in full, and may be exercised from time to time by the Holder in its discretion: To take any action and to execute any instrument which the Holder may deem reasonably necessary or desirable to accomplish the purposes of this Section 8(d) and, more broadly, this Note including, without
limitation: (i) during the continuance of any Event of Default hereunder, to receive, endorse and collect all instruments or other forms of payment made payable to the Company representing any dividend, interest payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same, when and to the extent permitted by this Note, (ii) to perform or cause the performance of any obligation of the Company hereunder in the Company’s name or otherwise, (iii) during the continuance of any Event of Default hereunder, to liquidate any Collateral pledged to the Holder hereunder and to apply proceeds thereof to the payment of the Secured Obligations or to place such proceeds into a cash collateral account or to transfer the Collateral into the name of the Holder, all at the Holder’s sole discretion, (iv) to enter into any extension,
reorganization or other agreement relating to or affecting the Collateral, and, in connection therewith, to deposit or surrender control of the Collateral, (v) to accept other property in exchange for the Collateral, (vi) to make any compromise or settlement the Holder deems desirable or proper, and (vii) to execute on the Company’s behalf and in the Company’s name any documents required in order to give the Holder a continuing first lien upon the Collateral or any part thereof.

(e)           Full Recourse Note.  This is a full recourse Note. Accordingly, notwithstanding that the Company’s obligations under this Note are secured by the Collateral, in the event of a material default hereunder, the Holder shall have full recourse to all the other assets of Company.  Moreover, the Holder shall not be required to proceed against or exhaust any Collateral, or to pursue any Collateral in any particular order, before the Holder pursues any other remedies against Company or against any of Company’s assets.

 

  

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9.

	
 MISCELLANEOUS.

 

(a)           Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section, or via electronic mail, prior to 6:30 p.m. (New York City time) on a Trading Day and an electronic confirmation of delivery is received by the sender, (ii) the next Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given by personal delivery.

 

(b)           Amendments; Waivers; No Oral Changes.  No provision of this Note may be waived or amended except in a written instrument signed by the Company and the Holder.  No waiver of any default with respect to any provision, condition or requirement of this Note shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such
right.  This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of the Holder or the Company, but only by an agreement in writing signed by both parties.

 

(c)           Lost or Stolen Note.  Upon receipt by the Company of evidence of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of indemnity or security reasonably satisfactory to the Company, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver to the Holder a new Note identical in all respects to this Note.

 

(d)           Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within the State of New York, without giving effect to conflict of law principles thereof.

 

(e)           Headings.  The headings in this Note are for purposes of reference only, and shall not limit or otherwise affect the meaning hereof.

 

(f)           Transfer; Successors and Assigns.  The terms of this Note shall inure to the benefit of and bind the parties hereto and their successors and assigns.  As used herein the term “Company” shall include the undersigned Company and any other person or entity who may subsequently become liable for the payment hereof; provided however, that the Company shall not have the right to assign this Note or its obligations or rights hereunder without the prior written consent of the Holder.  The term “Holder” shall include
the named Holder as well as any other person or entity to whom this Note or any interest in this Note is conveyed, transferred or assigned.  The person signing this Note on behalf of the Company represents and warrants that he or she has full authority to do so and that this Note binds the Company in accordance with its terms, and that there are no other agreements, judgments, or other circumstances which would cause this Note to not be fully binding against the Company.  In the event Holder takes any action to enforce any provision of this Note, either through legal proceedings or otherwise, the Company shall reimburse the Holder for attorneys’ fees and all other costs and expenses so incurred.

 

  

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(g)           Usury.  Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder the amount of interest, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other document executed in connection herewith, would exceed the amount of such interest computed on the basis of the Highest Lawful Rate, the Company shall not be obligated to pay, and the Holder shall not be entitled to charge, collect, receive, reserve or take, interest in
excess of the Highest Lawful Rate.

 

IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by its duly authorized officer on the date first above written.

 

	 	CATASYS, INC.	 
	 	 	 	 
	
 

	
By: 

	/s/ Susan Etzel	 
	 	 	Susan Etzel, Chief Financial Officer	 

 

 

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