Document:

EXHIBIT 10.1

 

FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT

 

This Fifth Amendment to Loan and Security Agreement (the “Fifth Amendment”) is entered into as of February 29, 2016 by and among EAST WEST BANK (“Bank”) and EVOLVING SYSTEMS, INC. (“Borrower”).

 

RECITALS

 

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of October 22, 2012, Amendment to Loan and Security Agreement dated October 22, 2014, Second Amendment to Loan and Security Agreement dated April 8, 2015, Third Amendment to Loan and Security Agreement dated September 28, 2015, and that Fourth Amendment to Loan and Security Agreement dated November 9, 2015 (collectively “Agreement”).  The parties desire to amend the Agreement in accordance with the terms of this Fifth Amendment.

 

NOW, THEREFORE, the parties agree as follows:

 

1.              Section 1.1 of the Agreement entitled “Definitions” is hereby amended by deleting the following definitions:

 

“Advance” or “Advances” (including deleting all references thereto in the remaining sections of the Agreement)

 

“Revolving Facility”

 

“Revolving Line”

 

“Revolving Line II”

 

“Revolving Line II Limit”

 

“Revolving Maturity Date”

 

2.              Section 1.1 of the Agreement entitled “Definitions” is hereby amended by adding the following definitions:

 

“Term Loan Maturity Date” means January 1, 2020.”

 

3.              Section 1.1 of the Agreement entitled “Definitions” is hereby amended by restating the following definitions:

 

“Credit Extension” means the Term Loan or any other extension of credit by Bank for the benefit of Borrower hereunder.”

 

“Loan Documents” means, collectively, this Agreement, any promissory note executed by Borrower evidencing the Term Loan and any other agreement entered into in connection with this Agreement, all as amended or extended from time to time.”

 

“Prime Rate” means the greater of (i) 3.5% or (ii) the variable rate of interest, per annum, that appears in The Wall Street Journal on the date of measurement, whether or not such announced rate is the lowest rate available from Bank.”

 

 

4.              Section 2.1 of the Agreement entitled “Credit Extensions” is hereby amended by deleting subpart (a) entitled “Revolving Advances” (including items (i) and (ii)) and replacing with subpart (a) entitled “Term Loan” as follows:

 

“(a)                                                   Term Loan.

 

(i)            Subject to and upon the terms and conditions of this Agreement, on or about the date of this Fifth Amendment, Bank shall make a term loan to Borrower in the original principal amount of Six Million Dollars ($6,000,000) (the “Term Loan”).  Borrower shall deliver to Bank a promissory note for the Term Loan in substantially the form attached hereto as Exhibit B-1.  Bank may enforce its rights in respect of the Term Loan under this Agreement without such note.

 

(ii)           Interest shall accrue from the date the Term Loan is made at the rate specified in Section 2.2(a)(i) and shall be payable monthly in accordance with Section 2.2(c).

 

(iii)          The Term Loan shall be repaid in thirty-six (36) equal monthly installments of principal, plus accrued but unpaid interest, commencing on January 1, 2017 and continuing on the first day of each month thereafter through and including January 1, 2020.  On the Term Loan Maturity Date, the outstanding principal amount of the Term Loan and all accrued and unpaid interest thereon shall be immediately due and payable.  The Term Loan, once repaid, may not be reborrowed.

 

(iv)          If Borrower fully prepays the Term Loan within two (2) years from the date of this Fifth Amendment, Borrower shall also pay to Bank a prepayment fee equal to two percent (2%) of the then outstanding principal balance on the Term Loan.  After two (2) years from the date of this Fifth Amendment, Borrower may prepay the Term Loan without penalty or premium.

 

5.              Section 2.2(a) of the Agreement entitled “Interest Rates” is hereby amended by deleting item (i) entitled “Advances” and replacing with item (i) entitled “Term Loan” as follows:

 

“(i)          Term Loan.  Except as set forth in Section 2.2(b), the Term Loan shall bear interest, on the outstanding daily balance thereof, at a variable per annum rate equal to 1% above the Prime Rate.”

 

6.              The Agreement is hereby amended by deleting section 2.5 entitled “Overadvances.”

 

7.              Section 6.8 of the Agreement entitled “Financial Covenants” is amended by restating section 6.8 in its entirety as follows:

 

“6.8        Financial Covenants.

 

(a)         Minimum Current Ratio.  Borrower shall maintain a ratio of Current Assets to Current Liabilities of at least 1.25 to 1.00, measured on a quarterly basis.

 

 

(b)         Maximum Total Leverage Ratio.  Borrower shall maintain a ratio of Total Debt divided by trailing 12-month EBITDA not to exceed 2.00 to 1.00, measured on a quarterly basis.

 

(c)          Minimum Fixed Charge Coverage Ratio.  Borrower shall maintain a ratio of consolidated EBITDA less capital expenditures, cash taxes, and cash dividends divided by sum of scheduled principal and interest payments of at least 1.25 to 1.00, measured quarterly on a trailing four quarter basis.

 

For the purpose of the above covenants, the following terms shall have the following respective meanings:

 

“EBITDA” means with respect to any fiscal period an amount equal to the sum of consolidated earnings before interest, taxes, depreciation and amortization, stock compensation, foreign exchange gains or losses, and non-cash gains or losses.  For purposes of calculating financial covenants, the following are permitted to be added back to consolidated EBITDA: $696,000 in second quarter 2015, $711,000 in third quarter 2015, $533,000 in fourth quarter 2015 and up to $1,000,000 in first quarter 2016.

 

“Total Debt” means the sum of Obligations, Subordinated Debt, unsecured debt, capital leases and earn-out obligations.”

 

8.              Exhibit B-1 attached to the Agreement entitled “Revolving Facility Note” is hereby replaced in its entirety with Exhibit B-1 attached to this Fifth Amendment entitled “Promissory Note”.

 

9.              Exhibit C attached to the Agreement entitled “Compliance Certificate” is hereby replaced in its entirety with Exhibit C attached to this Fifth Amendment.

 

10.       In addition to any prepayment fee payable to Bank in accordance with section 2.1(a)(iv), on or about the date of this Fifth Amendment, Borrower shall pay to Bank a first installment of the facility fee equal to $18,750 and legal fee equal to $1,000; and on or about the first anniversary of this Fifth Amendment, Borrower shall pay to Bank a second installment of the facility fee equal to $18,750, for a total facility fee of $37,500.

 

11.       The obligation of Bank to make the Term Loan is subject to the condition precedent that Borrower shall use the Term Loan proceeds and Borrower’s own funds to pay off the following existing revolving lines with Bank:  loan no. 34800127 in the outstanding principal balance of $5,000,000 and loan no. 34800284 in the outstanding principal balance of $5,000,000.

 

12.       The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects.  The execution, delivery, and performance of this Fifth Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof.  Each Borrower ratifies and reaffirms the

 

 

continuing effectiveness of all other instruments, documents and agreements entered into in connection with the Agreement.

 

13.       Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Fifth Amendment, and that no Event of Default has occurred and is continuing.

 

14.       Unless otherwise defined, all initially capitalized terms in this Fifth Amendment shall be as defined in the Agreement.  This Fifth Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.

 

IN WITNESS WHEREOF, the undersigned have executed this Fifth Amendment as of the date set forth above.

 

	
 
    	
 
    	
EVOLVING SYSTEMS, INC.
    
	
 
    	
 
    	
By:
    	
/s/ DANIEL J. MOORHEAD
    
	
 
    	
 
    	
Title:
    	
CHIEF FINANCIAL OFFICER
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
EAST WEST BANK
    
	
 
    	
 
    	
By:
    	
/S/ NADER MAGHSOUDNIA
    
	
 
    	
 
    	
Title:
    	
DIRECTOR
    

 

 

EXHIBIT B-1

PROMISSORY NOTE

 

	
$6,000,000.00
    	
February 29, 2016
    
	
 
    	
Santa Clara, California
    

 

FOR VALUE RECEIVED, the undersigned, EVOLVING SYSTEMS, INC. (the “Borrower”), HEREBY PROMISES TO PAY to the order of East West Bank (the “Bank”) at its Principal Office located at 2350 Mission College Blvd., Suite 988, Santa Clara, CA 95054, or at such other place as Bank may from time to time designate in writing, in lawful money of the United States and in immediately available funds, the principal amount of  SIX MILLION DOLLARS ($6,000,000.00), together with interest from the date of disbursement as set forth in the Loan and Security Agreement dated the date hereof by and between Bank and Borrower, and as amended from time to time (the “Loan Agreement”).  The Loan Agreement is incorporated herein by this reference in its entirety.  Capitalized terms used but not otherwise defined herein are used in this Promissory Note as defined in the Loan Agreement.

 

This Promissory Note is entitled to the benefits of the Loan Agreement.  The Loan Agreement, among other things, contains provisions for acceleration of the maturity of this Promissory Note upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity of this Promissory Note upon the terms and conditions specified in the Loan Agreement.  This Promissory Note is also secured by the Collateral described in the Loan Agreement, and reference to the Loan Agreement is hereby made for a description of the rights of Borrower and Bank in respect to such Collateral.

 

Borrower further promises to pay interest on the unpaid principal amount hereof outstanding from the date hereof until payment in full hereof at the rate (or rates) from time to time applicable to the Term Loan as determined in accordance with the Loan Agreement.  Interest shall be calculated on the basis of a three hundred sixty (360)-day year for the actual days elapsed.

 

Borrower waives demand, presentment and protest, and notice of demand, presentment, protest and nonpayment.  Except as otherwise provided in the Loan Agreement or other Loan Documents, Borrower waives all rights to notice and hearing of any kind upon the occurrence of an Event of Default prior to the exercise by Bank of its rights to repossess the Collateral without judicial process or to replevy, attach or levy upon the Collateral without notice or hearing.

 

If this Promissory Note is not paid when due, whether at its specified or accelerated maturity date, Borrower promises to pay all costs of collection and enforcement of this Promissory Note, including, but not limited to, reasonable attorneys’ fees and costs, incurred by Bank hereof on account of such collection or enforcement, whether or not suit is filed hereon.

 

This Promissory Note shall be governed and construed in accordance with the laws of the State of California.

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Promissory Note as of the date and year first above written.

 

	
 
    	
EVOLVING SYSTEMS, INC.
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/DANIEL J. MOORHEAD
    
	
 
    	
 
    	
 
    
	
 
    	
Title: 
    	
CHIEF FINANCIAL OFFICER
    

 

 

EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

TO:                                                                           EAST WEST BANK

 

FROM:                                                       EVOLVING SYSTEMS, INC.

 

The undersigned authorized officer of EVOLVING SYSTEMS, INC. (“Borrower”) hereby certifies, solely in his or her capacity as an authorized officer of Borrower, that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”), (i) Borrower is in compliance for the period ending                 with all covenants except as noted below, (ii) no default or Event of Default exists as of the date hereof[, except as set forth in Schedule [  ] attached hereto], and (iii) all representations and warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof except [(x) as set forth in Schedule [  ] attached hereto and (y)] to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects as of such earlier date.  Attached herewith are the [audited/unaudited] financial statements required pursuant to Section 6.3[(a)][(b)] of the Agreement.  Such financial statements fairly present in all material respects the consolidated financial position and results of operations of Borrower (or such Subsidiary) and its consolidated Subsidiaries as of the dates and for the relevant periods indicated (subject in the case of unaudited financial statements, to year end adjustments and matters that would be disclosed in financial statement notes). Capitalized terms used but not defined herein shall have the meanings set forth in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

 

	
Reporting Covenant
    	
 
    	
Required
    	
 
    	
Complies
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Monthly financial statements
    	
 
    	
Monthly within 30 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
Annual financial statements (CPA Audited)
    	
 
    	
FYE within 180 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
A/R & A/P Agings & Deferred   Revenue Schedule
    	
 
    	
Monthly within 30 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
10K and 10Q
    	
 
    	
(as applicable)
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
Operating Budget
    	
 
    	
30 days prior to beginning of fiscal year
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
IP Report
    	
 
    	
Upon Bank’s request within 10 days
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
Deposit balances with Bank
    	
 
    	
$
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Deposit balances outside Bank
    	
 
    	
$
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
5% Licenses Report
    	
 
    	
Monthly
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    

 

	
Financial Covenant
    	
 
    	
Required
    	
 
    	
Actual
    	
 
    	
Complies
    
	
Minimum Current Ratio, measured   quarterly
    	
 
    	
1.25: 1.00
    	
 
    	
     :1.00
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
Maximum Total Leverage Ratio,   measured quarterly
    	
 
    	
2.00: 1.00
    	
 
    	
     :1.00
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    
	
Minimum Fixed Charge Coverage Ratio, measured   quarterly
    	
 
    	
1.25: 1.00
    	
 
    	
     :1.00
    	
 
    	
Yes
    	
 
    	
No
    	
 
    	
N/A
    

 

	
Comments   Regarding Exceptions: See Attached.
    	
BANK   USE ONLY
    
	
 
    	
 
    
	
 
    	
Received by:
    	
 
    
	
Sincerely,
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    
	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Verified:
    	
 
    
	
SIGNATURE
    	
AUTHORIZED SIGNER
    
	
 
    	
 
    
	
 
    	
 
    	
Date:
    	
 
    
	
TITLE
    	
 
    	
 
    
	
 
    	
Compliance Status
    	
Yes
    	
No
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
DATEExhibit 4.1

CERTIFICATE
OF DESIGNATION

of the

PREFERENCES,
RIGHTS, LIMITATIONS, QUALIFICATIONS AND RESTRICTIONS

of the

SERIES
A PREFERRED STOCK

of TARSIER LTD.

 

 

Tarsier
Ltd. (the “Corporation”), a Delaware corporation, hereby certifies that, pursuant to the authority conferred
upon the Board of Directors of the Corporation (the “Board”) by its Articles of Incorporation, on January
14, 2016, the Board duly adopted the following resolution providing for the authorization of nine million five hundred thousand
(9,500,000) shares of the Corporation’s Series A Preferred Stock (the “Series A Preferred Stock”):

 

RESOLVED,
that pursuant to the authority vested in the Board by the Corporation’s Articles of Incorporation, the Board hereby establishes
from the Corporation’s authorized class of preferred stock a new series to be known as “Series A Preferred Stock,”
consisting of nine million five hundred thousand (9,500,000) shares, and hereby determines the designation, preferences, rights,
qualifications, limitations and privileges of the Series A Preferred Stock of the Corporation to be as follows:

 

1.Designation
and Amount; Designated Holder. Of the 10,000,000 shares of the Company’s authorized Preferred Stock, $0.001 par value
per share, nine million five hundred thousand (9,500,000) are designated as “Series A Preferred Stock,” with the rights
and preferences set forth below. Only one person or entity is entitled to be designated as the owner of all of the Series A Preferred
Stock (the “Holder”), in whose name the initial certificates representing the Series A Preferred Stock
shall be issued. Any transfer of the Series A Preferred Stock to a different Holder must be approved in advance by the Corporation;
provided, however, the Holder shall have the right to transfer the Series A Preferred Stock, or any portion thereof, to any affiliate
of Holder, without the approval of the Corporation.

 

2.Rights
Subject to Credit Agreement. The Series A Preferred Stock is being issued to Holder in connection with the Senior Secured Revolving
Credit Facility Agreement, effective as of January 21, 2016, by and among the Corporation, the Corporation’s subsidiary guarantors,
and TCA Global Credit Master Fund, LP (the “Credit Agreement”) and shall be subject to all applicable
terms and conditions of the Credit Agreement and the documents and agreements executed and delivered by the Corporation in connection
therewith (collectively, the “Loan Documents”).

 

3.Rank.
The Series A Preferred Stock shall rank: (i) senior to all of the Common Stock, par value $0.001 per share, of the Corporation
(“Common Stock”); (ii) senior to any class or series of capital stock of the Corporation currently outstanding
or that specifically provides that it ranks junior to any Series A Preferred Stock (collectively, with the Common Stock, “Junior
Securities”); and (iii) junior to any class or series of capital stock of the Corporation which specifically provides
that it will rank senior in preference or priority to the Series A Preferred Stock (“Senior Securities”);
in each case as to distribution of any asset or property of the Corporation upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (all such distributions being referred to as “Distributions”).

 

4.Voting
Rights. Except as provided by law or by the other provisions of this Certificate of Designation, the Holder of shares of Series
A Preferred Stock shall not be entitled to vote on any matter,except as expressly required by applicable law, or unless the Series
A Preferred Stock has been converted, in which case the Holder shall be entitled to vote the shares of Common Stock it received
in conversion thereof, in the same manner as other holders of Common Stock. In the event the Holder of Series A Preferred Stock
is entitled to vote, the Holder shall be entitled to vote on an as converted basis, together with the holders of Common Stock.

 

     

     

    

 

(a)The
Corporation shall not amend, alter, change or repeal the preferences, privileges, special rights or other powers of the Series
A Preferred Stock so as to adversely affect the Series A Preferred Stock, without the written consent of the Holder.

 

(b)So
long as shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of Holder: (i) dissolve the Corporation or effectuate a liquidation; (ii) alter, amend,
or repeal the Certificate of Incorporation of the Corporation; (iii) agree to any provision in any agreement that would impose
any restriction on the Corporation’s ability to honor the exercise of any rights of the Holder of the Series A Preferred
Stock; (iv) do any act or thing not authorized or contemplated by this Certificate which would result in taxation of the Holder
of shares of the Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from time to time amended); or (v) issue any Senior Securities.

 

5.Dividends.
The Holder of the Series A Preferred Stock will not be entitled to participate with the holders of Common Stock in any dividends
or distributions.

 

6.Liquidation
Rights/Cancellation/ Redemption. Upon any liquidation, dissolution or winding up of the Corporation, the Holder of outstanding
shares of Series A Preferred Stock will be entitled to be paid the “Liquidation Preference” (as hereinafter defined),
in preference to any Distributions to the holders of the Junior Securities, including, without limitation, the Common Stock. The
“Liquidation Preference” shall de defined and calculated as follows: (i) $5,000,000 in the aggregate
(not on a per share basis); less (ii) any and all cash proceeds previously received by Holder from the sale of the Series A Preferred
Stock and/or “Conversion Shares” (as hereinafter defined); and less (iii) any payments previously received by Holder
in redemption of shares of Series A Preferred Stock or Conversion Shares. Upon request by the Corporation, Holder of Series A Preferred
Stock shall provide to the Corporation from time to time all documents necessary for the adjustments in the Liquidation Preference
due to the sale or disposition of any Series A Preferred Stock or Conversion Shares. Once the Liquidation Preference is calculated
as zero, the Holder shall not be entitled to any further proceeds remaining from the liquidation of the Corporation, any remaining
shares of Series A Preferred Stock shall automatically be cancelled, and Holder shall surrender to the Corporation any certificates
evidencing remaining shares of Series A Preferred Stock or Conversion Shares for cancellation.

 

 7. Conversion Rights.

 

		(a)	The Holder may convert such shares of Series A Preferred Stock, in whole
or in part, at any time after the issuance thereof, or from time-to-time thereafter, upon written notice to the Corporation, subject
to the terms set forth below. Each share of Series A Preferred Stock may, or shall, be converted into shares of the Corporation’s
authorized but unissued Common Stock (the “Conversion Shares”) equal to: (i) one; divided by (ii) the
average of the volume weighted average price for the Common Stock for the five (5) business days immediately prior to the date
a “Conversion Notice” (as hereinafter defined) is provided to the Corporation, as reported by Bloomberg (the “VWAP”).

 

    	 	2	 

     

    

 

		(b)	No fractional shares of Common Stock shall be issued upon the conversion
of the Series A Preferred Stock. If the number of shares to be issued to the Holder of the Series A Preferred Stock is not a whole
number, then the number of the shares shall be rounded up to the nearest whole number.

 

		(c)	Mechanics of Conversion. In the case of a conversion, before Holder
shall be entitled to convert the same into shares of Common Stock, it shall provide a conversion notice (the “Conversion
Notice”), which Conversion Notice shall specify the VWAP as of the conversion date, the number of Conversion Shares
to be issued in connection with such conversion, and the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The calculations and entries set forth in the Conversion Notice shall control in the absence of manifest
or mathematical error. To effect conversions of Series A Preferred Stock, the Holder shall not be required to surrender the certificate(s)
representing the Series A Preferred Stock to the Corporation unless all of the shares of Series A Preferred Stock represented thereby
are so converted, in which case such Holder shall surrender to the Corporation or its transfer agent, the certificate or certificates
representing the shares of Series A Preferred Stock to be converted, or if the Holder notifies the Corporation or its transfer
agent that such certificate or certificates have been lost, stolen or destroyed, upon the execution and delivery of an agreement
reasonably satisfactory to the Corporation to indemnify the Corporation from any losses incurred by it in connection therewith.
Partial conversions hereunder where the certificate(s) representing the shares of Series A Preferred Stock are not surrendered
shall have the effect of reducing the number of shares represented by such certificate(s) by the number of shares of Series A Preferred
Stock converted in each applicable conversion, as set forth in each Conversion Notice. The Holder and the Corporation shall maintain
records showing the amount of shares of Series A Preferred Stock converted upon each conversion, and the number of shares of Series
A Preferred Stock remaining to be converted. The Corporation shall, as soon as practicable after receipt of a Conversion Notice,
and in any case within five (5) business days of the Corporation’s receipt of the Conversion Notice (the “Share
Delivery Date”), issue and deliver at such office to the Holder, or to the nominee or nominees of such Holder, as
set forth in the Conversion Notice, a certificate or certificates representing the Conversion Shares to which such Holder shall
be entitled as aforesaid; provided that such Holder or nominee(s), as the case may be, shall be deemed to be the owner of record
of such Common Stock as of the date that the Conversion Notice is delivered to the Corporation.

 

		(d)	Failure to Deliver Certificates. If in the case of any Conversion
Notice, the certificate or certificates representing the Conversion Shares issuable upon such conversion are not delivered to or
as directed by the Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation
at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event the
Corporation shall promptly return to the holder any original certificates representing Series A Preferred Stock delivered to the
Corporation and the Holder shall promptly return to the Corporation the Common Stock certificates unsuccessfully tendered for conversion
to the Corporation, to the extent later received by the Holder.

  

    	 	3	 

     

    

 

		(e)	Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to
issue and deliver the Conversion Shares upon conversion of the Series A Preferred Stock, or any portion thereof, in accordance
with the terms hereof are absolute and unconditional, irrespective of any action or inaction by Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or entity, or any action
to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such
Holder or any other person or entity of any obligation to the Corporation or any violation or alleged violation of law by such
Holder or any other person or entity, and irrespective of any other circumstance which might otherwise limit such obligation of
the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that
such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder.
In the event Holder shall elect to convert the Series A Preferred Stock, or any portion thereof, the Corporation may not refuse
conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation
of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining
conversion of all or part of the Series A Preferred Stock by Holder shall have been sought and obtained, and the Corporation posts
a surety bond for the benefit of Holder in the amount of 150% of the aggregate value into which such Series A Preferred Stock
are to be converted as provided above, which bond shall remain in effect until the completion of litigation or other proceeding
of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains final adjudication.
In the absence of such injunction, the Corporation shall issue Conversion Shares upon a properly noticed conversion. If the Corporation
fails to deliver to Holder the certificate or certificates representing the Conversion Shares by the Share Delivery Date, the
Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, $500.00 per trading day (increasing
to $1,000.00 per trading day on the tenth (10th) trading day after such damages begin to
accrue) for each trading day after the Share Delivery Date until such certificates are delivered or Holder rescinds such conversion.
Nothing herein shall limit Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion
Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder,
at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of
any such rights shall not prohibit Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable
law.

 

		(f)	Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred
in respect of the issue of any Conversion Shares on conversion.

 

		(g)	Valid Issuance. All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid
and non-assessable, free from preemptive rights and free from all taxes, liens or charges with respect thereto created or imposed
by the Corporation.

 

    	 	4	 

     

    

 

		(h)	Reservation of Stock Issuable Upon Conversion. The Corporation shall
at all times reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred
Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, the Corporation will call and hold a special meeting of the shareholders
within twenty (20) business days of such occurrence, for the sole purpose of increasing the number of shares authorized to an
amount sufficient to allow a full conversion by the Holder of the Series A Preferred Stock. The Corporation’s management
shall recommend to the shareholders to vote in favor of increasing the number of shares of Common Stock authorized.

   

		(i)	Notice to Allow Conversion by Holder. If: (A) the Corporation shall
declare a dividend (or any other distribution in whatever form) on any of its Common Stock, (B) the Corporation shall declare a
special nonrecurring cash dividend on or a redemption of any of the Common Stock, (C) the Corporation shall authorize the granting
to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of
any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of
the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially
all of the assets of the Corporation, of any compulsory share exchange whereby the Common Stock is converted into other securities,
cash or property, or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained
for the purpose of conversion of the Series A Preferred Stock, and shall cause to be delivered to the Holder at its last address
as it shall appear upon the Corporation’s records, at least twenty (20) calendar days prior to the applicable record or effective
date hereinafter specified, a notice stating: (x) the date on which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date
as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common
Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share
exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. The Holder is entitled to convert the Series A Preferred
Stock during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice.

 

    	 	5	 

     

    

 

		(j)	The Holder’s Conversion Limitations. The Corporation shall
not effectuate any conversion of Series A Preferred Stock, and the Holder shall not have the right to convert any portion of the
Series A Preferred Stock, to the extent that after giving effect to the conversion set forth on the Conversion Notice submitted
by the Holder, the Holder (together with the Holder’s affiliates and any persons acting as
a group together with the Holder or any of the Holder’s affiliates) would beneficially own shares of Common Stock in excess
of the “Beneficial Ownership Limitation” (as defined herein). To ensure compliance with this restriction, prior to
delivery of any Conversion Notice, the Holder shall have the right to request that the Corporation provide to the Holder a written
statement of the percentage ownership of the Corporation’s Common Stock that would be beneficially owned by the Holder and
its affiliates in the Corporation if the Holder converted such portion of the Series A Preferred Stock then intended to be converted
by Holder. The Corporation shall, within two (2) business days of such request, provide Holder with the requested information
in a written statement, and the Holder shall be entitled to rely on such written statement from the Corporation in issuing its
Conversion Notice and ensuring that its ownership of the Corporation’s Common Stock is not in excess of the Beneficial Ownership
Limitation. The restriction described in this Section may be waived by Holder, in whole or in part, upon notice not less than
sixty-one (61) days prior written notice from the Holder to the Corporation to increase such percentage. For purposes hereof,
the “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of Common Stock outstanding
immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Series A Preferred Stock
then being converted. The limitations contained in this Section shall apply to a successor holder of the Series A Preferred Stock.

  

		(k)	Rights Subject to Credit Agreement. The Series A Preferred Stock
is being issued to Holder in connection with that certain Senior Secured Revolving Credit Facility Credit Agreement dated as of
October 31, 2015, but made effective as of December 31, 2015 by and between the Corporation, the Holder, and others (the “Credit
Agreement”). The Series A Preferred Stock, and any Conversion Shares issued upon conversation thereof, shall be subject
to the terms and conditions of the Credit Agreement relating to the Series A Preferred Stock, and any Conversion Shares, including,
without limitation, the adjustment provisions, mandatory redemption provisions, and other provisions set forth in the Credit Agreement.

 

8.Severability.
If any right, preference or limitation of the Series A Preferred Stock set forth herein is invalid, unlawful or incapable of being
enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth herein that can be
given effect without the invalid, unlawful or unenforceable right, preference or limitation shall nevertheless remain in full force
and effect, and no right, preference or limitation herein shall be deemed dependent upon any other such right, preference or limitation
unless so expressed herein.

 

9.Amendment
and Waiver. This Certificate of Designation shall not be amended, either directly or indirectly or through merger or consolidation
with another entity, in any manner that would alter or change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them materially and adversely without the consent of the Holder. Subject to the preceding sentence, any amendment,
modification or waiver of any of the terms or provisions of the Series A Preferred Stock shall be binding upon the Holder.

 

    	 	6	 

     

    

 

10.Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered Holder shall be satisfactory)
of the ownership and the loss, theft, destruction, or mutilation of any certificate evidencing shares of Series A Preferred Stock,
and in the case of any suchloss, theft
or destruction upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the Holder is a financial
institution or other institutional investor its own agreement shall be satisfactory) or in the case of any such m10.Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered Holder shall be satisfactory)
of the ownership and the loss, theft, destruction, or mutilation of any certificate evidencing shares of Series A Preferred Stock,
and in the case of any suchutilation upon
surrender of such certificate, the Corporation, at its expense, shall execute and deliver in lieu of such certificate a new certificate
of like kind representing the number of shares of such Series represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate.

 

11.Notices.
Any notice required by the provisions of this Certificate of Designation shall be given in accordance with the terms of the Credit
Agreement.

 

12.Cumulative
Remedies. Nothing contained in this Certificate of Designations shall prohibit, prevent, or otherwise preclude Holder from
enforcing the Credit Agreement and other “Loan Documents” (as defined in the Credit Agreement) and its rights and
remedies thereunder, through any and all other rights and remedies available to Holder under the Credit Agreement and all other
Loan Documents, it being acknowledged by the Corporation that the rights to convert the Series A Preferred Stock and to sell shares
of Common Stock are in addition to all other rights and remedies available to Holder under the Credit Agreement and other Loan
Documents.

 

 

* * * * *

 

IN WITNESS
WHEREOF, the Corporation has caused this Certificate of Designation to be executed by Isaac H. Sutton, President of the Corporation,
this 29 day of January 2016.

 

 

 

	 	By:	/s/ Isaac H. Sutton	 
	 	Name:	Isaac H. Sutton	 
	 	Title: 	CEO	 

 

    	 	7

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