Document:

Exhibit 10.3

 

FORM OF INDEMNIFICATION AGREEMENT

 

THIS INDEMNIFICATION AGREEMENT (this “Agreement”) is made and entered into as of                           , by and between Deerfield Capital Corp., a Maryland corporation (the “Company”), and the undersigned (the “Indemnitee”).

 

WHEREAS, the Indemnitee is currently serving as a member of the board of directors of the Company (the “Board”) and/or as an officer of the Company and has agreed to continue to diligently serve the Company in such capacity;

 

WHEREAS, in order to induce Indemnitee to continue to serve in such capacity, the Company wishes to grant and secure to Indemnitee as permitted by Section 2-418 of the Corporations and Associations Article of the Annotated Code of Maryland (the “MGCL”) indemnification and advancement rights to the fullest extent permitted by Maryland law as the same exist or may hereafter be revised, whether or not expressly provided for in the Company’s Charter, Bylaws or other provisions of the MGCL.

 

NOW, THEREFORE, in consideration of the Indemnitee’s agreement to diligently serve the Company and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

Section 1. Indemnification and Advancement of Expenses.

 

(a)           If the Indemnitee is made a party or is threatened to be made a party to or is otherwise involved, whether or not a party thereto, in any possible, threatened, pending or completed action, suit, demand, arbitration, or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “Proceeding”) or otherwise incurs, suffers, sustains or becomes subject to any expense, liability, damage, costs, obligations, penalties, claims or losses (including, without limitation, attorneys’ fees and expenses, judgments, fines, Employee Retirement and Income Security Act  excise taxes or penalties and amounts paid or to be paid in settlement) (collectively, “Losses”), arising out of, relating to, based upon, in connection with or due to the fact that the Indemnitee is or was serving as a director (including, without limitation, as a member of any committee of the Board) and/or officer of the Company, any predecessor of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, trustee or officer of another corporation, partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan (such service as a director, committee member, officer or other service at the request of the Company being referred to collectively as the “Official Capacity” of the Indemnitee), the Indemnitee shall be indemnified and held harmless by the Company to the fullest extent permitted by Maryland law against all Losses incurred, suffered or sustained by the

 

 

Indemnitee or to which the Indemnitee became subject in connection with such service, including without limitation any such Losses arising, directly or indirectly, out of facts and circumstances in existence prior to the time the Indemnitee began to serve the Company in such Official Capacity, whether or not known to or ascertainable by the Indemnitee at the time such Official Capacity commenced, except with respect to (i)  a Proceeding by or in the right of the Company to procure a judgment in its favor (other than as described in Section 1(b)), or (ii) a Proceeding initiated by or on behalf of the Indemnitee against the Company (other than as described in Section 2) which Proceeding was not authorized by the Board (for purposes of this clause (ii), a compulsory counterclaim by the Indemnitee against the Company in connection with a Proceeding initiated against the Indemnitee by the Company shall not be considered to be a Proceeding initiated by or on behalf of the Indemnitee). Such indemnification as described in this Section 1(a) shall continue as to the Indemnitee after the Indemnitee has ceased to serve in his or her Official Capacity as set forth above, and shall inure to the benefit of the Indemnitee’s heirs, executors, administrators, conservators and guardians.

 

(b)           In the case of a Proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor, the Indemnitee shall be entitled to indemnification as provided in Section 1, except in respect of any proceeding in which the Indemnitee shall have been adjudged liable to the Company by a court having jurisdiction over the matter.  The Indemnitee shall be entitled to indemnification for any judgment, fines or amounts paid in settlement to the Company in connection with such Proceeding.

 

(c)           The rights conferred upon the Indemnitee by this Agreement shall include the right to be paid or reimbursed by the Company for any Losses from time to time incurred, suffered or sustained by the Indemnitee or to which the Indemnitee became subject in connection with any such service, including, without limitation, reasonable expenses actually incurred in connection with any such Proceeding or other action in advance of its final disposition (hereinafter an “Advancement of Expenses”); provided, however, that such Advancement of Expense shall be made (without further inquiry by the Company or the Board) upon and only upon delivery to the Company of (i) a written affirmation by the Indemnitee of the Indemnitee’s good faith belief that the standard of conduct necessary for indemnification by the Company as authorized by the MGCL has been met and (ii) a written undertaking by or on behalf of the Indemnitee to repay any Advancement of Expenses if it shall ultimately be determined by a final, nonappealable judicial decision that the Indemnitee has not met the applicable  standard of conduct necessary for indemnification under the MGCL.  Any such undertaking shall be an unlimited general obligation of the Indemnitee but need not be secured and shall be accepted by the Company without reference to financial ability to make repayment.

 

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(d)           If the Indemnitee is successful, on the merits or otherwise, in defending one or more but less than all claims, issues or matters in such Proceeding (including dismissal without prejudice of certain claims), the Company shall indemnify the Indemnitee against any Losses including, without limitation, reasonable expenses actually incurred by the Indemnitee or on the Indemnitee’s behalf in defending each such successfully resolved, claim, issue, or matter.

 

(e)           Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee, by reason of such Indemnitee’s Official Capacity is, or is threatened to become, a witness for any reason in any Proceeding in which such Indemnitee is not a party, such Indemnitee shall be indemnified against any Losses (and be entitled to Advancement of Expenses pursuant to clause 1(c) hereof) including, without limitation, reasonable expenses actually incurred by or on behalf of such Indemnitee in connection therewith.

 

(f)            Without diminishing or impairing the indemnification obligations of the Company hereunder or under Maryland law or the charter of by-laws of the Company, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any Losses with respect to which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the maximum extent permitted by Maryland law now or hereafter in force the Company shall contribute to the amount of such Losses actually incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or amounts paid in settlement, as well as any other equitable considerations.  The relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary, and the degree to which their conduct is active or passive.

 

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Section 2.   Determination that Indemnitee is Entitled to Indemnification; Right of Indemnitee to Enforce Indemnification and Advancement Obligations.

 

(a)   To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor.  A determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case and within 50 days after the Indemnitee’s written request therefor, by the Board of Directors in accordance with any applicable provisions of the MGCL or, at the election of the Indemnitee, by special legal counsel (which counsel shall be selected by the Board of Directors if required by the MGCL) in a written opinion to the Board, a copy of which shall be delivered to Indemnitee.  Such special legal counsel shall be a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past two years has been, retained to represent (i) the Company or the Indemnitee in any matter material to either party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  The Indemnitee shall be entitled to object to the Board’s selection of  special legal counsel if the counsel so selected does not meet the requirements for independence set forth in this Section 2(a); if Indemnitee shall so object (which right of objection may be exercised no more than two times), the Board of Directors shall designate an alternative special legal counsel that meets the requirements for independence set forth in this Section 2(a).

 

(b)           If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Indemnitee shall cooperate with the special legal counsel making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the Independent Counsel shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(c)           If a claim under (x) Section 1(a) or 1(b) of this Agreement, with respect to any right to indemnification is not paid in full by the Company within sixty (60) days after a written claim for indemnification has been received by the Company, or (y) Section 1(c) of this Agreement (provided the Indemnitee has provided the undertaking contemplated thereby), with respect to any right to the Advancement of Expenses is not paid in full by the Company within twenty (20) days after a written claim for Advancement of Expenses is received by the Company, then the Indemnitee shall be entitled at any time thereafter to bring suit against the Company to recover the unpaid amount of any such claim.  If successful in

 

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whole or in part in any such suit, the Indemnitee shall be entitled additionally to be paid, and to seek as an award in connection with any such suit, the cost and expenses (including reasonable attorneys’ fees) actually incurred by Indemnitee in prosecuting such suit.  Neither the failure of the Company (including its Board or special legal counsel) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met any applicable standard of conduct set forth in the MGCL, nor an actual determination by the Company (including its Board or  special legal counsel) that the Indemnitee has not met any such applicable standard of conduct, shall be a defense to the suit or create a presumption for purposes thereof that the Indemnitee has not met any applicable standard of conduct necessary for indemnification by the Company as authorized by the MGCL.

 

(d)           In any suit brought by the Indemnitee seeking to enforce a right to indemnification or to an Advancement of Expenses under this Agreement, the burden shall be on the Company to prove that the Indemnitee is not entitled to be indemnified or to receive such Advancement of Expenses under this Agreement.

 

Section 3.               Rights Not Exclusive. The rights provided hereunder shall not be deemed exclusive of any other right to which the Indemnitee may be entitled or hereafter may acquire under any statute, provision of the Company’s Charter or Bylaws, each as from time to time amended, agreement, vote of shareholders, or determination by disinterested directors or special legal counsel or otherwise, and shall continue as to the Indemnitee after the Indemnitee has ceased to serve in his or her Official Capacity or as otherwise set forth in this Agreement and shall inure to the benefit of the Indemnitee’s heirs, executors, administrators, conservators and guardians.

 

Section 4. D&O Insurance.

 

(a)           The Company hereby covenants and agrees that, so long as Indemnitee shall continue to serve in his or her Official Capacity and thereafter so long as Indemnitee shall be subject to any possible, threatened, pending or completed Proceeding arising out of, relating to, based upon, in connection with or due to the fact that Indemnitee was serving in such Official Capacity, the Company shall maintain in full force and effect or provide through a corporate affiliate or otherwise for Indemnitee to be covered by directors’ and officers’ liability insurance in a commercially reasonable amount  issued by one or more financially sound and reputable insurers (the “D&O Insurance”).

 

(b)           With respect to the obligations of the Company to maintain D&O Insurance as set forth in this Section 4, the Company shall not be obligated to make annual premium payments for any such insurance to the extent that such premiums exceed 200% of the premiums being paid by or for the benefit of the 

 

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Company as of the date hereof for such insurance and, if such premiums for such insurance would at any time exceed 200% of such current premium, then the Company shall cause to be maintained policies of insurance which, in the good faith determination of the Board, provide the maximum coverage available at an annual premium equal to 200% of such current premium.

 

(c)           The provision of D&O Insurance as provided in this Section 4 shall be in addition to the Company’s obligations under Section 1 and shall not be deemed to be in satisfaction of those obligations.

 

Section 5. Settlement.  The Company shall not settle any Proceeding in any manner which would impose any fine, penalty or any obligation on the Indemnitee without the Indemnitee’s prior written consent.  The Indemnitee shall not unreasonably withhold consent to any proposed settlement.

 

Section 6. Subrogation.  (a) The Company hereby acknowledges and agrees that (i) the Company shall be the indemnitor of first resort with respect to any obligation of the Company to Indemnitee under this Agreement, including the Company’s obligations to provide indemnification and Advancements of Expenses to Indemnitee under this Agreement (the “Indemnity Obligations”), (ii) the Company shall be primarily liable for all Indemnification Obligations and any indemnification afforded to Indemnitee in respect of any Proceeding, Loss, Advancement of Expenses or matter that is the subject of Indemnity Obligations, whether created by law, organizational or constituent documents, contract (including this Agreement) or otherwise, (iii) any obligation of any other Persons with whom or which Indemnitee may be associated (including, without limitation, Columbus Nova, Bounty Investments, LLC and any affiliate of Columbus Nova or Bounty Investments LLC, other than the Company and its subsidiaries (collectively, the “Columbus Nova Entities”)) to indemnify and/or make an Advancement of Expenses to Indemnitee in respect of any Proceeding shall be secondary to the obligations of the Company hereunder, (iv) the Company shall be required to indemnify Indemnitee and make Advancements of Expenses to Indemnitee hereunder to the fullest extent provided herein without regard to any rights Indemnitee may have against any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) or insurer of any such Person and (v) the Company irrevocably waives, relinquishes and releases any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) from any claim of contribution, subrogation or any other recovery of any kind in respect of amounts paid by the Company hereunder.  In the event any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) or their insurers advances or extinguishes any Proceeding, or Loss which is the subject of any Indemnity Obligation owed by the Company or payable under any insurance policy provided under this Agreement, the payor shall have a right of subrogation

 

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against the Company or its insurer or insurers for all amounts so paid which would otherwise be payable by the Company or its insurer or insurers under this Agreement.  In no event will payment of an Indemnity Obligation of the Company under this Agreement by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) or their insurers affect the obligations of the Company hereunder or shift primary liability for any Indemnity Obligation to any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity).  Any indemnification, insurance and/or Advancements of Expenses provided by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) with respect to any liability arising as a result of Indemnitee’s Official Capacity is specifically in excess over any Indemnity Obligation of the Company and any collectible insurance (including but not limited to any malpractice insurance or professional errors and omissions insurance) provided by the Company under this Agreement, and any obligation to provide indemnification, insurance and/or Advancements of Expenses provided by any other Person with whom or which Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) shall be reduced by any amount that Indemnitee collects from the company as an indemnification payment or Advancement of Expenses pursuant to this Agreement.

 

(b)           In the event of any payment under this Agreement, the Company shall not be subrogated to and hereby waives any rights to be subrogated to any rights of recovery of Indemnitee, including rights of indemnification provided to Indemnitee from any other person or entity with whom Indemnitee may be associated (including, without limitation, any Columbus Nova Entity) as well as any rights to contribution that might otherwise exist; provided, however, that the Company shall be subrogated to the extent of any such payment of all rights of recovery of Indemnitee under insurance policies of the Company or any of its subsidiaries.

 

Section 7. Severability.        In the event that any provision of this Agreement is determined by a court to require the Company to do or to fail to do an act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms.

 

Section 8. Choice of Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Maryland, including applicable statutes of limitations and other procedural statutes.

 

Section 9. Successor and Assigns. This Agreement shall be (i) binding upon all successors and assigns of the Company (including any transferee of all or 

 

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substantially all of its assets and successor by merger, consolidation or otherwise by operation of law) and (ii) shall be binding on and inure to the benefit of the heirs, executors, administrators, conservators and guardians of Indemnitee.

 

Section 10. Amendment.  No amendment, modification, supplement, or repeal of this Agreement or any provision hereof shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.  No amendment, modification, supplement, or repeal of this Agreement or of any provision hereof shall limit or restrict any rights of the Indemnitee under this Agreement in respect of any action taken or omitted by the Indemnitee in or by reason of the Indemnitee’s Official Capacity prior to such amendment, modification, supplement or repeal.

 

Section 11. Waiver of Jury Trial.  The Company and the Indemnitee hereby waive any rights either may have to trial by jury in respect of any litigation arising out of, relating to, based upon or in connection with this Agreement.

 

Section 12. Limitation of Liability.  The Indemnitee shall not be personally liable to the Company or its shareholders for monetary damages; provided, however, that the foregoing shall not eliminate or limit the liability of the Indemnitee: (i) to the extent that it is proved that the person actually received an improper benefit or profit in money, property, or services, for the amount of the benefit or profit in money, property, or services actually received; or (ii) to the extent that a judgment or other final adjudication adverse to the person is entered in a proceeding based on a finding in the proceeding that the person’s action or failure to act was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding.  If Maryland law shall be amended to permit further elimination or limitation of the personal liability of directors, then the liability of the Indemnitee shall, automatically, without any further action, be eliminated or limited to the fullest extent permitted by Maryland law as so amended.

 

Section 13.             Effect of Federal Laws.   Notwithstanding any other provisions contained herein, this Agreement is subject to the requirements and limitations set forth in federal laws, rules, regulations and orders regarding indemnification and advancement of expenses.

 

Section 14.             Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

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Section 15.             Third-Party Beneficiaries.  The Columbus Nova Entities are intended third-party beneficiaries of this Agreement.

 

[Remainder of Page Left Blank]

 

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IN WITNESS WHEREOF, the Company and the Indemnitee have executed this Indemnification Agreement as of the day and year first set forth above.

 

	     
    	    DEERFIELD CAPITAL CORP.
    
	     
    	     
    	     
    
	     
    	     
    	     
    
	     
    	    By:
    	     
    
	     
    	    Name:
    
	     
    	    Title:
    
	     
    	     
    
	     
    	     
    
	     
    	    INDEMNITEE
    
	     
    	     
    
	     
    	     
    
	     
    	     
    
	     
    	    Name:ex10_1.htm

Exhibit 10.1

 

FIFTH LOAN MODIFICATION AGREEMENT

 

 

This Fifth Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of June 11, 2010, by and among (a) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts  02462 (“Bank”) and (b) PARADIGM HOLDINGS, INC., a Wyoming corporation, with offices at 9715 Key West Avenue, Rockville, Maryland  20850 (“Holdings”), PARADIGM SOLUTIONS CORPORATION, a Maryland corporation, with offices at 9715 Key West Avenue, Rockville, Maryland  20850 (“Solutions”), CALDWELL TECHNOLOGY SOLUTIONS LLC, a Maryland limited liability company, with offices at 9715 Key West Avenue, Rockville, Maryland  20850 (“Caldwell”) and TRINITY INFORMATION MANAGEMENT SERVICES, a Nevada corporation, with offices at 9715 Key West Avenue, Rockville, Maryland 20850 (“Trinity”) (hereinafter, Holdings, Solutions, Caldwell and Trinity are jointly and severally, individually and collectively, referred to as “Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of March 13, 2007, evidenced by, among other documents, a certain Loan and Security Agreement (working capital line of credit) dated as of March 13, 2007, among Borrower and Bank, as amended by a certain First Loan Modification Agreement dated as of August 11, 2008, as further amend by a certain Second Loan Modification Agreement dated as of March 18, 2009, as further amended by a certain Third Loan Modification Agreement dated as of May 4, 2009, and as further amended by a certain Fourth Loan Modification Agreement dated as of July 2, 2009 (the “Fourth Loan Modification Agreement”) (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

 

 

2.             DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by (a) the Collateral as described in the Loan Agreement, (b) the Intellectual Property Collateral as described in a certain Intellectual Property Security Agreement dated as of March 13, 2007 between Bank and Holdings (the “Holdings IP Security Agreement”), (c) the Intellectual Property Collateral as described in a certain Intellectual Property Security Agreement dated as of March 13, 2007 between Bank and Solutions (the “Solutions IP Security Agreement”), (d) the Intellectual Property Collateral as described in a certain Intellectual Property Security Agreement dated as of July 5, 2007 between Bank and Caldwell (the “Caldwell IP Security Agreement”), and (e) the Intellectual Property Collateral as described in a certain Intellectual Property Security Agreement dated as of September 5, 2007 between Bank and Trinity (the “Trinity IP Security Agreement”) (together with any other collateral security granted to Bank, the  “Security Documents”).  Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

 

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

	
  

	
A.

	
Modifications to Loan Agreement.

 

 

	
  

	
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The Loan Agreement shall be amended by deleting the following text, appearing in Section 2.1.1(f) thereof:

 

“If this Agreement is terminated on or prior to the Anniversary Date (as hereinafter defined) (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a termination fee in an amount equal to One Hundred Thousand Dollars ($100,000.00) (the “Early Termination Fee”).”

 

and inserting in lieu thereof the following:

  

  

  

 

“If this Agreement is terminated (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B) by Borrower for any reason, Borrower shall pay to Bank a termination fee in an amount equal to Forty Five Thousand Dollars ($45,000.00) (the “Early Termination Fee”).”

 

	
  

	
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The Loan Agreement shall be amended by deleting the following text, appearing in Section 2.2.3 thereof:

 

“Borrower will pay a finance charge (the “Finance Charge”) on each Financed Receivable which is equal to the Applicable Rate divided by 360 multiplied by the number of days each such Financed Receivable is outstanding multiplied by the outstanding Financed Receivable Balance.”

 

and inserting in lieu thereof the following:

 

“Borrower will pay a finance charge (the “Finance Charge”) on each Financed Receivable which is equal to the Applicable Rate divided by 360 multiplied by the number of days each such Financed Receivable is outstanding multiplied by the average daily outstanding Financed Receivable Balance.”

 

	
  

	
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The Loan Agreement shall be amended by deleting the following text, appearing in Section 2.2.4 thereof:

 

“Borrower will pay to Bank a collateral handling fee equal to (a) 0.20% per month of the Financed Receivable Balance for each Financed Receivable outstanding based upon Federal Agency Accounts and Subcontractor Accounts based upon a 360 day year, and (b) 0.25% per month of the Financed Receivable Balance for Financed Receivables outstanding based upon Unbilled Accounts based upon a 360 day year (the “Collateral Handling Fee”).”

 

and inserting in lieu thereof the following:

 

“Borrower will pay to Bank a collateral handling fee (the “Collateral Handling Fee”) equal to (a) 0.20% per month of the average daily outstanding Financed Receivable Balance for each Financed Receivable outstanding based upon Federal Agency Accounts and Subcontractor Accounts based upon a 360 day year, provided, however, for any Subject Month (as of the first calendar day of such month), to the extent that Borrower had EBITDA of at least Four Hundred Thousand Dollars ($400,000.00) for the applicable Testing Period, the Collateral Handling Fee shall be equal to 0.15% per month of the average daily outstanding Financed Receivable Balance for each Financed Receivable outstanding based upon Federal Agency Accounts and Subcontractor Accounts based upon a 360 day year, and (b) 0.25% per month of the average daily outstanding Financed Receivable Balance for each Financed Receivable outstanding based upon Unbilled Accounts based upon a 360 day year, provided, however, for any Subject Month (as of the first calendar day of such month), to the extent that Borrower had EBITDA of at least Four Hundred Thousand Dollars ($400,000.00) for the applicable Testing Period, the Collateral Handling Fee shall be equal to 0.20% per month of the average daily outstanding Financed Receivable Balance for each Financed Receivable outstanding based upon Unbilled Accounts based upon a 360 day year.”

 

	
  

	
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The Loan Agreement shall be amended by deleting the following, appearing as Section 6.7 thereof:

 

  

  

  

“              6.7          Financial Covenants.

 

Borrower shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

 

(a)           EBITDA Loss.  EBITDA minus unfunded capital expenditures loss as of and for the three month period (or periods) ending on (i) January 31, 2007 and February 28, 2007, of not more than $1,000,000, and (ii) August 31, 2008, April 30, 2009, May 31, 2009, and June 30, 2009, of not more than $50,000.

 

(b)           EBITDA Gain.  EBITDA minus unfunded capital expenditures as of and for the three month period (or periods) ending on (i) March 31, 2007, April 30, 2007 and May 31, 2007, of at least $1.00, (ii) June 30, 2007, July 31, 2007, August 31, 2007, September 30, 2007, October 31, 2007 and November 30, 2007, of at least $250,000.00, (iii) December 31, 2007, January 31, 2008, February 29, 2008, March 31, 2008, April 30, 2008, May 31, 2008, June 30, 2008 and July 31, 2008, of at least $500,000.00, (iv) September 30, 2008, of at least $75,000.00 (v) October 31, 2008, of at least $150,000.00 (vi) November 30, 2008, of at least $250,000.00, (vii) December 31, 2008, of at least $400,000.00, (viii) January 31, 2009, February 28, 2009, and March 31, 2009, of at least $500,000.00, (ix) July 31, 2009 and August 31, 2009, of at least $1.00, (x) September 30, 2009, of at least $100,000.00, (xi) October 31, 2009 and November 30, 2009, of at least $250,000.00, and (xii) December 31, 2009 and as of and for the three month period ending of the last day of each month thereafter, of at least $500,000.00.

 

Notwithstanding the foregoing, (a) EBITDA Losses incurred from January 1, 2007 through February 28, 2007 will be excluded from the EBITDA calculation with respect to the three month periods ending on February 28, 2007 and March 31, 2007, and (b) EBITDA Losses incurred from February 1, 2007 through February 28, 2007 will be excluded from the EBITDA calculation with respect to the three month period ending on April 30, 2007.  As used herein, “EBITDA Losses” shall be defined as the lesser of (i) $275,000.00, and (ii) the actual expenses incurred by the discontinued commercial business of Borrower during the period(s) referenced above.”

 

and inserting in lieu thereof the following:

 

“              6.7          Financial Covenant - EBITDA.  Borrower shall maintain at all times, to be tested as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries, EBITDA minus unfunded capital expenditure loss, minus the aggregate amount of any cash payments made by Borrower pursuant to Section 7.6(b), any dividends paid by Borrower in cash and any other cash payments made by Borrower to Investors or holders of Subordinated Debt in the form of distributions, dividends, redemptions, principal, interest, fees, or otherwise (but in any case excluding payments made directly out of money market account number 3300717632 maintained with Bank in an aggregate amount not to exceed Four Million Dollars ($4,000,000.00)), as of and for the three month period (or periods) ending on (i) May 31, 2010 and June 30, 2010 of at least Fifty Thousand Dollars ($50,000.00), (ii) July 31, 2010 and August 31, 2010, of at least One Hundred Fifty Thousand Dollars ($150,000.00), (iii) September 30, 2010, of at least Two Hundred Thousand Dollars ($200,000.00), (iv) October 31, 2010, of at least Two Hundred Fifty Thousand Dollars ($250,000.00), and (v) November 30, 2010 and as of and for the three month period ending of the last day of each month thereafter, of at least Three Hundred Thousand Dollars ($300,000.00).”

  

  

  

	
  

	
5

	
The Loan Agreement shall be amended by deleting the following text, appearing in Section 7.6 thereof:

 

“or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; provided, however, Borrower shall be permitted to (1) make cash payments  to Hale Capital Partners, LP and/or  EREF PARA LLC (together with any transferees of such parties, the “Investors”) in connection with redemptions and repurchases contemplated by that certain Paradigm Holdings, Inc. Certificate of Designations of Series A-1 Senior Preferred Stock (the “Certificate of Designations”), that certain Preferred Stock Purchase Agreement (the “Preferred Stock Purchase Agreement”) among Holdings, Hale Capital Partners, LP (“Hale”) and each of the other purchasers identified on the signature pages thereto (each a “Purchaser” and collectively with Hale, the “Purchasers”) dated on or about February 27, 2009 and those certain Class A Warrants and Class B Warrants issued to the Purchasers pursuant to the Preferred Stock Purchase Agreement, so long as, at the time of any such payment, (i) no Event of Default exists or would exist after giving effect to such payment, (ii) Borrower has performed in accordance with at least one hundred percent (100.0%) of its board-approved revenue plan, (iii) Borrower has performed at least twenty percent (20.0%) above its board-approved EBITDA plan, and (iv) Borrower will have at least One Million Dollars ($1,000,000.00) in unrestricted and unencumbered cash after each such payment, (2) make monthly cash dividend payments to the Investors in an amount not to exceed five percent (5.0%) per annum of the Stated Value (as defined below) per share of the outstanding shares of Series A-1 Senior Preferred Stock, provided, however, the aggregate amount of such payments made in any month shall not exceed Thirty-Five Thousand Dollars ($35,000.00) and provided further, however, no such payments may be made while there is an Event of Default or if an Event of Default would exist after giving effect to any such payment, (3) accrue an additional dividend of seven and a half percent (7.5%) per annum on the Series A-1 Senior Preferred Stock to be paid by adding such amount to the Stated Value per share of the outstanding shares of Series A-1 Senior Preferred Stock and (4) make non-cash redemptions or non-cash repurchases in exchange for capital stock of Borrower.”

 

and inserting in lieu thereof the following:

 

“or (b) pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; provided, however, Borrower shall be permitted to (1) commencing with the month ending March 31, 2010 through and including the month ending January 31, 2012, make Excess Cash Flow Redemptions to Hale Capital Partners, LP (“Hale”) and/or EREF PARA LLC (“EREF”) (together with any transferees of such parties, the “Investors”) in connection with repurchases contemplated by that certain that certain Preferred Stock Purchase Agreement (the “Preferred Stock Purchase Agreement”) among Holdings, Hale and each of the other purchasers identified on the signature pages thereto (each a “Purchaser” and collectively with Hale, the “Purchasers”) dated on or about February 27, 2009 and those certain Class A Warrants and Class B Warrants issued to the Purchasers pursuant to the Preferred Stock Purchase Agreement, so long as, at the time of any such payment, (i) no Event of Default exists or would exist after giving effect to such payment, (ii) Borrower has performed in accordance with at least one hundred percent (100.0%) of its board-approved revenue plan, (iii) Borrower has performed at least fifteen percent (15.0%) above its board-approved EBITDA plan, and (iv) Borrower will have at least Five Hundred Thousand Dollars ($500,000.00) in unrestricted and unencumbered cash after each such payment (excluding all amounts received from Hale and EREF), (2) commencing with the month ending March 31, 2010 through and including the month ending January 31, 2012, make cash payments to Hale and/or EREF in an aggregate amount not to exceed Fifty Thousand Dollars ($50,000.00) per month in connection with redemptions of the preferred stock pursuant to that certain Certificate of Designations of Series A-1 Senior Preferred Stock (“Certificate of Designations”) dated as of February 13, 2009 executed by Holdings, so long as, at the time of any such payment, no Event of Default exists or would exist after giving effect to such payment, (3) make monthly cash dividend payments to the Investors in an amount not to exceed five percent (5.0%) per annum of the Stated Value (as defined below) per share of the outstanding shares of Series A-1 Senior Preferred Stock, provided, however, the aggregate amount of such payments made in any month shall not exceed Thirty-Five Thousand Dollars ($35,000.00) and provided further, however, no such payments may be made while there is an Event of Default or if an Event of Default would exist after giving effect to any such payment, (4) accrue an additional dividend of seven and a half percent (7.50%) per annum on the Series A-1 Senior Preferred Stock to be paid by adding such amount to the Stated Value per share of the outstanding shares of Series A-1 Senior Preferred Stock and (5) make non-cash redemptions or non-cash repurchases in exchange for capital stock of Borrower.  As used herein, “Stated Value” for each share of Series A-1 Senior Preferred Stock shall initially be One Thousand Dollars ($1,000.00).”

  

  

  

 

	
  

	
6

	
The Loan Agreement shall be amended by inserting the following new definitions, appearing alphabetically in Section 13.1 thereof:

 

“              “Certificate of Designations” is defined in Section 7.6.”

“              “Excess Cash Flow Redemptions” is fifty percent (50.0%) of Holdings’s Excess Cash Flow (as defined in the Certificate of Designations, without amendment to any defined term therein, except as otherwise approved by Bank on a case-by-case basis in its sole and absolute discretion).”

“              “Investors” is defined in Section 7.6.”

 

“              “Subject Month” is the month which is two (2) calendar months after the last month of any Testing Period.”

 

“              “Testing Period” is any three month period, with respect to which Bank has tested Borrower’s EBITDA in order to determine the Collateral Handling Fee in Section 2.2.4 or the Applicable Rate.”

 

	
  

	
7

	
The Loan Agreement shall be amended by deleting the following text, appearing in the definition of Eligible Accounts in Section 13.1 thereof:

 

“              (h)           Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five percent (25.0%) (thirty-five percent (35.0%) if the Account Debtor is an agency of the United States government) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing;”

 

and inserting in lieu thereof the following:

  

  

  

 

“              (h)           Intentionally omitted;”

 

	
  

	
8

	
The Loan Agreement shall be amended by deleting the following definitions, appearing in Section 13.1 thereof:

 

“              “Applicable Rate” is (a) with respect to Financed Receivables based upon Federal Agency Accounts and Subcontractor Accounts, a per annum rate equal to the Prime Rate plus one and one-half of one percent (1.50%), and (b) with respect to Financed Receivables based upon Unbilled Accounts, a per annum rate equal to the Prime Rate plus two percent (2.0%).”

 

“              “Maturity Date” is June 11, 2010.”

 

“              “Prime Rate” is the greater of (a) four and one-half of one percent (4.50%), and (b) Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.”

 

and inserting in lieu thereof the following:

 

“              “Applicable Rate” is (a) with respect to Financed Receivables based upon Federal Agency Accounts and Subcontractor Accounts, a per annum rate equal to the Prime Rate plus one and one-half of one percent (1.50%), provided, however, for any Subject Month (as of the first calendar day of such month), to the extent that Borrower had EBITDA of at least Four Hundred Thousand Dollars ($400,000.00) for the applicable Testing Period, the Applicable Rate shall be a per annum rate equal to the Prime Rate plus one percent (1.0%), and (b) with respect to Financed Receivables based upon Unbilled Accounts, a per annum rate equal to the Prime Rate plus two percent (2.0%), provided, however, for any Subject Month (as of the first calendar day of such month), to the extent that Borrower had EBITDA of at least Four Hundred Thousand Dollars ($400,000.00) for the applicable Testing Period, the Applicable Rate shall be a per annum rate equal to the Prime Rate plus one and one-quarter of one percent (1.25%).”

 

“              “Maturity Date” is May 15, 2011.”

 

“              “Prime Rate” is the greater of (a) four percent (4.0%), and (b) Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate.”

 

	
  

	
9

	
The Compliance Certificate appearing as Exhibit B to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Schedule 1 hereto.

 

	
  

	
B.

	
Waiver.  Bank hereby waives Borrower’s existing defaults under the Loan Agreement by virtue of Borrower’s failure to comply with the financial covenant set forth in Section 6.7(b) thereof (relative to the requirement that Borrower maintain a certain EBITDA) as of the three-month periods ended February 28, 2010, March 31, 2010, April 30, 2010 and May 31, 2010 (as required prior to this Loan Modification Agreement).  Bank’s waiver of Borrower’s compliance of said affirmative covenant shall apply only to the foregoing specific periods.

 

4.             FEES.  Borrower shall pay to Bank a modification fee equal to Forty Five Thousand Dollars ($45,000.00) which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof.  Borrower shall also reimburse Bank for all reasonable legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents.

  

  

  

 

5.            RATIFICATION OF IP SECURITY AGREEMENTS.

 

 

(a)           Holdings hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Holdings IP Security Agreement and acknowledges, confirms and agrees that the Holdings IP Security Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined therein.

 

 

(b)           Solutions hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Solutions IP Security Agreement and acknowledges, confirms and agrees that the Solutions IP Security Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined therein.

 

 

(c)           Caldwell hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Caldwell IP Security Agreement and acknowledges, confirms and agrees that the Caldwell IP Security Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined therein.

 

 

(d)           Trinity hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of the Trinity IP Security Agreement and acknowledges, confirms and agrees that the Trinity IP Security Agreement contains an accurate and complete listing of all Intellectual Property Collateral as defined therein.

 

 

6.             RATIFICATIONS OF PERFECTION CERTIFICATES.

 

 

(a)           Except as set forth on Schedule 2 of the Fourth Loan Modification Agreement, Holdings hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of March 13, 2007 between Holdings and Bank, and acknowledges, confirms and agrees the disclosures and information Holdings provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

 

 

(b)           Except as set forth on Schedule 2 of the Fourth Loan Modification Agreement, Solutions hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of March 13, 2007 between Solutions and Bank, and acknowledges, confirms and agrees the disclosures and information Solutions provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

 

 

(c)           Except as set forth on Schedule 2 of the Fourth Loan Modification Agreement, Caldwell hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of July 5, 2007 between Caldwell and Bank, and acknowledges, confirms and agrees the disclosures and information Caldwell provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

 

 

(d)           Except as set forth on Schedule 2 of the Fourth Loan Modification Agreement, Trinity hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of September 5, 2007 between Trinity and Bank, and acknowledges, confirms and agrees the disclosures and information Trinity provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

 

  

  

  

 

7.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

 

 

8.             RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

 

 

9.             NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

 

 

10.           CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the existing Obligations pursuant to this  Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations.  Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing.  No maker will be released by virtue of this Loan Modification Agreement.

 

 

11.           COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

 

 

[The remainder of this page is intentionally left blank]

  

  

  

 

This Loan Modification Agreement is executed as of the date first written above.

 

	
BORROWER:

	  	
BANK:

	 	 	 	 	 
	
PARADIGM HOLDINGS, INC.

	  	
SILICON VALLEY BANK

	 	 	 	 	 
	
By:

	/s/ Richard Sawchak	  	
By:

	/s/ Christine Egitto  
	 	 	 	 	 
	
Name:

	
Richard Sawchak

	  	
Name:

	Christine Egitto  
	 	 	 	 	 
	
Title:

	
SVP and CFO

	  	
Title:

	VP  
	  	  	  	  	  
	 	 	 	 	 
	
PARADIGM SOLUTIONS CORPORATION

	  	  	  
	 	 	 	 	 
	
By:

	/s/ Richard Sawchak	  	  	  
	 	 	 	 	 
	
Name:

	
Richard Sawchak

	  	  	  
	 	 	 	 	 
	
Title:

	
SVP and CFO

	  	  	  
	 	 	 	 	 
	  	  	  	  	  
	
CALDWELL TECHNOLOGY SOLUTIONS LLC

	  	  	  
	 	 	 	 	 
	
By:

	/s/ Richard Sawchak	  	  	  
	 	 	 	 	 
	
Name:

	
Richard Sawchak

	  	  	  
	 	 	 	 	 
	
Title:

	
Manager

	  	  	  
	  	  	  	  	  
	 	 	 	 	 
	
TRINITY INFORMATION MANAGEMENT SERVICES

	  	  	  
	 	 	 	 	 
	
By:

	/s/ Richard Sawchak	  	  	  
	 	 	 	 	 
	
Name:

	
Richard Sawchak

	  	  	  
	 	 	 	 	 
	
Title:

	
SVP and CFO

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