AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
Amendment No. 3 (the "Amendment"), dated as of June 29,
2012 (the "Effective Date"), to a certain Loan and Security
Agreement by and between SOVEREIGN BANK, N.A. (f/k/a Sovereign
Bank), a national banking association ("Lender"), with an address
at 3 Terry Drive, Suite 102, Newtown, Pennsylvania 18940, and
DYNASIL CORPORATION OF AMERICA, a Delaware corporation
("Borrower").
BACKGROUND
WHEREAS, the Lender and the Borrower made, executed and
delivered a Loan and Security Agreement, dated July 7, 2010, as
amended by a certain Amendment No. 1 to Loan and Security
Agreement dated as of April 1, 2011 and a certain Amendment No. 2
to Loan and Security Agreement effective as of March 31, 2012
(the "Original Loan Agreement"); and
WHEREAS, the Lender has agreed to waive, pursuant to the
terms and provisions of a letter agreement dated as of the date
hereof between Borrower and Lender (the "Waiver Letter"), certain
defaults by the Borrower under the Original Loan Agreement so
long as this Amendment is executed and delivered by the Borrower.
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and each intending to be legally bound hereby,
the parties hereto hereby agree as follows:
1. Except as expressly defined herein, all terms used herein
shall have the meanings ascribed to them in the Original Loan
Agreement. This Amendment is intended to amend the Original Loan
Agreement and the Original Loan Agreement shall be so amended
from and as of the Effective Date.
2. Subsection 1(a) of the Original Loan Agreement is hereby
amended so that the following definitions shall be amended and
restated to read in their entireties as follows:
""Consolidated EBITDA" shall mean, for the Borrower and
its Subsidiaries on a consolidated basis, without
duplication, with respect to any fiscal measurement period,
the sum of (a) net income (or loss) for that period, plus
(b) the aggregate closing costs and similar costs and
expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement, plus (c) any
other non-recurring or unusual expense or loss acceptable to
Lender in its sole discretion, minus (d) any non-recurring
gain included in such net income, plus (e) Interest Expense
for that period, plus (f) the aggregate amount of federal,
state and foreign taxes on or measured by income for that
period (whether or not payable during that period), plus (g)
depreciation and amortization expense for that period, plus
(h) non-cash stock compensation expenses in an aggregate
amount not exceeding $1,000,000.00 in any fiscal year, plus
(i) the aggregate reasonable transaction costs and expenses
incurred in connection with the consummation of any
Permitted Acquisition (so long as such Permitted Acquisition
was approved by the Lender in accordance with the terms and
provisions of this Agreement and actually consummated by the
Borrower), plus (j) the aggregate reasonable transaction
costs and expenses incurred in connection with the
preparation, execution and delivery of the Amendment No. 3
to Loan and Security Agreement between Borrower and Lender
dated as of June 29, 2012, plus (k) the aggregate reasonable
transaction costs and expenses incurred in connection with
the completion of the Required Capital Raise, and in the
case of items (b) - (k), only to the extent included in
determining net income for that period, in each case as
determined in accordance with GAAP.
"Consolidated Fixed Charges" shall mean with respect to
Borrower and its Subsidiaries on a consolidated basis,
without duplication, for any fiscal measurement period, the
sum of (a) the Interest Expense for such period, plus (b)
the aggregate principal amount of scheduled payments on any
Indebtedness of Borrower or any Subsidiary (including
without limitation all Capital Lease Obligations and the
Loans but excluding any principal payments made with respect
to the Entine Note) made during such period, plus (c) the
sum of all cash dividends and other cash distributions to
shareholders or other equity owners paid by Borrower during
such period, plus (d) the sum of all taxes paid in cash by
Borrower during such period, less (e) to the extent included
in Interest Expense for, or taxes paid in cash by Borrower
during, such period, up to $75,000.00 in the aggregate of
interest and penalties paid by Borrower during such period
in connection with the late federal income tax filing made
by Borrower for the periods ending on September 30, 2008,
September 30, 2009 and September 30, 2010."
3. Subsection 1(a) of the Original Loan Agreement is hereby
further amended to add the following definitions thereto in the
appropriate alphabetical order:
""Additional Ramp-up Period" shall have the meaning
specified in subsection 13(b) hereof.
"Consolidated Maximum Adjusted Leverage Ratio" shall
mean with respect to Borrower and its Subsidiaries on a
consolidated basis, without duplication, for any fiscal
measurement period, the ratio of (i) Consolidated Total
Funded Debt (excluding any Indebtedness subordinated to
all Indebtedness owed by Borrower to Lender on terms
and conditions which are acceptable to Lender in its
sole discretion) to (ii) Consolidated EBITDA.
"Entine Note" shall mean, collectively, those three (3)
promissory notes, each dated as of June 7, 2012, in the
original aggregate principal amount of $1,857,546.00,
executed by the Borrower in favor of the Gerald Entine
1998 Family Trust, the Victoria Beth Entine Trust and
the Oliver Andrew Entine Trust.
"Required Capital Raise" shall mean the receipt by
Borrower, after June 29, 2012 and on or before
September 30, 2012, of at least $2,000,000.00 in gross
proceeds from the sale of its Capital Stock and/or the
incurrence of Indebtedness which is subordinated to all
Indebtedness owed by Borrower to Lender on terms and
conditions acceptable to Lender in its sole discretion
(including without limitation a prohibition on the
making of any principal payments on such subordinated
Indebtedness until all Indebtedness owed by Borrower to
Lender is indefeasibly paid in full). The proceeds of
the Required Capital Raise shall be used by Borrower
first to repay all amounts outstanding under the Entine
Note and then to fund general working capital needs of
Borrower."
4. Subsection 2(c) of the Original Loan Agreement is hereby
amended so that all references to "Termination Date" set forth
therein shall be changed to "June 29, 2012."
5. Subsection 12(b) of the Original Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(b) Indebtedness. Neither Borrower nor any Guarantor
shall create, incur, assume or become obligated
(directly or indirectly), for any loans or other
Indebtedness for borrowed money other than the Loans,
except that Borrower and the Guarantors, in the
aggregate, may: (i) maintain the present indebtedness
listed on Schedule 10(m) hereto; (ii) incur unsecured
indebtedness to trade creditors in the ordinary course
of business on standard terms; (iii) incur purchase
money Indebtedness and Capital Lease Obligations,
provided that the amount of such purchase money
Indebtedness and Capital Lease Obligations shall not
exceed, at any time, $1,000,000.00, in the aggregate,
(iv) the Indebtedness represented by the promissory
note referred to in subsection 12(e)(v) hereof, and
(vi) incur Indebtedness which is part of the Required
Capital Raise."
6. Subsection 12(e)(v) of the Original Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(v) enter into any other transaction outside the
ordinary course of its business, including, without
limitation, any purchase, redemption or retirement of
any shares of any class of its stock or any other
equity interest (other than, so long as no Default or
Event of Default has occurred and is then continuing,
or will be triggered thereby, Borrower shall be
permitted to (A) repurchase up to one million shares of
its common stock at a price of $2.00 per share during
the period between July 1, 2010 and June 30, 2012, or
issue a promissory note in lieu of such repurchase
until such repurchase is consummated, as required
pursuant to the terms and provisions of the RMD
Acquisition Agreement), and (B) repurchase or redeem
all or any of Borrower's Series C Preferred Stock,
$.001 par value), or any issuance of any shares of, or
warrants or other rights to receive or purchase any
shares of, any class of its stock or any other equity
interest (other than pursuant to an employee equity
compensation plan maintained by Borrower or in
conjunction with the Required Capital Raise)."
7. Section 13 of the Original Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"13. FINANCIAL COVENANTS.
Borrower shall maintain and keep in full
force and effect each of the financial
covenants set forth below:
(a) Consolidated Maximum Leverage
Ratio. Borrower shall maintain at all times
a Consolidated Maximum Leverage Ratio which
is equal to or less than (i) 3.00 to 1.00 for
any period ended on or before December 31,
2011, (ii) 3.75 to 1.00 for the rolling four
quarter period ending on March 31, 2012,
(iii) 3.25 to 1.00 for the rolling four
quarter period ending on June 30, 2012, and
(iv) 4.50 to 1.00 for each of the rolling
four quarter periods ending on September 30,
2012 and December 31, 2012, and (v) 4.00 to
1.00 for each rolling four quarter period
ending on or after March 31, 2013.
Borrower's compliance with this covenant
shall be tested on a rolling four (4)
quarters basis as of the last day of each
quarter of each Fiscal Year of Borrower.
Notwithstanding anything to the contrary set
forth herein, for the purposes of determining
the Consolidated Maximum Leverage Ratio at
any time during the Ramp-up Period, the
denominator of such ratio (for the avoidance
of doubt, such denominator includes all items
set forth in clause (ii) of the definition of
SConsolidated Maximum Leverage Ratio") shall
be determined as follows: (x) at September
30, 2010, on the basis of the fiscal quarter
then ended, times 4; (y) at December 31,
2010, on the basis of the six (6) months then
ended, times 2; and (z) at March 31, 2011, on
the basis of the nine months then ended,
times 4/3. Borrower and Lender hereby agree
that, for purposes of calculating
Consolidated Maximum Leverage Ratio hereunder
during the Ramp-up Period, the amounts set
forth in clauses (b), (c), (d) and (i) of the
definition of "Consolidated EBITDA" shall not
be annualized for any period. In addition,
notwithstanding anything to the contrary set
forth herein, for the purposes of determining
the Consolidated Maximum Leverage Ratio at
any time during the Additional Ramp-up
Period, the denominator of such ratio (for
the avoidance of doubt, such denominator
includes all items set forth in clause (ii)
of the definition of "Consolidated Maximum
Leverage Ratio") shall be determined as
follows: (a) at September 30, 2012, on the
basis of the fiscal quarter then ended, times
4; (b) at December 31, 2012, on the basis of
the six (6) months then ended, times 2; and
(c) at March 31, 2013, on the basis of the
nine months then ended, times 4/3. Borrower
and Lender hereby agree that, for purposes of
calculating Consolidated Maximum Leverage
Ratio hereunder during the Additional Ramp-up
Period, (1) the amounts set forth in clauses
(c), (d), (i), (j) and (k) of the definition
of "Consolidated EBITDA" shall not be
annualized for any period.
(b) Consolidated Fixed Charge Coverage
Ratio. Borrower shall maintain at all times
a Consolidated Fixed Charge Coverage Ratio of
not less than (i) 1.20 to 1.00 for any period
ended on or before December 31, 2011 or on or
after September 30, 2013, (ii) 0.90 to 1.00
for the rolling four quarter period ending
on March 31, 2012, (iii) 1.05 to 1.00 for the
rolling four quarter period ending on June
30, 2012, (iv) 1.00 to 1.00 for each of the
rolling four quarter periods ending on
September 30, 2012 and December 31, 2012, (v)
1.05 to 1.00 for the rolling four quarter
period ending on March 31, 2013, and (vi)
1.10 to 1.00 for the rolling four quarter
period ending on June 30, 2013. Compliance
with this covenant shall be tested on a
rolling four (4) quarters basis as of the
last day of each quarter of each Fiscal Year
of Borrower. Notwithstanding anything to the
contrary set forth herein, for the purposes
of determining the Consolidated Fixed Charge
Ratio at any time prior to June 30, 2011 (the
"Ramp-up Period"), the numerator (for the
avoidance of doubt, such numerator includes
all items set forth in clause (i) of the
definition of "Consolidated Fixed Charge
Coverage Ratio") and the denominator of such
ratio (for the avoidance of doubt, such
denominator includes all items set forth in
clause (ii) of the definition of
"Consolidated Fixed Charge Coverage Ratio")
shall be determined as follows: (x) at
September 30, 2010, on the basis of the
fiscal quarter then ended, times 4; (y) at
December 31, 2010, on the basis of the six
(6) months then ended, times 2; and (z) at
March 31, 2011, on the basis of the nine
months then ended, times 4/3. Borrower and
Lender hereby agree that, for purposes of
calculating Consolidated Fixed Charge Ratio
hereunder during the Ramp-up Period, the
amounts set forth in clauses (b), (c), (d)
and (i) of the definition of "Consolidated
EBITDA" shall not be annualized for any
period. In addition, notwithstanding
anything to the contrary set forth herein,
for the purposes of determining the
Consolidated Fixed Charge Ratio at any time
on or after September 30, 2012 but prior to
June 30, 2013 (the "Additional Ramp-up
Period"), the numerator (for the avoidance of
doubt, such numerator includes all items set
forth in clause (i) of the definition of
"Consolidated Fixed Charge Coverage Ratio")
and the denominator of such ratio (for the
avoidance of doubt, such denominator includes
all items set forth in clause (ii) of the
definition of "Consolidated Fixed Charge
Coverage Ratio") shall be determined as
follows: (a) at September 30, 2012, on the
basis of the fiscal quarter then ended, times
4; (b) at December 31, 2012, on the basis of
the six (6) months then ended, times 2; and
(c) at March 31, 2013, on the basis of the
nine months then ended, times 4/3. Borrower
and Lender hereby agree that, for purposes of
calculating Consolidated Fixed Charge Ratio
hereunder during the Additional Ramp-up
Period, (1) the amounts set forth in clauses
(c), (d), (i), (j) and (k) of the definition
of "Consolidated EBITDA" shall not be
annualized for any period.
(c) Unfunded Capital Expenditures.
During the Fiscal Year of the Borrower ending
on September 30, 2011, Borrower shall not
incur Unfunded Capital Expenditures in excess
of $2,000,000.00 in the aggregate (tested as
of the last day of each fiscal quarter of
such Fiscal Year on a year-to-date basis).
During each Fiscal Year of the Borrower
ending after September 30, 2011, Borrower
shall not incur Unfunded Capital Expenditures
in excess of $2,250,000.00 in the aggregate
(tested as of the last day of each fiscal
quarter ended after September 30, 2011 on a
year-to-date basis).
(d) Minimum Liquidity. At all times,
Borrower shall maintain aggregate minimum
cash balances of not less than $1,000,000.00
in accounts maintained by the Borrower with
the Bank (to be verified in writing by
Borrower as of the last day of each fiscal
quarter of each Fiscal Year).
(e) Consolidated Maximum Adjusted
Leverage Ratio. Borrower shall maintain at
all times a Consolidated Maximum Adjusted
Leverage Ratio which is equal to or less than
(i) 3.25 to 1.00 for each of the rolling four
quarter periods ending on September 30, 2012
and December 31, 2012, and (iii) 3.00 to 1.00
for each rolling four quarter period ending
on or after March 31, 2013. Borrower's
compliance with this covenant shall be tested
on a rolling four (4) quarters basis as of
the last day of each quarter of each Fiscal
Year of Borrower. Notwithstanding anything to
the contrary set forth herein, for the
purposes of determining the Consolidated
Maximum Adjusted Leverage Ratio at any time
during the Additional Ramp-up Period, the
denominator of such ratio (for the avoidance
of doubt, such denominator includes all items
set forth in clause (ii) of the definition of
"Consolidated Maximum Adjusted Leverage
Ratio") shall be determined as follows: (a)
at September 30, 2012, on the basis of the
fiscal quarter then ended, times 4; (b) at
December 31, 2012, on the basis of the six
(6) months then ended, times 2; and (c) at
March 31, 2013, on the basis of the nine
months then ended, times 4/3. Borrower and
Lender hereby agree that, for purposes of
calculating Consolidated Maximum Adjusted
Leverage Ratio hereunder during the
Additional Ramp-up Period, (1) the amounts
set forth in clauses (c), (d), (i), (j) and
(k) of the definition of "Consolidated
EBITDA" shall not be annualized for any
period."
8. Section 14 of the Original Loan Agreement is hereby amended
to add subsections (q) and (r) thereto which shall read in their
entirety as follows:
"(q) Required Capital Raise. Borrower shall fail, for
any reason, to complete the Required Capital Raise on
or before September 30, 2012.
(r) Entine Note. Any default shall occur under the
Entine Note or any Indebtedness evidenced by the Entine
Note shall be outstanding after September 30, 2012."
9. All representations, warranties and covenants of the
Borrower contained in the Original Loan Agreement are hereby
ratified and confirmed by the Borrower without condition as if
made anew upon the execution of this Amendment and are hereby
incorporated by reference. All representations, warranties and
covenants of the Borrower, whether hereunder, or contained in the
Original Loan Agreement or in any Other Agreement shall remain in
full force and effect until all amounts due under the Original
Loan Agreement, as amended herein, the Notes, and each Other
Agreement are satisfied in full.
10. Except as modified by the terms hereof, all terms,
provisions and conditions of the Original Loan Agreement are in
full force and effect and are hereby incorporated by reference as
if set forth herein. This Amendment and the Original Loan
Agreement shall be deemed as complementing and not restricting
the Lender's rights hereunder or thereunder. If there is any
conflict or discrepancy between the provisions of this Amendment
and any provision of the Original Loan Agreement, the terms and
provisions of this Amendment shall control and prevail.
11. The Borrower hereby represents, warrants and certifies to
the Lender, after giving effect to the Waiver Letter, that no
Default or Event of Default has occurred and is presently
existing under the Loan Documents.
12. Pursuant to the terms of the Original Loan Agreement, as
amended herein, the Borrower has provided to the Lender, as
security for the payment of all Loans now or in the future made
by the Lender to the Borrower and for the payment or other
satisfaction of all other Liabilities, a first priority,
perfected security interest in the Collateral. The Borrower
hereby ratifies and confirms the liens and security interests
granted under the Original Loan Agreement and the Other
Agreements; and further ratifies and confirms, without condition,
that the perfected status and priority of such liens and security
interests shall not be affected in any way by the amendments to
the Original Loan Agreement as set forth herein.
13. In order to induce the Lender to enter into this Amendment,
the Borrower shall first satisfy the following conditions
precedent:
(a) The Borrower shall have executed (and/or caused to
be executed), and delivered to the Lender the following:
(i) this Amendment;
(ii) the Waiver Letter
(iii) a Confirmation of Guarantee duly
executed by each of Optometrics Corporation, Evaporated
Metal Films Corp., Radiation Monitoring Devices, Inc.,
RMD Instruments Corp. and Dynasil Biomedical Corp.
(collectively, the "Guarantors"), in form and substance
satisfactory to the Lender in its sole discretion (the
"Confirmation of Guarantee"); and
(iv) such other documents and instruments as
the Lender may reasonably request.
(b) The Borrower shall also deliver to the Lender the
following:
(i) payment in full of a non-refundable waiver
fee in the amount of $31,101.19; and
(ii) any and all other documents, agreements
and certificates reasonably requested by the Lender to
carry out the intentions of this Amendment.
14. This Amendment (a) shall be construed and enforced in
accordance with the laws of the State of New Jersey; (b) shall
inure to the benefit of, and be binding upon, the parties hereto
and their respective successors and assigns; (c) may be executed
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument; and (d) may only be amended or modified pursuant
to a writing signed by the parties hereto.
15. The Borrower hereby agrees that it will pay or cause to be
paid, or reimburse the Lender for, all of the costs and expenses
incurred by the Lender in connection with negotiation,
preparation and enforcement of this Amendment and the
transactions contemplated herein, including without limitation
the fees and out-of-pocket expenses of the Lender's legal
counsel.
16. The Borrower hereby waives any and all rights which it may
have to a jury trial in connection with any litigation commenced
or against the Lender with respect to the right and obligations
of the parties hereto.
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IN WITNESS WHEREOF, the undersigned have caused this
Amendment to be executed and delivered by their respective
officers thereunto duly authorized.
DYNASIL CORPORATION OF AMERICA
By:___________________________________
_
Name: Richard Johnson
Title: Chief Financial Officer
SOVEREIGN BANK, N.A.
By:___________________________________
_
Name: Daniel Vereb
Title: Senior Vice President
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