EXHIBIT 10.6
AMENDMENT AND WAIVER
This Amendment and Waiver (this "AMENDMENT"), dated as of October 25,
2004, is entered into by and between FRONT PORCH DIGITAL, INC., a Nevada
corporation (the "COMPANY"), and LAURUS MASTER FUND, LTD., a Cayman Islands
company ("LAURUS"), for the purpose of amending the terms of (i) the Securities
Purchase Agreement, dated as of May 13, 2004, by and between the Company and
Laurus (as amended, modified or supplemented from time to time, the "SECURITIES
PURCHASE AGREEMENT"), (ii) the Secured Convertible Term Note, dated May 13, 2004
(as amended, modified or supplemented from time to time, the "TERM NOTE") issued
by the Company pursuant to the Securities Purchase Agreement, (iii) the Common
Stock Purchase Warrant, dated May 13, 2004 (as amended, modified or supplemented
from time to time, the "WARRANT") issued by the Company pursuant to the
Securities Purchase Agreement, and (iv) the Registration Rights Agreement by and
between the Company and Laurus, dated as of May 13, 2004 (as amended, modified
or supplemented from time to time, the "REGISTRATION RIGHTS AGREEMENT" and,
together with the Securities Purchase Agreement, the Term Note and the Warrant,
the "LOAN DOCUMENTS"). Capitalized terms used herein without definition shall
have the meanings ascribed to such terms in the Securities Purchase Agreement.
WHEREAS, on August 12, 2004 the Company created Front Porch Merger
Corp., a Delaware corporation ("Merger Corp"), which was subsequently merged
into ManagedStorage International, Inc., a Delaware Corporation ("MSI"), in a
transaction in which MSI became a wholly owned subsidiary of the Company; and
WHEREAS, Neither Merger Corp nor MSI was joined as a party to the
Master Security Agreement within the thirty (30) day period required by Section
6.12(e)(ii) of the Securities Purchase Agreement (such failure, the "MSI Non
Joinder"); and
WHEREAS, the Company has failed to maintain the effectiveness of the
registration statement required to be filed by it under the Registration Right
Agreement as set forth in Section 2(b)(iii) thereof, and the Company pursuant to
Section 2(b) thereof, therefore owes Laurus a total of $89,000 in liquidated
damages (the "Liquidated Damages") as of the date hereof; the Liquidated Damages
have not been paid by the Company to Laurus when due; and
WHEREAS, the Company and Laurus have agreed to make certain changes to
the Loan Documents as set forth herein;
NOW, THEREFORE, in consideration of the above, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Section 2.1(a) of the Term Note is hereby amended by deleting the
last sentence thereof and inserting the following in lieu thereof:
"For purposes hereof, the "FIXED CONVERSION PRICE" means $0.30
(subject to adjustments as provided herein)."
2. Laurus hereby agrees that in consideration of the adjustment of the
Fixed Conversion Price set forth in Section 1 hereof, on the date hereof, Laurus
will (i) direct the North Fork Bank to release to the Company, by wire transfer
of immediately available funds, all funds currently remaining in the restricted
account at North Fork Bank (less outstanding interest and fees accruing on the
Non-Amortizing Principal amount of the Term Note to the date of release),
totaling $2,987,981.06 (the "Released Funds") and (ii) postpone the payment of
Monthly Principal Amounts due and payable by the Company each of November 1,
2004, December 1, 2004, January 1, 2005 and February 1, 2005 (collectively, the
"Postponed Monthly Principal Payments"), which such Postponed Monthly Principal
Payments shall become due and payable on the Maturity Date. In connection
therewith, Section 1.2 of the Term Note shall be amended by deleting the period
at the end of the last sentence thereof, inserting a semicolon and adding the
following immediately after the semicolon:
"and provided further that, following a release of an amount of funds
from the Restricted Account (as defined in the Master Security Agreement, dated
as of May 13, 2004) (other than with respect to a release that occurs as a
result of a conversion of any non-amortizing Principal Amount) (a "RELEASE
AMOUNT") each Monthly Principal Amount due on any Repayment Date, commencing on
March 1, 2005, following any such release shall be increased by an amount equal
to (x) such Release Amount divided by (y) the sum of (I) the number of Repayment
Dates remaining until the Maturity Date plus (II) one (1)."
3. The Company and Laurus agree that on the date hereof certain Events
of Default have occurred and are continuing (beyond any applicable cure or grace
period) and Laurus hereby (i) waives the Events of Default under Section 4.1(b)
of the Note and Section 4(a) of the Master Security Agreement triggered by the
MSI Non Joinder and all fees and default interest rates otherwise applicable to
such Events of Default, and (ii) extends the time the Company shall have to
comply with Section 6.12(e)(ii) of the Securities Purchase Agreement (as such
Section relates to MSI) by causing MSI to execute and deliver the Joinder
Agreement attached hereto as Exhibit 2, on or before November 30, 2004;
4. The Company and Laurus agree that on the date hereof an Event of
Default has occurred and is continuing (beyond any applicable cure or grace
period) under Section 4.1(b) of the Note relating to the failure by the Company
to pay to Laurus the Liquidated Damages as set forth in the Registration Rights
Agreement. Laurus hereby (i) waives such Event of Default and all fees and
default interest rates otherwise applicable to such Event of Default; and (ii)
hereby further waives any Liquidated Damages due and payable to Laurus by the
Company up to and including the date hereof. In consideration of the waivers in
this Section 4, the Company will, on the date hereof, issue a seven year warrant
to Laurus to purchase 500,000 shares of the common stock of the Company with an
exercise price of $0.50 per share (the "Additional Warrant"), such Additional
Warrant to be in the form attached hereto as Exhibit 3. The Company further
agrees to amend its Registration Statement, initially filed on the Filing Date
(as defined in the Registration Rights Agreement), to include the Additional
Warrant and additional
shares of the Company's common stock issuable to Laurus upon conversion of the
Term Note due to the adjustment of the Fixed Conversion Price set forth in
Section 1 hereof, such amendment to be filed on or before November 30, 2004 and
to be made effective by the Securities and Exchange commission no later than
January 15, 2005. The provisions of Section 2 of the Registration Rights
Agreement regarding liquidated damages will resume on December 1, 2004 with
respect to the filing of the registration statement, and will resume on January
16, 2005 with respect to the effectiveness of the registration statement.
5. Section 4(b) of the Master Security Agreement is hereby deleted in
its entirety, and the following inserted in its stead: "the occurrence of an
Event of Default as defined in the Note."
6. Section 1 of the Master Security Agreement is hereby amended to add
the words "and Lockbox Deposit Accounts" immediately following the words
"referred to in the Restricted Account Agreement)" contained in such Section 1.
7. Section 3 of the Master Security Agreement is hereby amended to
delete the period after the last sentence of Section 3(j) and insert a semicolon
after such sentence and to add the following immediately following Section 3(j)
thereof:
"(k) On or before November 30, 2004, the Assignor shall (x) irrevocably
direct all of its present and future Account Debtors (as defined below) and
other persons obligated to make payments constituting Collateral to make such
payments directly to the lockboxes maintained by such Assignor (the "Lockboxes")
with ▇▇▇▇▇ Fargo Bank, N.A. or such other financial institution accepted by
Laurus in writing as may be selected by the Assignor (the "Lockbox Bank") (each
such direction pursuant to this clause (x), a "Direction Notice") and (y)
provide Laurus with copies of each Direction Notice, each of which shall be
agreed to and acknowledged by the respective Account Debtor. Upon receipt of
such payments, the Lockbox Bank has agreed to deposit the proceeds of such
payments in that certain deposit account maintained at the Lockbox Bank and
evidenced by the account name of ManagedStorage International, Inc. and the
account number of 4121059398, or such other deposit accepted by Laurus in
writing (the "Lockbox Deposit Account"). On or prior to November 30, 2004, the
Assignor shall and shall cause the Lockbox Bank to enter into all such
documentation acceptable to Laurus pursuant to which, among other things, the
Lockbox Bank agrees to, following notification by Laurus (which notification
Laurus shall only give following the occurrence and during the continuance of an
Event of Default), comply only with the instructions or other directions of
Laurus concerning the Lockbox and the Lockbox Deposit Account. All of Assignor's
invoices, account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account of any such Assignor
or any other amount constituting Collateral shall conspicuously direct that all
payments be made to the Lockbox or such other address as Laurus may direct in
writing. If, notwithstanding the instructions to Account Debtors, any Assignor
receives any payments, such Assignor shall immediately remit such payments to
the Lockbox Deposit Account in their original form with all necessary
endorsements. Until so remitted, the Assignor shall hold all such payments in
trust for and as the property of Laurus and shall not commingle such payments
with any of its other funds or property. For the purposes hereof, (x)
"Accounts" shall mean all "accounts", as such term is defined in the Uniform
Commercial Code as in effect in the State of New York on the date hereof, now
owned or hereafter acquired by any Assignor and (y) "Account Debtor" shall mean
any person or entity who is or may be obligated with respect to, or on account
of, an Account."
8. Each amendment set forth herein shall be effective as of the date
hereof following (i) the execution and delivery of same by each of the Company
and Laurus, (ii) the execution and delivery of the Additional Warrant to Laurus.
9. Except as specifically set forth in this Amendment, there are no
other amendments to the Loan Documents, and all of the other forms, terms and
provisions of the Loan Documents remain in full force and effect.
10. The Company hereby represents and warrants to Laurus that as of the
date hereof all representations, warranties and covenants made by Company in
connection with the Loan Documents are true, correct and complete and all of
Company's and its Subsidiaries' covenant requirements have been met.
11. This Amendment shall be binding upon the parties hereto and their
respective successors and permitted assigns and shall inure to the benefit of
and be enforceable by each of the parties hereto and its successors and
permitted assigns. THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. This Amendment may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall constitute one instrument.
IN WITNESS WHEREOF, each of the Company and Laurus has caused this
Amendment to the Loan Documents to be signed in its name effective as of this
25th day of October, 2004.
FRONT PORCH DIGITAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Senior Vice President - Corporate
Development and Treasurer
LAURUS MASTER FUND, LTD.
By: /s/ ▇▇▇▇▇ GRIN
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Name: ▇▇▇▇▇ Grin
Title: Managing Partner