FORM 10-K

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015, OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ to __________

 

Commission file number: 1-14120

 

BLONDER TONGUE LABORATORIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   52-1611421
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

One Jake Brown Road, Old Bridge, New Jersey   08857
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (732) 679-4000

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of Exchange on which registered
Common Stock, Par Value $.001   NYSE MKT

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No  x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No  x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer   ¨ Accelerated filer   ¨
   
Non-accelerated filer   ¨ Smaller reporting company   x
(do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ¨   No   x

 

The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2015: $3,499,802

 

Number of shares of common stock, par value $.001, outstanding as of March 15, 2016: 6,764,736

 

Documents incorporated by reference:

 

Certain portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Stockholders expected to be held on May 24, 2016 (which is expected to be filed with the Commission not later than 120 days after the end of the registrant’s last fiscal year) are incorporated by reference into Part III of this report.

 

 

 

 

Forward-Looking Statements

 

In addition to historical information, this Annual Report of Blonder Tongue Laboratories, Inc., a Delaware Corporation (“ Blonder Tongue ” or the “ Company ”), contains forward-looking statements regarding future events relating to such matters as anticipated financial performance, business prospects, technological developments, new products, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities Exchange Act of 1934 provide safe harbors for forward-looking statements. In order to comply with the terms of these safe harbors, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially and adversely from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the Company’s business include, but are not limited to, those matters discussed herein in the sections entitled Item 1 - Business, Item 1A - Risk Factors, Item 3 - Legal Proceedings and Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations. The words “believe,” “expect,” “anticipate,” “project,” “target,” “intend,” “plan,” “seek,” “estimate,” “endeavor,” “should,” “could,” “may” and similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth trends in our business and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as may be required under applicable law. Readers should carefully review the risk factors described herein and in other documents the Company files from time to time with the Securities and Exchange Commission.

 

PART I

 

ITEM 1. BUSINESS

 

Introduction

 

Overview

 

Blonder Tongue, with its subsidiary R. L. Drake Holdings, LLC (“ RLD ”), is a technology-development and manufacturing company that delivers a wide range of products and services to the cable entertainment and media industry. For over 65 years, Blonder Tongue/Drake products have been deployed in a long list of locations, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses. These applications are also variously described as commercial, institutional, and/or enterprise environments and will be referred to herein collectively as “ CIE ”. The customers we serve include business entities installing private video and data networks in these environments, whether they are the largest cable television operators, telco or satellite providers, integrators, architects, engineers or the next generation of Internet Protocol Television (“ IPTV” ) streaming video providers.

 

From the cable television pioneers that founded the Company in 1950, to the highly experienced research and development team that creates new products today, the Company’s success stems from listening to the needs of its customers, providing quality products to meet those needs and supporting those products after delivery. For over 65 years Blonder Tongue has been providing innovative solutions based on continually advancing technology, enabling the Company to maintain its position as a leader in many of the CIE markets it serves. Since its founding Blonder Tongue has continued to keep abreast of evolving technologies, from analog to digital television, Hybrid-Fiber Coax (“ HFC ”) networks with Quadrature Amplitude Modulation (“ QAM ”) edge devices, High Definition (“ HD” ) and Ultra HD encoding and transcoding, IPTV processing and distribution, and Multiscreen Adaptive Bit Rate based services.

 

The cable television market has reacted quickly to consumer demands for additional services by integrating multiple technologies into existing networks, providing consumers with high speed internet access in addition to enhanced video offerings. Today, video offerings have expanded from traditional broadcast linear delivery to the living room TV to live streaming to any device in your home or on the go. Traditional TV content is now available in any format to be viewed on tablets, mobile phones, computers or gaming consoles. Service Operators are migrating their video-on-demand (“ VOD ”) architecture to an internet protocol (“ IP ”) multiscreen ecosystem, which is the first step in transitioning to an all IP-based video delivery system. CIE businesses are upgrading their networks to deliver HD content to their first screen (TV) and adding the capability of IP streaming, thereby expanding viewer access to this HD content on any IP-connected devices. The infrastructure requirements to enable IP streaming provide the Company with an opportunity to market and sell its expanded IP streaming encoders and digital product lines.

 

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While residential growth remains relatively flat, the CIE environment is growing ($9.3 billion in 2014, up from $8.5 billion in 2013). The CIE market segments that the Company serves have been focused on the migration to IPTV networks. The Company has expanded its video product line portfolio to address the growth of IP streaming. The Company’s newly introduced Scalable Transcode-Encoder Platform (“ STEP ”) transcodes HD/SD video content to Adaptive Bit Rate video profiles supporting multi-screen protocols for further processing into the operator’s multiscreen work flow. The Company has collaborated with cable television (“ CATV ”) Multiple System Operators (“ MSOs ”) to produce a cost-effective encoder for IP support of Public Education Government (“ PEG ”) video content. A custom hotel guide solution was developed for MSOs, enabling them to extract guide source data from the headend and transmit it over traditional HFC networks to produce a custom hotel guide at a lower price than the traditional third-party guide solutions. As the industry adopts Ultra-HD (4K) and High Efficiency Video Coding (“ HEVC ”) encoding, the Company plans to produce products to support its traditional customers as well as new customers. While already experiencing full scale commercialization in international markets, the United States market continues to increasingly embrace IPTV technology. The worldwide market now has over 125 million IPTV subscribers, and is projected to have 192 million by 2020.

 

The Company continues to advance the implementation of its strategic plan to maximize shareholder value. The Company’s strategic plan consists of the following:

 

· strengthen core business,
· continue the heritage of technological development,
· expand into new markets, including penetration into MSO and broadcast television markets, as well as the emerging media company market and
· increase gross margins.

 

The Company has entered into and renewed several agreements through which it has acquired rights to use and incorporate certain proprietary technologies in its digital encoder line of products, including:

 

1. Implementation and System License Agreement with Dolby Laboratories Licensing Corporation (“ Dolby Labs ”) for Dolby Digital Plus Professional Encoder, 5.1 and 2 channel licensed technology.

 

2. License Agreement with Digital Transmission Licensing Administrator, LLC (“ DTLA ”) to become a full-adopter of Digital Transmission Content Protection (“ DTCP ”) license technology.

 

3. License Agreement with LG Electronics as a Pro:Idiom content Protection System Manufacturer.

 

4. Ownership from the Motion Picture Experts Group of an MPEG-2 4:2:2 Profile High Level Video Encoder IP core.

 

The Dolby® Labs License Agreement grants the Company the right to manufacture, label and sell professional digital encoder products and consumer digital decoder products and to use the Dolby trademarks. This technology has a number of improvements aimed at increasing quality at a given bit rate compared with legacy Dolby Digital (AC-3). Most notably, it offers increased bit rates, support for more audio channels, improved coding techniques to reduce compression artifacts, and backward compatibility with existing AC-3 hardware.

 

The DTLA and LG Electronics license agreements provide the Company with certain technology necessary for production of EdgeQAM devices for the hospitality industry. With the DTLA agreement the Company became a full-adopter of DTCP license technology, which is used to encrypt the interconnections between devices such as satellite receivers, personal computers and portable media players. Consequently, content can be transferred through and among these devices, only if incorporating this technology.

 

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The Pro:Idiom digital technology platform provides the hospitality market with a robust, secure Digital Rights Management (“ DRM ”) system, ensuring rapid, broad deployment of HD television (“ HDTV ”) and other high-value digital content to licensed users in the lodging industry. Lodging industry leaders such as World Cinema Inc. have licensed the Pro:Idiom DRM system. A growing number of content providers have demonstrated their acceptance of Pro:Idiom by licensing their HD content for delivery to Pro:Idiom users.

 

The MPEG-2 Encoder IP core has a unique compression engine capable of creating HD MPEG-2 real-time encoding of a single channel of 1080i/720p/480i video. The use of this real-time encoding technique enables the Company to provide broadcast MPEG-2 HD and SD encoding. MPEG-2 is widely used as the format of digital television signals that are broadcast by terrestrial (over-the-air), cable, and direct broadcast satellite TV systems. The Company’s revenues for digital encoders were $7,028,000 in 2015 and $7,674,000 in 2014.

 

The H.264/AVC is a video compression standard that enables a compelling solution for growing IP video services. The H.264 HD Encoder core has the capability to cut the bandwidth requirement for digital video delivery in half when compared against MPEG-2 encoders. This essentially facilitates the transmission of twice the number of programs in a given bandwidth. The use of this H.264 encoding technique enables the Company to provide high quality video at higher resolutions like 720p & 1080i. H.264 is a widely used format for transmitting high quality digital television signals over IP networks. The Company started shipping the H.264 encoders in 2012.

 

In February, 2012, the Company acquired substantially all of the assets and assumed certain specified liabilities of RLD, a manufacturer and distributor of products similar to those of the Company. The purchase price was approximately $7,020,000, which included a working capital adjustment of approximately $545,000. The acquisition enabled the Company to leverage the combined research and development and sales and marketing departments to shorten the product development and manufacturing cycle and deliver a more complete complement of business and product solutions for the markets the Company serves.

 

The Company’s manufacturing is allocated primarily between its facility in Old Bridge, New Jersey (the “ Old Bridge Facility ”) and a key contract manufacturer located in the People’s Republic of China (“ PRC ”). The Company currently manufactures most of its digital products, including the latest encoder and EdgeQAM collections at its Old Bridge Facility. Since 2007 the Company has transitioned and continues to manufacture certain high- volume, labor intensive products, including many of the Company’s analog products, in the PRC, pursuant to a manufacturing agreement that governs the production of products that may from time to time be the subject of purchase orders submitted by (and in the discretion of) the Company. Although the Company does not currently anticipate the transfer of any additional products to the PRC for manufacture, the Company may do so if business and market conditions make it advantageous to do so. Manufacturing products both at the Company’s Old Bridge Facility and in the PRC enables the Company to realize cost reductions while maintaining a competitive position and time-to-market advantage.

 

The Company may, from time to time, provide manufacturing, research and development and product support services for other companies’ products. In 2015, the Company entered into an agreement with VBrick Systems, Inc. (“ VBrick ”) to provide procurement, manufacturing, warehousing and fulfillment support to VBrick for a line of high end encoder products and sub-assemblies. VBrick purchases of these products were approximately $1,274,000 in 2015.

 

The Company was incorporated in November, 1988, under the laws of Delaware as GPS Acquisition Corp. for the purpose of acquiring the business of Blonder-Tongue Laboratories, Inc., a New Jersey corporation, which was founded in 1950 by Ben H. Tongue and Isaac S. Blonder to design, manufacture and supply a line of electronics and systems equipment principally for the private cable industry. Following the acquisition, the Company changed its name to Blonder Tongue Laboratories, Inc. The Company completed the initial public offering of its shares of Common Stock in December, 1995. The address of the Company’s principal executive offices is One Jake Brown Road, Old Bridge, New Jersey 08857, and its telephone number at that location is (732) 679-4000.

 

Strategy

 

It is a constant challenge for the Company to stay at the forefront of the technological requirements of the CIE market segments that it serves. Changes and developments in the manner in which information (whether video, telephony or data) is transmitted, as well as the use of alternative compression and delivery technologies, all require the Company to continue to develop innovative new products. The Company allocates its resources as needed to create innovative products that are responsive to the demand for digital signal generation and transmission. The Company’s key product lines are more thoroughly discussed under “Key Products” beginning on page 7. The ongoing evolution of the Company’s product lines focuses on the increased needs created in the digital space by digital video, IPTV and HDTV signals and the transport of these signals over state-of-the-art broadband networks.

 

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The primary end locations of the Company’s product are the CIE environments described above, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses. We provide a wide range of products to meet the special needs of these applications, so we have many types of customers, from the large cable companies to private contractors. We sell to anyone putting product into the CIE business market, including:

 

· Television broadcasters;

 

· Cable system operators (both large and small) that design, package, install and in most instances operate, upgrade and maintain the systems they build;

 

· Lodging/Hospitality video and high speed internet system operators that specialize in the Lodging/Hospitality Markets; and

 

· Commercial/Institutional/Enterprise system operators that operate, upgrade, and maintain the systems that are in their facilities, or contractors that install, upgrade and maintain these systems in a wide variety of applications.

 

The key to proactively responding to the needs of the foregoing CIE environments is to build a suite of product solutions that are optimized for the operator’s existing infrastructure, as well as future strategy. Operators look for the following features when selecting technology:

 

· Versatility for Now, providing multiple source inputs and different output formats, including simultaneous QAM and IP capability. Off-air local programs, locally generated content, and national broadcasts can all be viewed on televisions via coax, as well as on desktops and other connected devices via an IP network. This allows operators to expand the reach of their video without having to run additional cable throughout the building and optimize the use of coax and/or IP infrastructures.

 

· Flexibility for the Future, recognizing that even if an operator is not utilizing both QAM and IP outputs today, these features may be needed tomorrow. Operators seek to choose scalable technology that can keep up with advances in system architecture and allow them to best leverage existing data and Wi-Fi infrastructure, without overburdening it. This includes considerations for TV Everywhere (bring your own content/device) as well as recently introduced Ultra-HD, also known as 4K..

 

· Affordability, by identifying high-quality, cost-effective, innovative solutions with a strong performance-to-cost ratio, is the key to insuring the operator can offer a competitively priced package to their business and enterprise customers. Focus on the features required for the location and its management, including remote setup, monitoring and diagnostics through an IP interface and hot spare capability.

 

A key component of the Company’s growth strategy is to leverage its reputation across a broad product line, offering one-stop-shop convenience to the cable, broadcast and professional markets and delivering products having a high performance-to-cost ratio. The Company has historically enjoyed, and continues to enjoy, a leading position in many of the CIE market segments that it serves.

 

Markets Overview

 

The television industry has been dominated by traditional cable operators, who subsequently expanded into high-speed internet and telephony services. The penetration of wireless and direct-broadcast satellite (“ DBS ”) (such as DIRECTV ® and DISH Network ® ) in the video market, continues to grow, with a combined subscriber count of almost 34 million. Telephone companies (i.e. Verizon and AT&T) also compete with cable operators for services on a national level, delivering video, high-speed internet and telephony services direct to the home or to the curb with an estimate of over 11 million subscribers.

 

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With IPTV technology comes additional market pressures and opportunities. First, there is the matter of alternative TV services riding “Over the Top” of existing infrastructures (“ OTT television ”), where the delivered video is not part of the service provider’s own video service. Examples include Web-delivered video such as Netflix, Hulu and Apple TV. Cable, satellite and telco service providers will need to innovate to provide additional service offerings to compete with lower cost OTT television providers (subscribers exceeding 132 million). In addition, content providers such as HBO, SHOWTIME and CBS have deployed their own streaming services, without requiring a cable TV subscription. With the advent of “TV Everywhere”, where video is displayed not only on the traditional television, but also on personal computers and mobile devices, cable operators are trying to tackle not only technological challenges associated with these offerings, but also content management and customer authentication. The idea that the consumer is at the center, and not the hardware or the network, is revolutionizing how video (and media) content is delivered.

 

The long term implications of these developments are increased competition for the provision of services and a trend toward delivery of these services using IP technology. This continuing major market transition has resulted in increased consumer expectations, placing the lodging and institutional markets under pressure to install new infrastructure and upgrade existing networks. It is not known how long this transition will take, but to remain competitive the Company must continue to increase its product offerings for digital television, encoding and decoding, and digital media applications.

 

Cable Television

 

Most cable operators, large and small, have built networks with various combinations of fiber optic and coax cable to deliver television, internet and telephone services on one drop cable. Cable television deployment of fiber optic trunk has been completed in nearly all existing systems. The HFC network architecture is employed to provide digital video, VOD, HDTV, IPTV, high speed internet, and digital telephone service. With the adoption of new standards by CableLabs®, the cable industry is using “edge” devices, node splitting and digital video switching to increase both services and subscriber capacity from each node, to accommodate IPTV offerings in both residential and CIE market deployments. All of these networks are potential users of our product offering.

 

Lodging

 

Historically, in response to lodging property owners seeking additional revenue streams and guests demanding increased in-room technology services, cable operators serving the lodging market sought to provide more channels (especially in HD), VOD, and enhanced interactivity. Initially installed mostly in large hotels, smaller hotels and motels continue to be upgraded and outfitted with enhanced technology to provide a full suite of HD channels and VOD.

 

More recently, the competition among cable providers to the hospitality industry has shifted from emphasis on VOD, to providing an ever-increasing number of HD programs free to each guest room and the capability of offering OTT television. The Company believes that the demand for HD based headends that support free-to-guest service and OTT television, will continue to grow for several years. The rate of growth is limited by the costs associated with replacing all televisions in a hotel with flat screen Pro:Idiom compatible televisions, the infrastructure required to support OTT television, authentication and system management issues.

 

CIE- Commercial, Institutional, and/or Enterprise

 

The Company defines its target CIE markets to include educational campus environments, correctional facilities, short and long term health service environments, sports stadiums and airport terminals. All of these seemingly unrelated facilities contain private networks that are dependent on either locally generated or externally sourced video and/or data content. As the advanced technologies of distance learning, HDTV and IPTV permeate the market, institutional facilities are embracing these technologies to achieve site specific goals. The following are examples of the types of applications:

 

· PEG Town Hall Meetings and Local Sports

 

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· Reception Room TV- Doctors, Dentists and Corporate Offices

 

· Patient Education and Entertainment

 

· Distance Learning

 

· Employee Facing- Training and Company Messaging

 

· Hotel Lobby Events and Advertising

 

The Company traditionally benefited from a very strong share of this market with its Analog Video Headend and Distribution Products. We anticipate that we will continue to be a leader in this market with our digital video solutions and our evolving IPTV platforms.

 

International

 

The Company has authorized distributors and sales agents in various locations outside the United States, but the Company primarily manufactures products for sale in the USA and North America. Historically, international sales have not materially contributed to the Company’s revenue base.

 

Additional Considerations

 

The technological revolution with respect to video, internet and telephone services continues at a rapid pace. Cable TV’s QAM video is competing with DIRECTV® and EchoStar’s DBS service and cable modems compete with digital subscriber lines and fiber-to-the-home offered by regional telephone companies. Telephone companies are building national fiber networks and are now delivering video, internet and telephone services directly to the home over fiber optic cable, and digital telephone is being offered by cable companies and others in competition with traditional phone companies. The convergence of data and video communications continues, wherein computer and television systems merge. This merging of technologies is extending services and content delivery to mobile smart phone devices and tablet computers with over-the-air data delivery competing with cable- delivered services.

 

Larger MSOs have transitioned or are in the process of transitioning to all-digital platforms (and in some instances MPEG-4/H.264); however approximately 20% of the installed base of United States television sets are still analog sets (not digital). Satellite DBS television, digitally compressed programming and IP delivery require headend products, set-top decoding receivers, or digital terminal adapters, to convert the transmitted signals back to analog so that they may be viewed on analog television sets. The replacement of substantially all analog television sets with digital sets remains costly (although such costs have decreased substantially) and will still take several years to complete. The split of analog and digital offerings provided to customers varies as a function of the size of the operator and their deployment strategy. For example, the majority of private cable and other smaller service providers continue to deliver an analog television signal on standard channels to subscribers’ television sets using headend products at some distribution point in their networks or employ set top boxes or digital terminal adapters at each television set.

 

Key Products

 

Blonder Tongue’s products can be separated according to function and technology. Three key categories account for the majority of the Company’s revenue – Digital Video Headend, Analog Video Headend, and HFC Distribution:

 

·              Digital Video Headend Products (including Encoders) are used by a system operator for acquisition, processing, compression, encoding and management of digital video. The headend is the center of a digital television system. It is the central location where multiple programs are received and, through additional processing, allocated to specific channels for digital distribution. Blonder Tongue continues to expand its Digital Product offerings to meet the evolving needs of its customers, which is expected to continue for years to come. We offer a broad line of HD and SD, MPEG-2 and MPEG-4/H.264 encoders optimized for the CIE environment. One example is a line of enhanced encoders optimized for the extreme demands of broadcasting live sports, another is a cost effective MPEG-2/H.264 encoder for IP support of PEG channels. The Company’s STEP and custom hotel guide solutions were developed for additional needs not being met in a cost effective manner. IP interfaces have been added to a wide range of products to help in the migration to IPTV, one example is the AQT8, a multichannel 8VSB/QAM-IP transcoder that receives off-air broadcast signals and transcodes them for coax and IP distribution. Other lines of digital products provided by Blonder Tongue and RLD include EdgeQAM devices and Satellite Quadrature Phase Shift Key (“ QPSK ”) to QAM transcoders.

 

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Encoders accept various input sources (analog and/or digital) and output digitally encoded HD or SD video in various output formats such as Asynchronous Serial Interface (“ ASI ”), IP and QAM. ASI is a streaming data format which carries the MPEG-2 Transport Stream. The IP output format allows operators to stream video over private data networks with greater reliability and content security. The QAM outputs can be used for digital video distribution over typical private coax networks in a variety of CIE environments (i.e. sports arenas, broadcast and cable television studios, airports, hospitals, university campuses, etc.). As a complement to the encoder line, Blonder Tongue also provides digital QAM multiplexers which take multiple inputs (ASI or 8VSB/QAM) and deliver a single multiplexed QAM output, thereby optimizing the HD channel lineup by preserving bandwidth. The Company’s QAM output MPEG-2 encoders have a low latency feature and superior motion optimization for fast-paced sporting events, which is ideal for live sporting events within a stadium or arena.

 

ATSC/QAM-IP Transcoder series of products (“ AQT8 ”) allow the user to create a customized line up from off-air and/or cable feeds for coax IP distribution. The customizable IP output contains multiple programs with a combination of single and multiple transport streams, from multiple RF input sources. The unique MPEG-2 tables associated with each of the selected input programs are transferred to the IP outputs. This means the virtual channel numbers and program names on the IP outputs can be the same as their RF program input sources. The Company’s AQT8 products enable the user to modify the metadata, including PSIP parameters, such as the Program ID, Program #, Short Name, Major Ch., and Minor Ch. Information, to provide a customized IP program delivery solution. The AQT8-IP features Emergency Alert System (“ EAS ”) program switching through either an ASI or IP format EAS input and terminal block contacts for triggering.

 

EdgeQAM devices accept Ethernet input and capture MPEG over IP transport streams, decrypt service provider conditional access or content protection, and insert proprietary conditional access, such as Pro:Idiom, into the stream. These streams are then combined and modulated on to QAM RF carriers, in most cases providing multiple streams on to one 6MHz digital channel. Inputs to EdgeQAM devices can come from satellite receivers, set top boxes, network devices or video servers. The use of these devices adds flexibility for the service provider, in part, because all of this routing happens in one device. Scaling is accomplished via software and modules embedded inside the hardware. Since it is a true network device, the EdgeQAM can be managed over a traditional Ethernet network or over the Internet.

 

The QPSK to QAM transcoders (QTM Series) are used for economically deploying or adding a satellite-based tier of digital or HDTV digital programming. The unit transcodes a satellite signal’s modulation from QPSK to QAM or from 8PSK (HDTV Format) to QAM. Since QPSK and 8PSK are optimum for satellite transmission and QAM is optimum for fiber/coax distribution, precious system bandwidth is saved while the signal retains its digital information. Building upon the innovative design work that brought about the QTM transcoders, QAM up-converters and HDTV processors, the Company launched a series of ATSC/QAM demodulators.

 

Digital Video Headend Product use continues to expand in all of the Company’s primary markets, bringing more advanced technology to consumers and operators. It is expected that this area will continue to be a major component of the Company’s business. The Company estimates that Digital Video Headend Products accounted for approximately 46% and 49% of the Company’s revenues in 2015 and 2014, respectively.

 

·              Analog Video Headend Products are used by a system operator for signal acquisition, processing and manipulation to create an analog channel lineup for further transmission. Among the products offered by the Company in this category are pre-fabricated headends to accommodate legacy analog TV systems, modulators, demodulators, and processors. The Company estimates that Analog Video Headend Products accounted for approximately 17% and 27% of the Company’s revenues in 2015 and 2014, respectively.

 

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·              HFC Distribution Products are used to transport signals from the headend to their ultimate destination in a home, apartment unit, hotel room, office or other terminal location along a fiber optic, coax or HFC distribution network. Among the products offered by the Company in this category are broadband amplifiers, directional taps, splitters and wall outlets for coax distribution and fiber optic transmitters, receivers (nodes), and couplers. In cable television systems, the HFC distribution products are either mounted on exterior utility poles or encased in pedestals, vaults or other security devices. In CIE systems the distribution system is typically enclosed within the walls of the building (if a single structure) or added to an existing structure using various techniques to hide the coax cable and devices. The non-passive devices within this category are designed to ensure that the signal distributed from the headend is of sufficient strength when it arrives at its final destination to provide high quality audio/video images. The Company estimates that HFC Distribution Products accounted for approximately 18% and 15% of the Company’s revenues in 2015 and 2014, respectively.

 

·               Other Products. There are a variety of other products that the Company sells to a lesser degree, either to fill a customer need or where sales have reduced due to changes in Company direction, technology, or market influences. Sales of products in these categories contributed less significantly to the Company’s revenues in 2015 and are expected to remain this way for 2016. These products include:

 

Test instruments , for measuring both digital and analog CATV and Broadcast TV signals, as well as capture, analyze and/ or generate MPEG ASI transport streams.

 

Contract Manufacturing Services, providing manufacturing, research and development and product support services for other companies’ products.

 

Reception products for receiving off-air broadcast television and satellite transmissions prior to headend processing.

 

Technical Services, including hands-on training, system design engineering, on-site field support and complete system verification testing.

 

Miscellaneous products and services, filling customers’ needs for satellite distribution, repair, and parts.

 

The Company will modify its products to meet specific customer requirements. Typically, these modifications are minor and do not materially alter either the product functionality or the ability to sell such altered products to other customers.

 

Research and Product Development

 

The markets served by Blonder Tongue are characterized by technological change, new product introductions, and evolving industry standards. To compete effectively in this environment, the Company must engage in ongoing research and development in order to (i) create new products, (ii) expand features of existing products to accommodate customer demand for greater capability, (iii) license new technology, and (iv) acquire products incorporating technology that could not otherwise be developed quickly enough using internal resources. Research and development projects are often initially undertaken at the request of and in an effort to address the particular needs of the Company’s customers and customer prospects, with the expectation or promise of substantial future orders. Projects may also result from new technologies that become available, or new market applications of existing technology. In the new product development process, the vast experience of the Company’s Engineering Group is leveraged to ensure the highest level of suitability and widest acceptance in the marketplace. Products tend to be developed in a functional building block approach that allows for different combinations of blocks to generate new relevant products. Additional research and development efforts are also continuously underway for the purpose of enhancing product quality and lowering production costs. For the acquisition of new technologies, the Company may rely upon technology licenses from third parties. The Company will also license technology if it can obtain technology more quickly, or more cost-effectively from third parties than it could otherwise develop on its own, or if the desired technology is proprietary to a third party. There were 19 employees in the research and development department of the Company at December 31, 2015, including six employees located at the Company’s facility in Springboro, Ohio and four employees located at the Company’s facility in Ft. Wayne, Indiana. The Company’s research and development expenses were $3,331,000 and $3,416,000 for the years ended December 31, 2015 and 2014, respectively.

 

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Marketing and Sales

 

Blonder Tongue markets and sells its products for use in a wide range of traditional and CIE markets, including traditional cable television, multiple dwelling unit (“ MDU ”), lodging/hospitality, and institutional (schools, hospitals and prisons). The Company also sells into a multitude of niche CIE markets such as sports arenas and the cruise ship industry. Sales are made directly to customers by the Company’s internal sales force, as well as through Premier Authorized Stocking Distributors. The Company instituted its Premier Distributor Program in 2007, through which a limited group of larger distributors who stock a significant amount of the Company’s products in their inventory (Premier Authorized Stocking Distributors) are given access to a special purchase incentive program allowing them to achieve volume price concessions measured on a year-to-year basis. Sales to Premier Authorized Stocking Distributors accounted for approximately 38% and 40% of the Company’s revenues for 2015 and 2014, respectively. These Premier Authorized Stocking Distributors serve multiple markets. Direct sales to cable operators and system integrators accounted for approximately 15% and 21% of the Company’s revenues for 2015 and 2014, respectively.

 

The Company’s sales and marketing function is performed predominantly by its internal sales force. Should it be deemed necessary, the Company may retain independent sales representatives in particular geographic areas or targeted to specific customer prospects or target market opportunities. The Company’s internal sales force consists of 16 employees, including four salespersons in Old Bridge, NJ, one salesperson in Round Rock, TX, one salesperson in Seminole, FL, two salespersons in Springboro, OH, one salesperson in Peterborough, Ontario, Canada, one sales-support person in Springboro, OH and six sales-support personnel at the Company’s headquarters in Old Bridge, New Jersey.

 

The Company’s standard customer payment terms are net 30 days. From time to time, when circumstances warrant, such as a commitment to a large blanket purchase order, the Company will extend payment terms beyond its standard payment terms.

 

The Company has several marketing programs to support the sale and distribution of its products. Blonder Tongue participates in industry trade shows and conferences and also maintains a robust website. The Company publishes technical articles in trade and technical journals, distributes sales and product literature and has an active public relations plan to ensure complete coverage of Blonder Tongue’s products and technology by editors of trade journals. The Company provides system design engineering for its customers, maintains extensive ongoing communications with many original equipment manufacturer customers and provides one-on-one demonstrations and technical seminars to potential new customers. Blonder Tongue supplies sales and applications support, product literature and training to its sales representatives and distributors. The management of the Company travels extensively, identifying customer needs and meeting potential customers.

 

Customers

 

Blonder Tongue has a diverse customer base, which in 2015 consisted of approximately 239 active accounts. Approximately 48% and 59% of the Company’s revenues in 2015 and 2014, respectively, were derived from sales of products to the Company’s five largest customers. Toner Cable Equipment, Inc., World Cinema, Inc. and Nickless Schirmer accounted for approximately 16%, 11% and 10%, respectively, of the Company’s revenues in 2015. Toner Cable Equipment, Inc. and Bright House Networks accounted for approximately 16% and 12%, respectively, of the Company’s revenues in 2014. In addition, a major electronics retailer accounted for 16% of the Company’s revenues in 2014. None of these customers are obligated to purchase any specified amount of products or to provide the Company with binding forecasts of product purchases for any future period. Accordingly, there can be no assurance that sales to these entities, individually or as a group, will reach or exceed historical levels in any future period, however, the Company currently anticipates that Toner Cable Equipment, Inc. will continue to account for a significant portion of the Company’s revenues in future periods. See disclosure below in “Risk Factors – Any substantial decrease in sales to our largest customers may adversely affect our results of operations or financial condition” for further details.

 

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Since 2010, the Company has held multi-year contracts with key distributors in its Premier Distributor Program. This program, which began in 2007, has been quite successful for the Company. Many of the Company’s smaller business customers, with whom the Company had formerly dealt on a direct basis, now purchase the Company’s products from these Premier Authorized Stocking Distributors.

 

In the Company’s direct sales to system integrators, the complement of leading customers tends to vary over time as the most efficient and better financed integrators grow more rapidly than others. Any substantial decrease or delay in sales to one or more of the Company’s leading customers, the financial failure of any of these entities, or the Company’s inability to develop and maintain solid relationships with the integrators that may replace the present leading customers, would have a material adverse effect on the Company’s results of operations and financial condition.

 

The Company’s revenues are derived primarily from customers in the continental United States; however, the Company also derives some revenues from customers in other geographical markets, primarily Canada and to a much more limited extent, in developing countries. Sales to customers outside of the United States represented approximately 3% and 4% of the Company’s revenues in 2015 and 2014, respectively. All of the Company’s transactions with customers located outside of the United States have historically been denominated in U.S. dollars. As such, the Company has had no material foreign currency transactions. However, the Company derived certain sales from customers located in Canada during 2015 and 2014 denominated in Canadian Dollars. Transactions denominated in foreign currencies have certain inherent risks associated with them due to currency fluctuations. See “Risk Factors” below for more detail on the risks associated with foreign currency transactions.

 

Manufacturing and Suppliers

 

Blonder Tongue’s primary manufacturing operations are presently located at the Old Bridge Facility, which also serves as the Company’s headquarters. The Company’s manufacturing operations are vertically integrated and consist principally of the programming, assembly, and testing of electronic assemblies built from fabricated parts, printed circuit boards and electronic devices and the fabrication from raw sheet metal of chassis and cabinets for such assemblies. Management continues to implement improvements to the manufacturing process to increase production volume and reduce product cost, including logistics modifications on the factory floor to accommodate increasingly fine pitch surface mount electronic components. The Company is capable of manufacturing assemblies of 16 layer PCBs with thousands of components including placement of 0.030x0.030mil ball grid arrays and 0201 packaged sized components, utilizing its advanced state-of-the-art automatic placement equipment as well as automated optical inspection and testing systems. Investments by the Company in these advanced manufacturing technologies is consistent with and part of the Company’s strategy to provide its customers with high performance-to-cost ratio products. The Company also maintains a small sales and engineering facility in Springboro, Ohio and maintains a small engineering facility in Ft. Wayne, Indiana.

 

Since 2007, the Company has been manufacturing certain high volume, labor intensive products, including many of the Company’s analog products, in the PRC. A key contract manufacturer in the PRC produces such products (all of which are proprietary Blonder Tongue designs) as may be requested by the Company from time to time (in the Company’s discretion) through the submission of purchase orders, the terms of which are governed by a manufacturing agreement. Although the Company does not currently anticipate the transfer of any additional products to the PRC for manufacture, the Company may do so if business and market conditions make it advantageous to do so. In connection with the Company’s initiatives in the PRC, the Company may have foreign currency transactions and may be subject to various currency exchange control programs related to its PRC operations. See “Risk Factors” below for more detail on the risk of foreign operations.

 

Outside contractors supply standard components, printed circuit boards and electronic subassemblies to the Company’s specifications. While the Company generally purchases electronic parts that do not have a unique source, certain electronic component parts used within the Company’s products are available from a limited number of suppliers and may be subject to temporary shortages because of general economic conditions and the demand and supply for such component parts. If the Company were to experience a temporary shortage of any given electronic part, the Company believes that alternative parts could be obtained or system design changes implemented. In such situations, however, the Company may experience temporary reductions in its ability to ship products affected by the component shortage. On an as-needed basis, the Company purchases several products from sole suppliers for which alternative sources are not available. An inability to timely obtain sufficient quantities of certain of these components could have a material adverse effect on the Company’s operating results. The Company does not have an agreement with any sole source supplier requiring the supplier to sell a specified volume of components to the Company. See “Risk Factors” below for more detail on the risk associated with sole supplier products.

 

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Blonder Tongue maintains a quality assurance program which monitors and controls manufacturing processes, and extensively tests samples throughout the process. Samples of component parts purchased are tested, as well as its finished products, on an ongoing basis. The Company also tests component and sub-assemblies throughout the manufacturing process using commercially available and in-house built testing systems that incorporate proprietary procedures. The highest level of quality assurance is maintained throughout all aspects of the design and manufacturing process. The extensive in-house calibration program assures test equipment integrity, correlation and calibration. This program ensures that all test and measurement equipment that is used in the manufacturing process is calibrated to the same in-house reference standard on a consistent basis. When all test and measurement devices are calibrated in this manner, discrepancies are eliminated between the engineering, manufacturing and quality control departments, thus increasing operational efficiency and ensuring a high level of product quality. Blonder Tongue performs final product tests prior to shipment to customers. In 2008, the Company was certified to perform Underwriters Laboratories (UL) witness testing of products to UL International Standard 60950.

 

Competition

 

All aspects of the Company’s business are highly competitive. The Company competes with national, regional and local manufacturers and distributors, including companies larger than Blonder Tongue that have substantially greater resources. Various manufacturers who are suppliers to the Company sell directly as well as through distributors into the franchise and private cable marketplaces. Because of the convergence of the cable, telecommunications and computer industries and rapid technological developments, new competitors may seek to enter the principal markets served by the Company. Many of these potential competitors have significantly greater financial, technical, manufacturing, marketing, sales and other resources than Blonder Tongue. The Company expects that direct and indirect competition will increase in the future. Additional competition could result in price reductions, loss of market share and delays in the timing of customer orders. The principal methods of competition are product differentiation, performance, quality, price, terms, service, technical support and administrative support. The Company believes it is a leader in many of the markets that it serves and differentiates itself from competitors by consistently offering innovative products, providing excellent technical service support and delivering high performance-to-cost ratio products.

 

Intellectual Property

 

The Company currently holds several United States and foreign patents, none of which are considered material to the Company’s present operations, since they do not relate to high volume applications. Because of the rapidly evolving nature of the cable television industry, the Company believes that its market position as a supplier to cable integrators derives primarily from its ability to timely develop a consistent stream of new products that are designed to meet its customers’ needs and that have a high performance-to-cost ratio.

 

The Company owns a United States trademark registration for the word mark “Blonder Tongue®” and also on a “BT®” logo. RLD owns a United States trademark registration for the word mark “DRAKE®”.

 

Since 2008, the Company has obtained and renewed licenses for a variety of technologies in concert with its digital encoder line of products. The licenses are from a number of companies including DTLA (expires April 30, 2016), and LG Electronics (expires December 2016). These standard licenses are all non-exclusive and require payment of royalties based upon the unit sales of the licensed products. With regard to the licenses expiring in 2016, the Company expects to renew these standard licenses on similar terms to those presently in force. For additional information regarding these licenses, see “Introduction – Overview” starting on page 3.

 

The Company relies on a combination of contractual rights and trade secret laws to protect its proprietary technologies and know-how. There can be no assurance that the Company will be able to protect its technologies and know-how or that third parties will not be able to develop similar technologies and know-how independently. Therefore, existing and potential competitors may be able to develop products that are competitive with the Company’s products and such competition could adversely affect the prices for the Company’s products or the Company’s market share. The Company also believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are essential to establishing and maintaining its competitive position. The industries in which the Company competes are subject to constant development of new technologies and evolution of existing technologies, many of which are the subject of existing third party patents and new patents are issued frequently.

 

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Regulation

 

Private cable, while in some cases subject to certain FCC licensing requirements, is not presently burdened with extensive government regulations. The Telecommunications Act of 1996 deregulated many aspects of franchise cable system operation and opened the door to competition among cable operators and telephone companies in each of their respective industries.

 

Environmental Regulations

 

The Company is subject to a variety of Federal, state and local governmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its manufacturing processes. The Company did not incur in 2015 and does not anticipate incurring in 2016, material capital expenditures for compliance with Federal, state and local environmental laws and regulations. There can be no assurance, however, that changes in environmental regulations will not result in the need for additional capital expenditures or otherwise impose additional financial burdens on the Company. Further, such regulations could restrict the Company’s ability to expand its operations. Any failure by the Company to obtain required permits for, control the use of, or adequately restrict the discharge of, hazardous substances under present or future regulations could subject the Company to substantial liability or could cause its manufacturing operations to be suspended.

 

The Company has authorization to discharge wastewater under the New Jersey Pollution Discharge Elimination System/Discharge to Surface Waters General Industrial Stormwater Permit, Permit No. NJ0088315. This permit will expire May 31, 2016. The Company intends to renew this permit.

 

Employees

 

As of February 29, 2016, the Company employed approximately 134 people, including 82 in manufacturing, 19 in research and development, 4 in quality assurance, 16 in sales and marketing, and 13 in a general and administrative capacity. Substantially all of these employees are full time employees. 40 of the Company’s employees are members of the International Brotherhood of Electrical Workers Union, Local 2066, which has a labor agreement with the Company that is scheduled to expire in February 2017.

 

ITEM 1A. RISK FACTORS

 

The Company’s business operates in a rapidly changing environment that involves numerous risks, some of which are beyond the Company’s control. The following “Risk Factors” highlight some of these risks. Additional risks not currently known to the Company or that the Company now deems immaterial may also affect the Company and the value of its Common Stock. The risks described below, together with all of the other information included in this report, should be carefully considered in evaluating our business and prospects. The occurrence of any of the following risks could harm the Company’s business, financial condition or results of operations.

 

There is substantial doubt about our ability to continue as a going concern .

 

Our audited consolidated financial statements for the year ended December 31, 2015 included herein contain a “going concern” explanatory paragraph.

 

During the year ended December 31, 2015, we experienced a decline in sales, a reduction in working capital, reported loss from operations and net cash used in operating activities in conjunction with liquidity constraints. Furthermore, our Revolver and Term Loan will expire June 1, 2016 and there can be no assurance that we will be able to further extend these sources of financing or refinance our indebtedness. Based upon these facts and trends occurring in our business, together with our current expectations for the next four fiscal quarters, we believe that if we are unable to further extend our current Revolver and Term Loan or otherwise refinance this indebtedness, we will not have sufficient liquidity necessary to sustain operations for the next twelve months. These factors, and possibly others, raise substantial doubt regarding our ability to continue as a going concern.

 

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If suppliers, customers, employees or other stakeholders lose confidence in the business, it may be more difficult for us to operate and could materially adversely affect our business, results of operations, and financial condition.

 

Doubts regarding our ability to continue as a going concern could result in loss of confidence by our customers, suppliers, employees and other stakeholders, which, in turn, could materially adversely affect our ability to operate. Concerns about our financial condition may cause our suppliers and other counterparties to tighten credit terms or cease doing business with us altogether, which would have a material adverse effect on our business and results of operations.

 

Any substantial decrease in sales to our largest customers may adversely affect our results of operations or financial condition.

 

Approximately 48% and 59% of our revenues in 2015 and 2014, respectively, were derived from sales of products to the Company’s five largest customers. None of these customers are obligated to purchase any specified amount of products or to provide the Company with binding forecasts of product purchases for any future period. Accordingly, there can be no assurance that sales to these entities, individually or as a group, will reach or exceed historical levels in any future period.

 

With respect to our direct sales to system integrators, the complement of leading customers tends to vary over time as the most efficient and better-financed integrators grow more rapidly than others. Our success with those customers will depend in part on:

 

· the viability of those customers;

 

· our ability to identify those customers with the greatest growth and growth prospects; and

 

· our ability to maintain our position in the overall marketplace by shifting our emphasis to such customers.

 

In addition, two of our customers accounted for approximately 38% and 49% of our outstanding trade accounts receivable at December 31, 2015 and 2014, respectively. Any substantial decrease or delay in sales to one or more of our leading customers, the financial failure of any of these entities, their inability to pay their trade accounts owing to us, or our inability to develop solid relationships with integrators that may replace the present leading customers, could have a material adverse effect on our results of operations and financial condition.

 

An inability to reduce expenses or increase revenues may cause continued net losses.

 

We have had losses each year since 2010, including a net loss of $6,771,000 for the year ended December 31, 2015. In 2015, our net sales revenue of $20.9 million, less cost of goods sold of $16.8 million, did not cover our operating expenses of approximately $10.6 million for the year ended December 31, 2015. While management believes its plan to reduce expenses and increase revenues will improve profitability, there can be no assurance that these actions will be successful. Failure to reduce expenses or increase revenues could have a material adverse effect on our results of operations and financial condition.

 

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Inventory reserves for slow moving and excess inventories may adversely affect our results of operations and financial condition.

 

We continually analyze our slow-moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, we establish reserves. If we do not meet our sales expectations, these reserves are increased. Products that are determined to be obsolete are written down to net realizable value. Although we believe reserves are adequate and inventories are reflected at net realizable value, there can be no assurance that we will not have to record additional inventory reserves in the future. Significant increases to inventory reserves could have a material adverse effect on our results of operations and financial condition.

 

An inability to develop, or acquire the rights to technology, products or applications in response to changes in industry standards or customer needs may reduce our sales and profitability.

 

Both the private cable and franchised cable industries are characterized by the continuing advancement of technology, evolving industry standards and changing customer needs. To be successful, we must anticipate the evolution of industry standards and changes in customer needs, through the timely development and introduction of new products, enhancement of existing products and licensing of new technology from third parties. This is particularly true at this time as the Company must develop and market new digital products to offset the continuing decline in demand for, and therefore sales of, analog products. Although we depend primarily on our own research and development efforts to develop new products and enhancements to our existing products, we have and may continue to seek licenses for new technology from third parties when we believe that we can obtain such technology more quickly and/or cost-effectively from such third parties than we could otherwise develop on our own, or when the desired technology has already been patented by a third party. There can, however, be no assurance that new technology or such licenses will be available on terms acceptable to us. There can be no assurance that:

 

· we will be able to anticipate the evolution of industry standards in the cable television or the communications industry generally;

 

· we will be able to anticipate changes in the market and customer needs;

 

· technologies and applications under development by us will be successfully developed; or

 

· successfully developed technologies and applications will achieve market acceptance.

 

If we are unable for technological or other reasons to develop and introduce products and applications or to obtain licenses for new technologies from third parties in a timely manner in response to changing market conditions or customer requirements, our results of operations and financial condition could be materially adversely affected.

 

Anticipated increases in direct and indirect competition with us may have an adverse effect on our results of operations and financial condition.

 

All aspects of our business are highly competitive. We compete with national, regional and local manufacturers and distributors, including companies larger than us, which have substantially greater resources. Various manufacturers who are suppliers to us sell directly as well as through distributors into the cable television marketplace. Because of the convergence of the cable, telecommunications and computer industries and rapid technological development, new competitors may seek to enter the principal markets served by us. Many of these potential competitors have significantly greater financial, technical, manufacturing, marketing, sales and other resources than we have. We expect that direct and indirect competition will increase in the future. Additional competition could have a material adverse effect on our results of operations and financial condition through:

 

· price reductions;

 

· loss of market share;

 

· delays in the timing of customer orders; and

 

· an inability to increase our penetration into the cable television market.

 

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Our sales and profitability may suffer due to any substantial decrease or delay in capital spending by the cable infrastructure operators that we serve in the MDU, lodging and institutional cable markets.

 

The vast majority of our revenues in 2015 and 2014 came from sales of our products for use by cable infrastructure operators. Demand for our products depends to a large extent upon capital spending on private cable systems and specifically by private cable operators for constructing, rebuilding, maintaining or upgrading their systems. Capital spending by private cable operators and, therefore, our sales and profitability, are dependent on a variety of factors, including:

 

· access by private cable operators to financing for capital expenditures;

 

· demand for their cable services;

 

· availability of alternative video delivery technologies; and

 

· general economic conditions.

 

In addition, our sales and profitability may in the future be more dependent on capital spending by traditional franchise cable system operators as well as by new entrants to this market planning to over-build existing cable system infrastructures, or constructing, rebuilding, maintaining and upgrading their systems. There can be no assurance that system operators in private cable or franchise cable will continue capital spending for constructing, rebuilding, maintaining, or upgrading their systems. Any substantial decrease or delay in capital spending by private cable or franchise cable operators would have a material adverse effect on our results of operations and financial condition.

 

We may be adversely affected by current economic and market conditions.

 

During 2015 and 2014, the U.S. economy continued to feel the effects of the significant economic downturn that began in 2008, resulting in elevated levels of financial market volatility, customer uncertainty and widespread concerns about the U.S. and world economies. The macroeconomic environment and recovery from this downturn has been challenging and inconsistent. The ongoing effects of these circumstances may continue to negatively impact the demand for our products, which may have a material adverse effect on our business, financial condition and results of operations. In addition, the economic crisis has had a material and direct impact on financial institutions, resulting in tighter credit standards, giving rise to a deterioration of liquidity in the capital markets, particularly as it relates to the credit needs of smaller companies that have faced challenges during this period. This liquidity crunch could adversely affect our ability and the ability of our customers to borrow funds to support operations or other liquidity needs (including the ability to finance capital expenditures) or otherwise borrow or raise capital. Moreover, our stock price could remain depressed or decrease if investors have concerns that our business, financial condition or results of operations will be negatively impacted by a worldwide economic downturn.

 

The terms of our credit agreement may restrict our current and future operating and financial flexibility and could adversely affect our financial and operational results.

 

As of December 31, 2015, we had approximately $6.2 million of outstanding debt under our Santander Financing, which is scheduled to expire on June 1, 2016. While we anticipate extending or refinancing all or a portion of this debt obligation on or before June 1, 2016, there can be no assurances that an extension or new financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. Our inability to extend or refinance our debt obligation on acceptable terms (or at all) would likely have a material adverse on our results of operations and financial condition.

 

The Santander Agreement that is in effect with respect to this debt includes covenants that, among other things, may restrict our ability to:

 

· engage in mergers, consolidations and asset dispositions;

 

· redeem or repurchase stock;

 

· create, incur, assume or guarantee additional indebtedness;

 

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· create, incur, assume or permit any liens on any asset;

 

· make loans and investments;

 

· issue additional shares of our capital stock;

 

· change our organizational documents; and

 

· change the nature of our business.

 

These restriction may limit our ability to engage in certain transactions that may be beneficial to us and our stockholders. In addition, the Santander Agreement also requires us to meet certain financial covenants on a quarterly basis. From time to time during the past two years, we have been unable to meet certain of such financial covenants and we may be unable to comply with certain of such covenants under our credit agreement in the future. Previously, the bank has permitted us to amend the Santander Agreement as it relates to such financial covenants when it appears that we may not be able to meet them, but no assurance can be given that our lender will permit further amendments or provide waivers of these requirements if we are unable to meet them in the future. Accordingly, a failure to comply with the financial covenants under the Santander Agreement could result in an event of default. In the event of a default our lender could elect to declare all borrowings, accrued and unpaid interest and other fees outstanding, due and payable, and require us to apply all of our available cash to repay these borrowings, which would likely have a material adverse on our results of operations and financial condition.

 

Any significant casualty to our facility in Old Bridge, New Jersey may cause a lengthy interruption to our business operations.

 

We primarily operate out of one manufacturing facility in Old Bridge, New Jersey (the “ Old Bridge Facility ”). While we maintain a limited amount of business interruption insurance, a casualty that results in a lengthy interruption of our ability to manufacture at, or otherwise use, the Old Bridge Facility could have a material adverse effect on our results of operations and financial condition.

 

Our dependence on certain third party suppliers could create an inability for us to obtain component products not otherwise available or to do so only at increased prices.

 

We purchase several products from sole suppliers for which alternative sources are not available. Our results of operations and financial condition could be materially adversely affected by:

 

· an inability to obtain sufficient quantities of these components;

 

· our receipt of a significant number of defective components;

 

· an increase in component prices; or

 

· our inability to obtain lower component prices in response to competitive pressures on the pricing of our products.

 

Our contract manufacturing in the PRC may subject us to the risks of unfavorable political, regulatory, legal and labor conditions in the PRC.

 

We manufacture and assemble some of our products in the PRC, under a contract manufacturing arrangement with a certain key Chinese manufacturer. Our future operations and earnings may be adversely affected by the risks related to, or any other problems arising from, having our products manufactured in the PRC, including the following risks:

 

· political, economic and labor instability;

 

· changes in foreign or United States government laws and regulations, including exchange control regulations;

 

· increased costs related to fluctuation in foreign currency exchange rates;

 

· infringement of our intellectual property rights; and

 

· difficulties in managing foreign manufacturing operations.

 

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Although the PRC has a large economy, its potential economic, political, legal and labor developments entail uncertainties and risks. In the event of any changes that adversely affect our ability to manufacture in the PRC after products have been successfully transitioned out of the United States, our business could suffer.

 

Shifting our operations between regions may entail considerable expense.

 

Over time we may shift additional portions of our manufacturing operations to the PRC in order to maximize manufacturing and operational efficiency. This could result in reducing our domestic operations in the future, which in turn could entail significant one-time earnings charges to account for severance, equipment write-offs or write downs and moving expenses.

 

Our earnings would be reduced if our goodwill or intangible assets recorded as part of the RLD Acquisition were to become impaired.

 

We recorded goodwill and identifiable intangible assets as part of the RLD Acquisition in February 2012. Goodwill is generated when the cost of an acquisition exceeds the fair value of the net tangible and identifiable intangible assets acquired. We also have certain intangible assets with indefinite lives. We assess the impairment of goodwill and indefinite lived intangible assets annually or more often if events or changes in circumstances indicate that the carrying value may not be recoverable. We assess the impairment of acquired product rights and other finite lived intangible assets whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If our goodwill or intangible assets recorded in connection with the RLD Acquisition were determined to be impaired, then we would be required to recognize a charge against our earnings, which could materially and adversely affect our results of operations during the period in which the impairment was recognized. Any potential charges for impairment related to goodwill or intangible assets would not impact cash flow, tangible capital or liquidity.

 

We may face risks relating to currency fluctuations and currency exchange.

 

Historically the Company has had limited exposure to currency fluctuations since transactions with customers located outside the United States have generally been denominated in U.S. Dollars. As a result of the RLD Acquisition, however, the Company recognized sales in Canada in 2015 and 2014, denominated in Canadian Dollars and anticipates that it will continue to recognize sales in Canada denominated in Canadian Dollars in future periods. The Company incurs certain expenses which are denominated in Canadian Dollars in connection with its sales and product distribution in Canada. The Company’s functional currency is the U.S. Dollar. Accordingly, any revenue and expense denominated in Canadian Dollars needs to be translated into U.S. Dollars at the applicable currency exchange rate for inclusion in our consolidated financial statements. Exchange rates between the Canadian Dollar and the U.S. Dollar in recent years have fluctuated significantly and may do so in the future. We do not engage in currency hedging activities to limit the risks of currency fluctuations. The Company anticipates that sales in Canada during 2016 should be less than $2,000,000. Currency fluctuations could adversely impact our results of operations, cash flows and financial position.

 

Competitors may develop products that are similar to, and compete with, our products due to our limited proprietary protection.

 

We possess limited patent or registered intellectual property rights with respect to our technology. We rely on a combination of contractual rights and trade secret laws to protect our proprietary technology and know-how. There can be no assurance that we will be able to protect our technology and know-how or that third parties will not be able to develop similar technology independently. Therefore, existing and potential competitors may be able to develop similar products which compete with our products. Such competition could adversely affect the prices for our products or our market share and could have a material adverse effect upon our results of operations and financial condition.

 

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Patent infringement claims against us or our customers, whether or not successful, may cause us to incur significant costs.

 

While we do not believe that our products (including products and technologies licensed from others) infringe valid intellectual property rights of any third parties, there can be no assurance that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted against us or our customers. Damages for infringement of valid intellectual property rights of third parties could be substantial, and if determined to be willful, can be trebled. Such an outcome could have a material adverse effect on the Company’s financial condition and results of operation. Regardless of the validity or the successful assertion of any such claims, we could incur significant costs and diversion of resources with respect to the defense thereof which could have a material adverse effect on our financial condition and results of operations. If we are unsuccessful in defending any claims or actions that are asserted against us or our customers, we could seek to obtain a license under a third party’s intellectual property rights. There can be no assurance, however, that under such circumstances, a license would be available under reasonable terms or at all. The failure to obtain a license to a third party’s intellectual property rights on commercially reasonable terms could have a material adverse effect on our results of operations and financial condition.

 

Any increase in governmental regulation of the markets that we serve, including the cable television system, MDU, lodging and institutional markets, may have an adverse effect on our results of operations and financial condition.

 

The cable television, MDU, lodging and institutional markets within the cable industry, which represents the vast majority of our business, while in some cases subject to certain FCC licensing requirements, is not presently burdened with extensive government regulations. It is possible, however, that regulations could be adopted in the future which impose burdensome restrictions on these markets resulting in, among other things, barriers to the entry of new competitors or limitations on capital expenditures. Any such regulations, if adopted, could have a material adverse effect on our results of operations and financial condition.

 

Private cable system operation is not presently burdened with significant government regulation, other than, in some cases, certain FCC licensing and signal leakage requirements. The Telecommunications Act of 1996 deregulated many aspects of franchise cable system operation and opened the door to competition among cable operators and telephone companies in each of their respective industries. It is possible, however, that regulations could be adopted which would re-impose burdensome restrictions on franchise cable operators resulting in, among other things, the grant of exclusive rights or franchises within certain geographical areas. Any increased regulation of franchise cable could have a material adverse effect on our results of operations and financial condition.

 

Any increase in governmental environmental regulations or our inability or failure to comply with existing environmental regulations may cause an adverse effect on our results of operations or financial condition.

 

We are subject to a variety of federal, state and local governmental regulations related to the storage, use, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes. We do not anticipate material capital expenditures during 2016 for compliance with federal, state and local environmental laws and regulations. There can be no assurance, however, that changes in environmental regulations will not result in the need for additional capital expenditures or otherwise impose additional financial burdens on us. Further, such regulations could restrict our ability to expand our operations. Any failure by us to obtain required permits for, control the use of, or adequately restrict the discharge of, hazardous substances under present or future regulations could subject us to substantial liability or could cause our manufacturing operations to be suspended. Such liability or suspension of manufacturing operations could have a material adverse effect on our results of operations and financial condition.

 

Losing the services of our executive officers or our other highly qualified and experienced employees, or our inability to continue to attract and retain highly qualified and experienced employees, could adversely affect our business.

 

Our future success depends in large part on the continued service of our key executives and technical and management personnel. Our future success also depends on our ability to continue to attract and retain highly skilled engineering, manufacturing, marketing and managerial personnel. The competition for such personnel is intense, and the loss of key employees, in particular the principal members of our management and technical staff, could have a material adverse effect on our results of operations and financial condition.

 

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Our organizational documents and Delaware state law contain provisions that could discourage or prevent a potential takeover or change in control of our company or prevent our stockholders from receiving a premium for their shares of our Common Stock.

 

Our board of directors has the authority to issue up to 5,000,000 shares of undesignated Preferred Stock, to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any unissued series of undesignated Preferred Stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our stockholders. The Preferred Stock could be issued with voting, liquidation, dividend and other rights superior to the rights of the Common Stock. Furthermore, such Preferred Stock may have other rights, including economic rights, senior to the Common Stock, and as a result, the issuance of such stock could have a material adverse effect on the market value of the Common Stock. In addition, our Restated Certificate of Incorporation:

 

· eliminates the right of our stockholders to act without a meeting;

 

· does not provide cumulative voting for the election of directors;

 

· does not provide our stockholders with the right to call special meetings;

 

· provides for a classified board of directors; and

 

· imposes various procedural requirements which could make it difficult for our stockholders to effect certain corporate actions.

 

These provisions and the Board’s ability to issue Preferred Stock may have the effect of deterring hostile takeovers or offers from third parties to acquire our company, preventing our stockholders from receiving a premium for their shares of our Common Stock, or delaying or preventing changes in control or management of our company. We are also afforded the protection of Section 203 of the Delaware General Corporation Law, which could:

 

· delay or prevent a change in control of our company;

 

· impede a merger, consolidation or other business combination involving us; or

 

· discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company.

 

Any of these provisions which may have the effect of delaying or preventing a change in control of our company, could have a material adverse effect on the market value of our Common Stock.

 

It is unlikely that we will pay dividends on our Common Stock.

 

We intend to retain all earnings to finance the growth of our business and therefore do not intend to pay dividends on our Common Stock in the foreseeable future. Moreover, our loan agreement with Santander Bank, N.A. prohibits the payment of cash dividends by us on our Common Stock.

 

Our Common Stock is thinly traded and subject to volatility, which may adversely affect the market price for our Common Stock.

 

Although our Common Stock is traded on the NYSE MKT, it may remain relatively illiquid, or “thinly traded,” which can increase share price volatility and make it difficult for investors to buy or sell shares in the public market without materially affecting the quoted share price. Investors may be unable to buy or sell a certain quantity of our shares in the public market within one or more trading days. If limited trading in our stock continues, it may be difficult for holders to sell their shares in the public market at any given time at prevailing prices.

 

The prevailing market price of our Common Stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including the following:

 

· announcements of technological innovations or new products by us, our competitors or third parties;

 

· quarterly variations in our actual or anticipated results of operations;

 

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· failure of revenues or earnings in any quarter to meet the investment community’s expectations;

 

· market conditions for cable industry stocks in general; and

 

· broader market trends unrelated to our performance.

 

The uncertainties we face relating to our liquidity and ability to generate sufficient cash flows from operations and to continue to operate our business as a going concern also contributes to the volatility of our stock price, and any investment in our common stock could suffer a significant decline or total loss in value. Furthermore, we may not be able to maintain compliance with the continued listing standards of the NYSE MKT LLC or any other national securities exchange or over-the-counter market on which our common stock is then traded, which may also adversely affect the trading price of our common stock.

 

Our share ownership is highly concentrated.

 

Our directors and officers beneficially own, or have the right to vote, approximately 47% of our Common Stock and will continue to have significant influence over the outcome of all matters submitted to the stockholders for approval, including the election of our directors.

 

Delays or difficulties in negotiating a labor agreement or other difficulties in our relationship with our union employees may cause an adverse effect on our manufacturing and business operations.

 

All of our direct labor employees located at the Old Bridge, New Jersey facility are members of the International Brotherhood of Electrical Workers Union, Local 2066 (the “ Union ”), under a collective bargaining agreement, which expires in February 2017. In connection with any renewal or renegotiation of the labor agreement upon its termination, there can be no assurance that work stoppages will not occur or that we will be able to agree upon terms for future agreements with the Union. Any work stoppages could have a material adverse effect on our business operations, results of operations and financial condition.

 

Our business and operations could suffer in the event of security breaches.

 

Attempts by others to gain unauthorized access to information technology systems are becoming more sophisticated. Our systems are designed to detect security incidents and to prevent their recurrence, but, in some cases, we might be unaware of an incident or its magnitude and effects. While we have not identified any material incidents of unauthorized access to date, the theft, unauthorized use or publication of our intellectual property, confidential business or personal information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, damage our reputation or otherwise adversely affect our business. In addition, to the extent that any future security breach results in inappropriate disclosure of our employees’, licensees’, or customers’ confidential and /or personal information, we may incur liability or additional costs to remedy any damages caused by such breach. We could also be impacted by existing and proposed laws and regulations, as well as government policies and practices related to cybersecurity, privacy and data protection.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable to smaller reporting companies.

 

ITEM 2. PROPERTIES

 

The Company’s principal manufacturing, engineering, sales and administrative facilities consist of one building totaling approximately 130,000 square feet located on approximately 20 acres of land in Old Bridge, New Jersey (the “ Old Bridge Facility ”) which is owned by the Company. The Old Bridge Facility is encumbered by a mortgage held by Santander Bank, NA, securing the obligations of the Company to Santander under the Santander Loan Agreement, the outstanding principal amount of which includes the principal amount of $3,567,000 under the Term Loan as of December 31, 2015, plus all other amounts due to Santander under the Revolver, and by a mortgage held by the Subordinated Lenders (defined below) securing the Subordinated Loan Facility (defined below) in the principal amount of up to $750,000, of which $300,000 is outstanding as of March 30, 2016. In addition, the Company leases an engineering and sales facility consisting of one building totaling approximately 7,500 square feet in Springboro, Ohio. The lease for this facility expires in October, 2021. The total lease obligation will be approximately $47,000 during 2016. Further, the Company leases an engineering facility consisting of one building totaling approximately 2,400 square feet in Fort Wayne, Indiana. The lease for this facility expires in May, 2020. The total lease obligation will be approximately $38,000 during 2016. Management believes that these facilities are adequate to support the Company’s anticipated needs in 2016.

 

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ITEM 3. LEGAL PROCEEDINGS

 

The Company is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the opinion of management, is likely to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

The Company’s Common Stock has been traded on NYSE MKT (formerly American Stock Exchange) since the Company’s initial public offering on December 14, 1995. The following table sets forth for the quarters indicated, the high and low sale prices for the Company’s Common Stock on NYSE MKT.

 

Market Information

 

Year Ended December 31, 2015:   High     Low  
             
First Quarter   $ 2.81     $ .88  
Second Quarter     1.03       .64  
Third Quarter     .95       .46  
Fourth Quarter     .75       .30  

 

Year Ended December 31, 2014:   High     Low  
             
First Quarter   $ 1.17     $ .89  
Second Quarter     .99       .81  
Third Quarter     1.89       .75  
Fourth Quarter     2.88       1.00  

 

The Company’s Common Stock is traded on NYSE MKT under the symbol “BDR.”

 

Holders

 

As of March 15, 2016, the Company had 43 holders of record of the Common Stock. Since a portion of the Company’s common stock is held in “street” or nominee name, the Company is unable to determine the exact number of beneficial holders.

 

Dividends

 

The Company currently anticipates that it will retain all of its earnings to finance the operation of its business, and therefore does not intend to pay dividends on its Common Stock in the foreseeable future. Since its initial public offering, the Company has never declared or paid any cash dividends on its Common Stock. Any determination to pay dividends in the future is at the discretion of the Company’s Board of Directors and will depend upon the Company’s financial condition, results of operations, capital requirements, limitations contained in loan agreements and such other factors as the Board of Directors deems relevant. The Company’s credit agreement with Santander Bank, N.A. prohibits the payment of cash dividends by the Company on its Common Stock.

 

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Share Repurchases

 

On July 24, 2002, the Company commenced a stock repurchase program to acquire up to $300,000 of its outstanding common stock (the “ 2002 Program ”). On February 13, 2007, the Company announced a new stock repurchase program to acquire up to an additional 100,000 shares of its outstanding common stock (the “ 2007 Program ”). As of December 31, 2015, the Company can purchase up to $72,000 of its common stock under the 2002 Program and up to 100,000 shares of its common stock under the 2007 Program. The Company may, in its discretion, continue making purchases under the 2002 Program up to its limits, and thereafter to make purchases under the 2007 Program. During 2015, the Company did not purchase any of its common stock under the 2002 Program or 2007 Program.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable to smaller reporting companies.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the Company’s historical results of operations and liquidity and capital resources should be read in conjunction with the consolidated financial statements of the Company and notes thereto appearing elsewhere herein. The following discussion and analysis also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Forward Looking Statements” that precedes Item 1 above.

 

Overview

 

The Company was incorporated in November, 1988, under the laws of Delaware as GPS Acquisition Corp. for the purpose of acquiring the business of Blonder-Tongue Laboratories, Inc., a New Jersey corporation, which was founded in 1950 by Ben H. Tongue and Isaac S. Blonder to design, manufacture and supply a line of electronics and systems equipment principally for the private cable industry. Following the acquisition, the Company changed its name to Blonder Tongue Laboratories, Inc. The Company completed the initial public offering of its shares of Common Stock in December, 1995.

 

Today, the Company is a technology-development and manufacturing company that delivers a wide range of products and services to the cable entertainment and media industry. For over 65 years, Blonder Tongue/Drake products have been deployed in a long list of locations, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses. These applications are variously described as commercial, institutional and/or enterprise environments and will be referred to herein collectively as “ CIE ”. The customers we serve include business entities installing private video and data networks in these environments, whether they are the largest cable television operators, telco or satellite providers, integrators, architects, engineers or the next generation of Internet Protocol Television (“ IPTV” ) streaming video providers. The technology requirements of these markets change rapidly and the Company’s research and development team is continually delivering high performance-lower cost solutions to meet customers’ needs.

 

The Company’s strategy is focused on providing a wide range of products to meet the needs of the CIE environments described above, including lodging/hospitality, multi-dwelling units/apartments, broadcast studios/networks, universities/schools, healthcare/hospitals, fitness centers, government facilities/offices, prisons, airports, sports stadiums/arenas, entertainment venues/casinos, retail stores, and small-medium businesses, and to provide offerings that are optimized for an operator’s existing infrastructure, as well as the operator’s future strategy. A key component of this growth strategy is to provide products that deliver the latest technologies (such as IPTV and digital SD and HD video content) and have a high performance-to-cost ratio.

 

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The Company has seen a continuing shift in product mix from analog products to digital products and expects this shift to continue. Accordingly, any substantial decrease in sales of analog products without a related increase in digital products could have a material adverse effect on the Company’s results of operations, financial condition and cash flows. Sales of digital video headend products were $9,628,000 and $14,310,000 and sales of analog video headend products were $3,555,000 and $7,829,000 in 2015 and 2014, respectively.

 

In February, 2012, the Company acquired substantially all of the assets and assumed certain specified liabilities of RLD, a manufacturer and distributor of products similar to those of the Company. The purchase price was approximately $7,020,000, which included a working capital adjustment of approximately $545,000. The acquisition enabled the Company to leverage the combined research and development and sales and marketing departments to shorten the product development and manufacturing cycle and deliver a more complete complement of business and product solutions for the markets the Company serves.

 

The Company’s manufacturing is allocated primarily between its facility in Old Bridge, New Jersey (“ Old Bridge Facility ”) and a key contract manufacturer located in the People’s Republic of China (“ PRC ”). The Company currently manufactures most of its digital products, including the latest encoder and EdgeQAM collections at the Old Bridge Facility. Since 2007 the Company has transitioned and continues to manufacture certain high volume, labor intensive products, including many of the Company’s analog products, in the PRC, pursuant to a manufacturing agreement that governs the production of products that may from time to time be the subject of purchase orders submitted by (and in the discretion of) the Company. Although the Company does not currently anticipate the transfer of any additional products to the PRC for manufacture, the Company may do so if business and market conditions make it advantageous to do so. Manufacturing products both at the Company’s Old Bridge Facility as well as in the PRC, enables the Company to realize cost reductions while maintaining a competitive position and time-to-market advantage.

 

The Company may, from time to time, provide manufacturing, research and development and product support services for other companies’ products. In 2015, the Company entered into an agreement with VBrick Systems, Inc. (“ VBrick ”) to provide procurement, manufacturing, warehousing and fulfillment support to VBrick for a line of high end encoder products and sub-assemblies. VBrick purchases of these products were approximately $1,274,000 in 2015.

 

Results of Operations

 

The following table sets forth, for the fiscal periods indicated, certain consolidated statement of earnings data from continuing operations as a percentage of net sales.

 

    Year Ended December 31,  
    2015     2014  
             
Net sales     100.0 %     100.0 %
Costs of goods sold     80.2       62.4  
Gross profit     19.8       37.6  
Selling expenses     14.7       11.7  
General and administrative expenses     19.8       16.4  
Research and development expenses     15.9       11.7  
Loss from operations     (30.6 )     (2.2 )
Other expense, net     1.5       0.8  
Loss before income taxes     (32.1 )     (3.0 )
Provision (benefit) for income taxes     -       -  

 

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2015 Compared with 2014

 

Net Sales . Net sales decreased $8,186,000 or 28.1% to $20,943,000 in 2015 from $29,129,000 in 2014. The decrease is primarily attributed to a decrease in sales of digital video headend products and analog video headend products offset, in part, by an increase in sales of contract manufactured products and data products. Sales of digital video headend products were $9,628,000 and $14,310,000, sales of analog video headend products were $3,555,000 and $7,829,000, sales of contract manufactured products were $1,553,000 and $344,000 and sales of data products were $1,051,000 and $17,000 in 2015 and 2014, respectively. The Company has experienced and expects to continue to experience a shift in product mix from analog products to digital products.

 

Cost of Goods Sold . Cost of goods sold decreased to $16,788,000 in 2015 from $18,168,000 in 2014 but increased as a percentage of sales to 80.2% from 62.4%. The dollar decrease is primarily attributed to reduced sales. The increase as a percentage of sales is attributed to an increase in the provision for inventory reserves as well as a less favorable product mix. The provision for inventory reserves was $2,053,000 and $474,000 in 2015 and 2014, respectively. The Company expects cost of goods sold as a percentage of sales to go down during 2016.

 

Selling Expense s. Selling expenses decreased to $3,072,000 in 2015 from $3,404,000 in 2014, but increased as a percentage of sales to 14.7% for 2015 from 11.7% for 2014. This $332,000 decrease is primarily attributable to a decrease of $273,000 as a result of closing our Canadian facility, a decrease in salaries and fringe benefits of $132,000, offset by an increase in royalty expenses of $172,000. The increase as a percentage of sales is attributed to a decrease in net sales. The Company anticipates that expenses in this area will be reduced in 2016, as the Company implemented certain cost savings measures during 2015.

 

General and Administrative Expenses . General and administrative expenses decreased to $4,152,000 in 2015 from $4,770,000 in 2014 and increased as a percentage of sales to 19.8% for 2015 from 16.4% in 2014. The $618,000 decrease was primarily the result of a decrease in salaries and fringe benefits of $707,000 and a decrease in travel and entertainment of $226,000, offset by an increase in professional fees of $151,000 and the lack of an insurance reimbursement of $76,000 which occurred in 2014. The increase as a percentage of sales is attributed to a decrease in net sales. The Company anticipates that expenses in this area will be reduced in 2016, as the Company implemented certain cost savings measures during 2015.

 

Research and Development Expense . Research and development expenses decreased to $3,331,000 in 2015 from $3,416,000 in 2014, but increased as a percentage of sales to 15.9% in 2015 from 11.7% in 2014. This $85,000 decrease is primarily attributable to a decrease in license fees of $61,000. The increase as a percentage of sales is attributed to a decrease in net sales. The Company anticipates that expenses in this area will be reduced in 2016, as the Company implemented certain cost savings measures during 2015.

 

Operating Loss . Operating loss of $(6,400,000) for 2015 represents an increase of $5,771,000 from the operating loss of $(629,000) in 2014. Operating loss as a percentage of sales increased to (30.6)% in 2015 from (2.2)% in 2014.

 

Interest expense . Interest expense increased to $304,000 in 2015 from $250,000 in 2014. The increase is the result of higher interest rates and higher average borrowings. The Company anticipates an increase in its interest expense in 2016 as a result of higher cost of funds from potential alternative lenders.

 

Income Taxes . The provision for income taxes was $46,000 in 2015 and $31,000 in 2014. The Company records a full valuation allowance for net deferred tax assets that are no longer considered to be realizable. The increase in the 2015 provision is attributable to an increase in the deferred tax provision related to the amortization of indefinite lived intangible assets, or “naked credits,” which cannot be offset by the valuation allowance. The Company expects to continue to provide a full valuation allowance until it can sustain a level of profitability that demonstrates its ability to utilize these net deferred tax assets. The significant negative evidence supporting the full valuation allowance includes a loss for the current year, a cumulative pre-tax loss for the three years ended December 31, 2015, the inability to carryback the net operating losses, limited future reversals of existing temporary differences and the limited availability of tax planning strategies. The Company expects to continue to provide a full valuation allowance until, or unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets.

 

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Inflation and Seasonality

 

Inflation and seasonality have not had a material impact on the results of operations of the Company. Fourth quarter sales in 2015 as compared to other quarters were slightly impacted by fewer production days. The Company expects sales each year in the fourth quarter to be impacted by fewer production days.

 

Liquidity and Capital Resources

 

As of December 31, 2015 and 2014, the Company’s working capital (deficit) was $(309,000) and $8,761,000, respectively. The decrease in working capital is attributable primarily due to the reclassification of the Santander Term Loan of $3,349,000 from long term to short term, a decrease in inventories of $3,662,000 and an increase in borrowings under the Revolver of $1,395,000.

 

The Company’s net cash used in operating activities for the year ended December 31, 2015 was $798,000 primarily due to non-cash expenses of $3,622,000 and a reduction in inventories of $1,793,000, offset by a net loss of $6.725,000, compared to net cash provided by operating activities for the year ended December 31, 2014 of $1,615,000 primarily due to non-cash expenses of $2,135,000 and a reduction in accounts receivable of $836,000, offset by a net loss of $902,000.

 

Cash used in investing activities was $641,000, which was attributable primarily to capital expenditures of $188,000 and the acquisition of licenses of $453,000.

 

Cash provided by financing activities was $1,216,000 for the period ended December 31, 2015, comprised primarily of net borrowings on the line of credit of $1,395,000 and borrowings of subordinated debt of $100,000 offset by repayments of debt of $279,000.

 

On March 28, 2016 the Company and RLD, as borrowers and Robert J. Pallé, as agent (in such capacity “ Agent ”) and as a lender, together with Carol M. Pallé, Steven Shea and James H. Williams as lenders (collectively, the “ Subordinated Lenders ”) entered into a certain Amended and Restated Senior Subordinated Convertible Loan and Security Agreement (the “ Subordinated Loan Agreement ”), pursuant to which the Subordinated Lenders agreed to provide the Company with a delayed draw term loan facility of up to $750,000 (“ Subordinated Loan Facility ”), under which individual advances in amounts not less than $50,000 may be drawn by the Company. Interest on the outstanding balance under the Subordinated Loan Facility from time to time, accrues at 12% per annum (subject to increase under certain circumstances) and is payable monthly in-kind by the automatic increase of the principal amount of the loan on each monthly interest payment date, by the amount of the accrued interest payable at that time (“ PIK Interest ”); provided, however, that at the option of the Company, it may pay interest in cash on any interest payment date, in lieu of PIK Interest. The Subordinated Lenders have the option of converting the principal balance of the loan, in whole (unless otherwise agreed by the Company), into shares of the Company’s common stock at a conversion price of $0.54 per share (subject to adjustment under certain circumstances). This conversion right is subject to any necessary stockholder approval required by the rules of the NYSE MKT, and the Company has agreed to submit a proposal at its 2016 annual meeting to obtain stockholder approval. The obligations of the Company and RLD under the Subordinated Loan Agreement are secured by substantially all of the Company’s and RLD’s assets, including by a mortgage against the Old Bridge Property (the “ Subordinated Mortgage” ). The Subordinated Loan Agreement terminates three years from the date of closing, at which time the accreted principal balance of the loan (by virtue of the PIK Interest) plus any other accrued unpaid interest, will be due and payable in full.

 

In connection with the Subordinated Loan Agreement, the Company, RLD, the Subordinated Lenders and Santander entered into an Amended and Restated Subordination Agreement (the “ Subordination Agreement "), pursuant to which the rights of the Subordinated Lenders under the Subordinated Loan Agreement and the Subordinated Mortgage are subordinate to the rights of Santander under the Santander Loan Agreement and related security documents. The Subordination Agreement precludes the Company from making cash payments of interest in lieu of PIK Interest, in the absence of the prior written consent of Santander. As of March 30, 2016, the Subordinated Lenders have advanced $300,000 to the Company.

 

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The Subordinated Loan Agreement amended and restated a prior agreement entered into on February 11, 2016 between the Company and RLD, as borrowers and Robert J. Pallé and Carol M. Pallé, as lenders (the “ Prior S ubordinated Loan Agreement ”), pursuant to which Mr. and Mrs. Pallé had agreed to provide the Company with a delayed draw term loan facility of up to $600,000 on terms substantially similar to those terms set forth in the Subordinated Loan Agreement, including the conversion rights and pledge of Company assets to secure the loan. Aggregate advances under the Prior Subordinated Loan Agreement were $300,000 and such balances have transferred over to and now constitute outstanding balances under the Subordinated Loan Agreement. The Prior Subordinated Loan Agreement was amended and restated by the Subordinated Loan Agreement in order to increase the amount available for borrowing by the Company in an effort to further enhance the Company’s capital resources and liquidity.

 

On August 6, 2008, the Company entered into a Revolving Credit, Term Loan and Security Agreement with Santander Bank, N.A. (formerly known as Sovereign Bank, N.A.) through its Sovereign Business Capital division (“ Santander ”), pursuant to which the Company obtained an $8,000,000 credit facility from Santander (the “ Santander Financing ”). The Company and Santander entered into a series of amendments to the foregoing Revolving Credit, Term Loan and Security Agreement (as so amended, the “ Santander Agreement ”), which, among other things, adjusted the Santander Financing to $7,567,000 consisting of (i) a $4,000,000 asset-based revolving credit facility (“ Revolver ”) and (ii) a $3,567,000 term loan facility (“ Term Loan ”), each expiring on June 1, 2016. The amounts which may be borrowed under the Revolver are based on certain percentages of Eligible Receivables and Eligible Inventory, as such terms are defined in the Santander Agreement. The obligations of the Company under the Santander Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries.

 

Under the Santander Agreement, the Revolver currently bears interest at a rate per annum equal to the prime lending rate announced from time to time by Santander (“Prime”) plus 1.50% or the LIBOR rate plus 4.25%. The Term Loan currently bears interest at a rate per annum equal to Prime plus 1.75% or the LIBOR rate plus 4.50%. Prime was 3.50% at December 31, 2015. LIBOR rate loans under the Santander Agreement may be borrowed for interest periods of one, three or six months. The LIBOR rates for interest periods of one-month, three-months and six-months were 0.43%, 0.62% and 0.87%, respectively, at December 31, 2015.

 

On March 1, 2016, the Company entered into the Fourteenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Fourteenth Amendment ”) to amend the Santander Financing. The Fourteenth Amendment extended the termination date of the Santander Agreement and the “Additional Availability Period” under the Santander Agreement from March 1, 2016 to June 1, 2016. In addition, the Fourteenth Amendment amends certain of the Company’s financial covenants. In particular, the amended covenants relaxed the previous balance sheet leverage ratio compliance threshold of 1.25:1.00, and will now require that the Company maintain a balance sheet leverage ratio of not more than (i) 1.85 to 1.00 as of December 31, 2015 and (ii) 2.00 to 1.00 as of March 31, 2016. In addition, the amended covenants relaxed the previous EBITDA compliance threshold and will now require that the Company achieve EBITDA thresholds of not less than (i) negative (-) $3,897,000 as of December 31, 2015 (calculated on a trailing twelve month basis) and (ii) $50,000 as of March 31, 2016 (calculated on a trailing three month basis). The Fourteenth Amendment also requires that the Subordinated Lenders provide the Company with advances under the Subordinated Loan Facility in an aggregate amount (taking into account all prior advances) of $500,000, not later than March 31, 2016. The Company is currently in compliance with the covenants provided in the Fourteenth Amendment.

 

On February 1, 2016, the Company entered into the Thirteenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Thirteenth Amendment ”) to amend the Santander Financing. The Thirteenth Amendment extended the termination date of the Santander Agreement and the “Additional Availability Period” under the Santander Agreement from February 1, 2016 to March 1, 2016. In addition, the Thirteenth Amendment reduced the maximum loan amount available under the Loan Agreement from $9,350,000 to $8,350,000 and reduced the maximum amount available for borrowing under the Revolver from $5,000,000 to $4,000,000.

 

On December 16, 2015, the Company entered into the Twelfth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Twelfth Amendment ") to amend certain terms of the Santander Agreement to facilitate the Company’s ability to obtain additional capital through the issuance of equity or subordinated debt securities or the entry into subordinated loan arrangements following the date of the Twelfth Amendment. In particular, the Twelfth Amendment modified terms of the Santander Agreement that had restricted the incurrence of indebtedness and the creation of liens, to allow the Company to incur indebtedness that is subordinate to the indebtedness under the Santander Agreement and to permit that indebtedness to be secured, provided that any security would also be subordinate to the obligations and liens under the Santander Agreement. In addition, the Twelfth Amendment modified the restrictions on the Company’s ability to enter into transactions with its affiliates to permit the issuance of equity or subordinated debt securities to one or more affiliates or the entry into subordinated loan arrangements with one or more affiliates. The Twelfth Amendment also excluded the proceeds of any permitted equity or debt financing from the collateral subject to Santander’s lien under the Santander Agreement, until such time as and to the extent, such proceeds were utilized for the Company’s working capital or other general corporate purposes.

 

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On November 14, 2015, the Company entered into the Eleventh Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Eleventh Amendment ”) to amend the Santander Financing. The Eleventh Amendment (i) waived the Company’s failure of compliance with the Minimum EBITDA and leverage ratio covenants for the measurement period ended September 30, 2015, effective as of September 30, 2015, and (ii) increased the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until February 1, 2016, after which it was to revert back to 25%. The Eleventh Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Eleventh Amendment, the Company paid Santander an amendment fee of $50,000.

 

On October 14, 2015, the Company entered into the Tenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Tenth Amendment ”) to amend the Santander Financing. The Tenth Amendment extended the increase in the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until November 30, 2015, after which it was to revert back to 25%. The Tenth Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Tenth Amendment, the Company paid Santander an amendment fee of $5,000.

 

On August 12, 2015, the Company entered into the Ninth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Ninth Amendment ”) to amend the Santander Financing. The Ninth Amendment waived the Company’s failure of compliance with the Minimum EBITDA covenant for the measurement period ended June 30, 2015, effective as of June 30, 2015, and also contained other customary representations, covenants, terms and conditions. In connection with the Ninth Amendment, the Company paid Santander an amendment fee of $20,000.

 

On May 14, 2015, the Company entered into the Eighth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Eighth Amendment ”) to amend the Santander Financing. The Eighth Amendment (i) waived the Company’s failure of compliance with the Minimum EBITDA covenant for the three-month period ended March 31, 2015, effective as of March 31, 2015, and (ii) increased the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until September 30, 2015, after which it was to revert back to 25%. The Eighth Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Eighth Amendment, the Company paid Santander an amendment fee of $15,000. The Eighth Amendment was in lieu of the Temporary Overadvance Facility, as more fully discussed in the next paragraph.

 

On March 30, 2015, Santander agreed to provide the Company with $500,000 of additional availability beyond its borrowing base under the Revolver (the “ Temporary Overadvance Facility ”) during the period April 1, 2015 through April 24, 2015, for which the Company paid Santander an accommodation fee of $2,500. Under the agreement, the Company was required to eliminate the outstanding balance under the Temporary Overadvance Facility on or before September 30, 2015, which was accomplished prior to entering into the Eight Amendment.

 

On January 21, 2015, the Company entered into the Seventh Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Seventh Amendment ”) to amend the Santander Financing. The Seventh Amendment (i) extended by one year the Termination Date of the Santander Agreement from February 1, 2015 to February 1, 2016; (ii) continued the installment payments of principal under the Term Loan at the same monthly payment of $18,000 per month for the additional year until the final payment of unpaid principal and interest is due on February 1, 2016; (iii) increased the interest rates applicable to the Revolver and the Term Loan by one quarter of one percent (0.25%); and (iv) reset and modified the Minimum EBITDA covenant to address the term being extended by one year. The Seventh Amendment also contained other customary representations, covenants, terms and conditions. The Company paid a $15,000 amendment fee to Santander in connection with the Seventh Amendment.

 

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On March 28, 2014, the Company entered into the Sixth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Sixth Amendment ”) to amend the Santander Financing. The Sixth Amendment (i) reduced the maximum amount available for borrowing under the Revolver from $6,000,000 to $5,000,000, (ii) increased the interest rates applicable to the Revolver and the Term Loan by three quarters of one percent, (iii) modified the Company’s fixed charge coverage ratio covenant to eliminate the testing thereof with respect to the trailing 12-month period ended as of December 31, 2013, (iv) eliminated the fixed charge coverage ratio covenant with respect to all periods after December 31, 2013, (v) modified the minimum EBITDA covenant to (a) eliminate the testing thereof with respect to the fiscal year ended December 31, 2013, (b) change the manner of calculation thereof, and (c) imposed a quarterly building minimum EBITDA covenant test, commencing with the fiscal quarter ended on March 31, 2014, and thereafter for the two fiscal quarters ending June 30, 2014, the three fiscal quarters ending September 30, 2014, the four fiscal quarters ending December 31, 2014 and thereafter quarterly on a trailing four fiscal quarter basis, (vi) reduced the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 50% to 35%, with a further reduction in such advance rate to 25% effective on or about June 27, 2014 and (vii) reduced the sublimit on advances against such Eligible Inventory from $3,000,000 to $2,000,000. In connection with the Sixth Amendment, the Company paid Santander an amendment fee of $45,000.

 

Upon termination of the Revolver, all outstanding borrowings under the Revolver are due. The outstanding principal balance of the Revolver was $2,664,000 at December 31, 2015. The Term Loan requires equal monthly principal payments of approximately $18,000 each, plus interest, with the remaining balance due at maturity. The outstanding principal balance of the Term Loan was $3,567,000 at December 31, 2015.

 

The Santander Agreement contains customary representations and warranties as well as affirmative and negative covenants, including certain financial covenants. The Santander Agreement contains customary events of default, including, among others, non-payment of principal, interest or other amounts when due.

 

The fair value of the debt approximates the recorded value based on the borrowing rates currently available to the Company for loans with similar terms and maturities, as evidenced by the Santander Agreement.

 

The Company’s primary sources of liquidity are its existing cash balances, cash generated from operations and amounts available under the Santander Financing and the Subordinated Loan Facility. As of December 31, 2015, the Company had approximately $2,664,000 outstanding under the Revolver and $423,000 of additional availability for borrowing under the Revolver. As of February 29, 2016, the Company had approximately $2,497,000 outstanding under the Revolver and $539,000 of additional availability for borrowing under the Revolver, as well as $300,000 of additional availability for borrowing under the Subordinated Loan Facility.

 

The Company’s Revolver and Term Loan under the Santander Financing, which was to have expired on February 1, 2016, has been extended by Santander through June 1, 2016. While the Company anticipates either obtaining a further extension to the maturity date of the Santander Financing or refinancing all or part of the Santander Financing prior to June 1, 2016, there can be no assurances that an extension or refinancing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.

 

Beginning in early 2015, the Company experienced a significant decline in its net sales, which have not recovered to historical norms, but which have stabilized at reduced levels. The Company does not anticipate that sales will recover to historical norms during 2016. In light of these developments and as detailed below, the Company has taken dramatic steps during the past year, implemented in several phases, in order to manage operations through what has been and is anticipated to be a protracted period of diminished sales levels. Based upon these facts and trends occurring in our business, together with our current expectations for the next four fiscal quarters, we believe that if we are unable to further extend our current Revolver and Term Loan or otherwise refinance this indebtedness, we will not have sufficient liquidity necessary to sustain operations for the next twelve months. These factors, and possibly others, raise substantial doubt about the Company’s ability to continue as a going concern, a risk that was discussed in our quarterly report on Form 10-Q filed in November 2015.

 

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During the past year, the Company has focused on implementing a turnaround strategy, under which since March 2015 it has been implementing operational and financial processes to improve liquidity, cash flow and profitability. In addition to seeking to further extend or refinance its outstanding indebtedness with Santander that is due on June 1, 2016, the Company has also entered into the Subordinated Loan Facility, which has provided the Company with $300,000 of additional working capital and under which there remains availability for further borrowings of an additional $450,000. The Company is currently in discussions with Santander to extend the term of the Company’s Revolver and Term Loan and is in early stage discussions with several alternative lenders regarding refinancing of the Santander Financing. As of the date of this Report, however, uncertainty exists as to the ultimate outcome of a refinancing or extension of the Company’s Revolver and Term Loan and any commitment or proposal. Accordingly, there are no assurances that these commitments, proposals or discussions will result in any transaction, or that any such transaction, if implemented, will be successful.

 

In other efforts to alleviate the liquidity pressures and reposition the Company to generate positive cash flow at a lower level of net sales, since March 2015, the Company has implemented a multi-phase cost-reduction program which reduced expenses during 2015 by approximately $1,035,000 and which is anticipated to provide annualized cash savings of approximately $2,590,000 during 2016, compared to the Company’s costs as they existed prior to the commencement of the cost reduction program. In 2016, the Company is implementing additional elements of its cost reduction program designed to preserve working capital, including the further reduction of salaries of certain employees of the Company. Although we believe we have made and will continue to make progress under these programs (e.g., the Company’s liquidity has modestly improved since March 30, 2015), we operate in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that our planned operational improvements will be successful. If anticipated operating results are not achieved, and/or sufficient funds are not obtained from the Company’s efforts to refinance and raise capital, further reductions in operating expenses may be needed and could have a material adverse effect on the Company’s ability to achieve its intended business objectives and continue as a going concern.

 

The Company’s primary long-term obligations are for payment of interest and principal on the Company’s Revolver and Term Loan, both of which expire on June 1, 2016. The Company expects to use cash generated from operations to meet its long-term debt obligations, and anticipates obtaining a further extension or refinancing its long-term debt obligations at maturity. The Company considers opportunities to refinance its existing indebtedness based on market conditions. Although the Company will be required to refinance all or part of its existing indebtedness by June 1, 2016 (unless a further extension from Santander is obtained), there can be no assurances that it will successfully do so. Changes in the Company’s operating plans, lower than anticipated sales, increased expenses, or other events may require the Company to seek additional debt or equity financing. There can be no assurance that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions. The Company also expects to make financed and unfinanced long-term capital expenditures from time to time in the ordinary course of business, which capital expenditures were $188,000 and $673,000 in the years ended December 31, 2015 and 2014, respectively. The Company expects to use cash generated from operations, amounts available under its credit facility, proceeds from advances under the Subordinated Loan Facility, and purchase-money financing to meet any anticipated long-term capital expenditures.

 

Critical Accounting Estimates

 

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States. Preparing financial statements in accordance with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The following paragraphs include a discussion of some critical areas where estimates are required. You should also review Note 1 to the consolidated financial statements for further discussion of significant accounting policies.

 

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Revenue Recognition

 

The Company records revenue when products are shipped. Legal title and risk of loss with respect to the products pass to customers at the point of shipment. Customers do not have a right to return products shipped. Products carry a three year warranty, which amount is not material to the Company’s operations.

 

Inventory and Obsolescence

 

The Company periodically analyzes anticipated product sales based on historical results, current backlog and marketing plans. Based on these analyses, the Company estimates and projects those products that are unlikely to be sold during the next twelve months. Inventories that are not anticipated to be sold in the next twelve months, have been classified as non-current.

 

Approximately 73% of the non-current inventories are comprised of finished goods. The Company has established a program to use interchangeable parts in its various product offerings and to modify certain of its finished goods to better match customer demands. In addition, the Company has instituted additional marketing programs to dispose of the slower moving inventories.

 

The Company continually analyzes its slow-moving, excess and obsolete inventories. Based on historical and projected sales volumes for finished goods, historical and projected usage of raw materials, and anticipated selling prices, the Company establishes reserves. If the Company does not meet its sales expectations these reserves are increased. Products that are determined to be obsolete are written down to net realizable value.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Management periodically performs a detailed review of amounts due from customers to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. Management’s estimates of the allowance for doubtful accounts requires management to exercise significant judgment about the timing, frequency and severity of collection losses, which affects the allowances and net earnings. As these factors are difficult to predict and are subject to future events that may alter management assumptions, these allowances may need to be adjusted in the future.

 

Long-Lived Assets

 

On a periodic basis, management assesses whether there are any indicators that the value of the Company’s long-lived assets may be impaired. An asset’s value may be impaired only if management’s estimate of the aggregate future cash flows, on an undiscounted basis, to be generated by the asset are less than the carrying value of the asset.

 

If impairment has occurred, the loss shall be measured as the excess of the carrying amount of the asset over the fair value of the long-lived asset. The Company’s estimates of aggregate future cash flows expected to be generated by each long-lived asset are based on a number of assumptions that are subject to economic and market uncertainties. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in their impairment analyses may not be achieved.

 

Valuation of Deferred Tax Assets

 

Management periodically evaluates its ability to recover the reported amount of its deferred income tax assets considering several factors, including the estimate of the likelihood that it will generate sufficient taxable income in future years in which temporary differences reverse. Due to the uncertainties related to, among other things, the extent and timing of future taxable income, which currently indicates that it was more likely than not that the Company would not realize the benefits related to the deferred tax assets, the Company recorded a valuation allowance equal to substantially all of the net deferred tax assets as of December 31, 2014 and 2013.

 

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Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“ FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

 

In January 2016, the FASB issued ASU 2016-01 (“ ASU 2016-01 ”), Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for fiscal years beginning after December 15, 2017. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . This standard requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The standard is effective for interim and annual periods beginning after December 15, 2016, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. As permitted, the Company elected to early adopt this standard effective December 31, 2015, and applied the standard prospectively. The adoption of this standard did not have a significant impact on the Company’s financial statements, other than the prospective classification of deferred tax liabilities and assets as long-term in accordance with the new presentation requirements. For more information on income taxes, see Note 14 – Income Taxes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

In September 2015, the FASB issued ASU No. 2015-16:  “Business Combinations (Topic 805)”.  This guidance was issued to amend existing guidance related to measurement period adjustments associated with a business combination.  The new standard requires the Company to recognize measurement period adjustments in the reporting period in which the adjustments are determined, including any cumulative charge to earnings in the current period.  The amendment removes the requirement to adjust prior period financial statements for these measurement period adjustments.  The guidance is effective for annual period beginning after December 15, 2015 and early adoption is permitted.  The adoption of this standard will not have a significant impact on the Company’s consolidated financial position and results of operations.

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory: Topic 330 (“ ASU 2015-11” ). Topic 330 currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 requires that inventory measured using either the first-in, first-out (FIFO) or average cost method be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Adoption of ASU 2015-11 is required for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

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In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

The FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards updates and regulations as of December 31, 2015 that will become effective in subsequent periods; however, management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2015 or 2014, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Incorporated by reference from the consolidated financial statements and notes thereto of the Company, which are attached hereto beginning on page 40.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted pursuant to Rules 13a-15(e) and 15d-15(e) the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report.  Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective at December 31, 2015.

 

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Internal Control Over Financial Reporting

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

 

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2015. In making this assessment, it used the 1992 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment the Company believes that, as of December 31, 2015 the Company’s internal control over financial reporting is effective based on those criteria. 

 

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

 

During the quarter ended December 31, 2015, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

Not applicable.

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information about the Company’s directors and executive officers is incorporated by reference from the discussion under the heading “Directors and Executive Officers” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders. The information about the Company’s Audit Committee (excluding the Audit Committee Report) and the Audit Committee’s “audit committee financial expert,” is incorporated by reference from the discussion under the heading “Corporate Governance and Board Matters” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders. Information about compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference from the discussion under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders.

 

Each of the Company’s directors, officers and employees are required to comply with the Blonder Tongue Laboratories, Inc. Code of Ethics adopted by the Company. The Code of Ethics sets forth policies covering a broad range of subjects and requires strict adherence to laws and regulations applicable to the Company’s business. The Code of Ethics is available on the Company’s website at www.blondertongue.com, under the “About Us - Investor Relations - Code of Ethics” captions. The Company will post to its website any amendments to the Code of Ethics under the “About Us - Investor Relations - Code of Ethics” caption.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Information about director and executive officer compensation is incorporated by reference from the discussion under the headings “Directors’ Compensation” and “Executive Compensation” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders.

 

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Information about security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading “Security Ownership of Certain Beneficial Owners and Management” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Information about certain relationships and transactions with related parties is incorporated by reference from the discussion under the heading “Certain Relationships and Related Transactions” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders. Information about the independence of each director or nominee for director of the Company during 2015 is incorporated by reference from the discussion under the heading “Corporate Governance and Board Matters” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Information about procedures related to the engagement of the independent registered public accountants and fees and services paid to the independent registered public accountants is incorporated by reference from the discussion under the headings “Audit and Other Fees Paid to Independent Registered Public Accounting Firm” and “Pre-Approval Policy for Services by Independent Registered Public Accounting Firm” in the Company’s proxy statement for its 2016 Annual Meeting of Stockholders.

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)(1) Financial Statements and Supplementary Data.

 

Report of Independent Registered Public Accounting Firm 42
   
Consolidated Balance Sheets as of December 31, 2015 and 2014 43
   
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended December 31, 2015 and 2014
44
   
Consolidated Statements of Stockholders’ Equity for the Years
Ended December 31, 2015 and 2014
45
   
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2015 and 2014
46
   
Notes to Consolidated Financial Statements 47

 

(a)(2) Financial Statement Schedules.

 

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the applicable instructions or are inapplicable and therefore have been omitted.

 

(a)(3) Exhibits.

 

The exhibits are listed in the Index to Exhibits appearing below and are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission.

 

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(b) Index to Exhibits:

 

Exhibit No.   Description   Location
         
3.1   Restated Certificate of Incorporation of Blonder Tongue Laboratories, Inc.   Incorporated by reference from Exhibit 3.1 to Registrant’s S-1 Registration Statement No. 33-98070, originally filed October 12, 1995, as amended.
         
3.2   Restated Bylaws of Blonder Tongue Laboratories, Inc., as amended.   Incorporated by reference from Exhibit 3.2 to Registrant’s Annual Report on Form 10-K/A for the period ending December 31, 2007, filed May 9, 2008.
         
4.1   Specimen of stock certificate.   Incorporated by reference from Exhibit 4.1 to Registrant’s S-1 Registration Statement No. 33-98070, filed October 12, 1995, as amended.
         

4.2

  Warrant to Adaptive Micro-Ware, Inc.   Incorporated by reference from Exhibit 4.1 to Quarterly Report on Form 10-Q filed November 14, 2012.
         
10.1   Form of Indemnification Agreement entered into by Blonder Tongue Laboratories, Inc. in favor of each of its Directors and Officers.   Incorporated by reference from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q, filed August 14, 2013.
         
10.2   Bargaining Unit Pension Plan.   Incorporated by reference from Exhibit 10.9 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2013, filed March 31, 2014.
         
10.3   Executive Officer Bonus Plan.   Incorporated by reference from Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 1997, filed May 13, 1997.
         
10.4   Blonder Tongue Laboratories, Inc. 2005 Employee Equity Incentive Plan, as amended and restated.   Incorporated by reference from Appendix A to Registrant’s Definitive Proxy Statement for its 2014 Annual Meeting of Stockholders, filed April 21, 2014.
         
10.5   Blonder Tongue Laboratories, Inc. 2005 Director Equity Incentive Plan, as amended and restated.   Incorporated by reference from Appendix B to Registrant’s Definitive Proxy Statement for its 2014 Annual Meeting of Stockholders, filed April 21, 2014.
         
10.6   Form of Option Agreement under the 2005 Employee Equity Incentive Plan.   Incorporated by reference from Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2005, filed August 15, 2005.
         
10.7   Form of Option Agreement under the 2005 Director Equity Incentive Plan.   Incorporated by reference from Exhibit 10.24 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2007, filed March 31, 2008.
         
10.8   Form of Option Agreement under the 2005 Employee Equity Incentive Plan, as amended November 3, 2010.   Incorporated by reference from Exhibit 10.18 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2010, filed March 21, 2011.

 

  36  

 

 

Exhibit No.   Description   Location
         
10.9   Form of Option Agreement under the 2005 Director Equity Incentive Plan, as amended November 3, 2010.   Incorporated by reference from Exhibit 10.19 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2010, filed March 21, 2011.
         
10.10   Form of Option Agreement under the 2005 Employee Equity Incentive Plan, as amended May 18, 2011.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed May 20, 2011.
         
10.11   Form of Option Agreement under the 2005 Director Equity Incentive Plan, as amended May 18, 2011.   Incorporated by reference from Exhibit 99.2 to Registrant’s Current Report on Form 8-K, filed May 20, 2011.
         
10.12   Form of Option Agreement under the 2005 Employee Equity Incentive Plan, as amended and restated.   Incorporated by reference from Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2014, filed August 14, 2014.
         
10.13   Form of Option Agreement under the 2005 Director Equity Incentive Plan, as amended and restated.   Incorporated by reference from Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the period ending June 30, 2014, filed August 14, 2014.
         
10.14   Blonder Tongue Laboratories, Inc. Executive Stock Purchase Plan.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed June 20, 2014.
         
10.15   Deferred Compensation Plan for James A. Luksch, effective as of January 1, 2011, as amended and restated on February 4, 2011.   Incorporated by reference from Exhibit 10.23 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2010, filed March 21, 2011.
         
10.16   Revolving Credit, Term Loan and Security Agreement, dated August 6, 2008, between Sovereign Business Capital and Blonder Tongue Laboratories, Inc.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed August 8, 2008.
         
10.17   First Amendment to Revolving Credit, Term Loan and Security Agreement, dated January 14, 2011, between Sovereign Business Capital and Blonder Tongue Laboratories, Inc.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed January 20, 2011.
         
10.18   Second Amendment to Revolving Credit, Term Loan and Security Agreement, dated February 1, 2012, between Sovereign Business Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed February 7, 2012.
         
10.19   Third Amendment to Revolving Credit, Term Loan and Security Agreement, dated August 10, 2012, between Sovereign Business Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.1 to Quarterly Report on Form 10-Q filed August 14, 2012

 

  37  

 

 

Exhibit No.   Description   Location
         
10.20   Fourth Amendment to Revolving Credit, Term Loan and Security Agreement, dated March 27, 2013, between Sovereign Business Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.29 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2012, filed April 1, 2013.
         
10.21   Fifth Amendment to Revolving Credit, Term Loan and Security Agreement, dated November 13, 2013, between Santander Bank, N.A. Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2013, filed November 14, 2013.
         
10.22   Sixth Amendment to Revolving Credit, Term Loan and Security Agreement, dated March 28, 2014, between Santander Bank N.A. Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.31 to Registrant’s Annual Report on Form 10-K for the period ending December 31, 2013, filed March 31, 2014.
         
10.23   Seventh Amendment to Revolving Credit, Term Loan and Security Agreement, dated January 21, 2015, between Santander Bank N.A. Capital and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed January 21, 2015.
         
10.24   Eighth Amendment to Revolving Credit, Term Loan and Security Agreement, dated May 14, 2015, by and among Santander Bank, N.A., Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q, for the period ending March 31, 2015, filed May 15, 2015.
         
10.25   Ninth Amendment to Revolving Credit, Term Loan and Security Agreement, dated August 12, 2015, by and among Santander Bank, N.A., Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q, for the period ending June 30, 2015, filed August 14, 2015.
         
10.26   Tenth Amendment to Revolving Credit, Term Loan and Security Agreement, dated October 14, 2015, between Santander Bank, N.A. and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed October 20, 2015.
         
10.27   Eleventh Amendment to Revolving Credit, Term Loan and Security Agreement, dated November 14, 2015, by and among Santander Bank, N.A., Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the period ending September 30, 2015, filed November 16, 2015.
         
10.28   Twelfth Amendment to Revolving Credit, Term Loan and Security Agreement, dated December 16, 2015, between Santander Bank, N.A. and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed December 16, 2015.

 

  38  

 

 

Exhibit No.   Description   Location
         
10.29   Thirteenth Amendment to Revolving Credit, Term Loan and Security Agreement, dated February 1, 2016, between Santander Bank, N.A. and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed February 2, 2016.
         
10.30   Fourteenth Amendment to Revolving Credit, Term Loan and Security Agreement, dated March 1, 2016, between Santander Bank, N.A. and Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, LLC.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K, filed March 1, 2016.
         
10.31   Director Stock Purchase Plan.   Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed March 23, 2015.
         
10.32  

Letter Agreement with James A. Luksch dated March 24, 2015

  Incorporated by reference from Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed March 26, 2015.
         
10.33   Agreement with Blonder Tongue Laboratories, Inc. and Santander Bank N.A. dated March 30, 2015.   Incorporated by reference from Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the period ending March 31, 2015, filed May 15, 2015.
         
10.34   Senior Subordinated Convertible Loan and Security Agreement dated as of February 11, 2016 by and between Blonder Tongue Laboratories, Inc., R. L. Drake Holdings, LLC and Robert J. Pallé and Carol M. Pallé.   Incorporated by reference from Exhibit 10.1 to Registrant’s Current Report on Form 8-K, filed February 12, 2016.
         
10.35   Mortgage and Security Agreement dated as of February 11, 2016 by and between Blonder Tongue Laboratories, Inc., as Mortgagor and Robert J. Pallé and Carol M. Pallé, as Mortgagee.   Incorporated by reference from Exhibit 10.2 to Registrant’s Current Report on Form 8-K, filed February 12, 2016.
         
10.36   Subordination Agreement dated as of February 11, 2016 by and between Blonder Tongue Laboratories, Inc., R. L. Drake Holdings, LLC, Robert J. Pallé and Carol M. Pallé and Santander Bank, N.A.   Incorporated by reference from Exhibit 10.3 to Registrant’s Current Report on Form 8-K, filed February 12, 2016.
         
10.37   Amended and Restated Senior Subordinated Convertible Loan and Security Agreement dated as of March 28, 2016 by and between Blonder Tongue Laboratories, Inc., R. L. Drake Holdings, LLC and Robert J. Pallé, as agent and as a lender and Carol M. Pallé, James H. Williams and Steven Shea, as lenders.   Filed herewith.

 

  39  

 

 

Exhibit No.   Description   Location
         
10.38   Amended and Restated Mortgage and Security Agreement, dated as of March 28, 2016, by and between Blonder Tongue Laboratories, Inc., as Mortgagor and Robert J. Pallé, in his capacity as agent, as Mortgagee.   Filed herewith.
         
10.39   Amended and Restated Subordination Agreement, dated as of March 28, 2016, by and between Blonder Tongue Laboratories, Inc., R. L. Drake Holdings, LLC, Robert J. Pallé, Carol M. Pallé, James H. Williams, and Steven Shea,  and Santander Bank, N.A.   Filed herewith.
         
21   Subsidiaries of Blonder Tongue   Filed herewith.
         
23.1   Consent of Marcum LLP.   Filed herewith.
         
31.1   Certification of Robert J. Pallé pursuant to Section 302 of the Sarbanes–Oxley Act of 2002   Filed herewith.
         
31.2   Certification of Eric Skolnik pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.
         
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Furnished herewith.
         
101.1   Interactive data files.   Filed herewith.

 

Exhibits 10.1, 10.3-10.15, and 10.31-10.32 represent management contracts or compensation plans or arrangements.

 

(c) Financial Statement Schedules:

 

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the applicable instructions or are inapplicable and therefore have been omitted.

 

  40  

 

 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm 42
   
Consolidated Balance Sheets as of December 31, 2015 and 2014 43
   
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2015 and 2014 44
   
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2015 and 2014 45
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014 46
   
Notes to Consolidated Financial Statements 47

 

  41  

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Audit Committee of the Board of Directors and Stockholders of

Blonder Tongue Laboratories, Inc.

 

We have audited the accompanying consolidated balance sheets of Blonder Tongue Laboratories, Inc. and Subsidiaries (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Blonder Tongue Laboratories, Inc. and Subsidiaries as of December 31, 2015 and 2014, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully discussed in Note 2, the Company has incurred net losses since inception and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

/s/ Marcum llp

 

Marcum LLP

New York, NY

March 30, 2016

 

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BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

    December 31,  
    2015     2014  
Assets                
Current assets:                
Cash   $ 9     $ 232  
Accounts receivable, net of allowance for doubtful accounts of $239 and $176     2,432       2,425  
Inventories     5,595       9,257  
Prepaid and other current assets     277       651  
Prepaid benefit costs     -       -  
Total current assets     8,313       12,565  
Inventories, net non-current     1,444       1,628  
Property, plant and equipment, net of accumulated depreciation and amortization     3,621       3,923  
License agreements, net     458       645  
Intangible assets, net     1,784       1,962  
Goodwill     493       493  
Other assets, net     117       28  
    $ 16.230     $ 21,244  
Liabilities and Stockholders’ Equity                
Current liabilities:                
Line of credit   $ 2,664     $ 1,269  
Current portion of long-term debt     3,604       286  
Accounts payable     1,387       1,351  
Accrued compensation     388       513  
Accrued benefit pension liability     54       260  
Income taxes payable     6       24  
Other accrued expenses     519       101  
Total current liabilities     8,622       3,804  
                 
Long-term debt     110       3,607  
Deferred income taxes     129       95  
Commitments and contingencies     -       -  
Stockholders’ equity:                
Preferred stock, $.001 par value; authorized 5,000 shares; no shares outstanding     -       -  
Common stock, $.001 par value; authorized 25,000 shares, 8,465 shares Issued, 6,766 and 6,263 shares outstanding     8       8  
Paid-in capital     26,361       26,435  
Accumulated deficit     (12,198 )     (4,096 )
Accumulated other comprehensive loss     (1,168 )     (1,354 )
Treasury stock, at cost, 1,699 and 2,202 shares     (5,634 )     (7,255 )
Total stockholders’ equity     7,369       13,738  
    $ 16,230     $ 21,244  

 

See accompanying notes to the consolidated financial statements.

 

  43  

 

 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

 

    Year ended
December 31
 
    2015     2014  
             
Net sales   $ 20,943     $ 29,129  
Cost of goods sold     16,788       18,168  
Gross profit     4,155       10,961  
Operating expenses:                
Selling expenses     3,072       3,404  
General and administrative     4,152       4,770  
Research and development     3,331       3,416  
      10,555       11,590  
Loss from operations     (6,400 )     (629 )
                 
Other expense:                
Interest expense     (325 )     (242 )
Loss before income taxes     (6,725 )     (871 )
Provision for income taxes     46       31  
Net loss   $ (6,771 )   $ (902 )
Net loss per share, basic and diluted   $ (1.05 )   $ (0.14 )
Weighted average shares outstanding, basic and diluted     6,464       6,223  
Net loss   $ (6,771 )   $ (902 )
Changes in accumulated unrealized pension losses, net of taxes     186       (686 )
Comprehensive loss   $ (6,585 )   $ (1,588 )

  

See accompanying notes to the consolidated financial statements.

 

  44  

 

 

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

 

    Common Stock     Paid-in     Accumulated     Accumulated
Other
Comprehensive
    Treasury        
    Shares     Amount     Capital     Deficit     Loss     Stock     Total  
Balance at January 1, 2014     8,465     $ 8     $ 26,190     $ (3,194 )   $ (668 )   $ (7,308 )   $ 15,028  
Net loss     -       -       -       (902 )     -       -       (902 )
Recognized pension loss, net of taxes     -       -       -       -       (686 )     -       (686 )
Stock option exercises     -       -       -       -       -       41       41  
Common stock sale-Executive Purchase Plan     -       -       -       -       -       12       12  
Stock-based Compensation     -       -       245       -       -       -       245  
Balance at December 31, 2014     8,465       8       26,435       (4,096 )     (1,354 )     (7,255 )     13,738  
Net loss     -       -       -       (6,771 )     -       -       (6,771 )
Recognized pension gain, net of taxes     -       -       -       -       186       -       186  
Issuance of restricted stock awards for treasury stock, 502 shares     -       -       (290 )     (1,331 )     -       1,621       -  
Stock-based Compensation     -       -       216       -       -       -       216  
Balance at December 31, 2015     8,465     $ 8     $ 26,361     $ (12,198 )   $ (1,168 )   $ (5,634 )   $ 7,369  

   

See accompanying notes to the consolidated financial statements.

 

  45  

 

  

BLONDER TONGUE LABORATORIES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    Year ended
December 31,
 
    2015     2014  
             
Cash Flows From Operating Activities:                
Net loss   $ (6,771 )   $ (902 )
Adjustments to reconcile net loss to cash provided by (used in) operating activities:                
Depreciation     490       460  
Amortization     818       955  
Stock-based compensation expense     216       245  
Provision for inventory reserves     2,053       474  
Provision for doubtful accounts     65       (20 )
Non cash pension expense     (20 )     (11 )
Deferred income taxes     34       32  
Changes in operating assets and liabilities:                
Accounts receivable     (72 )     836  
Inventories     1,793       (269 )
Prepaid and other current assets     374       (193 )
Other assets     (89 )     131  
Income taxes payable     (18 )     -  
Accounts payable, accrued expenses and accrued compensation     329       (123 )
Net cash provided by (used in) operating activities     (798 )     1,615  
Cash Flows From Investing Activities:                
Capital expenditures     (188 )     (673 )
Acquisition of licenses     (453 )     (554 )
Net cash used in investing activities     (641 )     (1,227 )
Cash Flows From Financing Activities:                
Net borrowings (repayment) on line of credit     1,395       (6 )
Repayments of debt     (279 )     (270 )
Borrowings of debt     100       -  
Proceeds from exercise of stock options     -       41  
Proceeds from sale of common stock     -       12  
Net cash provided by (used in) financing activities     1,216       (223 )
Net increase (decrease) in cash     (223 )     165  
Cash, beginning of year     232       67  
Cash, end of year   $ 9     $ 232  
Supplemental Cash Flow Information:                
Cash paid for interest   $ 297     $ 249  
Cash paid for income taxes   $ -     $ -  

 

See accompanying notes to the consolidated financial statements.

 

  46  

 

  

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Note 1 – Summary of Significant Accounting Policies

 

(a) The Company and Basis of Consolidation

 

Blonder Tongue Laboratories, Inc. (together with its consolidated subsidiaries, the “ Company ”) is a technology-development and manufacturing company that delivers television signal encoding, transcoding, digital transport, and broadband product solutions to the markets the Company serves, including the multi-dwelling unit market, the lodging/hospitality market and the institutional market, including hospitals, prisons and schools, primarily throughout the United States and Canada. The consolidated financial statements include the accounts of Blonder Tongue Laboratories, Inc. and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

 

(b) Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments with a maturity of less than three months at purchase to be cash equivalents. The Company did not have any cash equivalents at December 31, 2015 and 2014. Cash balances at financial institutions are insured by the Federal Deposit Insurance Corporation (“ FDIC ”). At times, cash and cash equivalents may be uninsured or in deposit accounts that exceed the FDIC insurance limit. Periodically, the Company evaluates the creditworthiness of the financial institutions and evaluates its credit exposure.

 

(c) Accounts Receivable and Allowance for Doubtful accounts

 

Accounts receivable are customer obligations due under normal trade terms. The Company sells its products primarily to distributors and private cable operators. The Company performs continuing credit evaluations of its customers’ financial condition and although the Company generally does not require collateral, letters of credit may be required from its customers in certain circumstances.

 

Senior management reviews accounts receivable on a monthly basis to determine if any receivables will potentially be uncollectible. The Company includes any accounts receivable balances that are determined to be uncollectible, along with a general reserve based on historical experience, in its overall allowance for doubtful accounts.

 

(d) Inventories

 

Inventories are stated at the lower of cost, determined by the first-in, first-out (“ FIFO ”) method, or market.

 

The Company periodically analyzes anticipated product sales based on historical results, current backlog and marketing plans. Based on these analyses, the Company anticipates that certain products will not be sold during the next twelve months. Inventories that are not anticipated to be sold in the next twelve months, have been classified as non-current.

 

The Company continually analyzes its slow-moving and excess inventories. Based on historical and projected sales volumes and anticipated selling prices, the Company establishes reserves. Inventory that is in excess of current and projected use is reduced by an allowance to a level that approximates its estimate of future demand. Products that are determined to be obsolete are written down to net realizable value.

 

 

(e) Property, Plant and Equipment

 

Property, plant and equipment are stated at cost. The Company provides for depreciation generally on the straight-line method based upon estimated useful lives of 3 to 5 years for office equipment, 5 to 7 years for furniture and fixtures, 6 to 10 years for machinery and equipment, 10 to 15 years for building improvements and 40 years for the manufacturing and administrative office facility.

 

  47  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

(f) Goodwill and Other Intangible Assets

 

The Company accounts for goodwill and intangible assets in accordance with ASC 350 Intangibles - Goodwill and Other Intangible Assets (“ ASC 350 ”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value.

 

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. Accounting principles generally accepted in the United States (“ GAAP ”) requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgment is required to estimate the fair value of reporting units including estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment.

The Company’s business includes one goodwill reporting unit. The Company annually reviews goodwill for possible impairment by comparing the fair value of the reporting unit to the carrying value of the assets. If the fair value exceeds the carrying value of the net asset, no goodwill impairment is deemed to exist. If the fair value does not exceed the carrying value, goodwill is tested for impairment and written down to its implied fair value if it is determined to be impaired. The Company performed its annual goodwill impairment test on December 31, 2015 using the step one impairment test comparing the fair value of the entity with its carrying value. Based upon the results, the Company determined that goodwill was not impaired as of December 31, 2015.

The Company considers its trade name to have an indefinite life and in accordance with ASC 350, will not be amortized and will be reviewed annually for impairment.

 

Intangible assets are recorded at cost except for assets acquired in a business combination, which are initially recorded at their estimated fair value. Intangible assets with finite lives include customer relationships and non-compete agreements are amortized on a straight-line basis over the estimated useful lives ranging from 5 to 10 years.

 

The components of intangible assets that are carried at cost less accumulated amortization at December 31, 2015 are as follows:

 

Description   Cost     Accumulated Amortization     Net Amount  
                   
Customer relationships   $ 1,365     $ 535     $ 830  
Proprietary technology     349       136       213  
Non-compete agreements     248       248       -  
Amortized intangible assets     1,962       919       1,043  
Non-Amortized Trade name     741       -       741  
Total   $ 2,703     $ 919     $ 1,784  

 

  48  

 

  

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

The components of intangible assets that are carried at cost less accumulated amortization at December 31, 2014 are as follows:

 

Description   Cost     Accumulated Amortization     Net Amount  
                   
Customer relationships   $ 1,365     $ 398     $ 967  
Proprietary technology     349       102       247  
Non-compete agreements     248       241       7  
Amortized intangible assets     1,962       741       1,221  
Non-Amortized Trade name     741       -       741  
Total   $ 2,703     $ 741     $ 1,962  

 

Amortization is computed utilizing the straight-line method over the estimated useful lives of 10 years for customer relationships, 10 years for proprietary technology, and 3 years for non-compete agreements. Trade name is not amortized as it has an indefinite life. Amortization expense for intangible assets was $178 and $254 for the years ended December 31, 2015 and 2014, respectively. Intangible asset amortization is projected to be approximately $171 per year in 2016, 2017, 2018, 2019 and 2020, respectively.

 

(g) Long-Lived Assets

 

The Company continually monitors events and changes in circumstances that could indicate carrying amounts of the long-lived assets, including intangible assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, an impairment loss is recognized based on the excess of the carrying amount over the fair value of the assets. The Company did not recognize any intangible asset impairment charges in 2015.

 

(h) Derivative Financial Instruments

 

The Company utilizes interest rate swaps at times to manage interest rate exposures. The Company specifically designates interest rate swaps as hedges of debt instruments and recognizes interest differentials as adjustments to interest expense in the period they occur. The Company did not hold an interest rate swap during the years ended December 31, 2015 or 2014. The Company does not hold or issue financial instruments for trading purposes.

 

(i) Treasury Stock

 

Treasury Stock is recorded at cost. Gains and losses on subsequent reissuance are recorded as increases or decreases to additional paid-in capital with losses in excess of previously recorded gains charged directly to retained earnings.  

(j) Significant Risks and Uncertainties

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s significant estimates include stock compensation and reserves related to accounts receivable, inventory and deferred tax assets. Actual results could differ from those estimates.

 

At December 31, 2015, approximately 30% of the Company’s employees were covered by a collective bargaining agreement, that is scheduled to expire in February 2017.

 

The Company’s analog video headend products accounted for approximately 17% and 27% of the Company’s revenues in the years ended December 31, 2015 and 2014, respectively. The Company’s digital video headend products accounted for approximately 45% and 49% of the Company’s revenues in the years ended December 31, 2015 and 2014, respectively. Any substantial decrease in sales of analog video headend products without a related increase in digital video headend products could have a material adverse effect on the Company’s results of operations, financial condition and cash flows.

 

(k) Royalty and License Expense

 

The Company records royalty expense, as applicable, when the related products are sold. Royalty expense is recorded as a component of selling expenses. Royalty expense was $107 and $(64) for the years ended December 31, 2015 and 2014, respectively. The Company amortizes license fees over the life of the relevant contract.

 

  49  

 

  

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

The components of intangible assets consisting of license agreements that are carried at cost less accumulated amortization are as follows:

 

    December 31,  
    2015     2014  
             
License agreements   $ 5,904     $ 5,451  
Accumulated amortization     (5,446 )     (4,806 )
    $ 458     $ 645  

 

Amortization of license fees is computed utilizing the straight-line method over the estimated useful life of 2 years. Amortization expense for license fees was $640 and $701 in the years ended December 31, 2015 and 2014, respectively. Amortization expense for license fees is projected to be approximately $353 and $105 in the years ended December 31, 2016 and 2017, respectively.

 

(l) Foreign Exchange

 

The Company uses the United States dollar as its functional and reporting currency since the majority of the Company’s revenues, expenses, assets and liabilities are in the United States and the focus of the Company’s operations is in that country. Assets and liabilities in foreign currencies are translated using the exchange rate at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the year. Gains and losses from foreign currency transactions and translation for the years ended December 31, 2015 and 2014 and cumulative translation gains and losses as of December 31, 2015 and 2014 were not material.

 

(m) Research and Development

 

Research and development expenditures for the Company’s projects are expensed as incurred.

 

(n) R evenue Recognition

 

The Company records revenues when products are shipped and the amount of revenue is determinable and collection is reasonably assured. Customers do not have a right of return. The Company provides a three year warranty on most products. Warranty expense was de minimis in the two year period ended December 31, 2015.

 

(o) Share Based Payments

 

The Company accounts for share based payments in accordance with ASC Topic 718 “Compensation – Stock Payments” (“ ASC Topic 718 ”). The statement requires companies to expense the value of employee stock options and similar awards. Under ASC Topic 718, share-based payment awards result in a cost that will be measured at fair value on the awards’ grant date based on the estimated number of awards that are expected to vest. Compensation cost for awards that vest will not be reversed if the awards expire without being exercised. Stock compensation expense under ASC Topic 718 was $216 and $245 for the years ended December 31, 2015 and 2014, respectively.

 

The Company estimates the fair value of each stock option grant by using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants: expected lives of 6.5 years; no dividend yield; volatility at 51% and 71%, and risk free interest rate of .25% and 1.58% for 2015 and 2014, respectively. The fair value of unrestricted and restricted stock awards is estimated by the market value of the Company’s common stock at the date of grant.

 

  50  

 

  

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

(p) Income Taxes

 

The Company accounts for income taxes under the provisions of the Financial Accounting Standards Board (“ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 740 “Income Taxes” (“ ASC Topic 740 ”). Deferred income taxes are provided for temporary differences in the recognition of certain income and expenses for financial and tax reporting purposes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

The Company will classify as income tax expense any interest and penalties recognized in accordance with ASC Topic 740. The Company files income tax returns primarily in New Jersey, along with certain other jurisdictions.

 

(q) Earnings (loss) Per Share

 

Earnings (loss) per share are calculated in accordance with ASC Topic 260 “Earnings Per Share,” which provides for the calculation of “basic” and “diluted” earnings (loss) per share. Basic earnings (loss) per share includes no dilution and is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect, in periods in which they have a dilutive effect, the effect of common shares issuable upon exercise of stock options. The diluted share base excludes incremental shares of 1,878 and 910 related to stock options for December 31, 2015 and 2014, respectively. These shares were excluded due to their antidilutive effect.

 

(r) Other Comprehensive(Loss) Income

 

Comprehensive (loss) income is a measure of income which includes both net (loss) income and other comprehensive (loss) income.  Other comprehensive (loss) income results from items deferred from recognition into the statement of operations and principally consists of unrecognized pension losses net of taxes.  Accumulated other comprehensive (loss) income is separately presented on the Company’s consolidated balance sheet as part of stockholders’ equity.

 

(s) Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any additional recognized or non-recognized subsequent events that would require adjustment to or disclosure in the consolidated financial statements.

 

(t) Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“ FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, Leases (Topic 842) . ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

 

In January 2016, the FASB issued ASU 2016-01 (“ ASU 2016-01 ”), Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The standard requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for fiscal years beginning after December 15, 2017. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

  

  51  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes . This standard requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. The standard is effective for interim and annual periods beginning after December 15, 2016, and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. As permitted, the Company elected to early adopt this standard effective December 31, 2015, and applied the standard prospectively. The adoption of this standard did not have a significant impact on the Company’s financial statements, other than the prospective classification of deferred tax liabilities and assets as long-term in accordance with the new presentation requirements. For more information on income taxes, see Note 14 – Income Taxes to the Consolidated Financial Statements included in this Annual Report on Form 10-K.

 

In September 2015, the FASB issued ASU No. 2015-16:  “Business Combinations (Topic 805)”.  This guidance was issued to amend existing guidance related to measurement period adjustments associated with a business combination.  The new standard requires the Company to recognize measurement period adjustments in the reporting period in which the adjustments are determined, including any cumulative charge to earnings in the current period.  The amendment removes the requirement to adjust prior period financial statements for these measurement period adjustments.  The guidance is effective for annual period beginning after December 15, 2015 and early adoption is permitted.  The adoption of this standard will not have a significant impact on the Company’s consolidated financial position and results of operations.

  

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory: Topic 330 (“ ASU 2015-11” ). Topic 330 currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. ASU 2015-11 requires that inventory measured using either the first-in, first-out (FIFO) or average cost method be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Adoption of ASU 2015-11 is required for fiscal reporting periods beginning after December 15, 2016, including interim reporting periods within those fiscal years. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

  

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)," which is the new comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which was issued in August 2015, revised the effective date for this ASU to annual and interim periods beginning on or after December 15, 2017, with early adoption permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in ASU 2014-09. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

 

The FASB, the Emerging Issues Task Force and the SEC have issued certain other accounting standards updates and regulations as of December 31, 2015 that will become effective in subsequent periods; however, management of the Company does not believe that any of those updates would have significantly affected the Company’s financial accounting measures or disclosures had they been in effect during 2015 or 2014, and it does not believe that any of those pronouncements will have a significant impact on the Company’s consolidated financial statements at the time they become effective.

 

  52  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Note 2 – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. During the year ended December 31, 2015, the Company experienced a decline in sales, a reduction in working capital, reported a loss from operations and net cash used in operating activities, in conjunction with liquidity constraints. Furthermore, the Company’s Revolver and Term Loan will expire by their terms on June 1, 2016, unless extended. The above factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

In response to lower than expected sales due to a slowdown in market activities experienced during the fiscal year, the Company implemented a multi-phase cost-reduction program which is expected to reduce annualized expenses by approximately $2,850, including a temporary reduction in certain executive salaries, a decrease in workforce and a decrease in engineering consulting expenses.

 

The Company’s primary sources of liquidity are its existing cash balances, cash generated from operations and amounts available under the Santander Financing and the Subordinated Loan Facility (as such terms are defined in Note 5 below). As of December 31, 2015, the Company had approximately $2,664 outstanding under the Revolver (as defined in Note 5 below) and $423 of additional availability for borrowing under the Revolver. As indicated in Note 5 below, the Subordinated Loan Facility provides the Company with up to $750 of additional liquidity. The Company expects to either obtain an extension of the maturity date or refinance all or part of the Santander indebtedness prior to June 1, 2016. If anticipated operating results are not achieved, and/or sufficient funds are not obtained from the Company’s expected extension or refinancing of the Santander Financing, further reductions in operating expenses may be needed and could have a material adverse effect on the Company’s ability to achieve its intended business objectives.

 

The Company cannot provide any assurance that it will be able to refinance its current debt obligations. If the Company is unable to refinance, it may be required to take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations, which measures may be insufficient to enable the Company to continue as a going concern.

 

Note 3 – Inventories

 

Inventories, net of reserves, are summarized as follows:

 

    December 31,  
    2015     2014  
Raw materials   $ 4,820     $ 5,151  
Work in process     1,732       3,045  
Finished goods     4,913       5,487  
      11,465       13,683  
Less current inventory     (5,595 )     (9,257 )
      5,870       4,426  
Less reserve for slow moving and excess inventory     (4,426 )     (2,798 )
    $ 1,444     $ 1,628  

 

  53  

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Note 4 – Property, Plant and Equipment

 

Property, plant and equipment are summarized as follows:

 

    December 31,  
    2015     2014  
Land   $ 1,000     $ 1,000  
Building     3,361       3,361  
Machinery and equipment     10,443       10,327  
Furniture and fixtures     432       432  
Office equipment     2,304       2,261  
Building improvements     1,414       1,414  
      18,954       18,795  
Less:  Accumulated depreciation and amortization     (15,333 )     (14,872 )
    $ 3,621     $ 3,923  

 

Depreciation expense amounted to approximately $490 and $460 during the years ended December 31, 2015 and 2014, respectively.

 

Note 5 – Debt

 

On March 28, 2016 the Company and RLD, as borrowers and Robert J. Pallé, as agent (in such capacity “ Agent ”) and as a lender, together with Carol M. Pallé, Steven Shea and James H. Williams as lenders (collectively, the “ Subordinated Lenders ”) entered into a certain Amended and Restated Senior Subordinated Convertible Loan and Security Agreement (the “ Subordinated Loan Agreement ”), pursuant to which the Subordinated Lenders agreed to provide the Company with a delayed draw term loan facility of up to $750 (“ Subordinated Loan Facility ”), under which individual advances in amounts not less than $50 may be drawn by the Company. Interest on the outstanding balance under the Subordinated Loan Facility from time to time, accrues at 12% per annum (subject to increase under certain circumstances) and is payable monthly in-kind by the automatic increase of the principal amount of the loan on each monthly interest payment date, by the amount of the accrued interest payable at that time (“ PIK Interest ”); provided, however, that at the option of the Company, it may pay interest in cash on any interest payment date, in lieu of PIK Interest. The Subordinated Lenders have the option of converting the principal balance of the loan, in whole (unless otherwise agreed by the Company), into shares of the Company’s common stock at a conversion price of $0.54 per share (subject to adjustment under certain circumstances). This conversion right is subject to any necessary stockholder approval required by the rules of the NYSE MKT, and the Company has agreed to submit a proposal at its 2016 annual meeting to obtain stockholder approval. The obligations of the Company and RLD under the Subordinated Loan Agreement are secured by substantially all of the Company’s and RLD’s assets, including by a mortgage against the Old Bridge Property (the “ Subordinated Mortgage” ). The Subordinated Loan Agreement terminates three years from the date of closing, at which time the accreted principal balance of the loan (by virtue of the PIK Interest) plus any other accrued unpaid interest, will be due and payable in full.

 

In connection with the Subordinated Loan Agreement, the Company, RLD, the Subordinated Lenders and Santander entered into an Amended and Restated Subordination Agreement (the “ Subordination Agreement ”), pursuant to which the rights of the Subordinated Lenders under the Subordinated Loan Agreement and the Subordinated Mortgage are subordinate to the rights of Santander under the Santander Loan Agreement and related security documents. The Subordination Agreement precludes the Company from making cash payments of interest in lieu of PIK Interest, in the absence of the prior written consent of Santander. As of March 30, 2016, the Subordinated Lenders have advanced $300 to the Company.

 

  54  

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

The Subordinated Loan Agreement amended and restated a prior agreement entered into on February 11, 2016 between the Company and RLD, as borrowers and Robert J. Pallé and Carol M. Pallé, as lenders (the “ Prior S ubordinated Loan Agreement ”), pursuant to which Mr. and Mrs. Pallé had agreed to provide the Company with a delayed draw term loan facility of up to $600 on terms substantially similar to those terms set forth in the Subordinated Loan Agreement, including the conversion rights and pledge of Company assets to secure the loan. Aggregate advances under the Prior Subordinated Loan Agreement were $300 and such balances have transferred over to and now constitute outstanding balances under the Subordinated Loan Agreement. The Prior Subordinated Loan Agreement was amended and restated by the Subordinated Loan Agreement in order to increase the amount available for borrowing by the Company in an effort to further enhance the Company’s capital resources and liquidity.

 

On August 6, 2008, the Company entered into a Revolving Credit, Term Loan and Security Agreement with Santander Bank, N.A. (formerly known as Sovereign Bank, N.A.) through its Sovereign Business Capital division (“ Santander ”), pursuant to which the Company obtained an $8,000 credit facility from Santander (the “ Santander Financing ”). The Company and Santander entered into a series of amendments to the foregoing Revolving Credit, Term Loan and Security Agreement (as so amended, the “ Santander Agreement ”), which, among other things, adjusted the Santander Financing to $7,567 consisting of (i) a $4,000 asset-based revolving credit facility (“ Revolver ”) and (ii) a $3,567 term loan facility (“ Term Loan ”), each expiring on June 1, 2016. The amounts which may be borrowed under the Revolver are based on certain percentages of Eligible Receivables and Eligible Inventory, as such terms are defined in the Santander Agreement. The obligations of the Company under the Santander Agreement are secured by substantially all of the assets of the Company and certain of its subsidiaries.

 

Under the Santander Agreement, the Revolver currently bears interest at a rate per annum equal to the prime lending rate announced from time to time by Santander (“Prime”) plus 1.50% or the LIBOR rate plus 4.25%. The Term Loan currently bears interest at a rate per annum equal to Prime plus 1.75% or the LIBOR rate plus 4.50%. Prime was 3.50% at December 31, 2015. LIBOR rate loans under the Santander Agreement may be borrowed for interest periods of one, three or six months. The LIBOR rates for interest periods of one-month, three-months and six-months were 0.43%, 0.62% and 0.87%, respectively, at December 31, 2015.

 

On March 1, 2016, the Company entered into the Fourteenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Fourteenth Amendment ”) to amend the Santander Financing. The Fourteenth Amendment extended the termination date of the Santander Agreement and the “Additional Availability Period” under the Santander Agreement from March 1, 2016 to June 1, 2016. In addition, the Fourteenth Amendment amends certain of the Company’s financial covenants. In particular, the amended covenants relaxed the previous balance sheet leverage ratio compliance threshold of 1.25:1.00, and will now require that the Company maintain a balance sheet leverage ratio of not more than (i) 1.85 to 1.00 as of December 31, 2015 and (ii) 2.00 to 1.00 as of March 31, 2016. In addition, the amended covenants relaxed the previous EBITDA compliance threshold and will now require that the Company achieve EBITDA thresholds of not less than (i) negative (-) $3,897 as of December 31, 2015 (calculated on a trailing twelve month basis) and (ii) $50 as of March 31, 2016 (calculated on a trailing three month basis). The Fourteenth Amendment also requires that the Subordinated Lenders provide the Company with advances under the Subordinated Loan Facility in an aggregate amount (taking into account all prior advances) of $500, not later than March 31, 2016. The Company is currently in compliance with the covenants provided in the Fourteenth Amendment.

 

On February 1, 2016, the Company entered into the Thirteenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Thirteenth Amendment ”) to amend the Santander Financing. The Thirteenth Amendment extended the termination date of the Santander Agreement and the “Additional Availability Period” under the Santander Agreement from February 1, 2016 to March 1, 2016. In addition, the Thirteenth Amendment reduced the maximum loan amount available under the Loan Agreement from $9,350 to $8,350 and reduced the maximum amount available for borrowing under the Revolver from $5,000 to $4,000.

 

  55  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

On December 16, 2015, the Company entered into the Twelfth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Twelfth Amendment ”) to amend certain terms of the Santander Agreement to facilitate the Company’s ability to obtain additional capital through the issuance of equity or subordinated debt securities or the entry into subordinated loan arrangements following the date of the Twelfth Amendment. In particular, the Twelfth Amendment modified terms of the Santander Agreement that had restricted the incurrence of indebtedness and the creation of liens, to allow the Company to incur indebtedness that is subordinate to the indebtedness under the Santander Agreement and to permit that indebtedness to be secured, provided that any security would also be subordinate to the obligations and liens under the Santander Agreement. In addition, the Twelfth Amendment modified the restrictions on the Company’s ability to enter into transactions with its affiliates to permit the issuance of equity or subordinated debt securities to one or more affiliates or the entry into subordinated loan arrangements with one or more affiliates. The Twelfth Amendment also excluded the proceeds of any permitted equity or debt financing from the collateral subject to Santander’s lien under the Santander Agreement, until such time as and to the extent, such proceeds were utilized for the Company’s working capital or other general corporate purposes.

 

On November 14, 2015, the Company entered into the Eleventh Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Eleventh Amendment ”) to amend the Santander Financing. The Eleventh Amendment (i) waived the Company’s failure of compliance with the Minimum EBITDA and leverage ratio covenants for the measurement period ended September 30, 2015, effective as of September 30, 2015, and (ii) increased the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until February 1, 2016, after which it was to revert back to 25%. The Eleventh Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Eleventh Amendment, the Company paid Santander an amendment fee of $50.

 

On October 14, 2015, the Company entered into the Tenth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Tenth Amendment ”) to amend the Santander Financing. The Tenth Amendment extended the increase in the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until November 30, 2015, after which it was to revert back to 25%. The Tenth Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Tenth Amendment, the Company paid Santander an amendment fee of $5.

 

On August 12, 2015, the Company entered into the Ninth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Ninth Amendment ”) to amend the Santander Financing. The Ninth Amendment waived the Company’s failure of compliance with the Minimum EBITDA covenant for the measurement period ended June 30, 2015, effective as of June 30, 2015, and also contained other customary representations, covenants, terms and conditions. In connection with the Ninth Amendment, the Company paid Santander an amendment fee of $20.

 

On May 14, 2015, the Company entered into the Eighth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Eighth Amendment ”) to amend the Santander Financing. The Eighth Amendment (i) waived the Company’s failure of compliance with the Minimum EBITDA covenant for the three-month period ended March 31, 2015, effective as of March 31, 2015, and (ii) increased the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 25% to 35% through and until September 30, 2015, after which it was to revert back to 25%. The Eighth Amendment also contained other customary representations, covenants, terms and conditions. In connection with the Eighth Amendment, the Company paid Santander an amendment fee of $15. The Eighth Amendment was in lieu of the Temporary Overadvance Facility, as more fully discussed in the next paragraph.

 

On March 30, 2015, Santander agreed to provide the Company with $500 of additional availability beyond its borrowing base under the Revolver (the “ Temporary Overadvance Facility ”) during the period April 1, 2015 through April 24, 2015, for which the Company paid Santander an accommodation fee of $2.5. Under the agreement, the Company was required to eliminate the outstanding balance under the Temporary Overadvance Facility on or before September 30, 2015, which was accomplished prior to entering into the Eight Amendment.

 

  56  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

On January 21, 2015, the Company entered into the Seventh Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Seventh Amendment ”) to amend the Santander Financing. The Seventh Amendment (i) extended by one year the Termination Date of the Santander Agreement from February 1, 2015 to February 1, 2016; (ii) continued the installment payments of principal under the Term Loan at the same monthly payment of $18 per month for the additional year until the final payment of unpaid principal and interest is due on February 1, 2016; (iii) increased the interest rates applicable to the Revolver and the Term Loan by one quarter of one percent (0.25%); and (iv) reset and modified the Minimum EBITDA covenant to address the term being extended by one year. The Seventh Amendment also contained other customary representations, covenants, terms and conditions. The Company paid a $15 amendment fee to Santander in connection with the Seventh Amendment.

 

On March 28, 2014, the Company entered into the Sixth Amendment to Revolving Credit, Term Loan and Security Agreement with Santander (the “ Sixth Amendment ”) to amend the Santander Financing. The Sixth Amendment (i) reduced the maximum amount available for borrowing under the Revolver from $6,000 to $5,000, (ii) increased the interest rates applicable to the Revolver and the Term Loan by three quarters of one percent, (iii) modified the Company’s fixed charge coverage ratio covenant to eliminate the testing thereof with respect to the trailing 12-month period ended as of December 31, 2013, (iv) eliminated the fixed charge coverage ratio covenant with respect to all periods after December 31, 2013, (v) modified the minimum EBITDA covenant to (a) eliminate the testing thereof with respect to the fiscal year ended December 31, 2013, (b) change the manner of calculation thereof, and (c) imposed a quarterly building minimum EBITDA covenant test, commencing with the fiscal quarter ended on March 31, 2014, and thereafter for the two fiscal quarters ending June 30, 2014, the three fiscal quarters ending September 30, 2014, the four fiscal quarters ending December 31, 2014 and thereafter quarterly on a trailing four fiscal quarter basis, (vi) reduced the advance rate applicable to Eligible Inventory (as defined in the Santander Agreement) from 50% to 35%, with a further reduction in such advance rate to 25% effective on or about June 27, 2014 and (vii) reduced the sublimit on advances against such Eligible Inventory from $3,000 to $2,000. In connection with the Sixth Amendment, the Company paid Santander an amendment fee of $45.

 

Upon termination of the Revolver, all outstanding borrowings under the Revolver are due. The outstanding principal balance of the Revolver was $2,664 and $1,269 at December 31, 2015 and 2014, respectively. The Term Loan requires equal monthly principal payments of approximately $18 each, plus interest, with the remaining balance due at maturity. The outstanding principal balance of the Term Loan was $3,567 and $3,783 at December 31, 2015 and 2014, respectively.

 

The Santander Agreement contains customary representations and warranties as well as affirmative and negative covenants, including certain financial covenants. The Santander Agreement contains customary events of default, including, among others, non-payment of principal, interest or other amounts when due.

 

The fair value of the debt approximates the recorded value based on the borrowing rates currently available to the Company for loans with similar terms and maturities, as evidenced by the Santander Agreement.

 

Long-term debt consists of the following:

 

    December 31,  
    2015     2014  
Term loan   $ 3,567     $ 3,783  
Subordinated Loan Facility     100       -  
Capital leases (Note 6)     47       110  
      3,714       3,893  
Less:  Current portion     (3,604 )     (286 )
    $ 110     $ 3,607  

 

Annual maturities of long term debt at December 31, 2015 are $3,604 in 2016, $10 in 2017, and $100 in 2018.

 

Note 6 – Commitments and Contingencies

 

Leases

 

The Company leases certain real estate, factory, office and automotive equipment under non-cancellable operating leases and equipment under capital leases expiring at various dates through October, 2021.

 

  57  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Future minimum rental payments, required for all non-cancellable leases are as follows:

 

    Capital     Operating  
2016   $ 38     $ 136  
2017     9       125  
2018     2       107  
2019     -       88  
2020     -       66  
Thereafter     -       43  
Total future minimum lease payments     49     $ 565  
Less:  amounts representing interest     (2 )        
Present value of minimum lease payments   $ 47          

 

Property, plant and equipment included capitalized leases of $307 at December 31, 2015 and 2014, less accumulated amortization of $225 and $225 at December 31, 2015 and 2014, respectively.

 

Rent expense was $146 and $91 for the years ended December 31, 2015 and 2014, respectively.

 

Litigation

 

The Company is a party to certain proceedings incidental to the ordinary course of its business, none of which, in the current opinion of management, is likely to have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

In addition, on June 19, 2012, K Tech Telecommunications, Inc. (“ K Tech ”) filed a patent infringement complaint against the Company and RLD in the U.S. District Court for the Central District of California (the “ District Court ”), captioned as K Tech v. Blonder Tongue Laboratories, Inc. and R.L. Drake Holdings, LLC , CV12-05316 (the “ Litigation ”). K Tech subsequently filed an amended complaint to add Seller as an additional defendant. The Litigation alleged that the Company and RLD infringe one or more claims of U.S. Patent Nos. 6,785,903, 7,487,533, 7,761,893, and 7,984,469 (the “ K Tech Patents ”) and sought (a) a finding of patent infringement; (b) an injunction against the Company and RLD from further alleged infringement; (c) an award of actual damage suffered by K Tech; and (d) an award of costs relating to the Litigation. The Litigation complaint alleged that Company products DQMx-01, DQMx-02, DQMx-03, DQMx-04, DQMx-10, DQMx-11, DQMx-12, DQMx-13, DQMx-20, DQMx-21, DQMx-22, DQMx-30, DQMx-31, DQMx-40, and MUX-2D-QAM infringe one or more of the K Tech Patents, and alleges that RLD products MQM6000l, MQM10000, DQT1000, and MEQ1000 infringe one or more of the K Tech Patents. All of the aforementioned products are part of the Company’s digital headend product category. On August 29, 2013, the District Court ruled in the Company’s and RLD’s favor on their motion for summary judgment. In particular, the District Court held that three of K Tech’s patents relating to systems and methods for updating the channel information contained in digital television signals, U.S. Patent Nos. 6,785,903, 7,481,533 and 7,761,893 (the “ Specified Patents ”), were invalid because they were rendered obvious by prior art. The District Court agreed with the Company’s and RLD’s argument that all of the patent claims K Tech had asserted under the Specified Patents were invalid by reason of the prior art of, among others, Zenith Electronics Corporation and DiviCom, Inc. (both of which companies had offered for sale products capable of modifying PSIP data prior to the date of K Tech’s earliest patent priority date of April 5, 2000).

 

K Tech appealed the District Court’s ruling to the U.S. Court of Appeals for the Federal Circuit. On April 16, 2014, the U.S. Court of Appeals for the Federal Circuit affirmed the District Court’s ruling.

 

  58  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Note 7 – Benefit Plans

 

Defined Contribution Plan

 

The Company has a defined contribution plan covering all full time employees qualified under Section 401(k) of the Internal Revenue Code, in which the Company matches a portion of an employee’s salary deferral. The Company’s contributions to this plan were $190 and $218, for the years ended December 31, 2015 and 2014, respectively.

 

Defined Benefit Pension Plan

 

Substantially all union employees who met certain requirements of age, length of service and hours worked per year were covered by a Company sponsored non-contributory defined benefit pension plan. Benefits paid to retirees are based upon age at retirement and years of credited service.

 

On August 1, 2006, the plan was frozen. The defined benefit pension plan is closed to new entrants and existing participants do not accrue any additional benefits. The Company complies with minimum funding requirements. The total expense (credit) for this plan was $(20) in 2015 and $(11) in 2014, respectively.

 

The Company recognizes the funded status of its defined benefit pension plan measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the Consolidated Balance Sheets. As of December 31, 2015 and 2014, the funded status related to the defined benefit pension plan was underfunded by $54 and $260, respectively, and is recorded in current liabilities.

 

Note 8 – Related Party Transactions

 

On March 28, 2016, the Company’s current Chief Executive Officer and his wife, together with two of the Company’s independent directors, as lenders, and the Company and R.L. Drake Holdings, LLC (“ RLD ”), as borrowers, entered into the Subordinated Loan Agreement (which superseded and replaced the Prior Subordinated Loan Agreement), pursuant to which they agreed to provide the Company with the Subordinated Loan Facility in an amount up to $750, all as more fully described in Note 5, above.

 

On February 11, 2016, the Company’s current Chief Executive Officer and his wife, as lenders, and the Company and R.L. Drake Holdings, LLC (“ RLD ”), as borrowers, entered into the Prior Subordinated Loan Agreement, pursuant to which they agreed to provide the Company with a subordinated loan facility of up to $600, all as more fully described in Note 5, above.

 

As of December 31, 2015 and 2014, the former Chief Executive Officer (who resigned on March 26, 2015) was no longer indebted to the Company. Indebtedness had arisen from a series of cash advances, the latest of which was advanced in February 2002. Payments on this indebtedness ceased in November 2008 when the Chief Executive Officer filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code and the indebtedness became subject to the automatic stay provisions of the United States Bankruptcy Code. On July 29, 2009 a plan of reorganization in connection with the Chief Executive Officer’s bankruptcy case was confirmed by the United States Bankruptcy Court for the District of New Jersey.

 

Under the confirmed plan of reorganization, the Chief Executive Officer was obligated to pay a pro-rata share, with all other unsecured pre-petition obligations, of the excess, if any, of his disposable income after the payment of all administrative claims and other expenses. However, because the Chief Executive Officer did not have any excess disposable income, no distributions pursuant to the plan of reorganization were made to the Company or other similarly situated unsecured creditors. The Chief Executive Officer completed his plan of reorganization, and he received his discharge in bankruptcy in October 2014, relieving him from any further obligation to the Company or other unsecured creditors with regard to his pre-petition obligations. As a result of this discharge, the Company wrote off this indebtedness in the quarter ended December 31, 2014. From May 2010 through December 31, 2014, the Chief Executive Officer made elective payments to the Company, aggregating $30, against the indebtedness.

 

Note 9 – Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash deposits and trade accounts receivable.

 

  59  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

The Company maintains cash balances at several banks located in the northeastern United States of which, at times, may exceed insurance limits and expose the Company to credit risk. As part of its cash management process, the Company periodically reviews the relative credit standing of these banks.

 

Credit risk with respect to trade accounts receivable was concentrated with two of the Company’s customers in both 2015 and 2014, respectively. These customers accounted for approximately 38% and 49% of the Company’s outstanding trade accounts receivable at December 31, 2015 and 2014, respectively. The Company performs ongoing credit evaluations of its customers’ financial condition, uses credit insurance and requires collateral, such as letters of credit, to mitigate its credit risk. The deterioration of the financial condition of one or more of its major customers could adversely impact the Company’s operations. From time to time where the Company determines that circumstances warrant, such as when a customer agrees to commit to a large blanket purchase order, the Company extends payment terms beyond its standard payment terms.

 

The Company’s largest customer accounted for approximately 16% of the Company’s sales in each of the years ended December 31, 2015 and 2014, respectively. This customer accounted for approximately 16% and 26% of the Company’s outstanding trade accounts receivable at December 31, 2015 and 2014, respectively. A second customer accounted for approximately 11% of the Company’s sales in the year ended December 31, 2015. A third customer accounted for approximately 10% of the Company’s sales in the year ended December 31, 2015. A fourth customer accounted for approximately 16% of the Company’s sales in the year ended December 31, 2014. A fifth customer accounted for approximately 12% of the Company’s sales in the year ended December 31, 2014. A sixth customer accounted for approximately 26% and 23% of the Company’s trade accounts receivable at December 31, 2015 and 2014, respectively. The Company had sales outside the United States of approximately 3% and 4% in each of years ended December 31, 2015 and 2014, respectively.

 

Note 10 – Stock Repurchase Program

 

On July 24, 2002, the Company commenced a stock repurchase program to acquire up to $300 of its outstanding common stock (the “ 2002 Program ”). The stock repurchase was funded by a combination of the Company’s cash on hand and borrowings against its revolving line of credit. On February 13, 2007, the Company announced a new stock repurchase program to acquire up to an additional 100 shares of its outstanding common stock (the “ 2007 Program ”). As of December 31, 2014, the Company can purchase up to $72 of its common stock under the 2002 Program and up to 100 shares of its common stock under the 2007 Program. The Company may, in its discretion, continue making purchases under the 2002 Program up to its limits, and thereafter to make purchases under the 2007 Program. During 2015 and 2014, the Company did not purchase any of its Common Stock under the 2002 Program or 2007 Program.

 

Note 11 – Executive Stock Purchase Plan

 

On June 16, 2014, the Company’s Board of Directors adopted the Executive Stock Purchase Plan (the “ Plan ”). The Plan allows executive officers of the Company to elect to purchase common stock of the Company in lieu of receiving a portion of their salary. The maximum number of shares of common stock that can be purchased by all participants, in the aggregate, pursuant to the Plan is 250 shares. The shares will be purchased directly from the Company at the fair market value of the Company’s common stock on the date of purchase (based on selling prices reported on NYSE MKT), which is the payroll date when the salary is withheld. As of December 31, 2015, approximately 13 shares were purchased under the Plan.

 

Note 12 – Preferred Stock

 

The Company is authorized to issue 5,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors. At December 31, 2014 and 2013, there were no outstanding preferred shares.

 

Note 13 – Stock Option Plans

 

In May 2005, the stockholders of the Company approved the 2005 Employee Equity Incentive Plan (the “ Employee Plan ”), which initially authorized the Compensation Committee of the Board of Directors (the “ Committee ”) to grant a maximum of 500 shares of equity based and other performance based awards to executive officers and other key employees of the Company. In May 2007, the stockholders of the Company approved an amendment to the Employee Plan to increase the maximum number of equity based and other performance awards to 1,100. In May 2010, the stockholders of the Company approved an amendment to the Employee Plan to increase the maximum number of equity based and other performance awards to 1,600. In May 2014, the stockholders of the Company approved the amendment and restatement of the Employee Plan to extend the term of the Employee Plan to February 7, 2024 and increase the maximum number of equity based and other performance awards to 2,600. The Committee determines the recipients and the terms of the awards granted under the Employee Plan, including the type of awards, exercise price, number of shares subject to the award and the exercisability thereof.

 

In May 2005, the stockholders of the Company approved the 2005 Director Equity Incentive Plan (the “ Director Plan ”). The Director Plan authorizes the Board of Directors (the “ Board ”) to grant a maximum of 200 shares of equity based and other performance based awards to non-employee directors of the Company. In May 2010, the stockholders of the Company approved an amendment to the Director Plan to increase the maximum number of equity based and other performance awards to 400. In May 2014, the stockholders of the Company approved the amendment and restatement of the Director Plan to extend the term of the Director Plan to February 7, 2024 and increase the maximum number of equity based and other performance awards to 600. The Board determines the recipients and the terms of the awards granted under the Director Plan, including the type of awards, exercise price, number of shares subject to the award and the exercisability thereof.

 

  60  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

The following tables summarize information about stock options outstanding for the years ended December 31, 2015 and 2014:

 

    2005
Employee
Plan (#)
    Weighted-
Average
Exercise
Price ($)
    2005
Director
Plan (#)
    Weighted-
Average
Exercise
Price ($)
 
Shares under option:                                
Options outstanding at January 1, 2014     1,482       1.56       299       1.34  
Granted     325       0.94       50       0.88  
Exercised     (34 )     1.20       -       -  
Forfeited     (83 )     1.62       -       -  
Options outstanding at December 31, 2014     1,690       1.70       349       1.27  
Granted     250       0.40       59       0.95  
Exercised     -       -       -       -  
Forfeited     (476 )     1.20       -       -  
Options outstanding at December 31, 2015     1,464       1.33       408       1.22  
Options exercisable at December 31, 2015     1,044       1.49       349       1.27  
Weighted-average fair value of options granted during:                                
2015   $ 0.02             $ 0.02          
2014   $ 0.72             $ 0.72          

 

Total options available for grant were 852 and 1,161 at December 31, 2015 and December 31, 2014, respectively.

 

    Options Outstanding           Options Exercisable  
Range of Exercise
Prices ($)
  Number of
Options
Outstanding
at 12/31/15
    Weighted-
Average
Remaining
Contractual
Life in Years
    Weighted-
Average
Exercise Price
($)
    Number
Exercisable
at 12/31/15
    Weighted-
Average
Exercise Price
($)
 
                               
2005 Employee Plan: 0.40 to 3.84     1,464       5.3       1.33       1,044       1.49  
                                         
2005 Director Plan:  0.76 to 1.98     408       5.7       1.22       349       1.27  

 

The exercisable options under each of the Plans at December 31, 2015 had an intrinsic value of $14.

 

Restricted stock issued to employees and directors during the years ended December 31, 2015 and 2014, respectively is as follows:

 

    December 31, 2015     December 31, 2014  
    Number of
shares
    Weighted-
Average Grant
Date Fair Value
per Share
    Number of
shares
    Weighted-
Average
Grant Date
Fair Value
per Share
 
                         
Non-vested, beginning of period     -       -       -       -  
                                 
Granted     502       0.58       -       -  
                                 
Vested     180       0.40       -       -  
                                 
Non-vested, end of period     322       0.68       -       -  

 

  61  

 

 

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

In August 2012, the Company issued a warrant to purchase 100 shares of common stock of the Company to Adaptive Micro-Ware, Inc., an Indiana corporation (“ AMW ”). The warrant was granted as partial consideration in connection with a commercial licensing and manufacturing agreement between the Company and AMW. The warrant is exercisable at $1.09 per share, and the warrant vested one-third (1/3) on May 23, 2013, one-third (1/3) on May 23, 2014 and one-third (1/3) on May 23, 2015. The fair value of the warrant was not deemed to be material.

 

Note 14 – Income Taxes

 

The following summarizes the provision (benefit) for income taxes:

 

    2015     2014  
Current:                
Federal     -       -  
State and local     12       -  
    $ 12     $ -  
Deferred:                
Federal     (2,023 )     (62 )
State and local     (288 )     216  
      (2,311 )     154  
Valuation allowance     2,345       (123 )
Provision for income taxes   $ 46     $ 31  

 

The provision (benefit) for income taxes differs from the amounts computed by applying the applicable Federal statutory rates due to the following:

 

    2015     2014  
Provision (benefit) for Federal income taxes at the statutory rate   $ (2,286 )   $ (296 )
State and local income taxes, net of Federal benefit     (379 )     (28 )
Permanent differences:                
Stock compensation     73       83  
Other     23       23  
Net operating loss true up     -       209  
Change in valuation allowance     2,345       (123 )
Other     270       163  
Provision (benefit) for income taxes   $ 46     $ 31  

 

  62  

 

  

BLONDER TONGUE LABORATORIES, INC.

AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

    December 31,  
    2015     2014  
Deferred tax assets:                
Allowance for doubtful accounts   $ 95     $ 71  
Inventories     2,161       1,609  
Intangible     162       144  
Net operating loss carry forward     9,227       7,477  
Other     2       2  
Total deferred tax assets     11,647       9,303  
Deferred tax liabilities:                
Depreciation     (91 )     (94 )
Intangible     (8 )     (6 )
Indefinite life intangibles     (129 )     (95 )
Total deferred tax liabilities     (228 )     (195 )
      11,419       9,108  
Valuation allowance     (11,548 )     (9,203 )
Net   $ (129 )   $ (95 )

 

For the years ended December 31, 2015, the Company had approximately $24,985 and $12,316 of federal and state net operating loss carryovers (“ NOL "), respectively, which begin to expire in 2024.

 

The change in the valuation allowance for the years ended December 31, 2015 and December 31, 2014 was $2,345 and $(123), respectively.

 

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. The deferred tax liability related to indefinite life intangible assets cannot be used in this determination. Therefore, the deferred tax liability related to indefinite life intangibles acquired in 2012 cannot be considered when determining the ultimate realization of deferred tax assets. The decision to record this valuation allowance was based on management evaluating all positive and negative evidence. The significant negative evidence includes a loss for the current year, a cumulative pre-tax loss for the three years ended December 31, 2015, the inability to carryback the net operating losses, limited future reversals of existing temporary differences and the limited availability of tax planning strategies. The Company expects to continue to provide a full valuation allowance until, or unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets.

 

The Company had no change in its liability for uncertain tax position during 2015 and no liabilities for uncertain tax positions as of December 31, 2015. ASC 740 discusses the classification of related interest and penalties on income taxes. The Company’s policy is to record interest and penalties incurred in connection with income taxes as a component of income tax expense. No interest or penalties were recorded during the years ended December 31, 2015 and 2014.

 

The Company is required to file U.S. federal and state income tax returns. These returns are subject to audit by tax authorities beginning with the year ended December 31, 2012.

 

  63  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BLONDER TONGUE LABORATORIES, INC.  
     
     
Date: March 30, 2016 By:  /s/ Robert J. Pallé  
    Robert J. Pallé
Chief Executive Officer
 
       
       
  By: /s/ Eric Skolnik  
    Eric Skolnik
Chief Financial Officer
 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Robert J. PallÉ   Director, Chief Executive Officer, President   March 30, 2016
Robert J. Pallé   and Secretary (Principal Executive Officer)    
         
/s/ Eric Skolnik   Senior Vice President and Chief Financial Officer   March 30, 2016
Eric Skolnik   (Principal Financial Officer and Principal    
    Accounting Officer)    
         
/s/ Anthony Bruno   Director   March 30, 2016
Anthony Bruno        
         
/s/ James F. Williams   Director   March 30, 2016
James F. Williams        
         
/s/ Charles E. Dietz   Director   March 30, 2016
Charles E. Dietz        
         
/s/ Gary P. Scharmett   Director   March 30, 2016
Gary P. Scharmett        
         
/s/ Steven L. Shea   Director   March 30, 2016
Steven L. Shea        
         
/s/ James H. Williams   Director   March 30, 2016
James H. Williams        

 

  64  

 

 

Exhibit 10.37

 

Execution Copy

 

Amended and Restated SENIOR SUBORDINATED CONVERTIBLE
LOAN AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED SENIOR SUBORDINATED CONVERTIBLE LOAN AND SECURITY AGREEMENT (this “ Agreement ”) is made and entered into as of the 28 th day of March, 2016 by and between Blonder Tongue Laboratories, Inc., a Delaware corporation (the “ Company ”), R.L. Drake Holdings, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“ Drake ” and, collectively with the Company, “ Borrower ”), Robert J. Pallé (“ RJP ”) and Carol M. Pallé (collectively, “ Initial Lenders ”), Steven L. Shea, and James H. Williams, and such other Persons who may from time to time become party hereto as lenders (collectively, the “ Supplemental Lenders ”; and together with the Initial Lenders, collectively, the “ Lenders ”), and Robert J. Pallé, as Agent for the Lenders (in such capacity, the “ Agent ”).

 

BACKGROUND

 

A.           Borrower and Initial Lenders are party to that certain Senior Subordinated Convertible Loan and Security Agreement dated as of February 11, 2016 (the “ Existing Agreement ”).

 

B.           The Parties hereto desire to make certain modifications to the credit accommodations provided under the Existing Agreement, including an increase in the Term Loan facility currently provided for under the Existing Agreement and the appointment of RJP as Agent for the benefit of all Lenders, and in furtherance thereof, desire to amend and restate the Existing Agreement and memorialize their further agreements all as more particularly set forth herein.

 

C.           It is the intention of the parties hereto that the execution and delivery of this Agreement shall not (except as specifically set forth herein) impair, modify, or otherwise abrogate any of the rights and obligations of any party to any of the other Loan Documents and references to the “Agreement” contained in any of the other Loan Documents shall mean and refer to the Existing Agreement as amended and restated by this Agreement and all obligations of Borrower to Initial Lenders as of the date hereof shall mean and refer to and constitute obligations of Borrower to Lenders hereunder and to Agent, for the benefit of all Lenders, including, without limitation, the Initial Advance of $200,000 made to Borrower by Initial Lenders under the Existing Agreement which, as more particularly set forth in Section 2.1 hereof, shall constitute a portion of the Tranche A Term Loan hereunder.

 

D.           Capitalized terms used herein will have the meanings set forth therefor in Section 1 of this Agreement.

 

NOW, THEREFORE, in consideration of the terms and conditions contained herein, and of any extensions of credit now or hereafter made to or for the benefit of Borrower by Lender, the parties hereto, intending to be legally bound hereby, agree as follows:

 

1.          DEFINITIONS .

 

1.1            Defined Terms . The following words and phrases as used in capitalized form in this Agreement, whether in the singular or plural, shall have the meanings indicated:

 

(a)           Accreted Principal Amount means, at any time, the outstanding principal amount of the Term Loan, including the aggregate amount of all Advances as well as all PIK Interest added thereto.

 

(b)           Additional Shares of Common Stock shall be as defined in Section 4.4(e)(ii) .

 

(c)           Advance means any extension of credit by Lenders (or any of them) to Borrower under Section 2.1 of this Agreement.

 

(d)           Advance Request shall be as defined in Section 2.3 .

 

 

 

 

(e)           Affiliate as to any Person, means (i) each other Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person in question and (ii) any person who is an officer, director, member, manager or partner of (A) such Person, (B) any Subsidiary of such Person, or (C) any Person described in the preceding clause (i) .

 

(f)           Agent means RJP, in his capacity as Agent hereunder for Initial Lenders and the other Lenders.

 

(g)          “ Aggregate Tranche A Commitments ” means, at any time, the combined Tranche A Commitments of all Tranche A Lenders, all as more particularly set forth on Schedule 1.1 hereof.

 

(h)          “ Aggregate Tranche B Commitments ” means, at any time, the combined Tranche B Commitments of all Tranche B Lenders, all as more particularly set forth on Schedule 1.1 hereof.

 

(i)          “ Aggregate Tranche C Commitments ” means, at any time, the combined Tranche C Commitments of all Tranche C Lenders, all as more particularly set forth on Schedule 1.1 hereof.

 

(j)           Basic Interest Rate shall be as defined in Section 3.1 .

 

(k)           Borrower means the Company and Drake, both individually and collectively (as applicable), and shall include all permitted successors and assigns of such Persons.

 

(l)           Business Day means any day except a Saturday, Sunday or other day on which money center commercial banks located in New York, New York are authorized by law to close.

 

(m)           Cash Interest shall be as defined in Section 4.1 .

 

(n)           Collateral shall be as defined in Section 5.3 .

 

(o)          “ Commitment ” means, as to each Lender as of any date of determination, such Lender’s Tranche A Commitment, Tranche B Commitment or Tranche C Commitment.

 

(p)           Commitment Percentage means, as to each Lender, a fractional amount expressed as a percentage, the numerator of which is the amount of such Lender’s Commitment and the denominator of which is the aggregate Commitments of all Lenders.

 

(q)           Commitments ” means, at any time, the sum of, the Aggregate Tranche A Commitments, the Aggregate Tranche B Commitments and the Aggregate Tranche C Commitments. As of the date hereof, the aggregate Commitments are $750,000.

 

(r)           Common Stock shall be as defined in Section 4.4(a) .

 

(s)           Company shall have the meaning given such term in the introductory paragraph of this Agreement and shall include all permitted successors and assigns of such Person.

 

(t)           Contingent Convertible Portion shall be as defined in Section 4.4(b).

 

(u)           Contract Period means the period of time commencing on the date hereof and continuing through and including the Final Maturity Date, subject to acceleration as provided herein following any Event of Default.

 

(v)          Conversion Date shall be as defined in Section 4.4(a) .

 

(w)           Corporation means a corporation, partnership, limited liability company, trust, unincorporated organization, association, joint stock company or joint venture.

 

  - 2 -  

 

 

(x)           Default means any event which with the giving of notice, passage of time or both, could constitute an Event of Default.

 

(y)           Drake shall have the meaning given such term in the introductory paragraph of this Agreement and shall include all permitted successors and assigns of such Person.

 

(z)          “ Effective Date ” means the date that Agent receives an original (or faxed or electronic copy) of (i) this Agreement, duly authorized, executed and delivered by Borrower, Agent and Lenders; (ii) the Mortgage; (iii) the Subordination Agreement; and (iv) a UCC-3 Amendment naming Agent as the secured party with respect to any UCC heretofore filed by the Initial Lenders, and such date shall be the date set forth on the first page of this Agreement.

 

(aa)          Effective Price shall be as defined in Section 4.4(e)(ii).

 

(bb)          Event of Default means each of the events specified in Section 9.1 .

 

(cc)         “ Existing Obligations ” shall mean all “Obligations” owing by Borrower under, and as such quoted term is defined in, the Existing Agreement immediately prior to the effectiveness of this Agreement.

 

(dd)          Final Maturity Date shall be as defined in Section 4.2 .

 

(ee)          GAAP means generally accepted accounting principles in the United States of America, in effect from time to time, consistently applied and maintained.

 

(ff)          IL Conversion Price shall mean $0.54 per share of Common Stock, subject to adjustment as contemplated by Section 4.4(e) .

 

(gg)          Indebtedness , as applied to a Person, means:

 

(i)          all items (except items of capital stock or of surplus) which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined;

 

(ii)         to the extent not included in the foregoing, all indebtedness, obligations, and liabilities secured by any mortgage, pledge, lien, conditional sale or other title retention agreement or other security interest to which any property or asset owned or held by such Person is subject, whether or not the indebtedness, obligations or liabilities secured thereby shall have been assumed by such Person; and

 

(iii)        to the extent not included in the foregoing, all indebtedness, obligations and liabilities of others which such Person has directly or indirectly guaranteed, endorsed (other than for collection or deposit in the ordinary course of business), sold with recourse, or agreed (contingently or otherwise) to purchase or repurchase or otherwise acquire or in respect of which such Person has agreed to supply or advance funds (whether by way of loan, stock purchase, capital contribution or otherwise) or otherwise to become directly or indirectly liable.

 

(hh)          Interest Payment Date shall be as defined in Section 4.1 .

 

(ii)         “ Initial Advance ” means $200,000, comprised of the sum of the Advances by the Initial Lenders to Borrower of (i) $100,000 on December 24, 2015, plus (ii) $100,000 on February 11, 2016, all of which constitutes a portion of the Tranche A Term Loan.

 

(jj)         “ Lender Indebtedness ” means all Indebtedness of Borrower to Agent and Lenders, whether now or hereafter owing or existing, including, without limitation, all obligations under the Loan Documents, all other obligations or undertakings now or hereafter made by or for the benefit of Borrower to or for the benefit of Agent or Lenders under any other agreement, promissory note or undertaking now existing or hereafter entered into by Borrower with Agent or Lenders, together with all interest and other sums payable in connection with any of the foregoing.

 

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(kk)         “ Lender Parties ” means, individually and collectively, Agent and Lenders

 

(ll)          Lenders shall have the meaning given such term in the introductory paragraph of this Agreement and shall include all permitted successors and assigns of such Person(s).

 

(mm)          Loan Documents means this Agreement, the Subordination Agreement, the Mortgage and all other documents, executed or delivered by Borrower or any other Person pursuant to this Agreement or in connection herewith, as they may be amended, modified or restated from time to time.

 

(nn)          Mortgage means that certain Amended and Restated Mortgage and Security Agreement, dated on or about the date of this Agreement, between the Company and Agent, granting to Agent, for the benefit of Lenders, a mortgage lien on the Mortgaged Property.

 

(oo)          Mortgaged Property means and refers to the premises situate at One Jake Brown Road, Old Bridge NJ 08857 and all improvements thereon and all rights, licenses, permits and approvals relating thereto, together with an assignment of all rents and leases related thereto.

 

(pp)         “ Notice of Conversion ” shall be as defined in Section 4.4(a).

 

(qq)          NYSE MKT Threshold shall be as defined in Section 4.4(b) .

 

(rr)         “ Percentage Share ” means, with respect to each Lender, such Lender’s Percentage Share of the Tranche A Term Loan, the Tranche B Tem Loan or the Tranche C Term Loan, as the case may be, as set forth on Schedule 1.1 hereto

 

(ss)          Person means an individual, a Corporation or a government or any agency or subdivision thereof, or any other entity.

 

(tt)          PIK Interest shall be as defined in Section 4.1 .

 

(uu)          Pro Rata Percentage means, as to each Lender, a fraction, expressed as a percentage, the numerator of which is the principal amount of the Advances then owed to such Lender hereunder and the denominator of which is the principal amount of Advances then owed to all Lenders hereunder, as reflected by Agent’s records).

 

(vv)          Required Lenders means (i) those Lenders holding at least eighty-one percent (81%) of the total Commitments or (ii) in the event that the Commitments of the Lenders hereunder have terminated, those Lenders holding at least eighty-one percent (81%) of the outstanding principal amount of the Term Loan outstanding hereunder, as reflected by Agent’s records; except , that , if RJP resigns as an officer of Company or is removed as an officer of the Company by the Company’s Board of Directors for cause, Required Lenders shall mean either (i) all of the Supplemental Lenders, or (ii) the Initial Lenders and at least one Supplemental Lender.

 

(ww)          Requested Advance Date shall be as defined in Section 2.3 .

 

(xx)        “ RJP Termination Date ” shall be as defined in Section 16.9(b) .

 

(yy)          Santander means Santander Bank, N.A.

 

(zz)          Santander Credit Agreement means the Revolving Credit, Term Loan and Security Agreement dated August 6, 2008 between Borrower and Santander, as amended.

 

  - 4 -  

 

 

(aaa)         Senior Indebtedness means (i) the Indebtedness of Borrower and/or one or more of Borrower’s Affiliates owed to Santander under the Santander Credit Agreement, (ii) any Indebtedness of Borrower and/or one or more of Borrower’s Affiliates that may arise under, out of, or in connection with any obligation of any of such entities to commercial lenders for money advanced to any of such entities and (iii) any renewal, replacement or refinancing of any of the foregoing, in each case whether or not such Indebtedness is expressly subordinated hereto.

 

(bbb)        “ Senior Indebtedness Debt Cap ” means the sum of (a) the aggregate principal amount of Senior Indebtedness (including the undrawn or unreimbursed amount of all letters of credit constituting Senior Indebtedness up to the sum of Six Million Dollars ($6,000,000) plus (b) the amount of all overadvances by the holder of Senior Indebtedness, up to $1,000,000; plus (c) 85% of all Eligible Receivables, plus (d) 50% of all Eligible Inventory (as such terms are defined in the Santander Credit Agreement or any subsequent credit agreement memorializing Senior Indebtedness) acquired in connection with any acquisition by Borrower of the assets of a person that is not a Borrower; plus (e) amounts in respect of accrued, unpaid interest, fees and expenses attributable to the items described in clauses (a) through (d) above.

 

(ccc)         SL Conversion Price shall mean $0.54] 1 per share of Common Stock, subject to adjustment as contemplated by Section 4.4(e)

 

(ddd)         Subordination Agreement means the Amended and Restated Subordination Agreement dated on or about the date hereof between Agent (for itself and on behalf of all Lenders) and Santander or between Agent and any subsequent holder of Senior Indebtedness.

 

(eee)         Subsidiary means a corporation or limited liability company (i) which is organized under the laws of the United States or any State thereof, or any other county or jurisdiction, (ii) which conducts substantially all of its business and has substantially all of its assets within the United States and (iii) of which more than fifty percent (50%) of its outstanding voting stock of every class (or other voting equity interest) is owned by Borrower or one or more of its Subsidiaries.

 

(fff)         “Supplemental Interest” means cash interest at the rate of five percent (5%) per annum, paid in addition to the Base Rate Interest on the outstanding amount of the applicable Lender’s Commitment Percentage of the Contingent Convertible Portion of the Term Loan, in accordance with Section 3.1 .

 

(ggg)        “ Supplemental Interest Commencement Date ”, shall be as defined in Section 4.4(b).

 

(hhh)        “ Term Loan ” means, collectively, the Tranche A Term Loan, the Tranche B Term Loan and the Tranche C Tem Loan.

 

(iii)        “ Tranche A Commitment ” means the Tranche A Commitment of each Tranche A Lender as set forth on Schedule 1.1 hereto.

 

(jjj)        “ Tranche A Lenders ” means each Lender with a Tranche A Commitment as set forth on Schedule 1.1 hereto.

 

(kkk)        “ Tranche A Term Loan ” shall be as defined in Section 2.1 .

 

(lll)        “ Tranche B Commitment ” means the Tranche B Commitment of each Tranche B Lender as set forth on Schedule 1.1 hereto.

 

 

 

1 The SL Conversion Price has been determined based on the greater of (a) 110% of the average closing price of the Common Stock on the NYSE MKT during the ten trading days ended on the earlier of (i) the business day immediately preceding the date the Supplemental Lenders’ agreement to provide the financing pursuant to this agreement is publicly announced and (ii) the business day immediately preceding the date of closing, and (b) fifty four cents ($0.54).

 

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(mmm)         Tranche B Lenders means each Lender with a Tranche B Commitment as set forth on Schedule 1.1 hereto.

 

(nnn)        “ Tranche B Term Loan ” shall be as defined in Section 2.1 .

 

(ooo)        “ Tranche C Commitment ” means the Tranche C Commitment of each Tranche C Lender as set forth on Schedule 1.1 hereto.

 

(ppp)         Tranche C Lenders means each Lender with a Tranche C Commitment as set forth on Schedule 1.1 hereto.

 

(qqq)        “ Tranche C Term Loan ” shall be as defined in Section 2.1 .

 

(rrr)         Undrawn Tranche A Availability means, as of any date of measurement, an amount equal to (i) $300,000, minus (ii) the aggregate principal amount of all Tranche A Loans which have been made as of such date. As of the Effective Date, the Undrawn Tranche A Availability is $0.00.

 

(sss)         Undrawn Tranche B Availability means, as of any date of measurement, an amount equal to (i) $200,000, minus (ii) the aggregate principal amount of all Tranche B Loans which have been made as of such date. As of the Effective Date, the Undrawn Tranche B Availability is $200,000.

 

(ttt)         Undrawn Tranche C Availability means, as of any date of measurement, an amount equal to (i) $250,000, minus (ii) the aggregate principal amount of all Tranche C Loans which have been made as of such date. As of the Effective Date, the Undrawn Tranche C Availability is $250,000.

 

1.2            Accounting Terms . As used in this Agreement, or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined elsewhere in this Agreement shall have the respective meanings given to them under GAAP.

 

1.3            UCC Terms . All terms used herein and defined in the Uniform Commercial Code as in effect in the State of Delaware from time to time shall have the meanings given therein unless otherwise defined herein.

 

2.          THE TERM LOAN; USE OF PROCEEDS.

 

2.1            Term Loan .

 

(a)          Agent and Lenders will establish for Borrower, during the Contract Period and subject to the terms and conditions hereof, a convertible, delayed draw term loan facility consisting of (i) a term loan in the principal amount of $300,000 (“ Tranche A Term Loan ”), which Tranche A Term Loan has heretofore been funded in full by the Initial Lenders in their Percentage Share under the Existing Agreement and constitutes Lender Indebtedness hereunder, which is due and owing by Borrower as of the date hereof without offset, defense or counterclaim, (ii) a delayed draw term loan in the principal amount of $200,000 (“ Tranche B Term Loan ”), which Tranche B Term Loan shall be made in accordance with Section 2.1(b) , and (iii) a delayed draw term loan in the aggregate principal amount of $250,000 (“ Tranche C Term Loan ”), which Tranche C Term Loan shall be made in accordance with Section 2.1(c) . The Term Loan is not a revolving loan, so that if Borrower repays all or any portion of the Term Loan at any time, such amount so repaid may not be re-borrowed. The Term Loan shall be subject to all terms and conditions set forth in all of the Loan Documents, which terms and conditions are incorporated herein. Notwithstanding anything to the contrary contained in this Section 2.1 , no Lender will be required or have any obligation to make any extensions of credit hereunder if a Default then exists or could reasonably be expected to result by virtue of the making thereof. Notwithstanding anything to the contrary contained herein, in no event shall Lenders be obligated to make to Borrower, or Borrower be entitled to borrow or receive from Lenders, any loans, advances or extensions of credit hereunder other than the Term Loan.

 

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(b)          Since as of the Effective Date the Undrawn Tranche A Availability is $0, Borrower shall have the right from time to time, at any time during the Contract Period, to request that Tranche B Lenders make Advances under the Tranche B Term Loan to Borrower in an amount not to exceed the then Undrawn Tranche B Availability. In connection with such request, each Tranche B Lender agrees severally (not jointly and not jointly and severally) to make, in accordance with Section 2.3 below, a Tranche B Term Loan to Borrower in an amount equal to such Lender’s Percentage Share of such request.

 

(c)          At any time during the Contract Period, when the Undrawn Tranche B Availability is $0, Borrower shall have the right, from time to time, to request that Tranche C Lenders make Advances under the Tranche C Term Loan to Borrower in an amount not to exceed the then Undrawn Tranche C Availability. In connection with each such request, each Tranche C Lender agrees severally (not jointly and not jointly and severally) to make, in accordance with Section 2.3 below, a Tranche C Term Loan to Borrower in an amount equal to such Lender’s Percentage Share of such Advance request.

 

2.2            Use of Proceeds . Borrower agrees to use Advances under the Term Loan for working capital and general corporate purposes.

 

2.3            Method of Advances . On any Business Day, Borrower may request an Advance by delivering to Agent a written request therefor (each an “Advance Request” ), which Advance Request may be submitted by the Chief Financial Officer of the Company, subject to the prior approval of the Chief Executive Officer of the Company; provided , however, if (a) the Chief Executive Officer is unavailable for a period of more than 24 hours from the time an Advance Request is proposed to be delivered by the Chief Financial Officer or (b) the Chief Executive Officer determines not to approve an Advance Request proposed to be delivered by the Chief Financial Officer, then under either of such circumstances, the Advance Request proposed by the Chief Financial Officer may be presented to the Board of Directors of the Company for its consideration and approval (either at a meeting or by consent in writing of a majority of the Board), which, if given, would supersede any failure of approval or disapproval by the Chief Executive Officer. Each such request shall specify (i) the amount of the requested Advance, which shall be at least $50,000.00 or, if less, the current amount of Undrawn Availability, and (ii) the date (the “Requested Advance Date” ) upon which Borrower desires Lenders to fund the Advance, which date shall be at least one (1) Business Day subsequent to Agent’s receipt of the Advance Request. Any Advance Request made after 1:00 p.m. on any Business Day shall be deemed to be made on the next following Business Day. Following Agent’s receipt of an Advance Request, Agent will make the requested Advance on the Requested Advance Date, by transferring immediately available funds via wire transfer or ACH transfer to an account previously designated to Agent in writing by Borrower.

 

3.          INTEREST.

 

3.1            Interest Rate . Interest on outstanding Advances will accrue from the date of advance until final payment (or conversion, as contemplated by Section 4.4 below) thereof, at the rate of twelve percent (12%) per annum (the “ Basic Interest Rate ”), which interest may be paid as Cash Interest or as PIK Interest, in the discretion of Borrower, as more fully contemplated by Section 4.1 below. For purposes of clarification, PIK Interest at the Basic Interest Rate shall be deemed to have commenced accruing on (i) each of the individual Advances comprising the Initial Advance, on the date of each such Advance, (ii) the Advance in the amount of $50,000 made on February 23, 2016, as of the date of such Advance, and (iii) the Advance in the amount of $50,000 made on February 25, 2016, as of the date of such Advance. If following receipt by the Company of a Notice of Conversion by any Lender with respect to such Lender’s Commitment Percentage of the Contingent Convertible Portion of the Term Loan, conversion thereof into Common Stock has not occurred on or prior to the Supplemental Interest Commencement Date, then Supplemental Interest will accrue on the outstanding Contingent Convertible portion of such Lender’s Term Loan from the Supplemental Interest Commencement Date until final payment (or conversion, as contemplated by Section 4.4 below) thereof, as more fully contemplated by Section 4.1 below. Interest will be computed on the basis of a year of 360 days and paid for the actual number of days elapsed.

 

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3.2            Limitation of Interest to Maximum Lawful Rate . In no event will the rate of interest payable hereunder exceed the maximum rate of interest permitted to be charged by applicable law (including the choice of law rules) and any interest paid in excess of the permitted rate will be refunded to Borrower. Such refund will be made by application of the excessive amount of interest paid against any sums outstanding hereunder and will be applied in such order as Agent may determine. If the excessive amount of interest paid exceeds the sums outstanding, the portion exceeding the sums outstanding will be refunded in cash by Agent, for the account of Lenders. Any such crediting or refunding will not cure or waive any default by Borrower. Borrower agrees, however, that in determining whether or not any interest payable hereunder exceeds the highest rate permitted by law, any non-principal payment, including without limitation prepayment fees and late charges, will be deemed to the extent permitted by law to be an expense, fee, premium or penalty rather than interest.

 

4.          PAYMENTS AND CONVERSION.

 

4.1            Interest Payments . Accrued interest shall be due and payable monthly in arrears on the first day of each calendar month (an “ Interest Payment Date ”) commencing on the first day of the first calendar month following the date of the Initial Advance to Borrower hereunder. Interest will be payable in-kind (“ PIK Interest ”) on the Accreted Principal Amount of the Term Loan by the automatic increase of the principal amount of the Term Loan on each Interest Payment Date by the amount of accrued interest payable at that time. Notwithstanding the foregoing, at the option of Borrower, Borrower may pay interest in cash (“ Cash Interest ”) on any one or more Interest Payment Dates in lieu of PIK Interest. Supplemental Interest if due and payable, shall be due and payable monthly in arrears on each Interest Payment Date commencing on the Supplemental Interest Commencement Date.

 

4.2            Principal Payments . If not paid earlier (or converted into Common Stock as contemplated by Section 4.4 ), Borrower will pay the entire Accreted Principal Amount of the Term Loan, and any other sums due pursuant to the terms hereof, on the third anniversary of the date of this Agreement (the “ Final Maturity Date ”).

 

4.3            Prepayment . Borrower may prepay all or any part of the amounts due on the Term Loan at any time without any premium or penalty, following delivery of not less than five (5) Business Days prior written notice to Agent. All prepayments will be applied on a pro rata basis against the then outstanding balance of the respective Term Loans of the Lenders.

 

4.4            Conversion by Lenders .

 

(a)          Subject to Section 4.4(b) below, each of the Lenders may, at any time, convert all but not less than all (unless prior written consent of Borrower is obtained), of the Accreted Principal Amount of such Lender’s Term Loan plus any accrued and unpaid interest (but in no event in excess of such Lender’s Commitment Percentage of the NYSE MKT Threshold) into shares of the Company’s common stock, $0.001 par value per share (the “ Common Stock ”) at the IL Conversion Price, in the case of conversion by the Initial Lenders, and at the SL Conversion Price in the case of conversion by any of the Supplemental Lenders, in each case, subject to adjustment as provided below, by delivering written notice thereof to the Company. Such notice of conversion or any subsequent notice of conversion (each, a “ Notice of Conversion ”) shall be irrevocable once given and shall specify the amount of the applicable Lender’s Term Loan intended to be converted. The Company shall effect such conversion as promptly as practicable following its receipt of such Notice of Conversion (such date the “ Conversion Date ”) and interest on the portion of the Term Loan so converted shall cease to accrue on such Conversion Date.

 

(b)          Notwithstanding anything herein to the contrary, initially each Lender’s conversion rights under this Section 4.4 shall be limited to such Lender’s Commitment Percentage of the lesser of (i) such number of shares of Common Stock as equals less than 20% of all presently outstanding Common Stock, as contemplated by Section 713(a) of the NYSE MKT Rules or (ii) the maximum number of shares of Common Stock that will not cause the ownership of the Company by any or all Lenders to reach or exceed the “change in control” threshold amount under Section 713(b) of the NYSE MKT Rules, as amended from time to time, in each case, so long as such Rules continue to be applicable to the Company (the “ NYSE MKT Threshold ”). The Company will, at its sole cost and expense, include within the agenda for its annual meeting of stockholders to be held in 2016, a proposal for stockholder approval of the transactions contemplated by this Agreement, including the conversion of the entire amount of the Term Loan (including, without limitation, the portion of the outstanding Term Loan that would cause the ownership of the Company by Lenders to exceed the NYSE MKT Threshold (the “ Contingent Convertible Portion ”)) into shares of Common Stock at the IL Conversion Price and/or the SL Conversion Price, as applicable. If the Company is unable to obtain stockholder approval or otherwise take alternative steps necessary to permit conversion of a Lender’s Commitment Percentage of the Contingent Convertible Portion within fifteen (15) Business Days after the later of (i) the date of such annual meeting of stockholders, or (ii) the date on which such Lender delivers a Notice of Conversion with respect to such Lender’s Commitment Percentage of the Contingent Convertible Portion of the Term Loan to the Company (the “ Supplemental Interest Commencement Date”) , then the Company will be required to pay to such Lender so providing a Notice of Conversion, Supplemental Interest on such Lender’s Commitment Percentage of the Contingent Convertible Portion of the Term Loan as provided in Section 3.1 above.

 

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(c)          The Company covenants and agrees that the shares of Common Stock that may be issued upon the exercise of any Lender’s conversion rights hereunder will, upon issuance, be validly issued and outstanding, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the time that principal or interest is owed pursuant to this Agreement, have authorized and reserved, free from preemptive rights, a sufficient number of shares of its Common Stock to provide for the conversion rights set forth herein. If at any time while Lenders have conversion rights hereunder, the number of authorized but unissued shares of Common Stock shall not be sufficient to permit conversion of amounts owed hereunder, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 

(d)          Upon a conversion hereunder, the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, and in lieu of any fractional shares which would otherwise be issuable, the Company shall issue the next lowest whole number of shares of Common Stock.

 

(e)          (i)          In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, splits, recapitalizations, reclassifications, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the IL Conversion Price and the SL Conversion Price shall be correspondingly adjusted to give Lenders, on exercise for the same aggregate IL Conversion Price or SL Conversion Price, as applicable, the total number, class, and kind of shares as Lenders would have owned had the Term Loan been converted prior to the event and had the Lenders continued to hold such shares until after the event requiring adjustment.

 

(ii)         If during the time that principal or interest is owed on the Term Loan, the Company issues or sells Additional Shares of Common Stock (as defined below) other than pursuant to clause (i) above for a price (the “ Effective Price ”) less than the then effective IL Conversion Price or SL Conversion Price, as the case may be, then and in each such case, the then-existing IL Conversion Price or SL Conversion Price, as the case may be, shall be reduced, as of the opening of business on the date of such issue or sale, to a price equal to the greater of (i) Ten Cents ($0.10) per share or (ii) such Effective Price. “ Additional Shares of Common Stock ” shall mean all shares of Common Stock, or options, warrants or other rights to acquire Common Stock, issued by the Company, other than (A) options, warrants or shares of Common Stock issued to employees, directors and consultants as a part of an equity incentive plan or agreement approved by the Company’s Board of Directors (including pursuant to any Director Stock Purchase Plan or Employee Stock Purchase Plan under which compensation payments can be applied to or accepted in lieu of cash), (B) shares of Common Stock issued as a consideration for a merger, acquisition or other business combination approved by the Company’s Board of Directors, (C) shares of Common Stock issued or issuable to any Person that may hereafter become a Lender hereunder, (D) options, warrants or shares issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by the Company’s Board of Directors; and (E) shares of Common Stock issued upon the exercise of an option, warrant or other right to acquire Common Stock pursuant to which an adjustment of the IL Conversion Price or the SL Conversion Price, as the case may be, under this Section 4.4(e) has already been made.

 

4.5            Payments to Agent . All payments in respect to the Term Loan shall be paid to Agent, for the ratable benefit of the Lenders, to an account specified by Agent to Borrower from time to time.

 

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5.          SECURITY.

 

5.1            Personal Property . As security for the full and timely payment and performance of all Lender Indebtedness, Borrower hereby grants to Agent, for itself and the benefit of Lenders, a security interest in all existing and after-acquired property of Borrower of any nature including, without limitation:

 

(a)          All present and future accounts, contract rights, chattel paper, instruments and documents and all other rights to the payment of money whether or not yet earned, for services rendered or goods sold, consigned, leased or furnished by Borrower or otherwise, together with (i) all goods (including any returned, rejected, repossessed or consigned goods), the sale, consignment, lease or other furnishing of which shall be given or may give rise to any of the foregoing, (ii) all of Borrower’s rights as a consignor, consignee, unpaid vendor or other lien or in connection therewith, including stoppage in transit, set-off, detinue, replevin and reclamation, (iii) all general intangibles related thereto, (iv) all guaranties, mortgages, security interests, assignments, and other encumbrances on real or personal property, leases and other agreements or property securing or relating to any accounts, (v) choses-in-action, claims and judgments, and (vi) any returned or unearned premiums, which may be due upon cancellation of any insurance policies.

 

(b)          All present and future inventory of Borrower (including but not limited to goods held for sale or lease or furnished or to be furnished under contracts for service, raw materials, work-in-process, finished goods and goods used or consumed in Borrower’s business) whether owned, consigned or held on consignment, together with all merchandise, component materials, supplies, packing, packaging and shipping materials, and all returned, rejected or repossessed goods sold, consigned, leased or otherwise furnished by such Borrower and all embedded software related thereto.

 

(c)          All present and future general intangibles (including but not limited to payment intangibles, tax refunds and rebates, manufacturing and processing rights, designs, patents, patent rights and applications therefor, trademarks and registration or applications therefor, trade names, brand names, logos, inventions, copyrights and all applications and registrations therefor), licenses, permits, approvals, software and computer programs, license rights, royalties, trade secrets, methods, processes, know-how, formulas, drawings, specifications, descriptions, label designs, plans, blueprints, patterns and all memoranda, notes and records with respect to any research and development.

 

(d)          All present and future machinery, equipment, furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other articles of tangible personal property of every type together with all parts, substitutions, accretions, accessions, attachments, accessories, additions, components and replacements thereof, and all manuals of operation, maintenance or repair, and all embedded software related thereto.

 

(e)          All present and future general ledger sheets, files, books and records, customer lists, books of account, invoices, bills, certificates or documents of ownership, bills of sale, business papers, correspondence, credit files, tapes, cards, computer runs and all other data and data storage systems whether in the possession of Borrower or any service bureau.

 

(f)          All present and future letter of credit rights and supporting obligations, including without limitation, all letters of credit and letter of credit rights now existing or hereafter issued naming Borrower as a beneficiary or assigned to Borrower, including the right to receive payment thereunder, and all documents and records associated therewith.

 

(g)          All present and future financial assets and investment property of Borrower.

 

(h)          All funds, instruments, documents, policies and evidence and certificates of insurance and rights thereunder, securities, chattel paper and other assets of Borrower or in which Borrower has an interest and all proceeds thereof, now or at any time hereafter on deposit with or in the possession or control of Lender Parties or owing by Lender Parties to Borrower or in transit by mail or carrier to Lender Parties or in the possession of any other Person acting on any Lender Party’s behalf, without regard to whether any Lender Party received the same in pledge, for safekeeping, as agent for collection or otherwise, or whether any Lender Party has conditionally released the same, and in all assets of Borrower in which Lender Parties now have or may at any time hereafter obtain a lien, mortgage, or security interest for any reason.

 

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(i)          All products and proceeds of each of the items described in the foregoing subparagraphs (a)-(i) and all supporting obligations related thereto.

 

5.2            Real Property . As further security for the Lender Indebtedness, the Company shall grant to Agent, for the benefit of itself and the Lenders, a mortgage lien encumbering the Mortgaged Property, subject and junior to any liens thereon granted by the Company to Santander or any other institutional Lender providing financing or refinancing to the Company secured by the Mortgaged Property. In the event of any refinancing of the Mortgaged Property, Agent, on behalf of itself and the Lenders, will execute such subordination of mortgage, as reasonably requested by the new Lender, bearing like tenor to and no less favorable to such new Lender than the Santander Subordination Agreement.

 

5.3            General .

 

(a)          The collateral described above in Sections 5.1 and 5.2 is collectively referred to herein as the “Collateral” . The above-described security interests, assignments and liens shall not be rendered void by the fact that no Lender Indebtedness exists as of any particular date, but shall continue in full force and effect until the Lender Indebtedness has been repaid or converted into Common Stock. Lender Parties have no agreement or commitment outstanding pursuant to which Lender Parties may extend credit to or on behalf of Borrower and Lender Parties have executed termination statements or releases with respect thereto.

 

(b)          Borrower hereby irrevocably authorizes Agent at any time and from time to time to file UCC financing statements with respect to the Collateral, naming Borrower as debtor, and agrees to provide Agent promptly with any information requested by Agent in connection with any such financing statements.

 

(c)          Borrower shall furnish to Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Agent may reasonably request, all in reasonable detail. Borrower shall promptly execute and deliver to Agent any instruments and documents, and shall promptly take such further action, as Agent may reasonably request to obtain the benefit of the security interests granted by this Section 5 .

 

6.          REPRESENTATIONS AND WARRANTIES . Borrower represents and warrants as follows:

 

6.1            Borrower Representations and Warranties . Borrower represents and warrants as follows:

 

(a)           Valid Organization, Good Standing and Qualification . Borrower is duly formed, validly existing and in good standing under the laws of the State of Delaware, and has full power and authority to execute, deliver and comply with the Loan Documents and to carry on its business as it is now being conducted.

 

(b)           Due Authorization; No Legal Restrictions . The execution and delivery by Borrower of the Loan Documents, the consummation of the transactions contemplated by the Loan Documents and the fulfillment and compliance with the respective terms, conditions and provisions of the Loan Documents: (a) have been duly authorized by all requisite corporate action of Borrower, (b) will not conflict with or result in a breach of, or constitute a default (or might, upon the passage of time or the giving of notice or both, constitute a default) under, any of the terms, conditions or provisions of any applicable statute, law, rule, regulation or ordinance, or Borrower’s organizational documents or any indenture, mortgage, loan, credit agreement or other document or instrument to which Borrower is a party or by which Borrower may be bound or affected, or any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, and (c) will not result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of Borrower under the terms or provisions of any such agreement or instrument, except liens in favor of Lender Parties.

 

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(c)           Enforceability . The Loan Documents have been duly executed by Borrower and delivered to Agent and constitute legal, valid and binding obligations of Borrower, enforceable in accordance with their terms, except as enforceability may be limited by any bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles affecting creditors’ rights generally.

 

(d)           Governmental Consents . No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of Borrower is required in connection with the execution, delivery or performance by Borrower of the Loan Documents or the consummation of the transactions contemplated thereby.

 

(e)           Title to Collateral . The Collateral is and will be owned by Borrower free and clear of all liens and other encumbrances of any kind (including liens or other encumbrances upon properties acquired or to be acquired under conditional sales agreements or other title retention devices), excepting only liens in favor of Agent and those liens and encumbrances permitted under Section 7.4 below. Borrower will defend the Collateral against any claims of all persons or entities other than Agent or such other permitted lienholders as are set forth in Section 7.4 .

 

6.2            Lender Parties’ Representations and Warranties . Lender Parties represent and warrant as follows:

 

(a)           Qualification; No Legal Restrictions . Lender Parties have full power and authority to execute, deliver and comply with the Loan Documents. The execution and delivery by Lender Parties of the Loan Documents, the consummation of the transactions contemplated by the Loan Documents and the fulfillment and compliance with the respective terms, conditions and provisions of the Loan Documents will not conflict with or result in a breach of, or constitute a default (or might, upon the passage of time or the giving of notice or both, constitute a default) under, any of the terms, conditions or provisions of any applicable statute, law, rule, regulation or ordinance, or any indenture, mortgage, loan, credit agreement or other document or instrument to which any Lender Party is a party or by which any Lender Party may be bound or affected, or any judgment or order of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.

 

(b)           Enforceability . The Loan Documents have been duly executed by Lender Parties and delivered to Borrower and constitute legal, valid and binding obligations of Lender Parties, enforceable in accordance with their terms, except as enforceability may be limited by any bankruptcy, insolvency, reorganization, moratorium or other laws or equitable principles affecting creditors’ rights generally.

 

(c)           Governmental Consents . No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of any Lender Party is required in connection with the execution, delivery or performance by Lender Parties of the Loan Documents or the consummation of the transactions contemplated thereby.

 

7.          GENERAL COVENANTS . Borrower will comply with the following:

 

7.1            Maintenance of Borrower’s Existence . Borrower shall keep in full force and effect: (a) its legal existence in good standing under the law of its jurisdiction of organization and (b) its qualification to do business in each jurisdiction in which such qualification is required.

 

7.2            Restrictions on Indebtedness . Borrower shall not, without the prior written consent of Agent, incur any indebtedness for borrowed money except for (a) Senior Indebtedness and (b) Lender Indebtedness and (c) trade indebtedness incurred in the ordinary course of business.

 

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7.3            Defaults . Borrower shall promptly notify Agent of any event of default under any document related to Senior Indebtedness, or any event or condition which with the passage of time or the giving of notice would become such an event of default.

 

7.4            Removal of Collateral . Except with the prior written consent of Agent, Borrower shall not (i) remove any of the Collateral from the location specified above other than in the ordinary course of business or (ii) change its name or its jurisdiction of incorporation, relocate its principal place of business or reincorporate or reorganize itself.

 

7.5            Maintenance of Collateral . Borrower shall keep the Collateral in good order and repair, not waste any Collateral, not use any Collateral in violation of law or any policy of insurance, comply in all material respects with its obligations with respect to the Collateral, and make the Collateral available for inspection by Agent (or its Agents, attorneys or accountants) at all reasonable times.

 

8.           CONDITIONS TO ADVANCES . Advances shall be conditioned upon the following conditions and each request by Borrower for an Advance shall constitute a representation by Borrower to Lender Parties that each condition has been met or satisfied:

 

8.1            Representations and Warranties . All representations and warranties of Borrower contained herein or in any other Loan Document shall be true at and as of the date of such Advance as if made on such date, and each request for an Advance shall constitute reaffirmation by Borrower that such representations and warranties are then true.

 

8.2            No Default . No condition or event shall exist or have occurred at or as of the date of such Advance which would constitute a Default or Event of Default hereunder.

 

8.3            Other Requirements . Lender Parties shall have received all certificates, authorizations, affidavits, schedules and other documents which are provided for hereunder or under the Loan Documents, or which Lender Parties may reasonably request.

 

9.           DEFAULT AND REMEDIES .

 

9.1            Events of Default . The occurrence of any one or more of the following events shall constitute an Event of Default hereunder:

 

(a)          The failure of Borrower to pay any amount of principal, interest or any other amount payable hereunder, or any other Lender Indebtedness on the date on which such payment is due, whether at the stated maturity or due date thereof, or by reason of any requirement for the prepayment thereof, by acceleration or otherwise, and such failure continues unremedied for a period of ten (10) days after the date such payment is first due;

 

(b)          The failure of Borrower to duly perform or observe any obligation, covenant or agreement on its part contained herein or in any other Loan Document not otherwise specifically constituting an Event of Default under this Section 9.1 and such failure continues unremedied for a period of thirty (30) days after notice from Agent to Borrower of the existence of such failure;

 

(c)          The failure of Borrower to pay any Indebtedness for borrowed money due to any third Person or the existence of any other event of default under any loan, security agreement, mortgage or other agreement pertaining thereto binding Borrower, after the expiration of any notice and/or grace periods permitted in such documents;

 

(d)          The adjudication of Borrower as a bankrupt or insolvent, or the entry of an order appointing a receiver or trustee for Borrower or any of its respective property or approving a petition seeking reorganization or other similar relief under the bankruptcy or other similar laws of the United States or any state or any other competent jurisdiction;

 

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(e)          A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law is filed by or against (unless dismissed within thirty (30) days and provided that Lender Parties shall have no obligation to make Advances during such thirty (30) day period Borrower, or Borrower makes an assignment for the benefit of creditors, or Borrower takes any action to authorize any of the foregoing;

 

(f)          The suspension of the operation of Borrower’s present business, Borrower becoming unable to meet its debts as they mature or the admission in writing by Borrower to such effect, or Borrower calling any meeting of all or any material portion of its creditors for the purpose of debt restructure;

 

(g)          All or any part of the Collateral or the assets of Borrower are attached, seized, subjected to a writ or distress warrant, or levied upon, or come within the possession or control of any receiver, trustee, custodian or assignee for the benefit of creditors;

 

(h)          Any representation or warranty of Borrower in any of the Loan Documents is discovered to be untrue in any material respect or any statement, certificate or data furnished by Borrower pursuant hereto is discovered to be untrue in any material respect as of the date as of which the facts therein set forth are stated or certified;

 

(i)          Any material uninsured damage to, or loss, theft, or destruction of, a material portion of the Collateral occurs;

 

(j)          The loss, suspension, revocation or failure to renew any license or permit now held or hereafter acquired by Borrower, which loss, suspension, revocation or failure to renew will have a material adverse effect on the business profits, assets or financial condition of Borrower;

 

(k)          The occurrence of an event of default under any of the other Loan Documents; or

 

(l)          The validity or enforceability of this Agreement, or any of the Loan Documents, is contested by Borrower or any stockholder of Borrower, or Borrower denies that it has any or any further liability or obligation hereunder or thereunder.

 

9.2            Remedies . At the option of Agent, or at the request of Required Lenders, upon the occurrence of an Event of Default, or at any time thereafter:

 

(a)          The entire unpaid principal of the Term Loan, all other Lender Indebtedness, or any part thereof, all interest accrued thereon, all fees due hereunder and all other obligations of Borrower to Lender Parties hereunder or under any other agreement, note or otherwise arising will become immediately due and payable without any further demand or notice;

 

(b)          The Term Loan will immediately terminate and Borrower will receive no further extensions of credit thereunder;

 

(c)          Agent may enter any premises occupied by Borrower and take possession of the Collateral and any records relating thereto; and/or

 

(d)          Lender Parties may exercise each and every right and remedy granted to it under the Loan Documents, under the Uniform Commercial Code and under any other applicable law or at equity.

 

If an Event of Default occurs under Section 9.1(d) or (e) , all Lender Indebtedness shall become immediately due and payable.

 

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9.3            Sale or Other Disposition of Collateral . The sale, lease or other disposition of the Collateral, or any part thereof, by Agent after an Event of Default may be for cash, credit or any combination thereof, and Agent, for itself and on behalf of the Lenders, may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set-off the amount of such purchase price against the Lender Indebtedness then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. Agent may cause the Collateral to remain on Borrower’s premises or otherwise or to be removed and stored at premises owned by other persons, at Borrower’s expense, pending sale or other disposition of the Collateral. Borrower, at Agent’s request, shall assemble the Collateral consisting of inventory and tangible assets and make such assets available to Agent at a place to be designated by Agent. Agent shall have the right to conduct such sales on Borrower’s premises, at Borrower’s expense, or elsewhere, on such occasion or occasions as Agent may see fit. Any notice required to be given by Agent of a sale, lease or other disposition or other intended action by Agent with respect to any of the Collateral which is deposited in the United States mail, postage prepaid and duly addressed to Borrower at the address specified in Section 11.1 below, at least ten (10) business days prior to such proposed action, shall constitute fair and reasonable notice to Borrower of any such action. The net proceeds realized by Agent upon any such sale or other disposition, after deduction for the expenses of retaking, holding, storing, transporting, preparing for sale, selling or otherwise disposing of the Collateral incurred by Lender Parties in connection therewith and all other costs and expenses related thereto including attorney fees, shall be applied in such order as Agent, in its sole discretion, elects, toward satisfaction of the Lender Indebtedness. Agent shall account to Borrower for any surplus realized upon such sale or other disposition, and Borrower shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect Agent’s security interest in the Collateral. Borrower agrees that Lender Parties have no obligation to preserve rights to the Collateral against any other parties. Agent is hereby granted a license or other right to use, after an Event of Default, without charge, Borrower’s labels, general intangibles, intellectual property, equipment, real estate, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any inventory or other Collateral and Borrower’s rights under all contracts, licenses, approvals, permits, leases and franchise agreements shall inure to Lender Parties’ benefit. Lender Parties shall be under no obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the Lender Indebtedness.

 

9.4            Set-Off . Without limiting the rights of Lender Parties under applicable law, Lender Parties have and may exercise a right of set-off, a lien against and a security interest in all property of Borrower now or at any time in any Lender Party’s possession in any capacity whatsoever, including but not limited to any balance of any deposit, trust or agency account, or any other Lender Party account with Agent, as security for all Lender Indebtedness. At any time and from time to time following the occurrence of an Event of Default, or an event which with the giving of notice or passage of time or both would constitute an Event of Default, Lender Parties may without notice or demand, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by any Lender Party to or for the credit of Borrower against any or all of the Lender Indebtedness and Borrower’s obligations under the Loan Documents.

 

9.5            Delay or Omission Not Waiver . Neither the failure nor any delay on the part of any Lender Party to exercise any right, remedy, power or privilege under the Loan Documents upon the occurrence of any Event of Default or otherwise shall operate as a waiver thereof or impair any such right, remedy, power or privilege. No waiver of any Event of Default shall affect any later Event of Default or shall impair any rights of any Lender Party. No single, partial or full exercise of any rights, remedies, powers and privileges by any Lender Party shall preclude further or other exercise thereof. No course of dealing between any Lender Party and Borrower shall operate as or be deemed to constitute a waiver of any Lender Party’s rights under the Loan Documents or affect the duties or obligations of Borrower.

 

9.6            Remedies Cumulative; Consents . The rights, remedies, powers and privileges provided for herein shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, remedies, powers and privileges in Lender Parties’ favor at law or in equity. Whenever Agent’s consent or approval is required, such consent or approval shall be at the sole and absolute discretion of Agent.

 

9.7            Certain Fees, Costs, Expenses, Expenditures and Indemnification . Borrower agrees to pay on demand all costs and expenses of Lender Parties, including without limitation:

 

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(a)          all costs and expenses in connection with the preparation, review, negotiation, execution, delivery and administration of the Loan Documents, and the other documents to be delivered in connection therewith, or any amendments, extensions and increases to any of the foregoing (including, without limitation, attorney’s fees and expenses); and

 

(b)          all losses, costs and expenses in connection with the enforcement, protection and preservation of any Lender Party’s rights or remedies under the Loan Documents, or any other agreement relating to any Lender Indebtedness, or in connection with legal advice relating to the rights or responsibilities of any Lender Party (including without limitation court costs and attorney’s fees).

 

In the event Borrower shall fail to pay taxes, insurance, assessments, costs or expenses which it is required to pay hereunder, or fails to keep the Collateral free from security interests or liens (except as expressly permitted herein), or fails to maintain or repair the Collateral as required hereby, or otherwise breaches any obligations under the Loan Documents, Agent in its discretion, may make expenditures for such purposes and the amount so expended (including attorney’s fees and expenses, filing fees and other charges) shall be payable by Borrower on demand and shall constitute part of the Lender Indebtedness.

 

Borrower’s obligations under this Section shall survive termination of this Agreement and repayment of the Lender Indebtedness.

 

9.8            Time is of the Essence . Time is of the essence in Borrower’s performance of its obligations under the Loan Documents.

 

10.          SUBORDINATION .

 

10.1          Subordination . Notwithstanding anything to the contrary contained in this Agreement:

 

(a)          The Loan Documents and all of the Lender Indebtedness shall be subordinate to the Senior Indebtedness, as provided in the Subordination Agreement. Lender Parties agree that upon any replacement, renewal or refinancing of Senior Indebtedness, they will enter into any new or replacement subordination documentation with respect to Senior Indebtedness as may be reasonably requested by the Company, so long as such subordination documentation is on terms substantially similar to the Subordination Agreement. Borrower will not permit the Senior Indebtedness to exceed the Senior Indebtedness Debt Cap, without the prior written consent of Lender.

 

(b)          Lender Parties may enforce rights granted under this Agreement or any other Loan Document only in a manner not inconsistent with the Subordination Agreement. Any assignee of Santander, and any commercial Lender providing financing to Borrower or any Affiliate (including financing undertaken for the purpose of refinancing Senior Indebtedness), shall have the benefit of this Article 10 and of the other provisions of this Agreement.

 

(c)          Notwithstanding any provision in this Agreement or the other Loan Documents, each of the Lender Parties irrevocably authorizes and instructs Agent to enter into the Subordination Agreement .

 

11.          COMMUNICATIONS AND NOTICES .

 

11.1          Communications and Notices . All notices, requests and other communications made or given in connection with the Loan Documents shall be in writing and, unless receipt is stated herein to be required, shall be deemed to have been validly given if delivered personally to the individual or division or department to whose attention notices to a party are to be addressed, or by private carrier, or registered or certified mail, return receipt requested, or by telecopy (to the extent a telecopy number is set forth below) with the original forwarded by first-class mail, in all cases, with charges prepaid, addressed as follows, until some other address (or individual or division or department for attention) shall have been designated by notice given by one party to the other:

 

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To Borrower:

 

Blonder Tongue Laboratories, Inc.

One Jake Brown Road

Old Bridge, New Jersey 08857

Attention: Eric Skolnik, Chief Financial Officer

Telecopy No.: 732 679-3259

 

To Lenders

c/o Agent:

 

Robert J. Pallé

21 Desai Court

Freehold, NJ 07728

 

12.          WAIVERS .

 

12.1          Waivers . In connection with any proceedings under the Loan Documents, including without limitation any action by Agent in replevin, foreclosure or other court process or in connection with any other action related to the Loan Documents or the transactions contemplated hereunder, Borrower waives:

 

(a)          all errors, defects and imperfections in such proceedings;

 

(b)          all benefits under any present or future laws exempting any property, real or personal, or any part of any proceeds thereof from attachment, levy or sale under execution, or providing for any stay of execution to be issued on any judgment recovered under any of the Loan Documents or in any replevin or foreclosure proceeding, or otherwise providing for any valuation, appraisal or exemption;

 

(c)          presentment for payment, demand, notice of demand, notice of non-payment, protest and notice of protest of any of the Loan Documents;

 

(d)          any requirement for bonds, security or sureties required by statute, court rule or otherwise;

 

(e)          any demand for possession of Collateral prior to commencement of any suit; and

 

12.2          F orbearance . Agent may release, compromise, forbear with respect to, waive, suspend, extend or renew any of the terms of the Loan Documents, without notice to Borrower.

 

13.          SUBMISSION TO JURISDICTION .

 

13.1          Submission to Jurisdiction . Borrower hereby consents to the exclusive jurisdiction of any state or federal court located within the State of New Jersey, and irrevocably agrees that, subject to Agent’s election, all actions or proceedings relating to the Loan Documents or the transactions contemplated hereunder shall be litigated in such courts, and Borrower waives any objection which it may have based on lack of personal jurisdiction, improper venue or forum non conveniens to the conduct of any proceeding in any such court and waives personal service of any and all process upon it, and consents that all such service of process be made by mail or messenger directed to it at the address set forth in Section 11.1 . Nothing contained in this Section 13.1 shall affect the right of Agent to serve legal process in any other manner permitted by law or affect the right of any Lender Party to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction.

 

14.          MISCELLANEOUS .

 

14.1          Survival . All covenants, agreements, representations and warranties made by Borrower in the Loan Documents or made by or on its behalf in connection with the transactions contemplated herein shall be true at all times this Agreement is in effect and shall survive the execution and delivery of the Loan Documents, any investigation at any time made by any Lender Party or on its behalf and the making by any Lender Party of the loans or advances to Borrower. All statements contained in any certificate, statement or other document delivered by or on behalf of Borrower pursuant hereto or in connection with the transactions contemplated hereunder shall be deemed representations and warranties by Borrower.

 

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14.2          No Assignment . Borrower may not assign any of its rights or obligations hereunder without the prior written consent of Agent, and any such assignment without consent shall be void and of no force or effect. Any Lender Party may assign its rights and obligations hereunder in its discretion.

 

14.3          Binding Effect . This Agreement and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and permitted assigns.

 

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

 

14.5          No Third Party Beneficiaries . The rights and benefits of this Agreement and the Loan Documents shall not inure to the benefit of any third party.

 

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

 

14.7          Business Day Convention . If the day provided herein for the payment of any amount or the taking of any action falls on a Saturday, Sunday or public holiday at the place for payment or action, then the due date for such payment or action will be the next succeeding Business Day.

 

14.8          Law Governing . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware without regard to conflict of law principles.

 

14.9          Integration . The Loan Documents shall be construed as integrated and complementary of each other, and as augmenting and not restricting any Lender Party’s rights, powers, remedies and security. The Loan Documents contain the entire understanding of the parties thereto with respect to the matters contained therein and supersede all prior agreements and understandings between the parties with respect to the subject matter thereof and do not require parol or extrinsic evidence in order to reflect the intent of the parties. In the event of any inconsistency between the terms of this Agreement and the terms of the other Loan Documents, the terms of this Agreement shall prevail.

 

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

 

14.11          Counterparts . This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.

 

14.12          Waiver of Right to Trial by Jury . BORROWER AND LENDER WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER OR LENDER WITH RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER AND LENDER AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS, CONTENT AND EFFECT, AND THAT IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF THIS SECTION.

 

  - 18 -  

 

 

15.          AGREEMENTS REGARDING PAYMENTS TO LENDERS .

 

15.1          Payments of Principal, Interest and Fees . After Agent’s receipt of any principal or interest payments under this Agreement, Agent agrees to remit promptly to the Lenders their respective Percentage Share of such payments.

 

16.          AGENCY .

 

16.1          Appointment of Agent; Powers . Each Lender hereby irrevocably designates and appoints RJP to act as Agent for such Lender under this Agreement and the other Loan Documents, and irrevocably authorizes RJP, as Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents, and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. In performing its functions under this Agreement, RJP is acting solely as an Agent of the Lenders, and RJP does not assume, and shall not be deemed to have assumed, an agency or other fiduciary relationship with Borrower. Agent shall not have any (a) duty, responsibility, obligation or liability to any Lender, except for those duties, responsibilities, obligations and liabilities expressly set forth in this Agreement, or (b) fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents, or otherwise exist against Agent.

 

16.2          Delegation of Agent’s Duties . Agent may execute any of its duties under this Agreement and all ancillary documents by or through agents or attorneys, and shall be entitled to the advice of counsel concerning all matters pertaining to such duties.

 

16.3          Disclaimer of Agent’s Liabilities . Agent shall not be liable to any Lender for any action lawfully taken or not taken by Agent under or in connection with the Agreement and the other Loan Documents (except for Agent’s or such person’s gross negligence or willful misconduct). Without limiting the generality of the foregoing, Agent shall not be liable to the Lenders for (a) any recital, statement, representation or warranty made by Borrower or any officer thereof contained in (i) this Agreement, (ii) any other Loan Document or (iii) any certificate, report, audit, statement or other document referred to or provided for in this Agreement or received by Agent under or in connection with this Agreement, (b) the value, validity, effectiveness, enforceability or sufficiency of this Agreement, the other Loan Documents or Agent’s security interests in the Collateral, (c) any failure of Borrower to perform their respective obligations under this Agreement and the other Loan Documents, (d) any loss or depreciation in the value of, delay in collecting the proceeds of, or failure to realize on, any Collateral, (e) Agent’s delay in the collection of the Obligations or enforcing Agent’s rights against Borrower, or the granting of indulgences or extensions to Borrower or any account debtor of Borrower, or (f) for any mistake, omission or error in judgment in passing upon or accepting any Collateral. In addition, Agent shall have no duty or responsibility to ascertain or to inquire as to the observance or performance of any of the terms, conditions, covenants or other agreements of Borrower contained in this Agreement or the other Loan Documents, or to inspect, verify, examine or audit the assets, books or records of Borrower at any time.

 

16.4          Reliance and Action by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon legal counsel, independent public accountants and experts selected by Agent, and shall not be liable to the Lenders for any action taken or not taken in good faith based upon the advice of such counsel, accountants or experts. In addition, Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document believed by Agent in good faith to be genuine and correct, and to have been signed, sent or made by the proper person or persons. Agent shall be fully justified in taking or refusing to take any action under this Agreement and the other Loan Documents unless Agent (a) receives the advice or consent of the Lenders or the Required Lenders, as the case may be, in a manner that Agent deems appropriate, or (b) is indemnified by the Lenders to Agent’s satisfaction against any and all liability, cost and expense which may be incurred by Agent by reason of taking or refusing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of all Lenders or the Required Lenders, as the case may be, and such request and any action taken or failure to act pursuant thereto shall be binding upon all Lenders.

 

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16.5          Events of Default . Agent shall not be deemed to have knowledge or notice of the occurrence of any Event of Default hereunder unless Agent has received notice from Borrower or a Lender describing such Event of Default with specificity. In the event that Agent receives such a notice, Agent shall promptly give notice thereof to all Lenders. Agent shall take such action with respect to such Event of Default as shall be reasonably directed by the Lenders or Required Lenders, as the case may be, provided that (a) if appropriate, Agent may require indemnification from the Lenders under Section 16.4 prior to taking such action, (b) under no circumstances shall Agent have an obligation to take any action that Agent believes in good faith would violate any law or any provision of this Agreement or the other Loan Documents, and (c) unless and until Agent shall have received direction from the Lenders or Required Lenders, as the case may be, Agent may (but shall not be obligated to) take such action or refrain from taking action with respect to such Event of Default as Agent shall deem advisable and in the best interests of the Lenders.

 

16.6          Lenders’ Due Diligence . Each Lender expressly acknowledges that Agent has not made any representation or warranty to such Lender regarding the transactions contemplated by this Agreement or the financial condition of Borrower, and such Lender agrees that no action taken by Agent hereafter, including any review of the business or financial affairs of Borrower, shall be deemed to constitute a representation or warranty by Agent to any Lender. Each Lender also acknowledges that such Lender has, independently and without reliance upon Agent or any other Lender and based solely on such documents and information as such Lender has deemed appropriate (and with the advice and assistance of such legal counsel as such Lender has deemed appropriate), made its own independent (a) determination of the adequacy, efficacy, sufficiency, validity and enforceability of the Agreement and the other Loan Documents, (b) credit analysis, appraisal of and investigation into the business, operations, property, financial condition, Collateral and creditworthiness of Borrower, and (c) decision to enter into this Agreement. Each Lender agrees, independently and without reliance upon Agent or any other Lender and based on such documents and information as such Lender shall deem appropriate at the time, (i) to continue to make its own credit analyses and appraisals in deciding whether to take or not take action under this Agreement and (ii) to make such investigations as such Lender deems necessary to inform itself as to the business, operations, property, financial condition and creditworthiness of Borrower.

 

16.7          Right to Indemnification . The Lenders, jointly and severally, shall defend, indemnify and hold harmless Agent (and Agent’s heirs, successors and assigns) (to the extent not reimbursed by Borrower and without limiting the obligation of Borrower to do so), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time be imposed on, incurred by or asserted against Agent in any way relating to or arising out of (a) this Agreement or any other Loan Document, (b) the transactions contemplated hereby or (c) any action taken or not taken by Agent under or in connection with any of the foregoing, provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from Agent’s gross negligence or willful misconduct.

 

16.8          Other Transactions . Agent and any Lender may make loans to and generally engage in any kind of business with Borrower, as though Agent or such Lender were not Agent or a Lender hereunder. With respect to loans made by Agent under this Agreement as a Lender, Agent shall have the same rights and powers, duties and liabilities under this Agreement and the other Loan Documents as any other Lender, and may exercise the same as though it was not Agent, and the term “Lender” and “Lenders” shall include Agent in its individual capacity as such.

 

16.9          Resignation of Agent; Removal of Agent .

 

(a)          Agent may resign as Agent upon thirty (30) days’ notice to the Lenders, and such resignation shall be effective on the earlier of (a) the appointment of a successor Agent by the Lenders or (b) the date on which such 30-day period expires. If Agent provides the Lenders with notice of its intention to resign as Agent, the Lenders agree to appoint a successor to Agent as promptly as possible thereafter, whereupon such successor shall succeed to the rights, powers and duties of Agent, and the term “Agent” shall mean such successor effective upon its appointment. Upon the effective date of Agent’s resignation, such Agent’s rights, powers and duties as Agent hereunder immediately shall terminate, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After an Agent’s resignation hereunder, the provisions of this Section 16 shall continue to inure to such Agent’s benefit as to any actions taken or not taken by such Agent while acting as Agent.

 

  - 20 -  

 

 

(b)          If RJP resigns as an officer of the Company or is removed as an officer of the Company by the Company’s Board of Directors for cause (the date of resignation or removal for cause being referred to as the “ RJP Termination Date ”), RJP’s rights, powers and duties as Agent hereunder shall terminate on the RJP Termination Date, without any other or further act or deed on the part of RJP or any of the parties to this Agreement, and the Supplemental Lenders shall promptly appoint a successor Agent hereunder.

 

16.10          Voting Rights; Agent’s Discretionary Rights .

 

(a)          Notwithstanding anything contained in this Agreement to the contrary, without the prior written consent of all Lenders, Agent will not agree to:

 

(i)          amend or waive Borrower’s compliance with any term or provision of this Agreement; or

 

(ii)         except as otherwise expressly permitted or required hereunder, release any Collateral.

 

(b)           In all other respects Agent is authorized to take or to refrain from taking any action which Agent, in the exercise of its reasonable business judgment, deems to be advisable and in the best interest of the Lenders, unless this Agreement specifically requires Borrower or Agent to obtain the consent of, or act at the direction of, the Required Lenders.

 

16.11          Deemed Consent . If a Lender’s consent to a waiver amendment or other course of action is required under the terms of this Agreement and such Lender does not respond to any request by Agent for such consent within five (5) Business Days after the date of such request, such failure to respond shall be deemed a consent to the requested course of action.

 

16.12          Survival of Agreements of the Lenders . The obligations of the Lenders set forth in Section 16.7 hereof shall survive the termination of this Agreement.

 

17.          Amendment and Restatement . This Agreement is an amendment and restatement of, and replaces and supersedes, the Existing Agreement among Borrower and Initial Lenders, and it is not intended to be, nor shall it be construed as, a novation of Borrower’s responsibilities and obligations to Initial Lenders pursuant to the Existing Agreement or any other related documents previously executed in favor of Initial Lenders. It is specifically acknowledged and agreed that the security interests and rights granted to Initial Lenders pursuant to the Existing Agreement and related existing documents, including the Loan Documents, are to continue in full force and effect for the benefit of and shall in all respects be enforceable by Agent and the other Lenders (except to the extent, if any, modified herein), and the priority and perfection of all security interests in the Collateral shall continue to date from the dates originally established in connection with the Existing Agreement and related existing documents. The terms, conditions, agreements, covenants, representations and warranties set forth in the Existing Agreement are simultaneously amended and restated in their entirety, and as so amended and restated, replaced and superseded by the terms, conditions agreements, covenants, representations and warranties set forth in this Agreement and the other Loan Documents executed and/or delivered on or after the date hereof, and as of the Effective Date neither Borrower nor Agent and Lenders shall be subject to or bound by any of the terms of the Existing Agreement and shall only be subject to or bound by the terms and provisions of this Agreement, except that nothing herein or in the other Loan Documents shall, in any manner, be construed to constitute payment of, or impair, limit, cancel or extinguish, or constitute a novation in respect of any of the Existing Obligations or any other obligations, liabilities and indebtedness of Borrower evidenced by or arising under the Existing Agreement or impair or adversely affect the continuation of the Liens and other interests in the Collateral heretofore granted, pledged and/or assigned by Borrower to Agent. All Existing Obligations and all other loans, advances and other financial accommodations under the Existing Agreement of Borrower to Agent and Lenders that are outstanding and unpaid as of the date hereof pursuant to the Existing Agreement or otherwise shall be deemed Obligations of Borrower pursuant to the terms hereof, and shall constitute and be deemed Loans hereunder.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

  BLONDER TONGUE LABORATORIES, INC.
   
  By:  /s/ Eric Skolnik
  Name: Eric Skolnik
  Title: Sr. VP
   
  R.L. DRAKE HOLDINGS, LLC
   
  By:  /s/ Eric Skolnik
  Name: Eric Skolnik
  Title: VP
   
  /s/ Robert J. Pallé
  ROBERT J. PALLÉ, as Agent
   
  /s/ Robert J. Pallé
  ROBERT J. PALLÉ, as a Lender
   
  /s/ Carol M. Pallé
  CAROL M. PALLÉ, as a Lender
   
  /s/ Steven L. Shea
  STEVEN L. SHEA, as a Lender
   
  /s/ James H. Williams
  JAMES H. WILLIAMS, as a Lender

 

  - 22 -  

 

 

Schedule 1.1

 

LENDERS; COMMITMENTS; PERCENTAGE SHARES

 

THE AGGREGATE COMMITMENTS TOTAL: SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000). ON AND AS OF THE EFFECTIVE DATE, THE COMMITMENTS OF LENDERS ARE AS FOLLOWS:

 

Lenders   Commitment     Percentage Share  
             
Tranche A
Robert J. Pallé and Carol M. Pallé   $ 300,000       100 %
TOTAL TRANCHE A   $ 300,000       100 %
Tranche B
Steven L. Shea   $ 100,000       50 %
Robert J. Pallé and Carol M. Pallé   $ 50,000       25 %
James H. Williams   $ 50,000       25 %
TOTAL TRANCHE B   $ 200,000       100 %
Tranche C
Robert J. Pallé and Carol M. Pallé   $ 250,000       100 %
TOTAL TRANCHE C   $ 250,000       100 %

 

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Exhibit 10.38

 

Execution Copy

 

amended and restated MORTGAGE AND SECURITY AGREEMENT

 

THIS AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT is dated as of this 28 th day of March, 2016 (the “Mortgage ”) by and between BLONDER TONGUE LABORATORIES, INC., a Delaware corporation (“ Mortgagor ”), with its place of business at One Jake Brown Road, Old Bridge, New Jersey and ROBERT J. PALLÉ, in his capacity as agent (in such capacity, the “ Mortgagee ”) for the Lenders (as defined in the Loan Agreement referred to below).

 

WITNESSETH:

 

WHEREAS, Mortgagor, certain persons as lenders (the “ Lenders ”) and Mortgagee have entered into a certain Amended and Restated Senior Subordinated Convertible Loan and Security Agreement dated on or about the date hereof (the “ Loan Agreement ”; and together with this Mortgage and all other documents given as security for or in connection with the Loan Agreement, as the same may be amended, modified, or supplemented from time to time, are sometimes collectively referred to below as the “Loan Documents” ), wherein Mortgagor promises to pay to the Lenders the principal sum of up to seven hundred fifty thousand and 00/100 Dollars ($750,000.00), lawful money of the United States of America, with interest thereon at rates and times, in the manner and according to the terms and conditions specified in the Loan Agreement, all of which are incorporated herein by reference;

 

WHEREAS, the maximum principal amount of indebtedness intended to be secured hereby is seven hundred fifty thousand and 00/100 Dollars ($750,000.00);

 

WHEREAS, Mortgagor has previously entered into (a) a certain Senior Subordinated Convertible Loan and Security Agreement dated as of February 11, 2016 (as in effect on the date hereof, the “ Existing Loan Agreement ”), by and among Mortgagor, as borrower, and Robert J. Pallé and Carol M. Pallé, as lenders (collectively, “ Initial Lenders ”); and (b) a certain Mortgage and Security Agreement dated as of February 11, 2016 (as in effect on the date hereof, the “ Existing Mortgage ”) in favor of the Initial Lenders; and

 

WHEREAS, in connection with the amendment and restatement of the Existing Loan Agreement and the agreements of the Mortgagee and the Lenders contained therein, Mortgagor is required to amend and restate the Existing Mortgage, all as more particularly set forth herein.

 

NOW, THEREFORE, in order to secure the obligations of the Mortgagor as set forth in the Loan Agreement and the full and prompt payment of all the obligations due or to become due under the Loan Documents, or otherwise due or to become due under this Mortgage, or any extensions or modifications thereof or hereof, including all future advances, as well as to secure the performance of all of Mortgagor’s covenants and agreements contained in this Mortgage and the Loan Documents, or any amendments thereof, including without limitation, any advances made, with respect to the Mortgaged Property described below, for the payment of taxes, assessments, maintenance charges, insurance premiums or costs incurred for the protection of the Mortgaged Property or the lien of this Mortgage, expenses incurred by Mortgagee by reason of the default of the Mortgagor, or payment of all other sums advanced in accordance with this Mortgage to protect Mortgagee’s security, with interest on those sums, and all other obligations, liabilities and indebtedness of every kind, nature or description owing by Mortgagor to Mortgagee, each Lender and/or its affiliates, including principal, interest, charges, fees and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under the Loan Documents, or otherwise, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of the Loan Documents or after the commencement of any case with respect to Mortgagor under the United States Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended, and whether arising directly or howsoever acquired by Mortgagee and the other Lenders, including from any other entity outright, conditionally or as collateral security, by assignment, merger with any other entity, participations or interests of Mortgagee and the other Lenders in the obligations of Mortgagor to others, assumption, operation of law, subrogation or otherwise (all of the foregoing are hereinafter collectively referred to as the “Obligations” ), plus interest thereon from the date of demand for payment hereunder plus any and all costs of collection hereunder (including without limitation reasonable attorney’s fees and other expenses) and in consideration of the premises and the further sum of Ten Dollars ($10.00) paid to the Mortgagor by Mortgagee and the other Lenders at or before the ensealing and delivery hereof, the receipt whereof is hereby acknowledged, the Mortgagor has granted, bargained and sold, aliened, enfeoffed, released, remised, conveyed, confirmed and mortgaged, and by these presents does grant, bargain and sell, alien, enfeoff, release, remise, convey, confirm, and mortgage unto the Mortgagee (for itself and on behalf of the Lenders) and its successors and assigns, that certain tract or parcel of land known as One Jake Brown Road, Old Bridge, New Jersey, and the improvements thereon, as the same is more particularly described in Exhibit “A” attached hereto and made a part hereof (collectively, the “Real Estate” );

 

 

 

 

TOGETHER with the appurtenances and all the estates and rights of mortgagor in and to the Real Estate, including without limitation the rents, fixtures, equipment, reversions, remainders, easements, issues and profits arising or issuing from the Real Estate and the improvements thereon including, but not limited to the rents, issues and profits arising or issuing from the Real Estate and the improvements thereon, including but not limited to the rents, fixtures, equipment, issues and profits arising or issuing from all insurance policies, sale agreements, licenses, options, leases and subleases now or hereafter entered into covering any part of said Real Estate or the buildings, structures and improvements thereon, all of which insurance policies, sale agreements, licenses, options, leases, subleases, rents, issues and profits are hereby assigned and shall be caused to be assigned to Mortgagee (for itself and on behalf of the other Lenders) by Mortgagor. Mortgagor will execute and deliver to Mortgagee (for itself and on behalf of the other Lenders) on demand such assignments as Mortgagee (for itself and on behalf of the other Lenders) may require to implement this assignment;

 

TOGETHER with all the right, title and interest of Mortgagor in and to all streets, roads and public places, opened or proposed, adjoining the Real Estate, and all easements and rights of way, public or private, now or hereafter created or used in connection therewith;

 

TOGETHER with all the right, title and interest of Mortgagor, now owned or hereafter acquired, in and to any and all sidewalks and alleys adjacent to the Real Estate;

 

TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed on the Real Estate;

 

TOGETHER with all of Mortgagor’s right, title and interest now owned or hereafter acquired in and to all heating, plumbing, sprinkler, water, gas, electric power, lighting and air conditioning equipment, elevators, machinery, fixtures, equipment, furniture, building materials of any kind or nature, together with all replacements thereof and additions thereto, now, or at any time hereafter, affixed or attached to said Real Estate, buildings, structures and improvements (collectively the “Personal Property” ), all of which Mortgagor represents and warrants are and will be owned by Mortgagor free from any prior conditional sales, chattel mortgages, security interests, liens, pledges, hypothecations, charges or encumbrances and is intended to be subject to the lien of this Mortgage as if part of the realty. This provision shall be self-operative and this Mortgage, to the extent that any such Personal Property or other property subject to this Mortgage shall not be deemed to be part of the realty, shall constitute a security agreement under the New Jersey Uniform Commercial Code ( “UCC” ), and Mortgagor shall execute and deliver to Mortgagee (for itself and on behalf of the other Lenders) on demand, and hereby irrevocably appoints Mortgagee (for itself and on behalf of the other Lenders), or any person designated by Mortgagee (for itself and on behalf of the other Lenders), the attorney-in-fact of Mortgagor to execute, deliver and file such financing statements and other instruments as Mortgagee (for itself and on behalf of the other Lenders) may reasonably require in order to perfect and maintain such security interest under the UCC;

 

TOGETHER with all accounts, contract rights (including, but not limited to, architectural contracts, construction contracts, and management contracts), accounts receivable, agreements of sale, and claims of any sort relating to or arising out of the Real Estate whether now owned or hereafter acquired;

 

TOGETHER with all awards, damages, payments and other compensation, and claims therefor and rights thereto, which may result from a taking or injury by virtue of the exercise of the power of eminent domain of or to, or from any damage, injury or destruction by casualty or otherwise caused to, the Real Estate and said improvements and personalty, or any part thereof, including insurance proceeds, or from any change of grade or vacation of any street abutting thereon, all of which are hereby assigned to Mortgagee (for itself and on behalf of the other Lenders) to the fullest extent permitted by law, Mortgagee (for itself and on behalf of the other Lenders) being hereby irrevocably appointed attorney-in-fact for Mortgagor to collect and receive any such awards, damages, payments and compensation from the authorities or insurers making the same, and to give receipts and acquittances therefor, and to institute, appear in and prosecute any proceeding therefor, it being agreed that all sums collected by or paid to Mortgagee (for itself and on behalf of the other Lenders) pursuant to this assignment, net of any cost incurred by Mortgagee (for itself and on behalf of the other Lenders) in collecting the same (including attorneys’ fees), shall be applied to the payment of the Obligations whether or not then due and payable, or to the restoration of the Mortgaged Property (hereafter defined) as Mortgagee shall elect, unless otherwise set forth herein; and

 

  2  

 

 

TOGETHER with any and all proceeds (including insurance and condemnation proceeds and proceeds of other proceeds) of any of the foregoing.

 

All of the property and rights hereinabove described or mentioned being hereinafter collectively called the “Mortgaged Property” .

 

TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee (for itself and on behalf of the other Lenders), its successors and assigns, forever;

 

AND, at all times until the Obligations are paid in full with interest and faithfully and strictly performed, Mortgagor does hereby covenant, promise and agree with Mortgagee (for itself and on behalf of the other Lenders) as follows:

 

ARTICLE I

 

Covenants As To Taxes and Assessments

 

1.1.          Mortgagor will pay and discharge (i) all the taxes, general and special, levies and assessments heretofore or hereafter charged, assessed or levied against the Mortgaged Property or any part thereof by any lawful authority, or which otherwise may become a lien thereon (all of which are herein collectively the “ Taxes ”); and (ii) all water and sewer rents which may be assessed or become liens on the Mortgaged Property, not less than ten days before the date on which any interest or penalties shall commence to accrue thereon, and produce to Mortgagee evidence of such payment not less than ten days thereafter. In default of any of the above-described payments, Mortgagee may, but shall not be obligated to, pay the same, and such payment by Mortgagee shall be repaid by Mortgagor to Mortgagee on demand, shall be secured hereby, and shall bear interest at the rate set forth in the Loan Agreement from the date Mortgagee makes such payment until such sums are repaid in full. Mortgagor shall promptly cause to be paid and discharged, any lien or charge whatsoever which by any present or future law may be or become superior, either in lien or in right of distribution out of the proceeds of any judicial sale of the Mortgaged Property, to the liens created hereby. Mortgagor will cause to be paid, when due, all charges for utilities whether public or private.

 

1.2.          At such time or times when Mortgagee is the holder of the senior mortgage against the Mortgaged Property, upon the request of Mortgagee, Mortgagor will pay to Mortgagee, contemporaneously with each monthly payment of interest, principal or principal and interest, a sum equal to one-twelfth (1/12) of the real estate taxes, water rents, sewer rents, payments in lieu thereof, special assessments and any other tax, assessment, lien, claim or encumbrance which may at any time be or become a lien on the Mortgaged Property prior to, or on a parity with, the lien of this Mortgage so as to enable Mortgagee to pay the same at least thirty (30) days before they become due. If special assessments against the Mortgaged Property may be paid in installments and Mortgagor elects to do so, the monthly payments to Mortgagee for such special assessments shall be one-twelfth (1/12) of the then current annual installment.

 

Any such amounts so paid shall be deemed to be trust funds and may not be co-mingled with general funds of Mortgagee, but rather shall be deposited into a separate escrow account for the benefit of Mortgagor, provided, however, no interest shall be payable thereon. If, pursuant to any provision of this Mortgage, the whole amount of said principal debt remaining or any installment of interest, principal or principal and interest becomes due and payable, Mortgagee shall have the right, at its election, to apply any amounts so held against all or any of the Obligations, any interest thereon or in payment of the premiums or payments for which the amounts were deposited. Mortgagor will furnish to Mortgagee tax bills in sufficient time to enable Mortgagee to pay such taxes, assessments, levies, charges and fees, before interest and penalties accrue thereon.

 

  3  

 

 

1.3.          Mortgagor covenants and agrees to pay to Mortgagee the principal and interest hereby secured without deduction or credit for any amount for Taxes assessed or to be assessed against the Mortgaged Property.

 

ARTICLE II

 

General Representations and Covenants of Mortgagor

 

2.1.          Mortgagor will observe and perform all of the terms, covenants and conditions on the part of Mortgagor to be observed and performed under this Mortgage and shall pay and faithfully and strictly perform all of the Obligations.

 

2.2.          Mortgagor warrants and covenants that it has good and marketable fee simple title to the Mortgaged Property, subject to no liens, claims, security interests, pledges, hypothecations or other encumbrances or charges. Mortgagor warrants that it has full power and lawful authority to execute and deliver this Mortgage and to mortgage to Mortgagee all of the property and rights purported to be mortgaged by it hereunder. Mortgagor will forever warrant and defend the title to the Mortgaged Property unto Mortgagee against the claims and demands of all persons whomsoever.

 

2.3.          Mortgagor will not, without the prior written consent of Mortgagee, cause or permit any building or improvement comprising part of the Mortgaged Property to be removed, demolished or structurally altered, in whole or in part, or any material fixture therein to be removed or destroyed. Mortgagor will not abandon the Mortgaged Property or cause or permit any waste thereto and will at all times maintain the Mortgaged Property in substantially its current condition, normal wear and tear excepted.

 

2.4.          Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, will take good care of the Mortgaged Property and will keep the same in good order and condition.

 

2.5.          Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times and during regular business hours to inspect the same. In case of any Event of Default, as defined hereinafter, Mortgagee may, at its option, enter the Mortgaged Property to protect, restore or repair any part thereof, but Mortgagee shall be under no obligation to do so. Mortgagor will repay to Mortgagee on demand any sums paid by Mortgagee to protect, restore or repair any part of the Mortgaged Property, with interest thereon at the rate set forth in the Loan Agreement, and, until so paid, the same shall be secured by this Mortgage.

 

2.6.          Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, shall promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, courts, departments, commissions, boards and officers, any national or local Board of Fire Underwriters, or any other body exercising functions similar to those of any of the foregoing, which may be applicable to the Mortgaged Property, the maintenance and use thereof and the sidewalks and curbs adjoining the Mortgaged Property whether or not such law, ordinance, order, rule, regulation or requirement shall necessitate structural changes or improvements, or the removal of any encroachments or projections, ornamental, structural or otherwise, onto or over property contiguous or adjacent thereto, any such structural changes or improvements or removal of encroachments to be performed with the consent of Mortgagee, which consent will not be unreasonably withheld. Mortgagor will comply with all orders and notices of violation thereof issued by any governmental authority. Mortgagor will pay all license fees and similar municipal charges for the use of the Mortgaged Property and the other areas now or hereafter comprising part thereof or used in connection therewith and will not, unless so required by any governmental agency having jurisdiction, discontinue use of the Mortgaged Property without prior written consent of Mortgagee. If Mortgagor shall fail to perform any covenant herein, Mortgagee may (but shall be under no obligation to) perform such covenant for the account of Mortgagor and any sums paid by Mortgagee in such event shall be repaid by Mortgagor to Mortgagee with interest thereon at the rate set forth in the Loan Agreement and, until so paid, the same shall be secured by this Mortgage.

 

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2.7.          Mortgagor shall not, without the prior written consent of Mortgagee, by deed, mortgage, pledge, lease, easement or other instrument grant, mortgage, pledge, convey, assign, devise or otherwise transfer all or any part of the Mortgaged Property or any interest therein, directly or indirectly, nor shall Mortgagor suffer or permit such conveyance, assignment or transfer by execution sale or operation of law or otherwise.

 

2.8.          Mortgagor shall promptly pay upon demand, and presentation of invoices or bills, with interest thereon at the rates set forth in the Loan Agreement, all expenses and costs incurred by Mortgagee, including reasonable attorney’s fees in connection with any action, proceeding, litigation or claim instituted or asserted by or against Mortgagee or in which Mortgagee becomes engaged, wherein it becomes necessary in the reasonable opinion of Mortgagee to defend or uphold the lien of this Mortgage, or the validity or effectiveness of any assignment of any claim, award, payment, property damage, insurance policy or any other right or property conveyed, encumbered or assigned by Mortgagor to Mortgagee hereunder, or the priority of any of the same, and all such expenses and costs, and interest thereon, may be added to and become part of the principal indebtedness of Mortgagor hereunder, bear interest at the rate set forth in the Loan Agreement and be secured by this Mortgage.

 

2.9.          To further secure payment of the Obligations, Mortgagor hereby pledges, assigns and grants to Mortgagee a continuing security interest in and lien on all of Mortgagor’s Personal Property, accounts, contract rights, accounts receivable now owned or existing or hereafter acquired and all proceeds therefor, whether now owned or hereafter acquired and all proceeds of all of the foregoing. The parties hereto agree that the security interest created hereunder is valid under the UCC and is a presently existing security interest and attaches to Mortgagor’s above-mentioned Personal Property as of the date hereof.

 

2.10.         Mortgagor will not, without the prior written consent of Mortgagee, create or suffer to be created any security interest under the UCC, or other encumbrance in favor of any party other than Mortgagee, or create or suffer any reservation of title by any such other party, with respect to any Personal Property nor shall any such Personal Property be the subject matter of any lease or other transaction whereby the ownership or any beneficial interest in any of such Personal Property is held by any person or entity other than Mortgagor (or Mortgagee as provided herein). All such Personal Property shall be purchased for cash or in such manner that no lien shall be created thereon except the lien of this Mortgage, unless Mortgagee shall agree in writing to the contrary before a contract to purchase any such Personal Property is executed. Mortgagor will deliver to Mortgagee on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which Mortgagor claims title to any Personal Property incorporated in the improvements or subject to the lien of this Mortgage.

 

2.11.         Mortgagor shall at its expense, promptly upon request of Mortgagee (i) do all acts and things, including but not limited to the execution of any further assurances, deemed necessary by Mortgagee, to establish, confirm, maintain and continue the lien created and intended to be created hereby, all assignments made or intended to be made pursuant hereto, and all other rights and benefits conferred or intended to be conferred on Mortgagee hereby, and Mortgagor shall pay all costs incurred by Mortgagee in connection therewith, including all filing and recording costs, cost of searches, and reasonable counsel fees incurred by Mortgagee; and (ii) furnish Mortgagee with a written certification signed by Mortgagor, or an officer of Mortgagor on Mortgagor’s behalf, as to all then existing leases for space covering any part of the Mortgaged Property, the names of the tenants, the rents payable thereunder and the dates to which such rents are paid, together with executed copies of all such leases.

 

2.12.         Mortgagor will promptly perform and observe, or cause to be performed or observed, all of the terms, covenants and conditions of all instruments of record affecting the Mortgaged Property, noncompliance with which may affect the security of this Mortgage or which may impose any duty or obligation upon Mortgagor or any lessee or other occupant of the Mortgaged Property or any part thereof, noncompliance with which may affect the security of this Mortgage, and Mortgagor shall do or cause to be done all things necessary to preserve intact and unimpaired any and all easements, appurtenances and other interests and rights in favor of or constituting any portion of the Mortgaged Property.

 

2.13.         To further secure payment of the Obligations, Mortgagor hereby assigns and sets over unto Mortgagee the interest of such Mortgagor as lessor in and to all leases, written or oral, of the Mortgaged Property or any part thereof now or hereafter made, executed or delivered. Mortgagor hereby authorizes and empowers Mortgagee to collect the rents under the aforesaid leases as they become due, and hereby directs each and all of the tenants of the Mortgaged Property, upon demand made by Mortgagee, to pay such rents as they become due to Mortgagee; provided, however, no such demand shall be made unless and until there has occurred an Event of Default under the terms of this Mortgage, and until such demand is made, Mortgagor is authorized to collect the aforesaid rents; but such privilege of Mortgagor to collect rents as aforesaid shall not operate to permit the collection by Mortgagor of any installment of rent for more than one month in advance.

 

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2.14.         Mortgagor will not, without the prior written consent of Mortgagee, assign the rents of the Mortgaged Property or any part thereof, nor consent (other than in the ordinary course of business) to the cancellation, modification or surrender of any lease now or hereafter covering the Mortgaged Property, or any part thereof; nor accept any prepayment of rents under any such lease more than one month in advance; and any such purported assignment, cancellation, modification, surrender or prepayment made without consent of Mortgagee shall be void as against Mortgagee.

 

2.15.         Mortgagor shall, upon the request of Mortgagee, given 15 days in advance, furnish a duly acknowledged written statement to Mortgagee, or any proposed assignee of this Mortgage, setting forth the amount of the Obligations and stating either that no off-sets or defenses exist against the Obligations, or, if such off-sets or defenses are alleged to exist, the nature and amount thereof.

 

2.16.         Mortgagor agrees not to do or suffer any act or thing which would impair the security of the Obligations or of the lien of this Mortgage upon the Mortgaged Property, or the rents, issues or profits thereof.

 

2.17.         Mortgagor shall, at its sole cost and expense, within ninety (90) days after the termination of each calendar year, furnish Mortgagee with a copy of Mortgagor’s audited financial statements, for the preceding fiscal year relating to the operation of Mortgagor’s business.

 

ARTICLE III

 

Environmental Matters, Representations and Warranties.

 

3.1.          Mortgagor shall comply in all material respects with all Applicable Environmental Laws. As set forth herein, “Applicable Environmental Laws” shall mean any and all existing or future federal, state and local statutes, ordinances, regulations, rules, executive orders, standards and requirements, including the requirements imposed by common law, concerning or relating to industrial hygiene and the protection of heath and the environment including, without limitation: (i) the Comprehensive Environmental Response, Compensation and Liability act of 1980, as amended, 42 U.S.C. 9601 et seq . ( “CERCLA” ); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. 6901 et . seq . ( “RCRA” ); (iii) the Clean Air Act, as amended, 42 U.S.C. 7901 et seq .; (iv) the Clean Water Act, as amended, 33 U.S.C. 1251 et seq .; (v) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. 1801 et seq .; (vi) the New Jersey Industrial Site Recovery Act, formerly known as the Environmental Cleanup Responsibility Act, as amended, N.J.S.A. 13:1K-6 et seq . ( “ISRA” ); (vii) the New Jersey Spill Compensation and Control Act, as amended, N.J.S.A. 58:10-23.11b et seq . ( “Spill Act” ); (viii) the New Jersey Underground Storage of Hazardous Substances Act, as amended, N.J.S.A. 58:10A-21 et seq .; and (ix) the New Jersey Water Pollution Control Act, as amended, N.J.S.A. 58:10A-1 et seq . Any terms mentioned herein which are defined in any Applicable Environmental Law shall have the meanings ascribed to such terms in said laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment.

 

3.2.          Mortgagor represents and warrants that Mortgagor has not and will not engage in operations upon the Mortgaged Property, which involve the generation, manufacture, refining, transportation, treatment, use, storage, handling, release, or disposal of any Hazardous Materials (as herein defined) other than in compliance with all applicable laws.

 

3.3.          For the purposes of this Mortgage, the term “Hazardous Materials” shall include, but shall not be limited to, petroleum fuel products, any petroleum or petroleum byproducts, PCBs, asbestos, friable asbestos or asbestos-containing material, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million, any flammable explosives, radioactive materials, any “Hazardous Substance”, as such term is defined in 42 U.S.C. 9601(14) or N.J.A.C.7:1E-1.7, (herein, “Hazardous Substance” ), any “Hazardous Waste”, as such term is defined in 42 U.S.C. 6903 (5) (herein, “Hazardous Waste” ), or any other material, substance, pollutant or contaminant that is considered hazardous, radioactive or toxic under any applicable federal, state or local statues, ordinances, rules or regulations now or at any time hereafter in effect. “ Toxic Mold ” shall mean any fungal or bacterial bioaerosol (including, without limitation, Stachybotrys chartarum (“black mold”), spores, mycotoxins, endotoxins, bacterial cells, and volatile organic compounds (VOCs)), or any other mold or fungus, in, on or affecting the Mortgaged Property, which is of a type determined by the application of reasonably acceptable scientific practices to pose a risk to human health or the environment or could have a material adverse effect on the value of the Mortgaged Property.

 

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3.4.          Mortgagor shall not cause or permit to exist, as a result of any intentional or unintentional action or omission on its part, or any tenant’s part, any releasing, spilling, leaking, pumping, pouring, emitting, emptying, growing or dumping from, on or about the Mortgaged Property of any Hazardous Materials. Mortgagor will promptly cause the removal and remediation of any Hazardous Materials which may hereafter be found on the Mortgaged Property, to a level consistent with Mortgagor’s intended use of the Mortgaged Property.

 

3.5.          Mortgagor represents and warrants that there is no Toxic Mold, or wet or dry rot on or about the Mortgaged Property.

 

3.6.          Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times to inspect the same, for purposes of making site and building investigations and performing soil, groundwater, structural and other tests, upon three days prior notice to Mortgagor. Mortgagor shall provide Mortgagee, its agents, employees, and representatives from time to time upon request with access to and copies of any and all data and documents relating to or dealing with any potentially Hazardous Materials used, generated, manufactured, found, stored or disposed of, on, under, or about the Mortgaged Property or transported to or from the Mortgaged Property within thirty (30) days of a request therefore. Mortgagor shall bear the cost of such copies and reimburse Mortgagee for all reasonable attorneys’ fees, copy costs, and other related costs incurred to procure such information as Mortgagee, in its sole discretion deems necessary.

 

3.7.          Mortgagor shall furnish to Mortgagee, immediately upon receipt or dispatch, a copy of any notice, summons, citation, directive, letter or other written communication from or to any federal, state or local environmental agency or department, which may evidence or result in a liability under any Environmental Law such that the costs of correcting, or of paying penalties assessed in connection with, such liability would have a material adverse effect upon the business of Mortgagor as now conducted or upon Mortgagor’s business, operations, properties or condition, financial or otherwise. In such event, Mortgagor shall use diligent efforts to complete all remediation which may be required by such communication from any federal, state, county, municipal or other administrative, investigative, prosecutorial or enforcement agency or environmental or occupational safety regulatory agency ( “Environmental Regulator” ) and to obtain from all such Environmental Regulators having jurisdiction thereof, and deliver to Mortgagee as received, such approvals and certifications as can be obtained from such agencies from time to time to confirm Mortgagor’s completion of all remediation and Mortgagor’s compliance with all governmental requirements applicable thereto.

 

3.8.          In the event of failure of Mortgagor to comply with any provision of this Mortgage or any other Loan Document relating to Hazardous Substances, Environmental Laws or Environmental Regulators, or if Mortgagee shall have reason to believe that any Hazardous Substance has been or is likely to be released or grow on, in or under the Mortgaged Property (except in compliance with all Environmental Laws), Mortgagee may do any or all of the following: (i) Mortgagee shall have the right to investigate, or to demand that Mortgagor investigate and report to Mortgagee on (in which case Mortgagor shall investigate and report to Mortgagee on) the result of the investigation of such location, and if Mortgagee requests, provide this investigation through an independent reputable environmental consulting or engineering firm acceptable to Mortgagee; (ii) without obligation to do so, to cure such default or to comply or cause compliance, or to demand that Mortgagor cure such default or comply or cause compliance, with any or all Environmental Laws. All of the foregoing shall be at the expense of Mortgagor, and any expense incurred by Mortgagee in connection with any of the foregoing (including without limitation its expenses relating to attorneys’ fees and any environmental consultants or engineers) shall be additional obligation of Mortgagor hereunder which shall be payable to Mortgagee upon demand, with interest computed at the rate set forth in the Loan Agreement from the date(s) upon which said costs and expenses were incurred by Mortgagee.

 

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3.9.          To the maximum extent permitted by applicable law, Mortgagor, for itself and its successors (herein, “Indemnifying Parties” ), shall jointly and severally indemnify, hold harmless, and upon request defend Mortgagee and its shareholders, officers, directors, employees, attorneys and agents, and their respective successors and assigns (collectively, the “Indemnified Parties” ) from and against any and all claims and liabilities asserted against any Indemnified Party by any Indemnifying Party or any third party (including without limitation for negligence or gross negligence) (herein, “Claims” ), and will pay and reimburse to the Indemnified Parties all losses, payments, reasonable costs and expenses associated therewith, or with the defense of all Indemnified Parties (including without limitation reasonable attorneys’ fees) which any Indemnified Party may suffer, incur or be exposed to by reason of or in connection with or rising out of the transport, release, treatment, processing, manufacture, deposit, storage, disposal, burial, dumping, injecting, spilling, leaking or placement at any time heretofore or hereafter, by any person or entity, of any Hazardous Material, including but not limited to any of the following whether incurred by an Indemnified Party, an Indemnifying Party or any third party: (1) costs of or liability for investigation, monitoring, boring, testing and evaluation; (2) costs or liabilities for abatement, correction, response, cleanup, removal or remediation; (3) fines, damages, penalties and other liabilities; (4) liability for personal injury or property damage.

 

3.10.         The Indemnifying Parties’ obligations under this Article III shall survive foreclosure, the satisfaction, release or cancellation of this Mortgage, or any other termination or release of the lien created hereby.

 

ARTICLE IV

 

Insurance, Damage or Destruction

 

4.1.          Mortgagor will insure itself and the Mortgaged Property against such perils and to such limits as Mortgagee shall reasonably require for the full replacement value of the Mortgaged Property, and Mortgagor shall provide evidence of such coverages as Mortgagee may reasonably request. All such insurance shall be in such forms and with such companies, and written in such amounts and with such deductibles and endorsements, as may be reasonably satisfactory to Mortgagee from time to time, and losses thereunder shall be payable to Mortgagee under a standard form of mortgagee endorsement and shall require that the insurer provide Mortgagee with thirty (30) days notice in the event of cancellation.

 

4.2.          Mortgagor will promptly notify Mortgagee of any loss thereunder, and Mortgagee may, after notice of its intention to do so to Mortgagor, make proof of loss thereof if not made within a reasonable time by Mortgagor. After default Mortgagee may, after notice of its intention to do so to Mortgagor, on behalf of Mortgagor, adjust and compromise any claims under such insurance and collect and receive the proceeds thereof and endorse drafts and Mortgagee is hereby irrevocably appointed attorney-in-fact of Mortgagor for such purposes. Mortgagee may deduct from such proceeds any expenses properly incurred by Mortgagee in collecting same, including reasonable counsel fees. Mortgagee shall hold such proceeds for the purposes set forth in Article VI of this Mortgage.

 

4.3.          At least thirty (30) days prior to the expiration of the term of any insurance policy required hereunder, Mortgagor shall provide Mortgagee with satisfactory evidence of the renewal of such policy. If Mortgagor shall fail to procure, pay for and deliver to Mortgagee any policy or policies of insurance or renewals thereof, Mortgagee may at its option, but shall be under no obligation to do so, effect such insurance and pay the premiums therefor, and Mortgagor will repay to Mortgagee on demand any premiums so paid, with interest, at the rate set forth in the Loan Agreement, and until so paid, the same shall be secured by this Mortgage.

 

4.4.          Upon the written request of Mortgagee, Mortgagor will pay to Mortgagee monthly one-twelfth of the annual premiums for the insurance required to be maintained under this Mortgage. The terms and conditions of Article I hereof relating to escrow payments for Taxes and similar charges shall also apply to such insurance premium escrow payments.

 

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ARTICLE V

 

Condemnation

 

5.1.          Mortgagor immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Mortgaged Property or any part thereof shall notify Mortgagee of the pendency of such proceedings. Unless and until Mortgagee shall notify Mortgagor of Mortgagee’s intent to appear and prosecute such proceedings, pursuant to the appointment and assignment given herein by Mortgagor to Mortgagee, Mortgagor may appear in and prosecute such proceedings in any lawful manner; provided, however, that Mortgagor shall have no right or authority to execute any instrument of conveyance or confirmation in favor of the condemnor except subject hereto, nor to accept any payment or settle or compromise any claim of Mortgagor arising out of such condemnation proceedings without the consent of Mortgagee. Mortgagee’s election not to appear in or prosecute such proceedings shall not diminish any right Mortgagee may have to receive any amount paid in connection with such condemnation and to apply such funds as herein provided.

 

ARTICLE VI

 

Distribution Upon Damage, Destruction or Condemnation

 

6.1.          In the event the whole or materially all of the Mortgaged Property shall be destroyed or damaged, Mortgagee shall have the right to collect the proceeds of any insurance and to retain and apply such proceeds, at its election, to the reduction of the Obligations or to restoration, repair, replacement, rebuilding or alteration (herein sometimes collectively called the “ Restoration ”) of the Mortgaged Property. In the event the whole or materially all of the Mortgaged Property shall be taken in condemnation proceedings or by agreement between Mortgagor and Mortgagee and the condemning authority, Mortgagee shall apply such award or proceeds thereof first to payment of the Obligations, and any balance then remaining shall be paid to Mortgagor. For the purposes of this Article VI, “materially all of the Mortgaged Property” shall be deemed to have been damaged, destroyed or taken if the portion of the Mortgaged Property not so damaged, destroyed or taken cannot be repaired or reconstructed so as to constitute a complete structure and facility usable in substantially the manner as prior to the damage, destruction or taking.

 

6.2.          So long as no Event of Default has occurred, in the event of partial destruction or partial condemnation, all of the proceeds or awards shall be collected and held by Mortgagee, and shall be applied by Mortgagee to the payment of the Restoration, from time to time as the Restoration progresses, upon the written request of Mortgagor, so long as:

 

(a)          Such proceeds are, in Mortgagee’s reasonable judgment, sufficient to cover the cost of such Restoration or, if insufficient, Mortgagor deposits with Mortgagee the amount of any such deficiency,

 

(b)          Mortgagor shall deliver to Mortgagee contracts, plans and specifications for the Restoration which are satisfactory to Mortgagee,

 

(c)          the work for which payment is requested has been done in a good and workmanlike manner and Mortgagor presents evidence satisfactory to Mortgagee of amounts owed or paid by Mortgagor for completed Restoration work,

 

(d)          The Mortgaged Property, after such Restoration is or will be, in the reasonable judgment of Mortgagee, of an economic utility not less than that of the Mortgaged Property prior to the casualty or condemnation, and

 

(e)          Mortgagor shall comply with such further conditions in connection with the use of such proceeds or award as Mortgagee may reasonably request.

 

Any balance remaining in the hands of Mortgagee after payment of such Restoration shall be retained by Mortgagee and applied to the payment of the Obligations.

 

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6.3.          Notwithstanding the foregoing provisions of this Article VI regarding insurance or condemnation proceeds, if no Event of Default has occurred, and if such proceeds do not exceed $250,000.00, and if the undamaged or uncondemned portion of the Mortgaged Property can be continuously used during the Restoration period as a complete structure and operating facility in substantially the same manner as prior to the damage, Mortgagor shall have the right to collect the insurance or condemnation proceeds and apply them to the Restoration.

 

6.4.          No damage, destruction or condemnation of the Mortgaged Property nor any application of insurance or condemnation proceeds to the payment of the Obligations shall postpone or reduce the amount of any of the current installments of principal or interest becoming due under the Obligations which shall continue to be made in accordance with the terms of the Obligations until the Obligations and all interest due thereunder are paid in full.

 

ARTICLE VII

 

Events of Default and Remedies

 

7.1.          Each of the following shall constitute an “Event of Default” under this Mortgage:

 

(a)          Failure of Mortgagor to make any payment required to be made by it hereunder, within thirty (30) days of the date when due;

 

(b)          Failure of Mortgagor to observe or perform any covenant, agreement, undertaking, performance or obligation of any provision hereof or if Mortgagor shall in any other way be in default hereunder or under any of the Loan Documents, except as otherwise specifically provided herein, and such failure continues for forty five (45) days after receipt by Mortgagor of written notice from Mortgagee specifying such failure; or

 

(c)          Failure of Mortgagor to provide the insurance required in Article IV hereof; or

 

(d)          The occurrence of an Event of Default as defined in the Loan Agreement; or

 

(e)          Any assignment for the benefit of creditors made by Mortgagor; or

 

(f)          Appointment of a custodian, receiver, liquidator or trustee of Mortgagor or of any of the property of Mortgagor; insolvency of Mortgagor; the filing by or against Mortgagor of any petition for the bankruptcy, reorganization or arrangement of Mortgagor pursuant to the Federal Bankruptcy Code or any similar federal or state statute and, in the case of any such petition filed against Mortgagor, such petition is not dismissed within ninety (90) days; or the institution of any proceeding for the dissolution or liquidation of Mortgagor.

 

7.2.          Upon the occurrence of an Event of Default, Mortgagee shall have the right and is hereby authorized, but without any obligation to do so, to perform the defaulted obligation and to discharge Mortgagor’s obligations on behalf of Mortgagor, and to pay any sums necessary for that purpose, and the sums so expended by Mortgagee shall be an obligation of Mortgagor, shall bear interest at the rate of interest set forth in the Loan Agreement, be payable on demand, and be added to the Obligations. Mortgagee shall be subrogated to all the rights, equities and liens discharged by any such expenditure. Such performance by Mortgagee on behalf of Mortgagor shall not constitute a waiver by Mortgagee of such default and shall not limit Mortgagee’s rights, remedies and recourses hereunder, or the Obligations, or as otherwise provided at law or in equity. Notwithstanding that the Obligations shall not have been declared due and payable upon any such default, the Obligations shall bear interest at the rate of interest set forth in the Loan Agreement from the date of notice and demand therefor by Mortgagee until such default shall have been completely cured and removed to the satisfaction of Mortgagee.

 

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7.3.          Upon the occurrence of an Event of Default, the entire unpaid balance of the principal, accrued interest and all other sums secured by this Mortgage, shall, at the option of Mortgagee, become immediately due and payable without notice or demand and Mortgagee shall have and may exercise all the rights and remedies permitted by law, including without limitation the right to foreclose this Mortgage, and proceed thereon to final judgment and execution thereon for the entire unpaid balance of said Obligations, with interest, at the rate of interest set forth in the Loan Agreement and pursuant to the methods of calculation specified in the Loan Agreement, together with all other sums secured by this Mortgage, all costs of suits, interest at the rate of interest set forth in the Loan Agreement on any judgment obtained by Mortgagee from and after the date of any Sheriff’s Sale of the Mortgaged Property until actual payment is made by the Sheriff of the full amount due Mortgagee, and reasonable attorney’s fees, without further stay, any law, usage, or custom to the contrary notwithstanding. In any such foreclosure proceedings, the Mortgaged Property shall be sold, at the sole option of Mortgagee, either (a) in one lot or unit and, as an entirety; or (b) in such lots or units and in such order and manner as may be required by law; or (c) in the absence of any such requirement, in such lots or units and in such order and manner as Mortgagee may determine in its sole discretion.

 

7.4.          Upon the occurrence of an Event of Default, Mortgagee shall have the right, without further notice or demand and without the appointment of a receiver, to enter immediately upon and take possession of the Mortgaged Property, without further consent or assignment of Mortgagor or any subsequent owner of the Mortgaged Property, with the right to let the Mortgaged Property, or any part thereof, and to collect and receive all of the rents, issues, profits and other amounts due or to become due to Mortgagor or any such subsequent owner and to apply the same in such order of priority as Mortgagee shall determine at its sole option, after payment of all necessary charges and expenses in connection with the operation of the Mortgaged Property (including any managing agent’s commission), on account of interest, principal, taxes, water charges and assessments, insurance premiums and any advances for improvements, alterations or repairs or otherwise pursuant to the terms hereof for the account of Mortgagor, or on account of the Obligations. Mortgagee may institute legal proceedings against any tenant of the Mortgaged Property who fails to comply with the provisions of his lease. If Mortgagor or any such subsequent owner is occupying the Mortgaged Property or any part thereof, such Mortgagor or subsequent owner will either immediately vacate and surrender possession thereof to Mortgagee or pay to Mortgagee a reasonable rental for the use thereof, monthly in advance, and, in default of so doing, such Mortgagor or subsequent owner may be dispossessed by legal proceedings or otherwise.

 

7.5.          All monies received by Mortgagee by virtue of the assignments made herein to Mortgagee, after payment therefrom of the costs and expenses incident to the enforcement or collection of the assigned rights or claims, shall be applied to the payment of the Obligations.

 

7.6.          Upon the occurrence of an Event of Default, Mortgagee may proceed to protect and enforce its rights under this Mortgage by suit for specific performance of any covenant herein contained, or in aid of the execution of any power herein granted, or for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right as Mortgagee shall deem most effectual for such purpose. The foregoing rights shall be in addition to, and not in lieu of, the rights of Mortgagee as a secured creditor under the UCC with respect to any portion of the Mortgaged Property which is subject to the UCC. Mortgagee may also proceed in any other manner permitted by law to enforce its rights hereunder and under the Loan Agreement of even date herewith.

 

7.7.          No failure or delay on the part of Mortgagee in exercising any right, power or privilege under this Mortgage, and no course of dealings between Mortgagor and Mortgagee, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No notice to or demand on Mortgagor shall entitle Mortgagor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Mortgagee to any other or further action in the same or other circumstances without notice or demand.

 

7.8.          In any action to foreclose this Mortgage, Mortgagee, to the fullest extent permitted by law, shall be entitled as a matter of right to the appointment of a receiver of the Mortgaged Property and of the rents, revenues, issues, income and profits thereof, without notice or demand, and without regard to the adequacy of the security for the Obligations or the solvency of Mortgagor.

 

7.9.          Upon the occurrence of any Event of Default, Mortgagor shall pay monthly in advance to Mortgagee, or to any receiver appointed at the request of Mortgagee to collect the rents, revenues, issues and profits of the Mortgaged Property, the fair and reasonable rental value for the use and occupancy of the Mortgaged Property or of such part thereof as may be possessed by Mortgagor. Upon default in payment thereof, Mortgagor shall vacate and surrender possession of the Mortgaged Property to Mortgagee or such receiver, and upon a failure so to do may be evicted by summary proceedings, in the manner hereinabove provided or otherwise.

 

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7.10.         The rights and remedies of Mortgagee expressed or contained in this Mortgage are cumulative and no one of them shall be deemed to be exclusive of the others or of any right or remedy Mortgagee may now or hereafter have at law or in equity. The covenants of this Mortgage shall run with the land and bind Mortgagor and, unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, its successors and assigns and all subsequent owners, encumbrancers, tenants and subtenants of the Mortgaged Property and shall inure to the benefit of Mortgagee and its successors and assigns and all subsequent holders of this Mortgage and the Obligations.

 

7.11.         Mortgagee may in its discretion from time to time grant to Mortgagor indulgences, forbearances and extensions of the Obligations, may release, with or without consideration, any portion of the Mortgaged Property from the lien hereof, and may accept other and further collateral security for the payment of and strict and faithful performance of the Obligations, all without otherwise affecting the lien or priority of this Mortgage, and the release of any portion of the Mortgaged Property from the lien hereof shall not affect the lien of this Mortgage with respect to the remainder of the Mortgaged Property.

 

7.12.         Mortgagor hereby waives and relinquishes the benefits of all present and future laws (i) exempting the Mortgaged Property or any other property or any part of the proceeds of sale thereof from attachment, levy or sale on execution; (ii) staying execution or other process; and (iii) requiring valuation or appraisement of the Mortgaged Property or any other property levied or sold upon execution under any judgment recovered for the Obligations. Notwithstanding the foregoing, Mortgagor hereby agrees to pay all fees and costs incurred by Mortgagee in connection with exercising its rights under this Mortgage (including, without limitation, attorneys’ fees), and Mortgagor shall be so obligated before or after a judgment has been rendered against Mortgagor by Mortgagee hereunder.

 

7.13.         The Mortgagor acknowledges and agrees that the occurrence of an Event of Default under the terms of this Mortgage shall constitute a default under each of the other Loan Documents and under any documents, instruments or agreements (the “Other Agreements” ), whether evidencing any other loan now existing or hereafter made by the Mortgagee to the Mortgagor, or otherwise, and a default under the other Loan Documents or any of them or any of the Other Agreements shall constitute an Event of Default under this Mortgage. The security interests, liens and other rights and interests in and relative to any of the collateral now or hereafter granted to the Mortgagee by the Mortgagor by or in any instrument or agreement, including but not limited to this Mortgage and the other Loan Documents, shall serve as security for any and all liabilities of the Mortgagor to the Mortgagee, including but not limited to the liabilities described in this Mortgage and the other Loan Documents, and, for the repayment thereof, the Mortgagee may resort to any security held by it in such order and manner as it may elect.

 

ARTICLE VIII

 

Indemnity

 

8.1.          Each Indemnifying Party agrees to indemnify and to hold harmless and upon request defend the Indemnified Parties of and from any and all liability, loss and damage (including without limitation those involving death, personal injury or property damage), and all costs and expenses (including without limitation attorneys’ fees and litigation costs) which any one or more Indemnified Parties may or might incur by reason of any event or circumstance occurring on the Mortgaged Property, and any action or omission of Mortgagor or its agents or invitees, and the failure of Mortgagor to comply with, or the failure of the Mortgaged Property to be kept in compliance with, any applicable law, rule or regulation (including the Environmental Laws, as to which Article III also applies), and the breach of any other agreement, contract or obligation under which the Indemnifying Parties are obligated, except solely to the extent that such liability, loss or damage is proximately and primarily caused by the willful misconduct of any Indemnified Party, or to the extent of the negligence of any Indemnified Party, or by any action or omission of any Indemnified Party that either violates applicable law or breaches an express contractual obligation of Mortgagee to Indemnifying Party. No Indemnifying Party shall have the right to settle any claim without the consent of the Indemnified Parties, which consent shall not be unreasonably withheld so long as such settlement will not (a) result in any material loss to any Indemnified Party which is not so indemnified by Indemnifying Party, or (b) have any other materially adverse effect on the Indemnified Party. Mortgagee agrees to act reasonably in giving the Indemnifying Parties notice of any claim that is subject to indemnification under this Agreement. The indemnities contained in this provision are specifically excepted from any limitation of liability provision contained in this or any of the Other Agreements. The Indemnifying Parties’ obligations under this Article VIII shall survive foreclosure, the satisfaction, release or cancellation of this Mortgage, or any other termination or release of the lien created hereby.

 

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ARTICLE IX

 

Miscellaneous Provisions

 

9.1.          All notices, demands, requests and consents required under this Mortgage shall be in writing. All such notices, demands, requests and consents shall be deemed to have been properly given if sent or given in accordance with the notice provisions set forth in Section 11.1 of the Loan Agreement.

 

9.2.          If Mortgagor complies with the provisions of this Mortgage and pays to Mortgagee all sums secured hereby in accordance with the terms of and at the times provided in the Loan Agreement and this Mortgage, without deduction, fraud or delay, then this Mortgage and the estate and security interest hereby granted and created shall then cease, terminate and become void, and Mortgagee shall execute and deliver such mortgage satisfactions and other documents as Mortgagor may reasonably request to evidence the same.

 

9.3.          Mortgagor shall promptly cause this Mortgage to be duly recorded in the Office for the Recording of Deeds and Mortgages in and for Middlesex County, New Jersey and shall pay all recording fees and other costs incurred in connection therewith.

 

9.4.          All amendments and modifications of this Mortgage must be in writing.

 

9.5.          If any term or provision of this Mortgage or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Mortgage, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and be enforced to the fullest extent permitted by law.

 

9.6.          This Mortgage is intended to secure present and future advances and the lien of future advances shall relate back to the date of this Mortgage, even if such advances are made under a renewal, extension, modification or refinancing of the Obligations, and even if the Obligations are assumed by a third party. Mortgagor agrees that full repayment of the Obligations secured hereby at any time shall not extinguish the security of this Mortgage for obligations which Mortgagor may incur to Mortgagee at anytime while the Obligations remain outstanding. Mortgagee may (but is not obligated to) make an advance or advances to pay interest, penalties, fees, charges or other obligations which Mortgagor may owe Mortgagee, and all such advances shall be secured by this Mortgage with lien priority from the time this Mortgage was left for record. If Mortgagee makes such an advance after having notified Mortgagor of a default under this Mortgage or the Obligations, any such advances shall be treated as expenses incurred by Mortgagee by reason of Mortgagor’s default under this Mortgage.

 

9.7.          This Mortgage is granted in connection with a commercial loan transaction and is not a residential mortgage; it shall not be construed to be pursuant to a consumer transaction or eligible for the protections granted to a mortgage pursuant to any such consumer or residential transaction.

 

9.8.          This Mortgage and all terms, covenants and conditions hereof shall inure to the benefit of and bind the parties hereto, their successors and assigns, to the extent assignments are permitted herein.

 

9.9.          MORTGAGOR HAS RECEIVED A FULLY EXECUTED COPY OF THIS MORTGAGE WITHOUT CHARGE.

 

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9.10.         Waiver of Jury Trial. MORTGAGOR AND MORTGAGEE IRREVOCABLY, AS AN INDEPENDENT COVENANT, WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING BETWEEN MORTGAGOR AND MORTGAGEE, WHETHER HEREUNDER OR OTHERWISE.

 

9.11.         It is the intention of Mortgagor and Mortgagee that the Existing Mortgage be amended and restated in its entirety pursuant to this Mortgage and that this Mortgage does not constitute a novation or termination of the liabilities and obligations of the applicable parties under the Existing Mortgage. Mortgagor further acknowledges and agrees that this Mortgage constitutes an amendment of the Existing Mortgage made in accordance with the terms of the Existing Mortgage. From and after the date hereof, all references to the Existing Mortgage (howsoever defined) contained in any of the Loan Documents shall be deemed to refer to this Mortgage.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, Mortgagor has executed and delivered this Mortgage on the day and year above written.

 

    BLONDER TONGUE LABORATORIES, INC., a Delaware corporation
       
    By: /s/ Eric Skolnik
      Eric Skolnik, Senior Vice President
(CORPORATE SEAL)      
    Attest:  /s/ Eric Skolnik
      Eric Skolnik, Assistant Secretary

 

The address of Mortgagee is:

 

21 Desai Court

Freehold, New Jersey 07728

On behalf of Mortgagee

 

/s/ Robert J. Palle  
ROBERT J. PALLÉ, AS AGENT, MORTGAGEE  

 

[Signature Page to Amended and Restated Mortgage and Security Agreement]

 

 

 

 

STATE OF NEW JERSEY:    
  : ss.
COUNTY OF MIDDLESEX: :  

 

On this the _______ day of March, 2016, before me, the undersigned officer, personally appeared ______________________, who known to me (or satisfactorily proven) to be the persons subscribed to the within instrument, and acknowledged that they executed the foregoing instrument for the purposes therein contained by signing their name(s) as their own free act and deed.

 

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

 

   
  Notary Public
   
  My Commission Expires:

 

[Signature Page to Amended and Restated Mortgage and Security Agreement]

 

 

 

 

EXHIBIT “A”

 

Legal Description

 

Real property in the Township of Old Bridge, County of Middlesex, State of New Jersey, described as follows:

 

ALL THAT CERTAIN lot, piece or parcel of land, situate, lying and being in the Township of Old Bridge, County of Middlesex, State of New Jersey:

 

BEGINNING at a point in the Easterly line of Jake Brown Road, variable width, distant 346.37 feet on a course bearing North 06 degrees 50 minutes 00 seconds East, from the intersection of the said line of Jake Brown Road extended Southerly with the Northerly line of Patio Greens Drive, extended Westerly, and running; thence

 

1. North 06 degrees 50 minutes 00 second East, 32.39 feet along the Easterly line of Jake Brown Road, as shown on a plat entitled Final Map Section 2 Patio Greens dated 9/5/84, filed with the Middlesex County Clerk on 8/20/85 as Map No. 4886, File No. 972, to a point of curvature; thence

 

2. Northerly along a curve to the left, having a radius of 1,000.00 feet, an arc length of 76.55 feet to a point of tangency; thence

 

3. North 02 degrees 26 minutes 50 seconds East, 541.66 feet along the Easterly line of Jake Brown Road to a point of curvature, being the beginning of the second course in Deed Book 2669, Page 827; thence 4. Northeasterly along a curve to the right, having a radius of 50.00 feet, an arc length of 78.54 feet to a point of tangency; thence

 

5. South 87 degrees 33 minutes 10 seconds East, 792.91 feet along the Southerly line of Jake Brown Road to a point of curvature; thence

 

6. Easterly along a curve to the left, having a radius of 200.00 feet, an arc length of 210.90 feet to a point of tangency; thence

 

7. North 32 degrees 01 minutes 44 seconds East, 244.08 feet to a point in the Easterly line of the present Jake Brown Road and the old Jake Brown Road, being the terminus of the 6th course in Deed Book 2660,

 

Page 86; thence

 

8. South 53 degrees 58 minutes 40 seconds East, 396.54 feet along the line of Lot 9 to a point; thence

 

9. South 44 degrees 50 minutes 00 seconds West, 189.49 feet along the line of Lot 1 in Block 9002 as shown on a plat entitled Final Map Section 3 Patio Greens dated 3/31/82, filed in the Middlesex County Clerk's Office on 4/19/84 as Map No. 4690, File No. 970; thence

 

10. South 43 degrees 03 minutes 07 seconds West, 849.65 feet to a point, said point being 9.25 feet Easterly of the point of beginning in the Deed Book 3289, Page 68 and 9.25 feet Westerly of the terminus of the 3rd course in Deed Book 3289, Page 68, Tract 2; thence

 

11. North 88 degrees 14 minutes 26 seconds West, 792.62 feet to a point, being the point and place of beginning.

 

NOTE: FOR INFORMATION ONLY: Being Lot(s) 8, Block(s) 9000; Tax Map of the Township of Old Bridge,

 

County of Middlesex, State of New Jersey.

 

 

 

 

Exhibit 10.39

 

Execution Copy

 

AMENDED AND RESTATED SUBORDINATION AGREEMENT

 

Borrower:

Blonder Tongue Laboratories, Inc.

One Jake Brown Road

Old Bridge, NJ 08857

 

and

 

R. L. Drake Holdings, L.L.C.

One Jake Brown Road

Old Bridge, NJ 08857

 

Lender:

Santander Bank, N.A. (f/k/a Sovereign Bank, N.A.) MAIL CODE PA1-106-RM1

3 Terry Drive

Newtown, PA 18940

 

Creditors:

Robert J. Pallé

21 Desai Court

Freehold, NJ 07728

 

Carol Pallé

21 Desai Court

Freehold, NJ 07728

 

Steven L. Shea

10809 Hudson Road

Owings Mills, MD 21117

 

James H. Williams

2039 E. River Road

Grand Island, NY 14072

 

Robert J. Pallé, as Agent for the Creditors listed above (in such capacity, the “Agent”)

 

This Amended and Restated Subordination Agreement dated as of March 28 th , 2016, is made and executed among Blonder Tongue Laboratories, Inc., One Jake Brown Road, Old Bridge, NJ 08857 (the “ Company ”) and R. L. Drake Holdings, L.L.C., One Jake Brown Road, Old Bridge, NJ 08857 (“ Drake ”; and together with the Company, collectively, jointly and severally, “ Borrower ”); Robert J. Pallé, Carol M. Pallé, Steven L. Shea, and James H. Williams (each of the foregoing persons, together with any other person that provides loans to the Borrower after the date hereof pursuant to the Creditor Loan Agreement (as defined below) and executes and delivers in favor of Lender a Creditor Joinder substantially in the form of Exhibit A annexed hereto, collectively, the “ Subordinated Lenders ”) and Robert J. Pallé, as Agent for the Subordinated Lenders (the Agent and the Subordinated Lenders, collectively the “ Creditors ”); and Santander Bank, N.A. (f/k/a Sovereign Bank, N.A.), MAIL CODE PA1-106-RM1, 3 Terry Drive, Newtown, PA 18940 (“ Lender ”).

 

1.          REQUESTED FINANCIAL ACCOMMODATIONS. Creditors and Borrower each want Lender to provide financial accommodations to Borrower in the form of (A) new credit or loan advances, (B) an extension of time to pay or other compromises regarding all or part of Borrower’s present indebtedness to Lender, or (C) other benefits to Borrower. Borrower and Creditors each represent and acknowledge to Lender that Creditors will benefit as a result of these financial accommodations from Lender to Borrower, and Creditors acknowledges receipt of valuable consideration for entering into this Agreement. Based on the representations and acknowledgments contained in this Agreement, Borrower and Creditors agree with Lender as follows:

 

 

 

 

2.          SUBORDINATED INDEBTEDNESS. The words “ Subordinated Indebtedness ” as used in this Agreement mean all present and future indebtedness, obligations, liabilities, claims, rights, and demands of any kind for borrowed money, which may be now or hereafter owing from Borrower to Creditors, including, without limitation, under and pursuant to that certain Amended and Restated Senior Subordinated Convertible Loan and Security Agreement, dated on or about the date hereof (the “ Creditor Loan Agreement ”), pursuant to which Creditors may make loans and advances to Borrower, all as more fully contemplated thereby. The term “Subordinated Indebtedness” is used in its broadest sense and includes without limitation all principal, all interest, all costs, reasonable attorneys’ fees, all sums paid for the purpose of protecting the rights of a holder of security, all contingent obligations of Borrower (such as a guaranty), and all other obligations, secured or unsecured, of any nature whatsoever; provided, however that “Subordinated Indebtedness” does not and is not intended to include any amount owing from time to time to any Creditor in such Creditor’s capacity as an employee officer, director or stockholder of Borrower.

 

3.          SUPERIOR INDEBTEDNESS. The words “ Superior Indebtedness ” as used in this Agreement mean and include all present and future indebtedness, obligations, liabilities, claims, rights, and demands of any kind which may be now or hereafter owing from Borrower to Lender. The term “Superior Indebtedness” is used in its broadest sense and includes without limitation all principal, all interest, all costs, reasonable attorneys’ fees, all sums paid for the purpose of protecting Lender’s rights in security (such as paying for insurance on collateral if the owner fails to do so), all contingent obligations of Borrower (such as a guaranty), all obligations arising by reason of Borrower’s accounts with Lender (such as an overdraft on a checking account), and all other obligations of Borrower to Lender, secured or unsecured, of any nature whatsoever.

 

4.          SUBORDINATION. All Subordinated Indebtedness of Borrower to Creditors is and shall be subordinated in all respects to all Superior Indebtedness of Borrower to Lender. Creditors hold or will hold one or more Security Interests, whether now existing or hereafter acquired, in Borrower’s real property and/or personal property, as contemplated by the Creditor Loan Agreement; provided , however, that Creditors also subordinate all such Creditors’ Security Interests to all Security Interests held by Lender, whether now existing or hereafter acquired; provided , however , that notwithstanding the foregoing, Lender acknowledges and agrees that Creditors’ Security Interests in equipment hereafter acquired by Borrower in connection with a permitted acquisition, which will be identified with specificity (‘ Specified Equipment ”), the purchase of which is financed with advances by Creditors to Borrower of Subordinated Indebtedness, will be senior to the Security Interests in favor of Lender, in such Specified Equipment and the proceeds thereof.

 

5.          PAYMENTS TO CREDITORS. Borrower will not make and Creditors will not accept, at any time while any Superior Indebtedness is owing to Lender, (A) any payment upon any Subordinated Indebtedness, (B) any advance, transfer, or assignment of assets to Creditors in any form whatsoever that would reduce at any time or in any way the amount of Subordinated Indebtedness (except with respect to the Specified Equipment, as contemplated by section 4 above), or (C) any transfer of any assets as security for the Subordinated Indebtedness (other than as contemplated by the Creditor Loan Agreement and consented to herein), except upon Lender’s prior written consent.

 

In the event of any distribution, division, or application, whether partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of Borrower’s assets, or the proceeds of Borrower’s assets, in whatever form, to Creditors of Borrower or upon any indebtedness of Borrower, whether by reason of the liquidation, dissolution or other winding-up of Borrower, or by reason of any execution sale, receivership, insolvency, or bankruptcy proceeding, assignment for the benefit of Creditors, proceedings for reorganization, or readjustment of Borrower or Borrower’s properties, then and in such event other than with respect to the proceeds derived from the sale or other disposition of the Specified Equipment, (A) the Superior Indebtedness shall be paid in full before any payment is made upon the Subordinated Indebtedness, and (B) all payments and distributions, of any kind or character and whether in cash, property, or securities, which shall be payable or deliverable upon or in respect of the Subordinated Indebtedness shall be paid or delivered directly to Lender for application in payment of the amounts then due on the Superior Indebtedness until the Superior Indebtedness shall have been paid in full. Nothing contained in this Agreement will limit or impair Creditors’ exercise of their rights under the Creditor Loan Agreement to convert all or any portion of the Subordinated Indebtedness into capital stock of the Company, as contemplated by the Creditor Loan Agreement.

 

In order that Lender may establish its right to prove claims and recover for its own account dividends based on the Subordinated Indebtedness, Creditors do hereby assign all of their respective right, title, and interest in such claims to Lender, subject to Creditors’ rights in the proceeds of the Specified Equipment. Creditors further agree to supply such information and evidence, provide access to and copies of such of Creditors’ records as may pertain to the Subordinated Indebtedness, and execute such instruments as may be required by Lender to enable Lender to enforce all such claims and collect all dividends, payments, or other disbursements which may be made on account of the Subordinated Indebtedness. For such purposes, Creditors hereby irrevocably authorize Lender in its discretion to make and present for or on behalf of Creditor such proofs of claims on account of the Subordinated Indebtedness as Lender may deem expedient and proper and to vote such claims in any such proceeding and to receive and collect any and all dividends, payments, or other disbursements made thereon in whatever form the same may be paid or issued and to apply the same on account of the Superior Indebtedness, other than the proceeds of the Specified Equipment.

 

 

 

 

Should any payment, distribution, security, or proceeds thereof be received by Creditors at any time on the Subordinated Indebtedness contrary to the terms of this Agreement, Creditors promptly will deliver the same to Lender in precisely the form received (except for the endorsement or assignment of Creditors if necessary), for application on or to secure the Superior Indebtedness, whether it is due or not due, and until so delivered the same shall be held in trust by Creditors as property of Lender. In the event Creditors fail to make any such endorsement or assignment, Lender, or any of its officers on behalf of Lender, is hereby irrevocably authorized by Creditors to make the same.

 

6.          CREDITORS’ NOTES. Creditors agree to deliver to Lender, at Lender’s request, all notes of Borrower to Creditors or other evidence of the Subordinated Indebtedness, now held or hereafter acquired by Creditors, while this Agreement remains in effect. At Lender’s request, Borrower will also execute and deliver to Creditors a promissory note evidencing any book amount or claim now or hereafter owed by Borrower to Creditors, which note also shall be delivered by Creditors to Lender. Creditors agree not to sell, assign, pledge or otherwise transfer any of such notes except subject to all of the terms and conditions of this Agreement. Notwithstanding the foregoing, in the event that, pursuant to a request by Lender, Creditors supply to Lender original loan documents memorializing Creditors’ loan to Borrower, the provision of such original loan documents to Lender shall not impair any of Creditors’ rights to enforce any of the provisions in the loan documents or any of the Creditors’ rights generally.

 

7.          CREDITORS’ REPRESENTATIONS AND WARRANTIES. Each Creditor represents and warrants to Lender that: (A) no representations or agreements of any kind have been made to Creditors which would limit or qualify in any way the terms of this Agreement; (B) this Agreement is executed at Borrower’s request and not at the request of Lender; (C) Lender has made no representation to Creditors as to the creditworthiness of Borrower; and (D) Creditors have established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower’s financial condition. Creditors agree to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Creditors’ risks under this Agreement, and Creditors further agree that Lender shall have no obligation to disclose to Creditors information or material acquired by Lender in the course of its relationship with Borrower.

 

8.          CREDITORS’ WAIVERS. Each Creditor waives any right to require Lender: (A) to make, extend, renew, or modify any loan to Borrower or to grant any other financial accommodations to Borrower whatsoever; (B) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Superior Indebtedness or of any nonpayment related to any Security Interests, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Superior Indebtedness, or in connection with the creation of new or additional Superior Indebtedness; (C) to resort for payment or to proceed directly or at once against any person, including Borrower; (D) to proceed directly against or exhaust any Security Interests held by Lender from Borrower, any other guarantor, or any other person; (E) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (F) to pursue any other remedy within Lender’s power; or (G) to commit any act or omission of any kind, at any time, with respect to any matter whatsoever.

 

9.          LENDER’S RIGHTS. Lender may take or omit any and all actions with respect to the Superior Indebtedness or any Security Interests for the Superior Indebtedness without affecting whatsoever any of Lender’s rights under this Agreement. In particular, without limitation, Lender may, without notice of any kind to Creditors, (A) make one or more additional secured or unsecured loans to Borrower; (B) repeatedly alter, compromise, renew, extend, accelerate, or otherwise change the time for payment or other terms of the Superior Indebtedness or any part thereof, including increases and decreases of the rate of interest on the Superior Indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) take and hold Security Interests for the payment of the Superior Indebtedness, and exchange, enforce, waive, and release any such Security Interests, with or without the substitution of new collateral; (D) release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or guarantors on any terms or manner Lender chooses; (E) determine how, when and what application of payments and credits, shall be made on the Superior Indebtedness; (F) apply such security and direct the order or manner of sale thereof, as Lender in its discretion may determine; and (G) assign this Agreement in whole or in part.

 

10.         DEFAULT BY BORROWER. If Borrower becomes insolvent or bankrupt, this Agreement shall remain in full force and effect. Any default by Borrower under the terms of the Subordinated Indebtedness also shall constitute an event of default under the terms of the Superior Indebtedness in favor of Lender.

 

 

 

 

11.         DURATION AND TERMINATION. This Agreement will take effect when received by Lender, without the necessity of any acceptance by Lender, in writing or otherwise, and will remain in full force and effect until Creditors shall notify Lender in writing at the address shown above to the contrary. Any such notice shall not affect the Superior Indebtedness owed Lender by Borrower at the time of such notice, nor shall such notice affect Superior Indebtedness thereafter granted in compliance with a commitment made by Lender to Borrower prior to receipt of such notice, nor shall such notice affect any renewals of or substitutions for any of the foregoing. Such notice shall affect only indebtedness of Borrower to Lender arising after receipt of such notice and not arising from financial assistance granted by Lender to Borrower in compliance with Lender’s obligations under a commitment. Any notes lodged with Lender pursuant to the section titled “Creditors’ Notes” above need not be returned until this Agreement has no further force or effect.

 

12.         MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

 

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

 

Attorneys’ Fees; Expenses. Creditors agree to pay upon demand all of Lender’s costs and expenses, including Lender’s reasonable attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Creditors shall pay the costs and expenses of such enforcement. Costs and expenses include Lender’s reasonable attorneys’ fees and legal expenses whether or not there is a lawsuit, including reasonable attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Creditors also shall pay all court costs and such additional fees as may be directed by the court.

 

Authority. The person who signs this Agreement as or on behalf of a Creditor represents and warrants that he or she has authority to execute this Agreement and to subordinate the Subordinated Indebtedness and the Creditors’ security interests in Creditors’ property, if any.

 

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

 

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of New Jersey without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of New Jersey.

 

Interpretation. In all cases where there is more than one Creditor, then all words used in this Agreement in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Creditor named in this Agreement or when this Agreement is executed by more than one , the words “Creditor” shall mean all and any one or more of them. Reference to the phrase “Creditor” includes the heirs, successors, assigns, and transferees of each of them.

 

Successors and Assigns. This Agreement shall be understood to be for the benefit of Lender and Creditors and for such other person or persons as may from time to time become or be the holder or owner of any of the Superior Indebtedness or any interest therein, and this Agreement shall be transferable to the same extent and with the same force and effect as any such Superior Indebtedness may be transferable.

 

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender’s right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Creditors, shall constitute a waiver of any of Lender’s rights or of any of Creditors’ obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

 

 

 

 

13.         DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

 

Agreement. The word “Agreement” means this Subordination Agreement, as this Subordination Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Subordination Agreement from time to time.

 

Borrower. The word “Borrower” collectively means Blonder Tongue Laboratories, Inc. and R. L. Drake Holdings, L.L.C. and includes all co-signers and co-makers signing the Note and all their successors and assigns.

 

Creditors. The word “Creditors” means, collectively, Robert J. Pallé, Carol M. Pallé, Steven L. Shea, James H. Williams, and any other person that hereafter provides loans to the Company pursuant to the Creditor Loan Agreement; provided, that as a condition to providing any such loan, each such person executes and delivers in favor of Lender a Creditor Joinder substantially in the form of Exhibit A annexed hereto.

 

Lender. The word “Lender” means Santander Bank, N.A. (f/k/a Sovereign Bank, N.A.), its successors and assigns.

 

Note. The word “Note” collectively means (a) the Term Note dated August 6, 2008 and executed by Blonder Tongue Laboratories, Inc. in the principal amount of $4,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement and (b) the Revolving Credit Note dated August 6, 2008 and executed by Blonder Tongue Laboratories, Inc. in the principal amount of $4,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.

 

Related Documents. The words “Related Documents” mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Superior Indebtedness.

 

Security Interest. The words “Security Interest” mean, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor’s lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

 

Subordinated Indebtedness. The words “Subordinated Indebtedness” mean the indebtedness described in the section of this Agreement titled “Subordinated Indebtedness”.

 

Superior Indebtedness. The words “Superior Indebtedness” mean the indebtedness described in the section of this Agreement titled “Superior Indebtedness”.

 

14.         AMENDMENT AND RESTATEMENT. This Agreement amends and restates in its entirety that certain SUBORDINATION AGREEMENT dated February 11, 2016, among Borrower, Robert J. Pallé, and Carol Pallé, jointly, and Lender, and as so amended and restated, is replaced and superseded by the terms, conditions agreements, covenants, representations and warranties set forth in this Agreement, and is not a novation thereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

IN WITNESS WHEREOF THE PARTIES, INTENDING TO BE LEGALLY BOUND, HAVE EXECUTED THIS SUBORDINATION AGREEMENT AS OF THE DATE FIRST ABOVE WRITTEN.

 

BORROWER:  
   
BLONDER TONGUE LABORATORIES, INC.  
     
By:   /s/ Eric Skolnik  
  Eric Skolnik, Chief Financial Officer  
   
R. L. DRAKE HOLDINGS, L.L.C.  
     
By:   /s/ Eric Skolnik  
  Eric Skolnik, Chief Financial Officer  
   
CREDITORS:  
     
  /s/ Robert J. Pallé  
  Robert J. Pallé, Individually and as Agent for the other Creditors listed below
     
  /s/ Carol Pallé  
  Carol Pallé, Individually  
     
  /s/ Steven L. Shea  
  Steven L. Shea, Individually  
     
  /s/ James H. Williams  
  James H. Williams, Individually  
   
LENDER:  
   
SANTANDER BANK, N.A. f/k/a/ Sovereign Bank, N.A.  
     
By: /s/ John Giangrossi  
  John Giangrossi, Vice President  

 

 

 

 

Exhibit A
to
Amended and Restated Subordination Agreement

 

Creditor Joinder

 

Reference is made to that certain Amended and Restated Subordination Agreement dated as of March ___, 2016 (the “ Subordination Agreement ”), among Blonder Tongue Laboratories, Inc., One Jake Brown Road, Old Bridge, NJ 08857 (the “ Company ”) and R. L. Drake Holdings, L.L.C., One Jake Brown Road, Old Bridge, NJ 08857 (“Drake”; and together with the Company, collectively, jointly and severally, “ Borrower ”); Robert J. Pallé, Carol M. Pallé, Steven Shea, and James H. Williams (each of the foregoing persons, together with any other person that provides loans to the Company after the date hereof pursuant to the Creditor Loan Agreement and executes and delivers in favor of Lender a Creditor Joinder, collectively, the “ Subordinated Lenders ”) and Robert J. Pallé, as Agent for the Subordinated Lenders (the Agent and the Subordinated Lenders, collectively the “ Creditors ”); and Santander Bank, N.A. (f/k/a Sovereign Bank, N.A.), MAIL CODE PA1-106-RM1, 3 Terry Drive, Newtown, PA 18940 (“ Lender ”). Capitalized terms used herein without definition shall have the meaning assigned thereto in the Subordination Agreement.

 

The undersigned, ___________________, (the “ Additional Subordinated Lender ”), is becoming a “Lender” under and as defined in the Creditor Loan Agreement, and hereby agrees to become a party to the Subordination Agreement as a Creditor thereunder, for all purposes thereof on the terms set forth therein, and to be bound by the terms and conditions of the Subordination Agreement as fully as if the Additional Subordinated Lender had executed and delivered the Subordination Agreement as of the date thereof.

 

This Creditor Joinder, dated as of ____________ [  ˜  ], 201_ (this “ Creditor Joinder ”), is a Creditor Joinder under the Subordination Agreement and is being executed and delivered by the Additional Subordinated Lender pursuant to the Subordination Agreement.

 

This Creditor Joinder may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract.

 

THIS CREDITOR JOINDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW JERSEY.

 

IN WITNESS WHEREOF, the Additional Subordinated Lender has caused this Creditor Joinder to be duly executed by its authorized representative as of the day and year first above written.

 

  [Name of Additional Subordinated Lender with appropriate signature block to be inserted]
   
   

 

 

 

EXHIBIT 21

 

List of Subsidiaries of Blonder Tongue Laboratories, Inc.

 

1. Blonder Tongue Far East, LLC

 

2. R. L. Drake Holdings, LLC

 

 

 

 

 

EXHIBIT 23.1

 

INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM’S CONSENT

 

Blonder Tongue Laboratories, Inc.

Old Bridge, New Jersey

 

We consent to the incorporation by reference in the Registration Statements of Blonder Tongue Laboratories, Inc. on Form S-8 (File Nos. 333-126064, 333-150755, 333-174303 and 333-196370) of our report, which includes an explanatory paragraph as to the Company’s ability to continue as a going concern dated March 30, 2016 with respect to our audits of the consolidated financial statements of Blonder Tongue Laboratories, Inc. as of December 31, 2015 and 2014 and for the years then ended appearing in this Annual Report on Form 10-K of Blonder Tongue Laboratories, Inc. for the year ended December 31, 2015.

 

 

/s/ Marcum LLP

 

Marcum LLP

New York, NY

March 30, 2016

 

 

 

 

EXHIBIT 31.1

 

CERTIFICATION

 

I, Robert J. Pallé, Chief Executive Officer of Blonder Tongue Laboratories, Inc., certify that:

 

1.           I have reviewed this Annual Report on Form 10-K of Blonder Tongue Laboratories, Inc.;

 

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 30, 2016    
     
     /s/ Robert J. Pallé  
    Robert J. Pallé,
Chief Executive Officer
(Principal Executive Officer)

 

 

 

 

 

EXHIBIT 31.2

 

CERTIFICATION

 

I, Eric Skolnik, Senior Vice President and Chief Financial Officer of Blonder Tongue Laboratories, Inc., certify that:

 

1.           I have reviewed this Annual Report on Form 10-K of Blonder Tongue Laboratories, Inc.;

 

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 30, 2016    
     
     /s/ Eric Skolnik  
    Eric Skolnik,
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)

 

 

 

  

 

EXHIBIT 32.1

 

CERTIFICATION pursuant to  

section 906 of the sarbanes-oxley act of 2002

 

To the knowledge of each of the undersigned, this Annual Report on Form 10-K for the year ended December 31, 2015 complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of Blonder Tongue Laboratories, Inc. for the applicable reporting period.

 

     
Date: March 30, 2016 By:  /s/ Robert J. Pallé  
    Robert J. Pallé, Chief Executive Officer  
       
       
  By: /s/ Eric Skolnik  
    Eric Skolnik, Chief Financial Officer