EXHIBIT 10.01
FIRST AMENDMENT TO
CREDIT AND SECURITY AGREEMENT
THIS
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT (this “Amendment”), dated as of March
28, 2008, is by and among GE BUSINESS FINANCIAL SERVICES INC., a Delaware
corporation, in its capacity as successor Administrative Agent and as a Lender
under the Credit Agreement (as defined below) (“Agent”), DERMA SCIENCES, INC., a
Pennsylvania corporation, DERMA FIRST AID PRODUCTS, INC., a Pennsylvania corporation,
SUNSHINE PRODUCTS, INC., a Missouri corporation and any additional Borrower that
may hereafter be added to this Agreement (each individually as a “Borrower” and
collectively as “Borrowers”).
WHEREAS,
Borrower and Agent (in its capacity as Administrative Agent and as a Lender
thereunder) are parties to that certain Credit and Security Agreement, dated as of
November 8, 2007 (the “Credit Agreement”);
WHEREAS,
Borrower and Agent have agreed to amend certain provisions of the Credit Agreement;
NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1.
Defined Terms. Capitalized terms used but not otherwise defined herein
shall have the respective meanings assigned to such terms in the Credit Agreement.
2.
Amendments to Credit Agreement.
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a.
Section 1.1 - Borrowing Base Definition. The definition of “Borrowing Base”
is deleted and replaced with the following:
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““Borrowing
Base” means the lesser of (a) the Revolving Loan Commitment or (b) the product of the
following: |
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(i)
the product of (A) eighty-five percent (85%) multiplied by (B) the aggregate
net amount at such time of the Eligible Accounts; plus |
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(ii)
the lesser of (A) seventy percent (70%) multiplied by the Orderly Liquidation Value
of the Eligible Inventory or (B) sixty percent (60%) multiplied by the value of
the Eligible Inventory, valued at the lower of first-in-first-out cost or market cost,
and after factoring in all rebates, discounts and other incentives or rewards
associated with the purchase of the applicable Inventory; plus |
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(iii)
the lesser of (A) seventy percent (70%) multiplied by the Orderly Liquidation Value
of the Secured Guaranty Credit or (B) sixty percent (60%) multiplied by the value of
the Secured Guaranty Credit, valued at the lower of first-in-first-out cost or
market cost, and after factoring in all rebates, discounts and other incentives
or rewards associated with the purchase of the applicable Inventory; minus |
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(iv)
the Minimum Excess Availability Reserve; minus |
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(v)
the amount of any other reserves and/or adjustments provided for in this Agreement,
if any. |
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Notwithstanding
the foregoing, or anything herein to the contrary, in no event shall (i) the amount
of the Secured Guaranty Credit exceed twenty-five percent (25%) of the Revolving
Loan Limit, and (ii) the amount of subsection (b) and (c), collectively, exceed sixty
percent (60%) of the amount of the Revolving Loan Limit.” |
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b.
Additional Definitions. The following are added in alphabetical order as new
definitions in Section 1.1:
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““Minimum
Excess Availability” means the difference between (a) the Borrowing Base, and (b) the
Revolving Loan Outstandings. |
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“Minimum
Excess Availability Reserve” means $1,500,000.00.” |
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c.
Section 2.2(f). The following is deleted from the end of Section 2.2(f): “;
provided, so long as no Default or Event of Default has occurred, Borrowers
shall not be liable for such fees and expenses in excess of $75,000 for any
twelve (12) month period.”
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d.
Section 4.1. Borrowers shall provide Borrowers' month-end February 29, 2008
financial statements no later than April 15, 2008, which extension is hereby
approved by Agent. In addition, “(a)” is added in between “month,” and “a"
in sub-clause (1) in the first sentence of Section 4.1; and the following is
added at the end of sub-clause (1) in the first sentence of Section 4.1: “,
and (b) demonstration of Borrowers' performance with respect to the
financial covenants set forth under Sections 6.2, 6.3, 6.4 and 6.5 for the
period of April 1, 2008 through and including the most recently completed month.
Such demonstration shall set forth the same or substantially similar
calculations used for quarterly financial covenant compliance as required
by Article 6, and shall be certified by a Responsible Officer and in a form
acceptable to Administrative Agent. For abundance of clarity, Borrowers shall not
be required to meet the covenants as described in Sections 6.2, 6.3, 6.4 and
6.5 during the months between quarter end, but the reporting set forth in
this Section 4.1(1)(b) will be used for information purposes;”.
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e.
Section 5.1. The following is added to the end of Section 5.1: “Provided no
Event of Default has occurred or is continuing, Borrowers shall be permitted
to make regularly scheduled interest payments on any Subordinated Debt.
Borrowers shall not be permitted to make any principal payments on any
Subordinated Debt without the prior written consent of Administrative Agent,
which may be provided in Administrative Agent's sole discretion. Upon any
Event of Default, Borrowers shall not make any principal or interest
payments on any Subordinated Debt unless approved in writing by Administrative
Agent in its sole discretion.”
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f.
Section 6.1. Section 6.1 is hereby deleted and replaced with the following:
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“Section
6.1 Additional Defined Terms. The following additional definitions are hereby
appended to Section 1.1 of this Agreement: |
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“EBITDA"
has the meaning provided in the Compliance Certificate, provided however that prior to
May 1, 2008, Borrowers shall have received a minimum new permanent net cash equity
investment of $3,000,000 supported by documentation satisfactory to Administrative
Agent, which shall be included as a component of EBITDA for all covenant
calculations under this Article 6. Notwithstanding the foregoing, if Borrowers
receive net cash proceeds as a result of that certain new permanent equity
investment occurring prior to May 1, 2008 in excess of $3,000,000 (the “Excess
Proceeds”), such Excess Proceeds shall not be included as a component of EBITDA
unless Administrative Agent has provided its prior written consent. |
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“Fixed
Charge Coverage Ratio” has the meaning provided in the Compliance Certificate
(See Exhibit B). |
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“Senior
Debt” means an amount equal to the total aggregate Debt for borrowed money, including,
without limitation, the Obligations hereunder and Debt under capitalized leases, but
excluding the outstanding balance of the Subordinated Debt. |
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“Senior
Leverage Ratio” means the ratio of (a) Senior Debt, to (b) EBITDA, based upon EBITDA
calculated on an annualized basis, beginning April 1, 2008, then based upon the
rolling twelve (12) months from and after April 1, 2009. |
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“Total
Debt” means an amount equal to the sum of (a) Senior Debt, plus (b) the
total outstanding balance of Subordinated Debt. |
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“Total
Leverage Ratio” means the ratio of (a) Total Debt to (b) EBITDA, based upon
EBITDA calculated on an annualized basis, beginning April 1, 2008, then based upon
the rolling twelve (12) months from and after April 1, 2009.” |
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g.
Sections 6.2 through 6.5. Sections 6.2 through 6.5 are hereby deleted and replaced
with the following:
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“Section
6.2 Minimum EBITDA. Borrower will not permit the EBITDA for the calendar quarter
ending on the date set forth below to be less than amount set forth below for such
calendar quarter: |
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| Period |
Minimum EBITDA |
| For the three-month period beginning |
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| April 1, 2008 through June 30, 2008 |
$2,669,506 |
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| For the six-month period beginning |
| April 1, 2008 through September 30, 2008 |
$2,923,061 |
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| For the nine-month period beginning |
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| April 1, 2008 through December 31, 2008 |
$3,377,902 |
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| For the twelve-month period beginning |
| April 1, 2008 through March 31, 2009 |
$3,748,759 |
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Section
6.3 Fixed Charge Coverage Ratio. Borrowers will not permit the Fixed Charge
Coverage Ratio for any period set forth below to be less than the ratio set forth
below for such period: |
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| Period |
Ratio |
| For the three-month period beginning |
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| April 1, 2008 through June 30, 2008 |
4.18 to 1.00 |
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| For the six-month period beginning |
| April 1, 2008 through September 30, 2008 |
2.12 to 1.00 |
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| For the nine-month period beginning |
| April 1, 2008 through December 31, 2008 |
1.67 to 1.00 |
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| For the twelve-month period beginning |
| April 1, 2008 through March 31, 2009 |
1.37 to 1.00 |
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| As of the end of any given calendar quarter, from |
| and after June 30, 2009, as measured on |
| a trailing 12-month basis |
1.20 to 1.00 |
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Section
6.4 Senior Leverage Ratio. Borrowers shall not permit the Senior Leverage Ratio
for any period set forth below to exceed the ratio set forth below for such period: |
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| Period |
Ratio |
| For the three-month period beginning |
|
| April 1, 2008 through June 30, 2008 |
1.06 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the six-month period beginning |
| April 1, 2008 through September 30, 2008 |
1.88 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the nine-month period beginning |
| April 1, 2008 through December 31, 2008 |
2.26 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the twelve-month period beginning |
| April 1, 2008 through March 31, 2009 |
2.78 to 1.00 |
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| As of the end of any given calendar quarter, from |
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| and after June 30, 2009, as measured on |
| a trailing 12-month basis |
3.0 to 1.0 |
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Section
6.5 Total Leverage Ratio. Borrowers shall not permit the Total Leverage Ratio for
any period set forth below to exceed the ratio set forth below for such period: |
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| Period |
Ratio |
| For the three-month period beginning |
|
| April 1, 2008 through June 30, 2008 |
1.10 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the six-month period beginning |
| April 1, 2008 through September 30, 2008 |
1.97 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the nine-month period beginning |
| April 1, 2008 through December 31, 2008 |
2.37 to 1.00 |
| (Based upon annualized EBITDA) |
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| For the twelve-month period beginning |
| April 1, 2008 through March 31, 2009 |
2.91 to 1.00 |
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| As of the end of any given calendar quarter, from |
| and after June 30, 2009, as measured on |
| a trailing 12-month basis |
4.00 to 1.00 |
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h.
Section 6.6. Section 6.6 is deleted and replaced with the following:
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“Section
6.6. Minimum Excess Availability. Borrowers shall not permit the Minimum Excess
Availability at any time while the Term Loan, any Revolving Loan or any of the
Obligations are outstanding to be less than $1,500,000.” |
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i.
Section 6.7. The following, which was previously Section 6.6, is hereby added as
Section 6.7:
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“Section
6.7. Evidence of Compliance. Borrowers shall furnish to Administrative Agent,
together with the financial reporting required of Borrowers in Section 4.1 hereof,
evidence (in form and content satisfactory to Lender) of Borrowers' compliance with the
covenants in this Article and evidence that no Event of Default specified in this Article
has occurred. Such evidence shall include, without limitation, (a) a statement and
report, on a form approved by Administrative Agent, detailing Borrowers' calculations,
and (b) if requested by Administrative Agent, back-up documentation (including, without
limitation, invoices, receipts and other evidence of costs incurred during such quarter as |
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Administrative
Agent shall reasonably require) evidencing the propriety of the calculations.” |
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j.
Exhibit B. The EBITDA worksheet attached to the Compliance Certificate is
deleted and replaced with the attached EBITDA worksheet.
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3.
Representations and Warranties. Borrower represents and warrants to Agent as
follows:
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a.
After giving effect to this Amendment, the representations and warranties
set forth in each of the Financing Documents shall be true and correct in
all respects on and as of the Effective Date (as defined below) with the
same effect as if then made (unless stated to relate solely to an earlier date,
in which case such representations and warranties shall be true and correct in
all material respects as of such earlier date.)
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b.
The execution, delivery and performance by Borrower of this Amendment are within
Borrower's powers, have been duly authorized and do not:
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i.
(A) contravene any of Borrower's Organizational Documents, or (B) result in
a default under any contractual restriction binding on or affecting Borrowers,
or any law or governmental regulation binding on or affecting Borrower; or
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ii.
result in, or require the creation or imposition of, any Lien on any of Borrower's
properties.
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c.
This Amendment and the Credit Agreement, as amended hereby, constitute the
legal, valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms (except, in any case, as such
enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally at law or by principles of equity).
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d.
After giving effect to this Amendment, no Default or Event of Default has occurred
and is continuing.
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4.
Conditions to Effectiveness. This Amendment shall become effective as of
the date hereof (the “Effective Date”), subject to (a) the due authorization,
execution and delivery of this Amendment by Borrower and Agent, and (b) Agent's receipt
and approval of Borrowers' 2007 fiscal year-end financial statements, which shall not
be materially different from Borrowers' final, fiscal year-end audited financial
statement for 12/31/07, and Borrowers' month-end January 31, 2008 financial
statements, which approval shall be based upon such financial statements complying
in any material respects with the financial reporting included in Borrowers'
2008 projections as provided to Agent.
5.
Waiver. Pursuant to the terms of the Credit Agreement, Borrowers failed to
comply with the provisions of Article 4 and Article 6 prior to the Effective Date (the
"Default”). As a express condition to Agent waiving such Default, Borrowers agree as
follows:
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a.
Without limiting in any manner any of the indemnification provisions set forth in
the Credit Agreement, Borrowers hereby indemnify and agree to defend and
hold harmless the Indemnitees from and against any liability, loss, cost,
expense (including reasonable attorneys' fees and expenses for both in-house and
outside counsel), claim, damage, suit, action or proceeding ever
suffered or incurred by Agent and Lenders or in which Agent and Lenders may
ever be or become involved (whether as a party, witness or otherwise)
arising out of, resulting from or in any way relating to the Default, which
indemnification shall survive the payment in full of the Obligations and the
termination of the Credit Agreement.
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b.
Each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with
specific and express intent, for and on behalf of itself and all Credit
Parties and Affiliates does hereby fully and completely release, acquit
and forever discharge each Indemnitee of and from any and all actions, causes
of action, suits, debts, disputes, damages, claims, obligations,
liabilities, costs, expenses and demands of any kind whatsoever, at law or
in equity, whether matured or unmatured, liquidated or unliquidated,
vested or contingent, ▇▇▇▇▇▇ or inchoate, known or unknown that the Borrowers, any
Credit Party or any Affiliate has against the Indemnitees (whether directly
or indirectly). Each Borrower acknowledges that the foregoing release is a
material inducement to Agent's decision to consent to the Default and has been
relied upon by Agent in its consent to the Default hereunder.
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c.
Borrowers shall pay Agent the sum of $250,000. In addition, Borrowers shall
be responsible for the payment of all reasonable fees incurred by Agent
(including legal fees) incurred in connection with the preparation of this
Amendment and in consideration of the modifications set forth herein. Borrower
hereby authorizes Agent to deduct all of such fees from the proceeds of the next
Revolving Loan.
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d.
Nothing in this Amendment shall be deemed to modify, amend or supplement
anything contained in the Credit Agreement other than expressly amended
hereunder, or be deemed to be a consent to any other action by Borrower, or
waiver of any other default under the Credit Agreement, except as expressly and
specifically stated herein.
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6.
Documents to Remain in Effect; Confirmation of Obligations; References. The
Financing Documents shall remain in full force and effect as originally executed and
delivered by the parties, except as expressly modified and amended herein. Borrower
hereby (a) confirms and reaffirms all of its respective obligations under the Financing
Documents, as modified and amended herein; (b) acknowledge and agree that Agent, by
entering into this Agreement, does not waive any existing or future Default or Event of
Default under any of the Financing Documents, or any rights or remedies under any of the
Financing Documents; (c) acknowledge and agree that Agent has not heretofore waived any
Default or Event of Default under any of the Financing Documents, or any rights or
remedies under any of the Financing Documents, other than as expressly provided for
hereunder; and (d) acknowledge that they do not have any defense, set-off or counterclaim
to the payment or performance of any of their respective obligations under the Financing
Documents, as modified and amended herein. From and after the date hereof, this Amendment
shall be deemed a Financing Document for all purposes of the
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Credit Agreement and the other
Financing Documents and each reference to the Financing Documents shall be deemed to
include this Amendment.
7.
Counterparts; Integration. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. Signatures by
facsimile or by electronic mail delivery of an electronic version of an executed
signature page shall bind the parties hereto. This Amendment constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof. In the event of any irreconcilable inconsistency between this
Amendment and any of the other Financing Documents, the terms of this Amendment shall
control.
8.
Governing Law. THIS AMENDMENT, AND ALL MATTERS RELATING HERETO OR ARISING HEREFROM
(WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARDING TO CONFLICTS OF LAWS PRINCIPLES.
[Remainder of page
intentionally left blank; signature pages follow.]
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IN
WITNESS WHEREOF, the undersigned have duly executed this Amendment as of the date
first set forth above.
BORROWER:
DERMA SCIENCES, INC.
By:______________________
Name:____________________
Title:____________________
DERMA FIRST AID PRODUCTS, INC.
By:______________________
Name:____________________
Title:____________________
SUNSHINE PRODUCTS, INC.
By:______________________
Name:____________________
Title:____________________
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AGENT:
GE BUSINESS FINANCIAL SERVICES INC.,
as Administrative Agent
By: __________________________________
Name: ________________________________
Title: ________________________________
LENDER:
GE BUSINESS FINANCIAL SERVICES INC.,
as a Lender
By: __________________________________
Name: ________________________________
Title: ________________________________
EBITDA Worksheet
(Attachment to Compliance Certificate)
EBITDA for the applicable
measurement period (the “Defined Period”) is defined as follows:
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Net income (or loss) for the Defined
Period of Borrowers and their Consolidated Subsidiaries, but
excluding: (a) the income
(or loss) of any Person (other than Subsidiaries of Borrowers) in which
Borrowers or any
of their Subsidiaries has an ownership interest unless received by Borrower or
their
Subsidiary in a cash distribution; and (b) the income (or loss) of any Person accrued
prior to
the date it became a Subsidiary of Borrowers or is merged into or consolidated
with Borrowers |
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$__________ |
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Plus:
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Any provision for (or less any benefit from) income and franchise taxes
deducted in the
determination of net income for the Defined Period |
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___________ |
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Interest expense, net of interest income, deducted in the determination of
net income for the
Defined Period |
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___________ |
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Amortization and depreciation deducted in the determination of net income
for the Defined
Period |
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___________ |
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Other non-cash expenses, including but not limited to equity based
compensation, (or less
other non-cash gains or income) deducted in the
determination of net income for the Defined
Period and for which no cash
outlay (or cash receipt) is foreseeable prior to the Commitment
Expiry Date |
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___________ |
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Net cash proceeds received by Borrower pursuant to that certain equity
investment raise
occurring in April 2008 |
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___________ |
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| EBITDA for the Defined Period |
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$__________ |