SIXTH AMENDMENT AND CONSENT AGREEMENT
THIS SIXTH AMENDMENT AND CONSENT AGREEMENT (this "Sixth Amendment") is
entered into as of November 9, 2006 by and among ▇▇▇▇▇▇ Electronics, Inc., a New
York corporation ("Borrower"), and ▇▇▇▇▇▇▇ Business Credit Corporation
("Lender").
Introduction
Borrower and Lender are parties to a Loan and Security Agreement dated as
of November 21, 2003 (as amended through the date hereof and as further amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement") pursuant to which Lender has agreed to make revolving credit loans
and to provide certain other financial accommodations to Borrower.
Borrower has requested certain amendments to the Loan Agreement. Borrower
has also requested that the Lender consent under the Loan Agreement to the
Trinity Investment (as defined below). Lender is willing to effect the
amendments of the Loan Agreement requested by Borrower and consent to the
Trinity Investment on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Lender agree as
follows:
1. Amendments to the Loan Agreement. Upon the date that this Sixth
Amendment shall have been executed by each of the parties hereto and all
conditions set forth in Section 3 and Section 4 of this Sixth Amendment have
been satisfied, Borrower and Lender agree that the Loan Agreement shall be
amended as follows:
(a) Section 1.1 of the Loan Agreement is hereby amended by deleting the
defined terms "Borrowing Base Overadvance(s)", "Borrowing Base Overadvance
Interest Rate", and "Borrowing Base Overadvance Termination Date".
(b) Section 1.1 of the Loan Agreement is hereby amended by deleting the
defined term "Trinity Investment" in its entirety and inserting the following in
lieu thereof:
"Trinity Investment" means the sale by the Borrower of at least
$4,000,000 of the Borrower's Series B 8% Convertible Preferred Stock
pursuant to the Securities Purchase Agreement dated April 17, 2006
among the Borrower and the purchasers a party thereto, as amended by
the Amendment No. 1 to Securities Purchase Agreement dated September
8, 2006.
(c) The definition of the term "Availability Reserves" in Section 1.1 of
the Loan Agreement is hereby amended by deleting the last sentence of such term
and inserting the following in lieu thereof:
"Subject to changes from time to time in the Lender's Permitted
Discretion or after a Default or Event of Default, as of (i) July 1,
2007, Availability Reserves shall include (but not be limited to) a
reserve equal to 30% of the amount of customer deposits, and (i)
October 31, 2007, Availability Reserves shall include (but not be
limited to) a reserve equal to 60% of the amount of customer
deposits."
(d) Section 1.1 of the Loan Agreement is hereby amended by adding the
following defined terms in the appropriate alphabetical order:
"Fixed Charge Ratio" means, for any period, the ratio of (i) the sum
of (A) EBITDA, minus (B) Unfinanced Capital Expenditures made during
such period, to (ii) the sum of (A) all payments of interest required
to be made on Indebtedness during such period, (B) current maturities
of long-term Indebtedness, (C) all federal, state and local taxes
actually paid in cash during such period, and (D) any distributions
made or declared or any dividends paid by Borrower during such period,
all as determined in accordance with GAAP.
"Unfinanced Capital Expenditures" means capital expenditures which are
paid for by a Person other than with the proceeds of Indebtedness.
(e) Section 2.2 of the Loan Agreement is hereby amended by deleting such
section in its entirety, and inserting in lieu thereof the following:
"Intentionally left blank."
(f) Section 4.7 of the Loan Agreement is hereby amended by deleting the
number "120" in subsection (c) thereof and inserting the number "180" in lieu
thereof.
(g) Section 7.11 of the Loan Agreement is hereby amended by deleting such
Section 7.11 in its entirety and inserting in lieu thereof the following new
Section 7.11:
"Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's Stock, of any class,
whether now or hereafter outstanding, except that (a) so long as no
Event of Default has occurred and is continuing and none shall be
caused by the making of such distribution, dividend payments to the
holders of the Borrower's 8.5% Cumulative Convertible Preferred Stock
in an aggregate amount not to exceed $100,000 per calendar year; and
(b) so long as (i) Borrower has delivered to Lender all financial
statements, reports and certificates required to be delivered by
Section 6.3, (ii) no Event of Default has occurred and is continuing
and none shall be caused by the making of such distribution, (iii) the
Borrower's Fixed Charge Coverage Ratio for the prior fiscal year and
for the 12 month period ended as of the last day of the last month for
which financial statements, reports and certificates pursuant to
Section 6.3 are required to have been delivered, is not less than 1.00
to 1.00, and (iv) the Borrower has Excess Availability of at least
$1,000,000 immediately prior to and after the distribution and
maintains such Excess Availability for 30 consecutive days after the
distribution, the Borrower may make dividend payments to the holders
of the Borrower's 8.0% Cumulative Convertible Preferred Stock in an
aggregate amount per calendar year not to exceed $350,000.
Notwithstanding the forgoing, the Borrower may not pay any dividends
pursuant to subsection (b) above until the Borrower has delivered to
Lender all financial statements, reports and certificates required by
Section 6.3 for the Borrower's fiscal year ending October 31, 2007."
(h) Section 7.21 of the Loan Agreement is hereby amended by deleting such
Section 7.21 in its entirety and inserting in lieu thereof the following new
Section 7.21:
"7.21 Financial Covenants.
(a) Capital Expenditures. Make capital expenditures during the
Borrower's fiscal year ending October 31, 2007 in excess of $4,000,000
or make capital expenditures in any fiscal year thereafter in excess
of $750,000.
(b) Excess Availability/Cash. Borrower shall at all times be
required to maintain (i) cash with banks in accounts that are subject
to a Control Agreement (other than payroll or operating accounts
excluded in Lender's Permitted Discretion) plus (ii) Excess
Availability, in an aggregate amount greater than $1,000,000.
(c) Business Plan and Projections. If Borrower fails to deliver
an updated Business Plan satisfactory to Lender as required by Section
6.3(c), Borrower shall be required to maintain Excess Availability of
at least $1,500,000 all times thereafter until Borrower delivers such
an updated Business Plan approved by Lender."
(i) Schedule 5.8(b) of the Loan Agreement is hereby amended by deleting
such Schedule 5.8(b) in its entirety and substituting therefor Schedule 5.8(b)
attached hereto.
2. Lender's Rights. Lender expressly reserves the full extent of its rights
under the Loan Agreement, the other Loan Documents and applicable law with
respect to any Default or Event of Default existing on the date hereof, other
than the Identified Event of Default (defined below).
3. Conditions Precedent to Sixth Amendment. The satisfaction of each of the
following, unless waived or deferred by Lender in its Permitted Discretion
constitute conditions precedent to the effectiveness of this Sixth Amendment:
(a) Lender shall have received this Sixth Amendment, duly executed by
Borrower;
(b) the representations and warranties in this Sixth Amendment, the Loan
Agreement, as amended hereby, and the other Loan Documents shall be true and
correct in all respects on and as of the date hereof, as though made on such
date (except to the extent that such representations and warranties relate
solely to an earlier date);
(c) after giving effect to this Sixth Amendment, no Default or Event of
Default shall have occurred and be continuing on the date hereof, and no Default
or Event of Default shall result from the consummation of the transactions
contemplated herein;
(d) no injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the consummation of the transactions
contemplated herein shall have been issued and remain in force by any court or
other governmental authority against Borrower or Lender; and
(e) Lender shall have received payment in full of its out-of-pocket
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the Loan Agreement and this Sixth Amendment.
4. Conditions Subsequent to Sixth Amendment. The satisfaction of each of
the following, unless waived or deferred by Lender in its Permitted Discretion
constitute conditions subsequent to the effectiveness of this Sixth Amendment:
(a) By November 13, 2006, the Borrower shall have closed the Trinity
Investment and received proceeds from such transaction of at least $4,000,000.
5. Consent and Authorization. The Trinity Investment would be a violation
of and would constitute an Event of Default under Sections 7.3(a) and 7.9 of the
Loan Agreement. Subject to the terms and conditions set forth in this Sixth
Amendment, the Lender hereby consents to the Trinity Investment (the "Consent").
The Borrower acknowledges and agrees that the foregoing provisions of this
Section 5 relate solely to the Consent specified and shall in no way be deemed
or construed as a consent by the Lender to any other actions of the Borrower
that would cause a Default or Event of Default under the Loan Agreement or any
other Loan Document. The Lender expressly reserves the full extent of its rights
under the Loan Agreement, the other Loan Documents and applicable law in respect
of any other actions by the Borrower not specifically consented to herein.
6. Waiver. Lender hereby waives the Event of Default arising under Section
7.21(a) of the Loan Agreement solely to the extent resulting from the Borrower
having allowed EBITDA for the one month period ended October 31, 2006 to be less
than $(60,000) (the "Identified Event of Default"). The foregoing provisions of
this Section 6 relate solely to the Identified Event of Default and shall in no
way be deemed or construed as a waiver by Lender of any other Default or Event
of Default under the Loan Agreement or any other Loan Document, known or
unknown, now existing or occurring subsequent to the date of this Sixth
Amendment. Lender expressly reserves the full extent of its rights under the
Loan Agreement, the other Loan Documents and applicable law with respect to any
Default or Event of Default existing on the date hereof and not specified herein
as an Identified Event of Default.
7. Representations and Warranties. Borrower hereby represents and warrants
to the Lender that:
(a) the execution, delivery, and performance of this Sixth Amendment, the
Loan Agreement and the other Loan Documents (i) are within Borrower's corporate
powers, (ii) have been duly authorized by all necessary corporate action, (iii)
do not require any approval or consent of any Person under any contractual
obligation of the Borrower and (iv) do not contravene (A) any law, rule, or
regulation, or any order, judgment, decree, writ or injunction, or award of any
arbitrator, court, or Governmental Authority, (B) the terms of its charter,
bylaws or other operative or formative documents or (C) any contract or
undertaking to which it is a party or by which any of its properties may be
bound or affected;
(b) this Sixth Amendment has been duly executed and delivered by Borrower;
(c) this Sixth Amendment and the Loan Agreement and the other Loan
Documents, each as previously amended and as amended hereby, constitute
Borrower's legal, valid, and binding obligations, enforceable against Borrower
in accordance with their respective terms;
(d) Borrower is in compliance with all of the terms and provisions set
forth in the Loan Agreement and each of the other Loan Documents, each as
previously amended and as amended hereby, on its part to be observed or
performed on or prior to the date hereof; and
(e) after giving effect to this Sixth Amendment, no Default or Event of
Default has occurred and is continuing under the Loan Agreement or any other
Loan Document.
8. Reaffirmation. Borrower further reaffirms all of its obligations under
the Loan Agreement and the other Loan Documents, each as previously amended and
as amended hereby.
9. Effect on Loan Agreement. Except as expressly provided herein, the
execution, delivery, and performance of this Sixth Amendment shall not operate
as a waiver or an amendment of any right, power, or remedy of the Lender under
the Loan Agreement or any other Loan Document. Except to the extent expressly
amended hereby, the Loan Agreement and all other Loan Documents shall be
unaffected hereby, shall continue in full force and effect, are hereby in all
respects ratified and confirmed, and shall constitute the legal, valid, binding
and enforceable obligations of Borrower to the Lender.
10. No Novation; Entire Agreement. This Sixth Amendment evidences solely
the amendment of certain terms and provisions of Borrower's obligations under
the Loan Agreement expressly set forth herein and is not a novation or discharge
thereof. There are no other understandings, express or implied, between Lender
and Borrower regarding the subject matter hereof.
11. Choice of Law. The validity of this Sixth Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be determined under, governed by, and construed in accordance with the laws of
The Commonwealth of Massachusetts without regard to conflicts of laws
principles.
12. Definitions and Construction.
(a) Capitalized terms used but not otherwise defined herein shall have the
respective meanings given to such terms in the Loan Agreement, as amended
hereby.
(b) Upon and after the effectiveness of this Sixth Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "herein",
"hereof" or words of like import referring to the Loan Agreement, and each
reference in the other Loan Documents to "the Loan Agreement", "thereunder",
"therein", "thereof", or words of like import referring to the Loan Agreement,
shall mean and be a reference to the Loan Agreement as amended hereby.
13. Counterparts; Telefacsimile Execution. This Sixth Amendment may be
executed in any number of counterparts and by different parties in separate
counterparts, each of which when so executed and delivered, shall be deemed an
original, and all of which, when taken together, shall constitute one and the
same instrument. Delivery of an executed counterpart of a signature page to this
Sixth Amendment by facsimile shall be as effective as delivery of a manually
executed counterpart of this Sixth Amendment. Any party delivering an executed
counterpart of this Sixth Amendment by facsimile also shall deliver a manually
executed counterpart of this Sixth Amendment but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability, and
binding effect of this Sixth Amendment.
[Signatures appear on the following page.]
IN WITNESS WHEREOF, Borrower and Lender caused this Sixth Amendment to be
executed as of the date first above written.
BORROWER:
▇▇▇▇▇▇ ELECTRONICS, INC.
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Name:▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title:Executive Vice President
LENDER:
▇▇▇▇▇▇▇ BUSINESS CREDIT CORPORATION
By:/s/▇▇▇▇▇▇▇ Tonnucci
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Name:▇▇▇▇▇▇▇ Tonnucci