FIRST MODIFICATION TO LOAN AND SECURITY AGREEMENT
Exhibit 10.16.1
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FIRST MODIFICATION TO LOAN AND SECURITY AGREEMENT | |
This First Modification to Loan and Security Agreement (this “Modification”) is entered into
by and between ENERGY RECOVERY, INC. (“Borrower”) and COMERICA BANK (“Bank”) as of March 27, 2008,
at San Jose, California.
RECITALS
This Modification is entered into upon the basis of the following facts and understandings of
the parties, which facts and understandings are acknowledged by the parties to be true and
accurate:
Bank and Borrower previously entered into a Loan and Security Agreement (Accounts and
Inventory) dated March 27, 2008. The Loan and Security Agreement shall be referred to herein as
the “Agreement.”
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as set forth below.
AGREEMENT
1. Incorporation by Reference. The Recitals and the documents referred to therein are
incorporated herein by this reference. Except as otherwise noted, the terms not defined herein
shall have the meaning set forth in the Agreement.
2. Modification to the Agreement. Subject to the satisfaction of the conditions
precedent as set forth in Section 3 hereof, the Agreement is hereby modified as set forth below.
(a) Section 1.36 of the Agreement is hereby deleted in its entirety and replaced with the
following:
“1.36 ‘Warranty Letter of Credit’ shall mean a standby letter of credit
which is issued or caused to be issued by Bank to support the obligations of
Borrower with respect to a Warranty or a standby letter of credit which by its
terms becomes a Warranty Letter of Credit.”
(b) Section 4.10 of the Agreement is hereby deleted in its entirety and replaced with the
following:
“4.10 Intentionally Deleted.”
(c) The first sentence of Section 6.4 of the Agreement is hereby deleted in its entirety and
replaced with the following:
“6.4 Borrower shall keep the Inventory only at the following locations: See
Schedule 6.4 attached hereto.”
(d) Clause r. of Section 6.6 of the Agreement is hereby deleted in its entirety and replaced
with the following:
“r. Borrower shall not without Bank’s prior written consent acquire or expend for or
commit itself to acquire or expend for fixed assets by lease, purchase or otherwise in an aggregate
amount that exceeds Seven Hundred Fifty Thousand Dollars ($750,000) in any fiscal year.”
(e) Clauses b. and c. of Section 6.16 of the Agreement are hereby deleted in their entirety
and replaced with the following:
“b. Borrower shall deliver to Bank within thirty (30) days after the end of
each quarter, company prepared balance sheets, statements of cash flow, and profit
and loss statements covering Borrower’s operations; deliver to Bank as soon as
available and in any event no later than 30 days before the beginning of the next
fiscal year of Borrower, a annual financial projections of the Borrower that
includes balance sheets, income statements, cash flow statements, a statement of
underlying assumptions for the upcoming fiscal year, which projections shall be in
form and content approved by Borrower’s board of directors; deliver to Bank within
one hundred eighty (180) days after the end of each of Borrower’s fiscal years
annual statements of the financial condition of Borrower for each such fiscal year,
including but not limited to, a balance sheet, statements of cash flow, and profit
and loss statement audited by independent certified public accountants acceptable
to Bank in accordance with generally accepted accounting principles consistently
applied (which such statements shall not be qualified as to the scope of review or
as to the status of Borrower as a going concern, and shall state that such
financial statements fairly present, in all material respects, the financial
position of Borrower as at the dates indicated and the results of its operations
and its cash flows for the periods indicated); and together with each delivery of
the annual and quarterly financial statements required by this Section 6.16 b.,
furnish to Bank a certificate of its chief executive officer or financial officer
setting forth Borrower’s compliance with the financial covenants set forth in
Section 6.17 of this Agreement; and any other report requested by Bank relating to
the Collateral and the financial condition of Borrower, and a certificate signed by
an authorized employee of Borrower to the effect that all reports, statements,
computer disk or tape files, computer printouts, computer runs, or other computer
prepared information of any kind or nature relating to the foregoing or documents
delivered or caused to be delivered to Bank under this subparagraph are complete,
correct and thoroughly present the financial condition of Borrower and that there
exists on the date of delivery to Bank no condition or event which constitutes a
breach or Event of Default under this Agreement.
c. In addition to the financial statements requested above, Borrower agrees
to provide Bank within fifteen (15) days after the end of each month, unless
otherwise provided below (in form and content satisfactory to Bank) the following
schedules:
| (1) | Accounts Receivable Agings | ||
| (2) | Accounts Payable Agings | ||
| (3) | Inventory Reports, within fifteen (15) days after the end of each quarter.” |
(f) Section 6.17 of the Agreement is hereby deleted in its entirety and replaced
with the following:
“6.17 Borrower shall maintain the following financial ratios and covenants on a consolidated and
non-consolidated basis, which shall be monitored on a quarterly basis, except as noted below:
| a. | an Adjusted Quick Ratio of not less than .85 to 1.00 | ||
| b. | a Debt-to-Tangible Effective Net Worth of not more than 1.25 to 1.00. | ||
| c. | a minimum rolling four quarter pre-tax income of at least: |
| i. | $5,000,000 for the quarters ending March 31, 2008, June 30, 2008 and September 30, 2008, and | ||
| ii. | $7,000,000 for the quarter ending December 31, 2008 and at all times thereafter. |
All financial covenants shall be computed in accordance with GAAP consistently
applied except as otherwise specifically set forth in this Agreement. All monies
due from affiliates (including officers, directors and shareholders) shall be
excluded from Borrower’s assets for all purposes hereunder.”
(g) Clause q. of Section 7 of the Agreement is hereby deleted in its entirety and
replaced with the following:
“q. if there shall occur a transaction in which any “person” or “group”
(within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of
all classes of stock then outstanding of Borrower ordinarily entitled to vote in
the election of directors, empowering such “person” or “group” to elect a majority
of the board of directors of Borrower, who did not have such power before such
transaction.”
(h) Schedule 6.4 attached hereto is inserted into the Agreement
immediately following the existing Schedule of Permitted Liens.
(i) The Equipment Rider attached to the Agreement is hereby deleted in its entirety
and replaced with the Equipment Rider attached hereto.
3. Recertification of Authority. Borrower certifies to Bank that:
(a) the Restated Certification of Incorporation and Bylaws of Borrower delivered to Bank on or
about December 1, 2005 remain in full force and effect and have not been amended, rescinded or
repealed in any respect;
(b) the Corporate Resolutions and Incumbency Certification of Borrower delivered to Bank dated
on or as of March 7, 2008 remain in full force and effect and the officers shown on such Incumbency
Certification as officers authorized to execute and deliver to Bank documents in connection with
loan financings: (i) continue to hold, and be duly appointed to, the offices indicated thereon; and
(ii) continue to be duly authorized to execute and deliver to Bank this Modification and any and
all documents necessary to evidence indebtedness and obligations of Borrower to Bank; and
(c) Borrower is in good standing in the State of Delaware and under each jurisdiction
in which it is authorized to do business, including the State of California.
4. Legal Effect. The effectiveness of this Modification is conditioned upon receipt by
Bank of this Modification, and any other documents which Bank may require to carry out the terms
hereof. Except as specifically set forth in this Modification, all of the terms and conditions of
the Agreement remain in full force and effect.
5. Integration. This is an integrated Modification and supersedes all prior
negotiations and agreements regarding the subject matter hereof. All amendments hereto must be in
writing and signed by the parties.
IN WITNESS WHEREOF, the parties have agreed as of the date first set forth above.
| ENERGY RECOVERY, INC. | COMERICA BANK | |||||||||
By:
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/s/ Xxx Xxxxxxxxxx | By: | /s/ Xxxxxx Xxxxxx | |||||||
Its:
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CFO | Its: | Corporate Banking Officer-Western Market | |||||||
By:
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XXX XXXXXXXXXX | |||||||||
Its:
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CHIEF FINANCIAL OFFICER | |||||||||
SCHEDULE 6.4
INVENTORY LOCATIONS
INVENTORY LOCATIONS
| ADDRESS | OWNER/MORTGAGEE | |
0000 Xxxxxxxxx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000 0000 Xxxxxxx, Xxx Xxxxxxx, XX 00000 |
2101 Xxxxxxxx Associates, LLC Xxx Xxxxxxxx 0000 Xxxxxxxx, Xxx Xxxxxxxxx, XX |
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000 Xxxxxxxxxxx Xxxx, Xxxxxxx, XX
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Xxxxx Xxxxxxxx Xxxxxxx, Inc. 00000 Xxxxxxxxx Xxxxx Xxxxxxx, XX |
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Ribera Del Loira 00 Xxxxx Xx Xxx Xxxxxxxx 00000 Xxxxxx, Xxxxx |
Regus Puerta De Las Naciones Xxxxxx Xxx Xxxxx 00 00000 Xxxxxx, Xxxxx |
