AMENDMENT NUMBER TWO TO CREDIT AGREEMENT
Exhibit
10
AMENDMENT
NUMBER TWO TO CREDIT AGREEMENT
This
Amendment Number Two to Credit Agreement (“Amendment”)
is entered into as of August 13, 2008, by and among the lenders
identified on the signature pages hereof (such lenders, together with their
respective successors and permitted assigns, are referred to hereinafter each
individually as a “Lender”
and collectively as the “Lenders”),
and XXXXX FARGO FOOTHILL, INC., a California corporation, as the arranger and
administrative agent for the Lenders (in such capacity, together with its
successors and assigns in such capacity, “Agent”),
on the one hand, and TELTRONICS, INC., a Delaware corporation (“Borrower”),
on the other hand, with reference to the following facts:
A. Borrower,
Agent, and Lenders have previously entered into that certain Credit Agreement,
dated as of May 31, 2007 (as amended and modified, from time to time, the “Agreement”).
B. Borrower
is in non-compliance with the following provisions of the Agreement
(collectively, the “Existing
Events of Non-Compliance”):
|
Section/Covenant
|
Required
Performance
|
Actual
Performance
|
|
Section
6.16(a) – Minimum
EBITDA
|
$3,350,000
at May 31, 2008
|
1,908,274
at May 31, 2008
|
|
Section
6.16(b) – Minimum
Fixed
Charge Coverage Ratio
|
0.90:1.00
at May 31, 2008
|
0.39:1.00
at May 31, 2008
|
C. Borrower
has requested that Agent and Lenders waive the Existing Events of Non-Compliance
and make certain amendments to the Agreement.
D. Borrower,
Agent, and Lenders desire to amend the Agreement as provided for and on the
conditions set forth herein.
NOW,
THEREFORE, for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby amend and supplement the Agreement as
follows:
1. DEFINITIONS. All
initially capitalized terms used in this Amendment shall have the meanings given
to them in the Agreement unless specifically defined herein.
2. AMENDMENTS.
(a) The
definition of “Base Rate Margin” set forth in Schedule
1.1 to the Agreement is hereby amended by deleting such definition in its
entirety and replacing it with the following:
“Base
Rate Margin” means, as of any date of determination (with respect to any
portion of the outstanding Advances or the Term Loan on such date that is a Base
Rate Loan), the applicable margin set forth in the following table that
correspond to the most recent TTM EBITDA calculation delivered to Agent pursuant
to Section
5.3 of the Agreement (the “TTM
EBITDA Calculation”); provided,
however,
that for the period from the Amendment Two Effective Date through the date Agent
receives the TTM EBITDA Calculation in respect of the testing period ending
February 28, 2009, the Base Rate Margin shall be at the margin in the row styled
“Level I”:
1
|
Level
|
TTM
EBITDA Calculation
|
Base
Rate Margin
|
|
I
|
<
$3,000,000
|
3.75
percentage points
|
|
II
|
≥ $3,000,000
|
2.50
percentage points
|
Except as
set forth in the foregoing proviso, the Base Rate Margin shall be based upon the
most recent TTM EBITDA Calculation, which will be calculated as of the end of
each fiscal month. Except as set forth in the foregoing proviso, the
Base Rate Margin shall be re-determined monthly on the first day of the month
following the date of delivery to Agent of the certified calculation of the TTM
EBITDA pursuant to Section
5.3 of the Agreement; provided,
however,
that if Borrower fails to provide such certification when such certification is
due, the Base Rate Margin shall be set at the margin in the row styled “Level I”
as of the first day of the month following the date on which the certification
was required to be delivered until the date on which such certification is
delivered (on which date (but not retroactively), without constituting a waiver
of any Default or Event of Default occasioned by the failure to timely deliver
such certification, the Base Rate Margin shall be set at the margin based upon
the calculations disclosed by such certification. In the event that
the information regarding the TTM EBITDA contained in any certificate delivered
pursuant to Section
5.3 of the Agreement is shown to be inaccurate, and such inaccuracy, if
corrected, would have led to the application of a higher Base Rate Margin for
any period (a “Base
Rate Period”) than the Base Rate Margin actually applied for such Base
Rate Period, then (i) Borrower shall immediately deliver to Agent a correct
certificate for such Base Rate Period, (ii) the Base Rate Margin shall be
determined as if the correct Base Rate Margin (as set forth in the table above)
were applicable for such Base Rate Period, and (iii) Borrower shall immediately
deliver to Agent full payment in respect of the accrued additional interest as a
result of such increased Base Rate Margin for such Base Rate Period, which
payment shall be promptly applied by Agent to the affected
Obligations.
(b) The
definition of “EBITDA” set forth in Schedule
1.1 to the Agreement is hereby amended by deleting such definition in its
entirety and replacing them with the following:
“EBITDA”
means, with respect to any fiscal period, Borrower’s consolidated net earnings
(or loss), minus gains of up to $1,438,830 realized in connection with the sale
of Borrower’s Telident business previously consented to by Agent, all future
extraordinary gains, any interest income, and any software development costs to
the extent capitalized during such period, plus expenses of up to $577,568
related to severance payments, interest expense, income taxes, and depreciation
and amortization for such period, in each case, determined on a consolidated
basis in accordance with GAAP.
(c) Clause
(a) of the definition of “Eligible Accounts” set forth in Schedule
1.1 to the Agreement is hereby amended by deleting such clause in its
entirety and replacing them with the following:
(a) Accounts
that the Account Debtor has failed to pay within 90 days (120 days if the
Account Debtor is either the New York City Board of Education or the New York
City Department of Corrections, or their respective Affiliates) of original
invoice date or Accounts with selling terms of more than 60 days; provided,
however,
that notwithstanding the foregoing, up to $300,000 of Accounts owed by the New
York City Board of Education and the New York City Department of Corrections,
and their respective Affiliates, not otherwise fulfilling the terms in this
subparagraph (a) shall be considered Eligible Accounts so long as
2
such
Accounts (i) have selling terms of 60 days or less, (ii) are no older than 180
days from their invoice date, and (iii) meet all other eligibility criteria set
forth in this
definition,
(d) Clause
(i) of the definition of “Eligible Accounts” set forth in Schedule
1.1 to the Agreement is hereby amended by deleting such clause in its
entirety and replacing it with the following:
(i) Accounts
with respect to an Account Debtor whose total obligations owing to Borrower
exceed (i) 55% of all Eligible Accounts, with respect to Accounts owed by the
New York City Board of Education and its Affiliates (collectively, “NYBOE”),
(ii) 30% of all Eligible Accounts, with respect to Accounts owed by the New York
City Department of Corrections and its Affiliates (collectively, “NYDOC”), (iii)
30% of all Eligible Accounts, with respect to Accounts owed by the Federal
Bureau of Prisons and its Affiliates (collectively, “FBOP”), but in no event
shall the aggregate amount of all Eligible Accounts owed by NYBOE, NYDOC or FBOP
exceed 75% of all Eligible Accounts, (iv) 20% of all Eligible Accounts, with
respect to Accounts owed by Xxxxxxx Media Research, and (v) 10% of all Eligible
Accounts in all other cases (such percentage, as applied to a particular Account
Debtor, being subject to reduction by Agent in its Permitted Discretion if the
creditworthiness of such Account Debtor deteriorates), in each such case to the
extent of the obligations owing by such Account Debtor in excess of such
percentages; provided,
however,
that, in each case, the amount of Eligible Accounts that are excluded because
they exceed the foregoing percentages shall be determined by Agent based on all
of the otherwise Eligible Accounts prior to giving effect to any eliminations
based upon the foregoing concentration limit,
(e) The
definition of “Fixed Charges” set forth in Schedule
1.1 to the Agreement is hereby amended by deleting such definition in its
entirety and replacing it with the following:
“Fixed
Charges” means, with respect to any fiscal period and with respect to Borrower
determined on a consolidated basis in accordance with GAAP, the sum, without
duplication, of (a) cash Interest Expense paid during such period, (b) cash
principal payments in respect of Indebtedness that are paid during such period,
(c) all dividends and distributions paid in cash during such period, and (d) all
federal, state, and local income taxes paid in cash during such
period.
(f) Schedule
1.1 to the Agreement is hereby amended by adding the following new
definitions thereto in alphabetical order:
“Amendment
Two Effective Date” mean the date on which that certain Amendment Number
Two to Credit Agreement by and among Lenders, Agent and
Borrower
becomes effective pursuant to its terms.
“Cash
Flow Forecast” has the meaning given to such term in Section
5.20.
(g) Section
5.20
is hereby added to the Agreement as follows:
5.20 Cash
Flow Forecast. Commencing on the Amendment Two Effective Date
and continuing each week thereafter until March 31, 2009, but in no event later
than the Thursday of each week during such period, provide Agent with a detailed
forecast of Borrower’s cash flow for the then current week and the immediately
succeeding 12 weeks (a “Cash
Flow Forecast”). Each Cash Flow Forecast shall be reviewed by
a third-party as determined by Agent in its sole discretion and the delivery of
such forecasts may be extended beyond March 31, 2009 in Agent’s reasonable
credit judgment.
3
(h) Section
5.21
is hereby added to the Agreement as follows:
5.21 Copyright
Registration. Notwithstanding anything to the contrary in the
Loan Documents, including that certain Amendment Number One to Credit Agreement
dated as of August 8, 2007, by and among Lenders, Agent and Borrower, or any
course of dealings among Lenders, Agent and Borrower with respect to the subject
matter of this Section 5.21, Borrower hereby acknowledges that Agent retains the
right pursuant to Section
6(g)(ii) of the Security Agreement, to require Borrower, at any time upon
Agent’s request, and Borrower hereby agrees if so requested by Agent, to
promptly file an application with the United States Copyright Office with
respect to any unregistered Copyright in which Borrower has an interest and
shall execute and deliver to Agent a Copyright Security Agreement or such other
documentation as Agent deems necessary in order to perfect and continue
perfected Agent’s Liens on such Copyright following such
registration.
(i) Section
6.16 of
the Agreement is hereby amended by deleting such Section in its entirety and
replacing it with the following:
(a) Minimum
EBITDA. Fail to achieve EBITDA, measured on a month-end basis,
of at least the required amount set forth in the
following table
for the
applicable period set forth opposite thereto:
|
Required
Amount
|
Applicable
Period
|
|
($197,000)
|
For
the 12 month period ending 8/31/08
|
|
($215,000)
|
For
the 12 month period ending 9/30/08
|
|
$105,000
|
For
the 12 month period ending 10/31/08
|
|
($78,000)
|
For
the 12 month period ending 11/30/08
|
|
$512,000
|
For
the 12 month period ending 12/31/08
|
|
$705,000
|
For
the 12 month period ending 1/31/09
|
|
$933,000
|
For
the 12 month period ending 2/28/09
|
|
$1,496,000
|
For
the 12 month period ending 3/31/09
|
|
$1,995,000
|
For
the 12 month period ending 4/30/09
|
|
$2,470,000
|
For
the 12 month period ending 5/31/09
|
|
$2,970,000
|
For
the 12 month period ending 6/30/09
|
|
$3,060,000
|
For
the 12 month period ending 7/31/09
|
|
$3,260,000
|
For
the 12 month period ending 8/31/09
|
|
$3,350,000
|
For
the 12 month period ending 9/30/09
|
|
$2,940,000
|
For
the 12 month period ending 10/31/09
|
4
|
$2,710,000
|
For
the 12 month period ending 11/30/09
|
|
$2,725,000
|
For
the 12 month period ending 12/31/09
|
Minimum
EBITDA levels for each month in any fiscal year commencing with fiscal year 2010
shall be determined by Agent, based upon the latest Projections for such fiscal
year delivered to Agent in accordance with Section 5.3. Such
financial projections must credibly reflect expected performance by Borrower in
each month of such fiscal year and shall otherwise be satisfactory to Agent in
its reasonable credit judgment.
(b) Minimum
Fixed Charge Coverage Ratio. Have a Fixed Charge Coverage
Ratio, measured on a month-end basis, commencing on April 30, 2009, of less
than the required ratio set forth in the following table for the 12 month period
set forth opposite thereto:
|
Applicable
Ratio
|
Month
Ending
|
|
0.75:1.0
|
For
the 12 month period ending 4/30/09
|
|
0.94:1.0
|
For
the 12 month period ending 5/31/09
|
|
1.13:1.0
|
For
the 12 month period ending 6/30/09
|
|
1.15:1.0
|
For
the 12 month period ending 7/31/09
|
|
1.23:1.0
|
For
the 12 month period ending 8/31/09
|
|
1.26:1.0
|
For
the 12 month period ending 9/30/09
|
|
1.12:1.0
|
For
the 12 month period ending 10/31/09
|
|
1.11:1.0
|
For
the 12 month period ending 11/30/09
|
|
1.12:1.0
|
For
the 12 month period ending 12/31/09
|
Minimum
Fixed Charge Coverage Ratios for each month in any fiscal year commencing with
fiscal year 2010 shall be determined by Agent, based upon the latest Projections
for such fiscal year delivered to Agent in accordance with Section 5.3. Such
financial projections must credibly reflect expected performance by Borrower in
each month of such fiscal year and shall otherwise be satisfactory to Agent in
its reasonable credit judgment.
(c) Capital
Expenditures. Make Capital Expenditures in any fiscal year in
excess of the amount set forth in the following table for the applicable
period:
5
|
Fiscal Year
2008
|
Fiscal
Year
2009
|
Fiscal
Year 2010
|
Fiscal Year
2011
|
|
$250,000
|
$250,000
|
$250,000
|
$250,000
|
(d) Minimum
TTM Recurring Revenue. Fail to achieve TTM Recurring Revenue,
excluding revenue generated from Teltronics UK, measured on a month-end basis,
of at least the required amount set forth in the following table for the
applicable period set forth opposite thereto:
|
Required
Amount
|
Applicable
Period
|
|
$9,670,000
|
For
the 12 month period ending 8/31/08
|
|
$9,547,000
|
For
the 12 month period ending 9/30/08
|
|
$9,405,000
|
For
the 12 month period ending 10/31/08
|
|
$9,265,000
|
For
the 12 month period ending 11/30/08
|
|
$9,214,500
|
For
the 12 month period ending 12/31/08
|
|
$8,965,000
|
For
the 12 month period ending 1/31/09
|
|
$8,990,000
|
For
the 12 month period ending 2/28/09
|
|
$8,905,000
|
For
the 12 month period ending 3/31/09
|
|
$8,825,000
|
For
the 12 month period ending 4/30/09
|
|
$8,740,000
|
For
the 12 month period ending 5/31/09
|
|
$8,781,000
|
For
the 12 month period ending 6/30/09
|
|
$8,790,000
|
For
the 12 month period ending 7/31/09
|
|
$8,810,000
|
For
the 12 month period ending 8/31/09
|
|
$8,815,000
|
For
the 12 month period ending 9/30/09
|
|
$8,825,000
|
For
the 12 month period ending 10/31/09
|
|
$8,840,000
|
For
the 12 month period ending 11/30/09
|
|
$8,850,000
|
For
the 12 month period ending 12/31/09
|
TTM
Recurring Revenue levels for each month in any fiscal year commencing with
fiscal year 2010 shall be determined by Agent, based upon the latest Projections
for such fiscal year delivered to Agent in accordance with Section 5.3. Such
financial projections must credibly reflect expected performance by Borrower in
each month of such fiscal year and shall otherwise be satisfactory to Agent in
its reasonable credit judgment.
6
(j) Section
7.13 of
the Agreement is hereby amended by deleting such Section in its entirety and
replacing it with the following:
7.13 Borrower
shall have Required Availability upon making any scheduled payment in respect of
the Dove Indebtedness.
(k) Schedule
5.2 to the Agreement is hereby amended by deleting such schedule in its entirety
and replacing it with Schedule 5.2 attached hereto.
3. WAIVER
OF EXISTING EVENTS OF NON-COMPLIANCE. Upon the terms and
subject to the conditions set forth in this Amendment, Agent and Lenders hereby
waive the Existing Events of Non-Compliance as of May 31, 2008. This
waiver shall be effective only in this specific instance and for the specific
purpose for which it is given, and shall not entitle Borrower to any other or
further waiver in any similar or other circumstances.
4. REPRESENTATIONS
AND WARRANTIES. Borrower
hereby affirms to Agent and Lenders that all of Borrower’s representations and
warranties set forth in the Agreement are true, complete and accurate in all
respects as of the date hereof.
5. NO
DEFAULTS. Other
than the Existing Events of Non-Compliance, Borrower hereby affirms to Agent and
Lenders that no Event of Default has occurred and is continuing as of the date
hereof.
6. CONDITIONS
PRECEDENT. The
effectiveness of this Amendment is hereby conditioned upon receipt by Agent of
(i) a fully executed copy of this Amendment from each party hereto, and (ii) a
fully executed copy of the Amended and Restated Fee Letter, each in form and
substance satisfactory to Agent.
7. REAFFIRMATION. Borrower
hereby acknowledges and reaffirms (i) all of its obligations and duties under
the Loan Documents, and (ii) that the Agent, for the ratable benefit of the
Lender Group, has and shall continue to have valid, perfected Liens in the
Collateral as provided in Section
5.2(d) of the Security Agreement.
8. COSTS
AND EXPENSES. Borrower
shall pay to Agent and Lenders all of Agent’s and Lenders’ out-of-pocket costs
and expenses (including, without limitation, the fees and expenses of its
counsel, which counsel may include any local counsel deemed necessary, search
fees, filing and recording fees, documentation fees, appraisal fees, travel
expenses, and other fees) arising in connection with the preparation, execution,
and delivery of this Amendment and all related documents.
9. LIMITED
EFFECT. In
the event of a conflict between the terms and provisions of this Amendment and
the terms and provisions of the Agreement, the terms and provisions of this
Amendment shall govern. In all other respects, the Agreement, as
amended and supplemented hereby, shall remain in full force and
effect.
10. GENERAL
RELEASE. IN CONSIDERATION OF AGENT AND LENDERS AGREEING TO
ENTER INTO THIS AMENDMENT AND FOR OTHER GOOD AND VALUABLE CONSIDERATION,
BORROWER HEREBY RELEASES AND DISCHARGES AGENT AND LENDERS, THEIR AGENTS,
REPRESENTATIVES, OFFICERS, DIRECTORS, AND ASSIGNS, FROM ANY AND ALL CLAIMS,
LIABILITIES, RIGHTS AND OBLIGATIONS, OF ANY NATURE WHATSOEVER, WHETHER SOUNDING
IN TORT OR CONTRACT, ARISING PRIOR TO THE DATE HEREOF RELATING TO THE
OBLIGATIONS, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
RELEASE SHALL BE EFFECTIVE NOTWITHSTANDING, AND BORROWER HEREBY WAIVES ANY AND
ALL RIGHTS ARISING UNDER OR WITH RESPECT TO, CALIFORNIA CIVIL CODE SECTION 1542
(OR ANY NEW YORK LAW EQUIVALENT) WHICH PROVIDES:
7
“A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.”
11. COUNTERPARTS;
EFFECTIVENESS.
This Amendment may be executed in any number of counterparts and by
different parties on separate counterparts, each of which when so executed and
delivered shall be deemed to be an original. All such counterparts,
taken together, shall constitute but one and the same Amendment. This
Amendment shall become effective upon the execution of a counterpart of this
Amendment by each of the parties hereto. This Amendment is a Loan
Document and is subject to all the terms and conditions, and entitled to all the
protections, applicable to Loan Documents generally.
[remainder
of page left blank intentionally; signatures to follow]
8
IN
WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date
first set forth above.
|
TELTRONICS,
INC.,
a
Delaware corporation
|
||
|
By:
|
/s/
Xxxx X. Xxxxxxx
|
|
|
Name:
|
Xxxx
X. Xxxxxxx
|
|
|
Title:
|
President
& CEO
|
|
|
XXXXX
FARGO FOOTHILL, INC.,
a
California corporation, as Agent and as a Lender
|
||
|
By:
|
/s/
Xxxxxxx Xxxxx
|
|
|
Name:
|
Xxxxxxx
Xxxxx
|
|
|
Title:
|
Vice
President
|
|
S-1
Amendment Number
Two
