Exhibit 10.11

 

[7/11/04]

 

FOURTH AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT

BY AND BETWEEN

CONGRESS FINANCIAL CORPORATION (FLORIDA)

AND

DRUGMAX, INC., TOGETHER WITH ITS SUBSIDIARIES,

VALLEY DRUG COMPANY, VALLEY DRUG COMPANY SOUTH,

AND DISCOUNT Rx, INC.

 

THIS FOURTH AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT (this
“Amendment”) is entered into effective as of August 5, 2004 (the “Effective
Date”), by and among DRUGMAX, INC., a Nevada corporation (“Borrower”), (together
with its subsidiaries, VALLEY DRUG COMPANY, an Ohio corporation, VALLEY DRUG
COMPANY SOUTH, a Louisiana corporation, and DISCOUNT Rx, Inc., a Louisiana
corporation, also the “Borrower”), and CONGRESS FINANCIAL CORPORATION (FLORIDA),
a Florida corporation (“Lender”).

 

W I T N E S S E T H:

 

WHEREAS, Borrower and Lender heretofore entered into the Loan and Security
Agreement, dated effective April 15, 2003, as amended by Amendment No. 1 to Loan
and Security Agreement, dated as of August 19, 2003, Amendment No. 2 to Loan and
Security Agreement, dated as of March 31, 2004 and Amendment No. 3 to Loan and
Security Agreement, dated as of June 30, 2004 (as the same now exists and may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced, the “Loan Agreement”) pursuant to which Lender agreed to
make loans and provide other financial accommodations to Borrower; and

 

WHEREAS, Borrower has requested certain amendments to the Loan Agreement,
including with respect to the EBITDA and Tangible Net Worth covenants, and a
waiver of certain defaults in respect of such covenants, and Lender is willing
to agree to such amendments and waivers, subject to the terms and conditions set
forth herein.

 

NOW, THEREFORE, for and in consideration of the above premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt whereof is hereby acknowledged, Borrower and Lender
agree as follows:

 

1. Definitions. All capitalized terms contained herein shall have the meanings
assigned to them in the Loan Agreement unless the context herein otherwise
dictates or unless different meanings are specifically assigned to such terms
herein.

 

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2. Amendments. The Loan Agreement is hereby amended as follows:

 

(a) Section 7.1.

 

(i) Section 7.1(a)(i) of the Loan Agreement is hereby deleted in its entirety
and the following substituted therefor:

 

“On a regular basis, as requested by Lender (A) a schedule of sales made,
credits issued and cash received; (B) evidence of the delivery of products to
customers of Borrower in connection with sales made and invoiced by Borrower for
amounts in excess of $25,000; and (C) a report of Eligible Inventory accompanied
by such additional documentation with respect thereto as Lender may request.”

 

(b) Section 9.18. Section 9.18 of the Loan Agreement is hereby amended by
deleting the last Test Period and EBITDA amount set forth in the chart at the
end thereof and substituting the following therefor:

 

Test Period

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EBITDA

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“April 1, 2005 through and including March 31, 2006 and each rolling 12-month
period tested quarterly thereafter    2,000,000”

 

(c) Section 9.22. Section 9.22 of the Loan Agreement is hereby amended by
deleting subsection (f) in its entirety and substituting the following therefor:

 

“(f) all out of pocket expenses and costs heretofore and from time to time
hereafter incurred by Lender during the course of periodic field examinations of
the Collateral and Borrower’s operations, plus a per diem charge at the then
standard rate of Lender per person per day for Lender’s examiners in the field
and office (which rate is currently $750);”

 

(d) Section 9.23. Section 9.23 of the Loan Agreement is hereby deleted in its
entirety and the following substituted therefor:

 

“9.23 “Minimum Excess Availability. Borrower shall maintain at all times Excess
Availability in the amount of not less than $1,000,000.

 

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3. Waiver of Events of Default.

 

(a) Subject to the satisfaction of each of the conditions precedent set forth in
Section 7 hereof, Lender hereby waives the following Events of Default
(collectively, the “Existing Defaults”):

 

(i) any Event of Default under Section 10.1(a)(ii) of the Loan Agreement arising
as a result of the failure of Borrower to comply with the terms of Section 9.17
of the Loan Agreement as of June 30, 2004; and

 

(ii) any Event of Default under Section 10.1(a)(ii) of the Loan Agreement
arising as a result of the failure of Borrower to comply with the terms of
Section 9.18 of the Loan Agreement with respect to the three-month period ended
June 30, 2004.

 

(b) Lender has not waived, is not by this Amendment waiving, and has no
intention of waiving any Event of Default which may have occurred on or prior to
the date hereof, whether or not continuing on the date hereof, or which may
occur after the date hereof (whether the same or similar to the Events of
Default referred to in Section 3(a) above or otherwise), other than the Existing
Defaults (subject to the terms and conditions set forth in Section 3(a) above).
The foregoing waiver shall not be construed as a bar to or a waiver of any other
or further Event of Default on any future occasion, whether similar in kind or
otherwise and shall not constitute a waiver, express or implied, of any of the
rights and remedies of Lender arising under the terms of the Loan Agreement or
any other Financing Agreements on any future occasion or otherwise.

 

4. Testing of Financial Covenants. Lender agrees that it shall not test the
compliance of Borrower with (a) the covenant set forth in Section 9.17 of the
Loan Agreement with respect to Tangible Net Worth for the period from July 1,
2004 through and including September 29, 2004 and (b) the covenant set forth in
Section 9.18 of the Loan Agreement with respect to EBITDA for the one-month
period ended July 31, 2004 and the two-month period ending August 31, 2004;
provided, that, the negotiations with Familymeds, Inc. (“Familymeds”) with
respect to the proposed merger of Borrower with Familymeds continue in
accordance with Agreement and Plan of Merger with Familymeds Group, Inc., dated
March 19, 2004, between Familymeds and Borrower.

 

5. Amendment Fee. In consideration of the amendments set forth herein, Borrower
agrees to pay to Lender or Lender may, at its option, charge any account of
Borrower maintained by Lender, a fee the amount of $50,000 (the “Amendment
Fee”), which shall be fully earned as of the date hereof and shall constitute
part of the Obligations, it being understood and agreed that Borrower shall pay
or Agent shall charge the loan account of Borrower $35,000 of such Amendment Fee
as of the date hereof and Borrower shall pay or Agent shall charge the loan
account of Borrower $15,000 of such Amendment Fee on September 30, 2004, it
being further understood and agreed that, if the transactions contemplated by
the Proposal Letter, dated April 5, 2004, between DrugMax, Inc. and Lender (the
“Proposal Letter”), shall have been consummated on or before October 1, 2004,
$15,000 of such Amendment Fee shall be credited to a reduction in the amount of
the amendment fee referred to in Section 5(a) of the Proposal Letter.

 

6. Representations, Warranties and Covenants. In addition to the continuing
representations, warranties and covenants heretofore or hereafter made by
Borrower to Lender

 

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pursuant to the other Financing Agreements, Borrower hereby represents, warrants
and covenants with and to Lender as follows (which representations, warranties
and covenants are continuing and shall survive the execution and delivery hereof
and shall be incorporated into and made a part of the Financing Agreements):

 

(a) Borrower shall regularly advise Lender of the status and progress of its
negotiations with Familymeds with respect to the proposed merger of Familymeds
and Borrower.

 

(b) Borrower hereby acknowledges and agrees that promptly following the
execution and delivery hereof, but no later than August 14, 2004, it shall
retain at its cost and expense, a consultant specified or approved by Lender,
to: (i) evaluate and review the business, financial and collateral reporting of
Borrower, (ii) assist in the preparation of a thirteen (13) week rolling cash
flow plan to be submitted to Lender by Borrower weekly, (iii) assess the interim
plans of Borrower pending its proposed merger with Familymeds and assess the
viability of turnaround plans, cash flow projections and operating performance
improvement plans in the event such merger is not consummated, pursuant to a
retainer letter or agreement in form and substance satisfactory to Lender and
which shall authorize, among other things, the delivery and disclosure by
Consultant to Lender of all reports and related information prepared or
evaluated by Consultant in connection with such engagement. Borrower
acknowledges and agrees that such Consultant will begin work no later than
August 16, 2004.

 

(c) The failure of Borrower to comply with the covenants, conditions and
agreements contained herein or in any other agreement, document or instrument at
any time executed and/or delivered by Borrower with, to or in favor of Lender
shall constitute an Event of Default under the Financing Agreements.

 

(d) This Amendment has been duly executed and delivered by Borrower and is in
full force and effect as of the date hereof, and the agreements and obligations
of Borrower contained herein constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective terms.

 

(e) Other than the Existing Defaults, as of the date hereof, no other Default or
Event of Default has occurred or is continuing (after giving effect to the
amendments and waivers set forth in this Amendment).

 

7. Effect of this Amendment. Except as modified pursuant hereto, no other
changes, modifications or waivers to or under the Loan Agreement or the other
Financing Agreements are intended or implied and in all other respects the
Financing Agreements are hereby specifically ratified and confirmed by the
parties hereto as of the effective date hereof. This Amendment represents the
entire agreement and understanding concerning the subject matter hereof between
the parties hereto, and supersedes all other prior agreements, understandings,
negotiations and discussions, representations, warranties, commitments,
proposals, offers and contracts concerning the subject matter hereof, whether
oral or written. To the extent of any conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this Amendment shall
control. The Loan Agreement and this Amendment shall be read and construed as
one agreement.

 

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8. Conditions to Effectiveness of this Amendment. The effectiveness of this
Amendment shall be subject to the satisfaction of the following conditions:

 

(a) Lender shall have received, in form and substance satisfactory to Lender, an
original of this Amendment, duly authorized, executed and delivered by Borrower;

 

(b) Lender shall have received the amendment fee referred to in Section 3
hereof;

 

(c) Lender shall have received any and all such further instruments and
documents as Lender may require to obtain the full benefits of this Amendment
and to protect, preserve and maintain Lender’s rights in the Collateral; and

 

(d) Other than the Existing Defaults, no other Default or Event of Default has
occurred or is continuing (after giving effect to the amendments and waivers set
forth in this Amendment).

 

9. Governing Law. The rights and obligations hereunder of each of the parties
hereto shall be governed by and interpreted and determined in accordance with
the laws of the State of Florida without regard to principals of conflicts of
laws, but excluding any rule of law that would cause the application of the law
of any jurisdiction other that the laws of the State of Florida.

 

10. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.

 

11. Counterparts. This Amendment may be executed in any number of counterparts,
but all of such counterparts shall together constitute but one and the same
agreement. In making proof of this Amendment, it shall not be necessary to
produce or account for more than one counterpart thereof signed by each of the
parties hereto. This Amendment may be executed and delivered by telecopier with
the same force and effect as if it were a manually executed and delivered
counterpart.

 

12. Further Assurances. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be necessary or
reasonably desirable to effectuate the provisions and purposes of this
Amendment.

 

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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be duly
executed as of the day and year first written above.

 

BORROWER

DRUGMAX, INC.

By:

 

/s/ Ronald J Patrick

Name:

 

Ronald J Patrick

Title:

 

CFO

VALLEY DRUG COMPANY

By:

 

/s/ Ronald J Patrick

Name:

 

Ronald J Patrick

Title:

 

CFO

VALLEY DRUG COMPANY SOUTH

By:

 

/s/ Ronald J Patrick

Name:

 

Ronald J Patrick

Title:

 

CFO

DISCOUNT Rx, INC.

By:

 

/s/ Ronald J Patrick

Name:

 

Ronald J Patrick

Title:

 

CFO

LENDER

CONGRESS FINANCIAL CORPORATION

(FLORIDA)

By:

 

/s/ Pat Cloninger

Name:

 

Pat Cloninger

Title:

 

Vice President