Document:

exv10w16w1

Exhibit 10.16.1

	 	 	 
	

	 	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:

	 	/s/ Tom Willardson
	 	 
	 	By:
	 	/s/ Darren Santos
	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	Its:

	 	CFO
	 	 	 	Its:
	 	Corporate Banking Officer-Western Market	 	 
	 
	By:

	 	TOM WILLARDSON	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Its:

	 	CHIEF FINANCIAL OFFICER	 	 	 	 	 	 	 	 

 

 

SCHEDULE 6.4

INVENTORY LOCATIONS

	 	 	 
	ADDRESS	 	OWNER/MORTGAGEE
	 
	1908 Doolittle Drive, San Leandro, 

California 94577

2661 Avarado, San Leandro, CA 94577

	 	2101 Williams Associates, LLC

Bob Legallet

1404 Griffith, San Francisco, CA
	 
	 	 
	433 Hegenberger Road, Oakland, CA

	 	Steve Moriarty

Bergman, Inc.

39560 Stevenson Place

Fremont, CA
	 
	 	 
	Ribera Del Loira 46

Campo De Las Naciones 

28042 Madrid, Spain

	 	Regus Puerta De Las Naciones

Ribera Del Loira 46

28042 Madrid, Spainexv10w1

Exhibit 10.1

EXECUTION COPY

     JOINDER AGREEMENT, dated as of May 6, 2008 (the “Joinder Agreement” or this
“Agreement”), by and among each bank or financial institution whose name appears under the
caption “Incremental Lenders” on the signature pages hereof (each, an “Incremental Lender”
and, collectively, the “Incremental Lenders”), VOUGHT AIRCRAFT INDUSTRIES, INC. (the
“Borrower”), and LEHMAN COMMERCIAL PAPER INC. (the “Administrative Agent”).

RECITALS:

     WHEREAS, reference is hereby made to the Credit Agreement, dated as of December 22, 2004 (as
amended, supplemented or otherwise modified from time to time, the “Credit Agreement”),
among the Borrower, the funding parties party thereto and Lehman Commercial Paper Inc., as
administrative agent (in such capacity, the “Administrative Agent”) (capitalized terms used
but not defined herein having the meaning provided in the Credit Agreement); and

     WHEREAS, subject to the terms and conditions of the Credit Agreement, the Borrower may
establish Incremental Facility Term Loan Commitments by, among other things, entering into one or
more Joinder Agreements with Incremental Lenders;

     NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants
herein contained, the parties hereto agree as follows:

	 	I.	 	Each Incremental Lender party hereto hereby agrees to commit to provide its Incremental
Facility Term Loan Commitment, as set forth on Schedule A annexed hereto, on the terms and
subject to the conditions set forth below:
	 
	 	II.	 	Each Incremental Lender (i) confirms that it has received a copy of the Credit Agreement
and the other Loan Documents, together with copies of the financial statements referred to therein
and such other documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Agreement; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, or any other Incremental Lender or any other
Funding Party and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as
are delegated to the Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (iv) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of this Agreement and the Credit Agreement are required
to be performed by it as an Incremental Lender.
	 
	 	III.	 	Each Incremental Lender hereby agrees to make its respective Incremental
Facility Term Loan Commitment on the following terms and conditions:

 

 

	 	1.	 	Applicable Margin.    The Applicable Margin for the Incremental Facility Term Loans shall
mean, as of any date of determination, a percentage per annum as set forth below:

	 	 	 
	ABR Loans
	 	Eurodollar Loans
	3.00%
	 	4.00%

     Notwithstanding the foregoing, the Eurodollar Rate for the Incremental Facility Term Loans with
respect to each day during each Interest Period pertaining to a Eurodollar Loan shall be the
greater of (i) 3.50% and (ii) with respect to each day during each Interest Period pertaining to a
Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):

	 	 	 
	Eurodollar Base Rate

 

	1.00 — Eurocurrency Reserve Requirements

     2. Principal Payments.    The Borrower shall make principal payments on the Incremental Facility
Term Loans in installments on the last Business Day in each of the months set forth below and in
the amounts set forth below:

	 	 	 	 	 
	(A)	 	(B)	 
	Payment	 	Scheduled Repayment of	 
	Date	 	Incremental Facility Term Loans	 
	September 2008
	 	$470,000	 
	December 2008
	 	$470,000	 
	 

	March 2009
	 	$470,000	 
	June 2009
	 	$470,000	 
	September 2009
	 	$470,000	 
	December 2009
	 	$470,000	 
	 

	March 2010
	 	$470,000	 
	June 2010
	 	$470,000	 
	September 2010
	 	$470,000	 
	December 2010
	 	$470,000	 
	 

	March 2011
	 	$470,000	 
	June 2011
	 	$470,000	 
	September 2011
	 	$470,000	 
	 

	Term Loan Maturity Date
	 	$193,890,000       	 

 

 

     3. Voluntary and Mandatory Prepayments.    Scheduled installments of principal of the
Incremental Facility Term Loans set forth above shall be reduced in connection with any optional or
mandatory prepayments of the Incremental Facility Term Loans in accordance with Sections 2.12 and
2.13 of the Credit Agreement respectively.

     4. Proposed Borrowing.    This Agreement represents the Borrower’s request to borrow Incremental
Facility Term Loans from the Incremental Lenders as follows (the “Proposed Borrowing”):

	 	I.	 	BUSINESS DAY OF PROPOSED BORROWING: MAY 6, 2008
	 
	 	II.	 	AMOUNT OF PROPOSED BORROWING: $200,000,000
	 
	 	III.	 	INTEREST RATE OPTION: EURODOLLAR LOAN(S) WITH AN INITIAL INTEREST PERIOD
ENDING ON MAY 30, 2008 (WHICH FOR PURPOSES OF CALCULATING THE EURODOLLAR BASE RATE
SHALL BE DEEMED TO BE AN INTEREST PERIOD OF ONE MONTH)

     5. Incremental Lenders.    Each Incremental Lender acknowledges and agrees that upon its
execution of this Agreement and the making of Incremental Facility Term Loans, such Incremental
Lender shall become a “Funding Party” under, and for all purposes of, the Credit Agreement and the
other Loan Documents, and shall be subject to and bound by the terms thereof, and shall perform all
the obligations of and shall have all rights of a Funding Party thereunder (except as set forth in
this Agreement).

     6. Closing Fee.    The Borrower agrees to pay to each Incremental Lender on the Closing Date a
closing fee equal to 5% of such Incremental Lender’s Incremental Facility Term Loan Commitment made
on the Closing Date. The Borrower authorizes each such Incremental Lender to satisfy the
Borrower’s obligation to pay such fee to such Incremental Lender by such Incremental Lender
deducting the amount of such fee from the principal amount of the Incremental Facility Term Loan
disbursed on the Closing Date by such Incremental Lender and by such Incremental Lender retaining
the amount so deducted for such Incremental Lender’s own account. The payment of such fee shall
not reduce the principal amount of the Incremental Facility Term Loan made by such Incremental
Lender, and the disbursement of the proceeds of such Incremental Facility Term Loan, exclusive of
the amount of such fee, shall satisfy such Incremental Lender’s Incremental Facility Term Loan
Commitment relating thereto in full.

     7. Credit Agreement Governs.    Except as set forth in this Agreement, the Incremental Facility
Term Loans shall otherwise be subject to the provisions of the Credit Agreement and the other Loan
Documents.

     8. Conditions Precedent to Effectiveness of the Incremental Facility Term Loans.    The agreement
of each Incremental Lender to make the extension of credit requested to be made hereby is subject
to the satisfaction (or waiver), prior to or concurrently with the making of such extension of
credit, of the conditions precedent referred to in Exhibit A to the commitment letter dated as of
April 25, 2008 among Lehman Brothers Inc., Lehman Brothers Commercial Bank, Lehman Commercial Paper
Inc., JPMorgan Chase Bank, N.A., J.P. Morgan Securities Inc., Goldman Sachs Credit Partners L.P.
and the Borrower (the date upon which all such conditions precedent shall be satisfied and the
Incremental Facility Term Loans shall have been funded, the “Closing Date”).

 

 

     9. Notice.    For purposes of the Credit Agreement, the initial notice address of each
Incremental Lender shall be as set forth below its signature below.

     10. Non-US Funding Parties.    For each Incremental Lender that is a Non-US Funding Party,
delivered herewith to the Administrative Agent are such forms, certificates or
other evidence with respect to United States federal income tax withholding matters as such
Incremental Lender may be required to deliver to Administrative Agent pursuant to subsection
2.21(d) of the Credit Agreement.

     11. Recordation of the New Loans.    Upon execution and delivery hereof, the Administrative
Agent will record the Incremental Facility Term Loans made by each Incremental Lender in the
Register.

     12. Amendment, Modification and Waiver.    This Agreement may not be amended, modified or waived
except as provided by Section 10.1 of the Credit Agreement.

     13. Entire Agreement.    This Agreement, the Credit Agreement and the other Loan Documents
constitute the entire agreement among the parties with respect to the subject matter hereof and
thereof and supersede all other prior agreements and understandings, both written and verbal, among
the parties or any of them with respect to the subject matter hereof.

     14. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK.

     15. Severability.    Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without rendering invalid or unenforceable the remaining terms and provisions
of this Agreement or affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as would be enforceable.

     16. Counterparts.    This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same agreement.

 

 

     IN WITNESS WHEREOF, each of the undersigned has caused its duly authorized officer to execute and
deliver this Joinder Agreement as of May 6, 2008.

	 	 	 	 	 
	 	VOUGHT AIRCRAFT INDUSTRIES, INC.

 	 
	 	By:  	/s/ KEITH HOWE
 	  
	 	 	Name:  	Keith Howe 	 
	 	 	Title:  	Vice President and Chief
Financial Officer 	 
	 

 

 

INCREMENTAL LENDERS

	 	 	 	 	 
	 	LEHMAN BROTHERS COMMERCIAL BANK,

 	 
	 	By:  	/s/ BRIAN McNANY
 	  
	 	 	Name:  Brian McNany	 	 
	 	 	Title:    Authorized Signatory
	 
	 	 	Notice Address:

Attention:

Telephone:

Facsimile:
 	 
	 

 

 

	 	 	 	 	 
	Consented to by:

LEHMAN COMMERCIAL PAPER

INC., as Administrative Agent

 	 	 
	By:  	/s/ DIANA ALBANESE
 	  	 
	 	Name:  	Diana Albanese 	 	 
	 	Title:  	Authorized Signatory 	 	 
	 

 

 

SCHEDULE A

TO JOINDER AGREEMENT

	 	 	 	 	 
	Name of Incremental Lender	 	Type of Commitment	 	Amount
	Lehman Brothers	 	Incremental Facility Term	 	$200,000,000
	Commercial Bank	 	Loan Commitment

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