Document:

aebf_ex102.htm

EXHIBIT 10.2

 

AMENDMENT NO. 5 AND LIMITED WAIVER

TO NOTE AND WARRANT PURCHASE AGREEMENT

This Amendment No. 5 and Limited Waiver to Note and Warrant Purchase Agreement (the "Amendment"), dated as of October 18, 2010 is between AE BIOFUELS, INC., a Nevada corporation (the “Company”) and THIRD EYE CAPITAL CORPORATION, an Ontario corporation, as agent (“Agent”).

 

RECITALS

A. The Company, Agent and the Purchasers named therein entered into a certain Note and Warrant Purchase Agreement, dated as of May 16, 2008 (the “Original Agreement”), as amended by that certain Amendment No. 1 to Note and Warrant Purchase Agreement, dated as of May 28, 2008 between the Company and Agent, and as further amended by that certain Amendment No. 2 and Limited Waiver to Note and Warrant Purchase Agreement, dated as of July 23, 2008 between the Company and Agent and an Amendment No. 4 and Limited Waiver to Note and Warrant Purchase Agreement, dated as of December 10, 2009 between the Company and Agent (as the same may be further amended, restated, supplemented, revised or replaced from time to time, the “Agreement”).  Capitalized terms used but not defined in this Amendment shall have the meaning given to them in the Agreement.

 

B. The Company executed an Amendment No. 3 and Limited Waiver to Note and Warrant Purchase Agreement dated March 31, 2009; however, the Company failed to satisfy the conditions precedent to the effectiveness of such amendment and such amendment is hereby deemed null and void.

 

C. The Company has requested and the Agent and Purchasers have agreed to, among other things, extend the maturity date for the Note and waive certain Events of Default which have occurred and are continuing, but only to the extent and subject to the limitations set forth in this Amendment and without prejudice to the rights of Agent or any Purchasers.

 

AGREEMENT

SECTION 1.  Reaffirmation of Indebtedness.  The Company hereby confirms that as of the date of this Amendment the outstanding principal balance of the Notes and all accrued and unpaid interest thereon is $7,392,956.40.

 

SECTION 2.  Amendments.  As of the date hereof, the following sections of the Agreement shall be and hereby are amended as follows:

 

(A)  Recitals Part of Agreement.  The foregoing recitals are hereby incorporated into and made a part of this Agreement, including all defined terms referenced therein.

 

  

 

  

 

(B)  Section  1.1(Definitions).  Section 1.1 of the Agreement is hereby amended by inserting the defined terms “Pledge Agreements” and “Property” in their appropriate alphabetical order as follows:

 

“Pledge Agreements” mean the Pledge Agreements executed and delivered by each of the Company and International Biofuels, Ltd. in favor of Agent, as the same may be amended, restated or modified from time to time.

 

“Property” means all types of real, personal or mixed property and all types of tangible or intangible property.

 

(C)  Section  1.1(Definitions).  Section 1.1 of the Agreement is hereby amended by deleting the defined term “Significant Affiliates” in its entirety and amended by inserting the following in its place:

 

“Significant Affiliates” mean, collectively, Biofuels Marketing, Inc., a Delaware corporation; International Biodiesel, Inc., a Nevada corporation; International Biofuels, Ltd., a Mauritius entity; Universal Biofuels Private, Ltd., an Indian entity; AE Biofuels Americas, Inc., a Delaware corporation; AE Biofuels Technologies, Inc., a Delaware corporation; AE Advanced Fuels, Inc., a Delaware corporation; AE Advanced Fuels Keyes, Inc., a Delaware corporation; American Ethanol, Inc., a Nevada corporation; Energy Enzymes, Inc., a Delaware corporation; Sutton Ethanol, LLC, a Nebraska limited liability company; and Danville Ethanol, Inc., an Illinois corporation.

 

(D)  Section 4.3 (Payment at Maturity).  Section 4.3 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

 

“4.3  Payment at Maturity.  On June 30, 2011 (the “Maturity Date”), the Company will pay the entire then outstanding principal amount of the Notes together with all accrued and unpaid interest thereon; provided, that so long as no Event of Default has occurred and is then continuing, the Company may, in its discretion, extend the Maturity Date on a month-to-month basis upon payment to Agent of a Monthly Extension Fee for any such monthly extension of the Maturity Date after June 30, 2011.  “Monthly Extension Fee” means, for any extension of the Maturity Date after June 30, 2011, a fee due and payable to Agent and deemed fully earned on the 1st day of each month in the amount of $75,000 payable (i) in cash or (ii) in the common stock of the Company.  If the Company elects to pay any Monthly Extension Fee in the common stock of the Company (or any other fee payable under this Agreement), then the number of share of common stock of the Company issued for payment of any such Monthly Extension Fee shall be calculated using the following formula:

 

# of common share of the Company =         Amount of such fee

                90% of closing price of common stock of the Company

 

  

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Notwithstanding the foregoing, the Company shall not be permitted to elect to pay any such Monthly Extension Fee (or any other fees) in the common stock of the Company if at any time the ownership of Agent and certain Purchasers, in the aggregate, exceeds 15% of the total issued and outstanding shares of common stock of the Company.”

(E)  Section 4.5 (Mandatory Prepayments).  Section 4.5 of the Agreement is deleted in its entirety and amended by inserting the following in its place:

 

“4.5  Mandatory Prepayments.

 

(i)  On the Maturity Date, upon a Change of Control, upon the occurrence and during the continuation beyond all applicable grace or cure periods of an Event of Default (as hereinafter defined), or if the Company or any of its Subsidiaries or Affiliates consummates project financing through or by means of the United States Citizenship and Immigration Service EB-5 Program (the “Program”) of up to $30,000,000 or more (subject to project or Program restrictions), then the Company shall (a) prepay all of the Notes for an amount equal to the then outstanding principal balance plus all accrued but unpaid interest thereon, and (b) pay in full all of the other obligations owing to Agent and Purchaser under or in connection with this Agreement, which amount shall be calculated on the date of prepayment and be payable in cash on demand in immediately available funds on such date.

 

(ii)  In addition to the foregoing,

 

(A)  if the Company, whether in a single transaction or a series of transactions: (a) sells or transfers any Property (other than as permitted under Section 5.3 of this Agreement), including, without limitation, the real estate located in the County of Vermilion, State of Illinois; (b) incurs any Indebtedness other than Permitted Indebtedness; (c) sells or issues any Capital Stock; or (d) receives any property damage insurance award or any other insurance proceeds of any kind, including, without limitation, proceeds from any life insurance or business interruption insurance (unless reinvested in productive assets of a kind then used or usable in the Company’s business, and, within one hundred eighty (180) days after such occurrence, enters into a binding commitment to make such reinvestment (which reinvestment shall be made within two hundred seventy (270) days after such occurrence); the Company shall apply, or cause to be applied, one hundred percent (100%) of the net proceeds thereof to the prepayment of the Notes for an amount equal to the then outstanding principal balance plus all accrued but unpaid interest thereon and all other obligations owing to Agent and Purchaser under or in connection with this Agreement, which amount shall be calculated on the date of prepayment and be payable in cash on demand in immediately available funds on such date; or

 

(B)  the Company consummate an equity financing pursuant to which it sells common or preferred shares resulting in net proceeds to the Company of not less than $5,000,000 at any one time or in any 12 month period, and with the principal purpose of raising capital (a “Qualified Equity Financing”), then the Company shall prepay the Notes in an amount not less than forty percent (40%) of the net proceeds of any such Qualified Equity Financing.

 

  

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Notwithstanding anything to the contrary contained herein, all prepayments pursuant to this Section 4.5 shall be applied in the following order of priority to the payment of: (i) all then unpaid fees and expenses of Agent and Purchasers under the Notes and other Transaction Documents other than those added to the principal of the Note pursuant to this Amendment; (ii) accrued and unpaid interest on the Notes (in such order as Agent shall determine in its sole discretion); and (iii) the unpaid principal balance of the Notes.”

 

(F)  Section 5 (Covenants).  Section 5.4(iii) of the Agreement is hereby deleted in its entirety and amended by inserting the following in its place:

 

“(iii)  (x) permit any Liens on any Collateral other than Liens in favor of Agent, for the benefit of Purchaser, and Permitted Liens or (y) permit any pledge, transfer or assignment of any rights or interests in or to (or permit International Biofuels, Ltd. to pledge, transfer or otherwise assign any rights or interests in or to) any of the shares or other equity interests owned by the Company or International Biofuels, Ltd. in any Subsidiary of the Company or any Subsidiary of International Biofuels, Ltd. other than pledges, transfers or assignments in favor of Agent, for the benefit of the Purchasers.”

 

(G)  Section 7.1 (Events of Default).  Section 7.1(ix) of the Agreement is hereby deleted in its entirety and replaced with the following:

 

(ix)  any of this Agreement, the Note, the Warrants, the Pledge Agreements, the McAfee Capital Guaranty, the Security Agreements, the Mortgages or any other Transaction Documents shall cease to be in full force and effect or declared to be null and void by a court of competent jurisdiction or there shall occur any default or event of default under any of the Transaction Documents;”

 

(H)  Section 7.1 (Events of Default).  Section 7.1 of the Agreement is hereby amended by inserting the following Section 7.1(xi) after Section 7.1(x) as follows:

 

“(xi) any default or event of default beyond all applicable grace or cure periods shall occur under the Note Purchase Agreement dated October 18, 2010 among AE Advanced Fuels Keyes, Inc., a Delaware corporation, Agent and the purchasers from time to time a party thereto, as the same may be amended, restated or modified from time to time.”

 

(I)  Section 8.13 (Notices).  Section 8.13 of the Agreement is hereby deleted in its entirety and replaced with the following:

 

  

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“8.13  Notices.  All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given (i) when delivered personally to the recipient, (ii) sent to the recipient by reputable overnight courier service (charges prepaid), (iii) mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid or (iv) sent via facsimile or electronic transmission, in each case upon telephone or further electronic communication from the recipient acknowledging receipt (whether automatic or manual from recipient), as applicable.  Such notices, demands and other communications shall be sent to Agent and to the Company at the address indicated below:

 

	 	 To the Company: 	
AE Biofuels, Inc.

20400 Stevens Creek Boulevard, Suite 700

Cupertino, California  95014

Attention:  Mr. Eric A. McAfee, Chairman 

and Chief Executive Officer

	 
	 	 	 	 
	 	 To Agent:  	
Third Eye Capital Corporation

Brookfield Place, TD Canada Trust Tower

161 Bay Street, Suite 3820

Toronto, Canada  ON M5J 2S1

Attention:  Mr. Arif N. Bhalwani, Managing Director

	 

 

or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.”

SECTION 3.  Conditions to Effectiveness.  This Amendment, and the consents and amendments contained herein, shall be effective only upon and subject to satisfaction of the following conditions precedent (the date of satisfaction of all such conditions being referred to herein as the “Effective Date”):

 

(A)  Agent shall have received and accepted an original of this Amendment duly executed by the parties hereto.

 

  

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(B)  Agent shall have received a payment to be applied by Agent to the Obligations in the amount of $850,000.

 

(C)  Agent shall have received an extension and amendment fee of $500,000, payable at the Company’s option (i) in cash, (ii) in the common stock of the Company or (iii) capitalized and added to the outstanding principal balance of the Notes, which fee shall be deemed fully earned and nonrefundable on the date of this Amendment. For the avoidance of doubt, if the Company elects to pay such extension fee in the common stock of the Company, then the number of share of common stock of the Company issued for payment of such extension fee shall be calculated using the following formula:

 

# of common share of the Company =         Amount of such fee

                90% of closing price of common stock of the Company

Notwithstanding the foregoing, the Company shall not be permitted to elect to pay such extension fee in the common stock of the Company if at any time the ownership of Agent and certain Purchasers, in the aggregate, exceeds 15% of the total issued and outstanding shares of common stock of the Company.

 

(C)  Agent shall have received an original duly executed Note Purchase Agreement with AE Advanced Fuels Keyes, Inc., together with all Transaction Documents defined therein and satisfaction of all conditions precedent thereunder;

 

(D)  Agent shall have received an original Security Agreement duly executed by the Company granting in favor of Agent a first priority security interest in all assets of the Company;

 

(E)  Agent shall have received (i) an original Pledge Agreement duly executed by the Company granting in favor of Agent a first priority security interest in all of the Company’s first tier Subsidiaries, together with all original stock certificates evidencing such shares and signed but undated stock powers and (ii) an original Pledge Agreement duly executed by International Biofuels, Ltd. granting in favor of Agent a first priority security interest in the stock of Universal Biofuels Pvt. Ltd., together with all original stock certificates evidencing such shares and signed but undated stock powers;

 

  

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(F)  Agent shall have received an original Deposit Account Control Agreement duly executed by the Company and the depository institution where the Company’s operating accounts are maintained in form satisfactory to Agent;

 

(G)  Agent shall have received an original Subordination Agreement duly executed by Laird Q. Cagan in form satisfactory to Agent;

 

(H)  Agent shall have received originals of such amendments to the Transaction Documents as Agent shall require to provide for the cross-collateralization of the security and guaranties to the AE Advanced Fuels Keyes, Inc. Note Purchase Agreement, in each case in form and substance satisfactory to Agent; and

 

(I)  Agent shall have received all other approvals, opinions, documents, agreements, instruments, certificates, schedules and materials as Agent may reasonably request.

 

The Company acknowledges and agrees that the failure to perform, or cause the performance, of the foregoing covenants and agreements will constitute an Event of Default under the Agreement and Agent and Purchasers shall have the right to demand the immediate repayment in full in cash of all outstanding Indebtedness owing to Agent and Purchaser under the Agreement, the Note and the other Transaction Documents.  In consideration of the foregoing and the transactions contemplated by this Amendment, the Company hereby (a) ratifies and confirms all of the obligations and liabilities of the Company owing pursuant to the Agreement and the other Transaction Documents and (b) agrees to pay all costs and expenses of Agent and Purchasers in connection with this Amendment.  Except as expressly set forth herein, (a) the Agreement and the other Transaction Documents remain in full force and effect, (b) this Amendment shall not be deemed to be a waiver, amendment or modification of, or consent to or departure from, any provisions of the Agreement or the other Transaction Documents or to be a waiver of any provision or Event of Default under the Agreement or the other Transaction Documents whether arising before or after the date hereof or as a result of the transactions contemplated hereby (except for the specific waiver referenced above), and (c) this Amendment shall not preclude the future exercise of any right, remedy, power or privilege available to Agent and/or Purchasers whether under the Transaction Documents or otherwise.

 

  

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SECTION 4.  Post Closing Delivery.  Not later than ten (10) Business Days from the Effective Date of this Amendment, the Company shall furnish to the Agent the stamp filed certificate of merger with the Delaware Secretary of State (and such other documents as the Agent shall reasonably request) evidencing that the Company owns 100% of the interests in Energy Enzymes, Inc.

 

SECTION 5  Limited Waiver.  As of the date hereof, and subject to the conditions precedent in Section 3 above, notwithstanding anything to the contrary in the Agreement or any of the Transaction Documents, Agent and Purchasers agree to hereby waive any breach or violation of the Agreement (and any resulting Event of Default) which have occurred on or prior to the date of this Amendment (the “Existing Events of Default). Except as expressly provided herein, nothing contained herein shall be construed as a waiver by Agent or Purchasers of any covenant or provision of the Agreement, the other Transaction Documents, this Amendment, or of any other contract or instrument among the Company, any of its Subsidiaries, Purchasers and Agent, and the failure of Agent or Purchasers at any time or times hereafter to require strict performance by the Company or any of its Subsidiaries of any provision thereof shall not waive, affect or diminish any right of Agent or Purchasers to thereafter demand strict compliance therewith.  Agent and Purchasers hereby reserve all rights granted under the Agreement, the Transaction Documents, this Amendment and any other contract or instrument among the Company and/or any of its Subsidiaries, Purchasers and Agent.

 

SECTION 6.   Agreement in Full Force and Effect as Amended.  Except as specifically amended, consented and/or waived hereby, the Agreement and other Transaction Documents shall remain in full force and effect and are hereby ratified and confirmed as so amended.  Except as expressly set forth herein, this Amendment shall not be deemed to be a waiver, amendment or modification of any provisions of the Agreement or any other Transaction Document or any right, power or remedy of Agent or Purchasers, nor constitute a waiver of any provision of the Agreement or any other Transaction Document, or any other document, instrument and/or agreement executed or delivered in connection therewith or of any Default or Event of Default under any of the foregoing, in each case whether arising before or after the date hereof or as a result of performance hereunder or thereunder.  This Amendment also shall not preclude the future exercise of any right, remedy, power, or privilege available to Agent and/or Purchasers whether under the Agreement, the other Transaction Documents, at law or otherwise.  All references to the Agreement shall be deemed to mean the Agreement as modified hereby.  This Amendment shall not constitute a novation or satisfaction and accord of the Agreement and/or other Transaction Documents, but shall constitute an amendment thereof.  The parties hereto agree to be bound by the terms and conditions of the Agreement and Transaction Documents as amended by this Amendment, as though such terms and conditions were set forth herein.  Each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Agreement as amended by this Amendment, and each reference herein or in any other Transaction Document to the “Agreement” shall mean and be a reference to the Agreement as amended and modified by this Amendment.

 

  

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SECTION 7.  Representations.  The Company hereby represents and warrants to Agent and Purchasers as of the date of this Amendment and as of the date hereof as follows:  (A) it is duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of organization; (B) the execution, delivery and performance by it of this Amendment and all other Transaction Documents executed and/or delivered in connection herewith are within its powers, have been duly authorized, and do not contravene (i) its articles of organization, operating agreement, or other organizational documents, or (ii) any applicable law; (C) no consent, license, permit, approval or authorization of, or registration, filing or declaration with any Governmental Authority or other Person, is required in connection with the execution, delivery, performance, validity or enforceability of this Amendment or any other Transaction Documents executed and/or delivered in connection herewith by or against it; (D) this Amendment and all other Transaction Documents executed and/or delivered in connection herewith have been duly executed and delivered by it; (E) this Amendment and all other Transaction Documents executed and/or delivered in connection herewith constitute its legal, valid and binding obligation enforceable against it in accordance with their terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally or by general principles of equity; (F) after giving effect to this Amendment, it is not in default under the Transaction Documents and no Event of Default exists, has occurred and is continuing or would result by the execution, delivery or performance of this Amendment; and (G) the representations and warranties contained in the Transaction Documents are true and correct in all material respects as of the date hereof as if then made, except for such representations and warranties limited by their terms to a specific date.

 

SECTION 8.  Miscellaneous.

 

(A)  This Amendment may be executed in any number of counterparts (including by facsimile), and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument but all of which together shall constitute one and the same agreement.  Each party agrees that it will be bound by its own facsimile signature and that it accepts the facsimile signature of each other party.  The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof or thereof.  Whenever the context and construction so require, all words herein in the singular number herein shall be deemed to have been used in the plural, and vice versa, and the masculine gender shall include the feminine and neuter and the neuter shall include the masculine and feminine.

 

(B)  This Amendment may not be changed, amended, restated, waived, supplemented, discharged, canceled, terminated or otherwise modified without the written consent of the Company and Agent.  This Amendment shall be considered part of the Agreement and shall be a Transaction Document for all purposes under the Agreement and other Transaction Documents.

 

  

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(C)  This Amendment, the Agreement and the Transaction Documents constitute the final, entire agreement and understanding between the parties with respect to the subject matter hereof and thereof and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements between the parties, and shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto and thereto.  There are no unwritten oral agreements between the parties with respect to the subject matter hereof and thereof.

 

(D)  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE CHOICE OF LAW PROVISIONS SET FORTH IN THE AGREEMENT AND SHALL BE SUBJECT TO THE WAIVER OF JURY TRIAL AND NOTICE PROVISIONS OF THE AGREEMENT.

 

(E)  The Company may not assign, delegate or transfer this Amendment or any of its rights or obligations hereunder.  No rights are intended to be created under this Amendment for the benefit of any third party donee, creditor or incidental beneficiary of the Company or any of its Subsidiaries.  Nothing contained in this Amendment shall be construed as a delegation to Agent or Purchasers of the Company’s or any of its Subsidiaries’ duty of performance, including, without limitation, any duties under any account or contract in which Agent or Purchasers have a security interest or lien.  This Amendment shall be binding upon the Company and its respective successors and assigns.

 

(F)  All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment and no investigation by Agent or Purchasers shall affect such representations or warranties or the right of Agent or Purchasers to rely upon them.

 

(G)  THE COMPANY HEREBY ACKNOWLEDGES THAT THE COMPANY’S PAYMENT OBLIGATIONS ARE ABSOLUTE AND UNCONDITIONAL WITHOUT ANY RIGHT OF RECISSION, SETOFF, COUNTERCLAIM, DEFENSE, OFFSET, CROSS-COMPLAINT, CLAIM OR DEMAND OF ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL OR ANY PART OF ITS LIABILITY TO REPAY THE “OBLIGATIONS” OR TO SEEK AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM AGENT OR ANY PURCHASER.  THE COMPANY HEREBY VOLUNTARILY AND KNOWINGLY RELEASES AND FOREVER DISCHARGES AGENT AND EACH PURCHASER AND THEIR RESPECTIVE PREDECESSORS, AGENTS, EMPLOYEES, SUCCESSORS AND ASSIGNS (COLLECTIVELY, THE “RELEASED PARTIES”), FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART ON OR BEFORE THE DATE THIS AMENDMENT IS EXECUTED, WHICH THE COMPANY MAY NOW OR HEREAFTER HAVE AGAINST THE RELEASED PARTIES, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE, AND ARISING FROM ANY “LOANS”, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND EXECUTION OF THIS AMENDMENT.

 

  

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This Amendment is executed as of the date stated at the beginning of this Amendment.

 

	 	
Agent:

	 
	 	 	 
	 	
Third Eye Capital Corporation

	 
	 	 	 
	 	 	 	 
	
 

	
By:

	/s/ Arif N. Balwani  	 
	 	Its:	Managing Director 	 
	 	 	 	 
	 	 	 	 
	 	Company:	 
	 	 	 	 
	 	AE Biofuels, Inc.	 
	 	 	 	 
	 	By:	/s/ Eric A. McAfee    	 
	 	Its:	Chief Operating Officer 	 

 11inuv_ex1051.htm

EXHIBIT 10.51

 

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT

 

 

SECOND AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Amendment"), dated as of September 29, 2010, among Inuvo, Inc. (f/k/a Kowabunga! Inc., f/k/a Think Partnership, Inc.), a Nevada corporation ("Borrower"), each of the Guarantors signatory hereto (the "Guarantors") and Wells Fargo Bank, N.A., successor by merger to Wachovia Bank, National Association ("Bank").

 

WITNESSETH:

 

WHEREAS, Bank has made available to Borrower a secured credit facility pursuant to the terms and conditions of the following: (i) that certain Second Amended and Restated Loan Agreement, dated as of December 24, 2009, between Borrower and Bank, as amended, restated, supplemented or modified from time to time (as amended, restated, supplemented or otherwise modified from time to time, the "Loan Agreement"); (ii) that certain Amended and Restated Guaranty Agreement, dated as of February 27, 2008, between Borrower, the Guarantors and Bank, as amended, restated, supplemented or modified from time to time (as amended, restated, supplemented or otherwise modified from time to time, the "Guaranty Agreement"); (iii) that certain Amended and Restated Security Agreement, dated as of February 27, 2008, between Borrower, the Guarantors and Bank, as amended, restated, supplemented or modified from time to time (as amended, restated, supplemented or otherwise modified from time to time, the "Security Agreement"); (iv) that certain Second Amended and Restated Revolving Credit Promissory Note in the original principal amount of $5,300,000 dated as of December 24, 2009, executed by Borrower payable to the order of Bank, as amended, restated, supplemented or modified from time to time (as amended, restated, supplemented or otherwise modified from time to time, the "Revolving Credit Note"); (v) that certain Second Amended and Restated Term Promissory Note in the original principal amount of $4,142,806.14 dated as of December 24, 2009, executed by Borrower payable to the order of Bank, as amended, restated, supplemented or modified from time to time (as amended, restated, supplemented or otherwise modified from time to time, the "Term Note"); (vi) that certain Letter of Credit dated September 26, 2007 in the original face amount of $475,000 (reference number SM227727) (as amended, restated, supplemented or otherwise modified from time to time, "Letter of Credit #SM227727"); and (vii) all other documents executed in connection therewith, as amended, restated,.supplemented or modified from time to time (collectively with the Loan Agreement, the Guaranty Agreement, the Security Agreement, the Revolving Credit Note, the Term Note and Letter of Credit #SM227727, the "Loan Documents"); and

 

WHEREAS, Borrower and Guarantors have requested that Bank agree to amend the Loan Agreement as further set forth below.

 

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

 

  

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1. Definitions, All capitalized terms used herein and not otherwise defined shall have the respective meanings provided to such terms in the Loan Documents, as amended hereby.

 

2. Amendment to the Loan Agreement. The "Financial Covenants" paragraph of the Loan Agreement is hereby amended by deleting the "EBITDA" definition in the "Funded Debt to EBITDA" section of the "Financial Covenants" paragraph in its entirety and substituting the following new "EBITDA" definition in lieu thereof:

 

"EBITDA" shall mean the sum of earnings before interest, taxes, depreciation, amortization, stock based compensation expenses and non-cash expenses attributable to the December 31, 2009 impairment of intangible assets related to the company known as iLead Media in the approximate amount of $850,000 and, so long as the following sales occur before December 31, 2010, any losses (or gains) and closing expenses related to the sale of MarketSmart Advertising, Inc., RightStuff, Inc., Checkup Marketing, Inc., Exact Supplement, LLC and Real Estate School Online Inc.; and

 

3. Consent to Sale of MarketSmart Advertising, Inc., RightStuff. Inc. and Checkup Marketing, Inc. The Bank hereby consents to the sale of MarketSmart Advertising, Inc., RightStuff, Inc. and Checkup Marketing, Inc.; provided that (i) such sale is consummated in all material respects in accordance with the terms and conditions of the draft Asset Sale/Purchase Agreement previously provided to the Bank between MarketSmart Advertising, Inc., RightStuff, Inc. and Checkup Marketing, Inc., as seller, and The Finch Agency, Inc., as buyer (the "MarketSmart Sale Agreement"), (ii) Borrower provides a final executed copy of the MarketSmart Sale Agreement to Bank promptly after execution and delivery and no material provision of the MarketSmart Sale Agreement shall have been amended, modified or waived since the prior draft provided to Bank without the prior written consent of Bank, (iii) Borrower provides the Bank with copies of such additional documents and information relating to the MarketSmart Sale Agreement as the Bank shall reasonably request and (iv) receipt by the Bank of all related Net Proceeds received by Borrower and Guarantors in connection with the Market Sale Agreement. Upon receipt by the Bank of all related Net Proceeds (as defined in the Loan Agreement) by December 31, 2010 (such aggregate amount not to be less than $766,636.12) in connection with the Market Sale Agreement, Bank hereby agrees to release all liens and security interest in the assets of MarketSmart Advertising, Inc., RightStuff, Inc. and Checkup Marketing, Inc. (including, without limitation, releasing those liens documented in the financing statements filed with the North Carolina Secretary of State as No. 20060008665E, 20060008671A, & 20060008667G).

 

4. Consent to Sale of Exact Supplement. LLC. The Bank hereby consents to the sale of Exact Supplement, LLC; provided that (i) such sale is consummated in all material respects in accordance with the terms and conditions of the Asset Purchase Agreement, dated June 3, 2010 between Exact Supplement, LLC, as seller, Omega Direct Marketing, LLC, as buyer, and Inuvo, Inc., as stockholder (the "Exact Supplement Sale Agreement"), (ii) no material provision of the Exact Supplement Sale Agreement shall have been amended, modified or waived since the date of the Exact Supplement Sale Agreement without the prior written consent of the Bank, (iii) the Borrower provides the Bank with copies of such additional documents and information relating to the Exact Supplement Sale Agreement as the Bank shall reasonably request (including, without limitation, delivery to the Bank of monthly revenue statements and true-up statements pursuant to Section 2 of the Exact Supplement Sale Agreement) and (iv) receipt by the Bank of all related Net Proceeds received by Borrower and Guarantors in connection with the Exact Supplement Sale Agreement. Upon receipt by the Bank of all related Net Proceeds in connection with the Exact Supplement Sale Agreement, Bank hereby agrees to release all liens and security interest in the assets of Exact Supplement, LLC.

 

  

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5. Consent to Sale of Real Estate School Online Inc. The Bank hereby consents to the sale of Real Estate School Online Inc.; provided that (i) such sale is consummated in all material respects in accordance with the a sale/purchase agreement on terms and conditions reasonably satisfactory to Bank, (ii) Borrower provides the Bank with copies of such additional documents and information relating to the sale of Real Estate School Online Inc. as the Bank shall reasonably request and (iii) receipt by the Bank of all related and Net Proceeds received by Borrower and Guarantors in connection with the sale of Real Estate School Online Inc. Upon receipt by the Bank of all related Net Proceeds in connection with the sale of Real Estate School Online Inc., Bank hereby agrees to release all liens and security interest in the assets of Real Estate School Online Inc.

 

6. Reaffirmations by Borrower and the Guarantors.

 

(a) Acknowledgment of Obligations. Borrower and Guarantors hereby acknowledge, confirm and agree that, as of September 24, 2010, (a) Borrower is indebted to Bank in respect of the Revolving Credit Note in the principal amount of $4,232,000.00, (b) Borrower is indebted to Bank in respect of the Term Note in the aggregate principal amount of $1,749,806.14 and (c) Letter of Credit #SM227727 remains outstanding and undrawn in the face amount of $475,000. All such Loans, together with interest accrued and accruing thereon, and all other Obligations, fees, costs, expenses and other charges now or hereafter payable by Borrower to Bank, in accordance with the Loan Documents and the Swap Agreements (including this Agreement), are unconditionally owing by Borrower and Guarantors to Bank without offset, defense or counterclaim of any kind, nature or description whatsoever.

 

(b) Acknowledgment of Security Interests. Except as otherwise set forth herein, Borrower and Guarantors hereby acknowledge, confirm and agree that Bank has and shall continue to have valid, enforceable and perfected first-priority liens upon and security interests in the Collateral heretofore granted to Bank pursuant to the Loan Documents or otherwise granted to or held by Bank.

 

7. Conditions to Effectiveness. This Amendment shall become effective as of the date when the following conditions have been met (the "Effective Date"):

 

(a) Bank shall have received an original of this Amendment duly authorized, executed and delivered by Borrower, the Guarantors and by Bank (whether such parties shall have signed the same or different copies);

 

(b) Borrower shall have reimbursed directly to K&L Gates, LLP all reasonable fees and expenses incurred in connection with the Loan and this Amendment; and

 

(c)  Bank shall have received any other documents or instruments reasonably requested by Bank in connection with the execution of this Amendment; and

 

  

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8. Representations and Warranties. After giving effect to the amendments set forth herein, Borrower and each Guarantor hereby certifies that (a) each of the representations and warranties set forth in the Loan Agreement, the Revolving Credit Note, the Term Note, the Guaranty Agreement, the Security Agreement and the other Loan Documents is true and correct in all material respects as of the date hereof as if fully set forth herein (except for any representation and warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date), (b) no Default has occurred and is continuing as of the date hereof and (c) the execution, delivery, and performance of this Amendment have been authorized by all requisite corporate action.

 

9. Confirmation of all Loan Documents. By their execution hereof, Borrower and each Guarantor hereby expressly (a) consents to the modifications and amendments set forth in this Amendment, (b) reaffirms all of its respective covenants, representations, warranties and other obligations set forth in the Loan Agreement, the Revolving Credit Note, the Term Note, the Guaranty Agreement, the Security Agreement and each of the Loan Documents to which it is a party and (c) acknowledges, represents and agrees that its respective covenants, representations, warranties and other obligations set forth in the Loan Agreement, the Revolving Credit Note, the Term Note, the Guaranty Agreement, the Security Agreement and each of the Loan Documents to which it is a party remain in full force and effect.

 

10. Release.

 

(a) In consideration of the agreements of Bank contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Borrower and Guarantors, each on behalf of itself and its successors, assigns, and other legal representatives hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges Bank, and its successors and assigns, and its present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives (Bank and all such other Persons being hereinafter referred to collectively as the "Releasees" and individually as a "Releasee"), of and from all demands, actions, causes of action, suits, controversies, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a "Claim" and collectively, "Claims") of every name and nature, known or unknown, suspected or unsuspected, both at law and in equity, which Borrower, Guarantor or any of their respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any iiLthem_fQr,-upon. or hy reasori-of_any_circumstance, action, cause or thing whatsoever that arose or has arisen at any time on or prior to the day and date of this Amendment, for or on account of, or in relation to, or in any way in connection with any of the Loan Agreement, the Swap Agreements, the other Loan Documents or this Amendment or transactions thereunder or related thereto.

 

(b) Borrower and Guarantors each understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding that may be instituted, prosecuted or attempted in breach of the provisions of such release.

 

  

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(c) Borrower and Guarantors each agrees that no fact, event, circumstance, evidence or transaction that could now be asserted or that may hereafter be discovered that relate to conduct prior to the date of this Amendment shall affect in any manner the final, absolute and unconditional nature of the release set forth above.

 

11. Covenant Not to Sue. Borrower and Guarantors, each on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remised and discharged by Borrower pursuant to Section 11 above. If Borrower or any Guarantor, or any of their respective successors, assigns or other legal representatives, violates the foregoing covenant, Borrower and Guarantors, each for itself and its successors, assigns and legal representatives, agrees to pay, in addition to such other damages as any Releasee may sustain as a result of such violation, all attorneys' fees and costs incurred by any Releasee as a result of such violation.

 

12. Costs and Expenses. Borrower absolutely and unconditionally agrees to pay to Bank in full within ten (10) days of request for payment expenses which shall at any time be incurred or sustained by Bank as a consequence of or in any way in connection with the preparation, negotiation, execution, or delivery of this Amendment and any agreements prepared, negotiated, executed or delivered in connection with the transactions contemplated hereby, and in connection with any amendment or enforcement of this Amendment.

 

13. Miscellaneous.

 

(a) This Amendment is limited and, except as set forth herein, shall not constitute a modification, acceptance or waiver of any provision of the Loan Agreement, the Revolving Credit Note, the Term Note, any Loan Document or any other document or instrument entered into in connection therewith.

 

(b) This Amendment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same agreement, and the signature pages from any counterpart may be appended to any other counterpart to assemble fully-executed counterparts. Counterparts of this Amendment may be exchanged via electronic means, and a facsimile of any party's signature shall be deemed to be an original signature for all purposes.

 

(c) This Amendment and the rights and obligations of the parties hereunder shall be construed in accordance with and governed by the laws of the State of North Carolina without giving effect to the conflicts of law provision thereof.

 

(d) On and after the effectiveness of this Amendment, each reference in the Loan Agreement, the Revolving Credit Note, the Term Note or any other Loan Document shall mean and be a reference to the Loan Agreement, the Revolving Credit Note, the Term Note and any other Loan Document as amended by this Amendment. This Amendment constitutes a "Loan Document".

 

 

[Signature Pages Follow]

 

  

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written.

 

 

	[CORPORATE SEAL]	
INUVO, INC (formerly known as KOWABUNGA! INC.), a Nevada corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	
CHERIS, INC, a Florida corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	
CHECKUP MARKETING, INC., a North Carolina corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

	[CORPORATE SEAL]	
RIGHTSTUFF INC., a North Carolina corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

  

6

  

 

	[CORPORATE SEAL]	
MARKETSMART ADVERTISING, INC., a North Carolina corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	
OZONA ONLINE NETWORK, INC., a North Carolina corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	
KOWABUNGA MARKETING, INC., a Michigan corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	PRIMARYADS, INC., A New Jersey corporation	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	
REAL ESTATE SCHOOL ONLINE INC., a Florida corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

  

7

  

 

	[CORPORATE SEAL]	

VINTACOM FLORIDA, INC., a Florida corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	

MOREX MARKETING GROUP, LLC, a New York limited liability company

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	Title:   Chief Financial Officer	 

 

 

	[CORPORATE SEAL]	

LITMUS MEDIA, INC., a Missouri corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	

ILEAD MEDIA LLC, a Delaware limited liability company

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

  

8

  

 

	[CORPORATE SEAL]	

VALIDCLICK, INC., a Missouri corporation

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	

SECOND BITE LLC, a Kansas limited liability company

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

	[CORPORATE SEAL]	

EXACT SUPPLEMENTS LLC, a Florida limited liability company

	 
	 	 	 	 
	
 

	
By: 

	/s/ Wallace D. Ruiz 	 
	 	 	Name: Wallace D. Ruiz 	 
	 	 	
Title:   Chief Financial Officer

	 

 

 

9

 

 

	 	

WELLS FARGO BANK, NA.

	 
	 	 	 	 
	
 

	
By: 

	/s/ Nancy S. Jones 	 
	 	 	Name: Nancy S. Jones 	 
	 	 	Title: Senior Vice President	 

 

 

 

 

10

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