FIRST AMENDMENT
TO
GENERAL CREDIT AND SECURITY AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO GENERAL CREDIT AND SECURITY AGREEMENT AND
WAIVER, dated as of November 8, 1996 (the "Amendment"), between APPLIANCE
RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation (the "Borrower") and
SPECTRUM COMMERCIAL SERVICES, A DIVISION OF LYON FINANCIAL SERVICES, INC., the
successor to Spectrum Commercial Services, Inc. ("Spectrum, Inc.") with Lyon
Financial Services, Inc. (the "Lender").
RECITALS:
A. The Borrower and the Lender, as the successor to Spectrum, Inc., are
parties to that certain General Credit and Security Agreement, dated as of
August 30, 1996 (the "Original Agreement").
B. The Borrower has requested the Lender to amend certain provisions of
the Original Agreement.
C. Subject to the terms and conditions of this Amendment, the Lender
will agree to the Borrower's foregoing requests.
NOW, THEREFORE, the parties agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. AMENDMENT. The Original Agreement is hereby amended as follows:
(a) The definitions of "Borrowing Base," "Guarantor,"
"Guaranties," "Loan Documents," and "Net Income" appearing in Paragraph
2 are respectively amended in their entirety to read as follows:
"'Borrowing Base' shall mean the sum of (i) Eighty
percent (80%) of the net amount of Eligible Receivables or
such greater or lesser percentage as Lender, in its sole
discretion, shall deem appropriate, plus (ii) the lesser of
(x) One Hundred Fifty Thousand and No/100ths Dollars
($150,000) or (y) Twenty Five percent (25%) of the net amount
of Eligible Inventory, or such greater or lesser dollars
and/or percentage as Lender, in its sole discretion, shall
deem appropriate, plus (iii) One Hundred Sixty Four Thousand
and No/100ths ($164,000.00) for liquidation value of equipment
or such greater or lesser dollars as Lender, in its sole
discretion shall deem appropriate, plus (iv) Six Hundred Fifty
Thousand and No/100ths ($650,000.00) for the value of the
Mortgaged Premises or such greater or lesser dollars as
Lender, in its sole discretion, shall deem appropriate.
'Guarantor" shall mean ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, APPLIANCE
RECYCLING CENTERS OF AMERICA, CALIFORNIA, INC., ARCA OF ST.
LOUIS, INC., and ARCA-MARYLAND, INC. and any other Person who
enters into a Guaranty hereof.
'Guaranty(ies)' shall mean individually or
collectively, as the case may be, the separate Guaranties
dated as of August 30, 1996 separately made by each of the
Guarantors in favor of Lender and any other agreement whereby
a Person guarantees the payment or performance of any of the
Obligations.
'Loan Document(s)' shall mean individually or
collectively, as the case may be, this Agreement, the Note,
the Guaranties, the Subsidiary Security Agreements, the
Mortgage, the Assignment of Leases and Rents, the Indemnity
Agreement and any and all other documents executed, delivered
or referred to herein or therein, as originally executed and
as amended, modified or supplemented from time to time.
'Net Income' or 'Net Loss' for any period shall mean
net income or loss for such period, determined in accordance
with GAAP excluding, however, (i) extraordinary gains, and
(ii) gains (whether or not extraordinary) from sales or other
dispositions of assets other than the sale of Inventory in the
ordinary course of Borrower's business; and (iii) provisions
for income taxes."
(b) The definition of "Maximum Principal Amount" appearing in
Paragraph 2 is amended by changing the amount "One Million Five Hundred
Thousand and No/100ths Dollars ($1,500,000.00)" to the amount "Two
Million and No/100ths Dollars ($2,000,000.00)".
(c) Paragraph 2 is further amended by adding the following
definitions of "Assignment of Leases and Rents," "Indemnity Agreement,"
"Mortgage" and "Subsidiary Security Agreement(s)" in proper
alphabetical order:
"'Assignment of Leases and Rents' shall mean that
certain Assignment of Leases and Rents dated as of November 8,
1996 made by the Borrower in favor of Lender relating to the
Mortgaged Premises.
'Indemnity Agreement' shall mean that certain
Environmental and ADA Indemnification Agreement dated as of
November 8, 1996 made by the Borrower and the Guarantors in
favor of Lender relating to the Mortgaged Premises.
'Mortgage' shall mean that certain Combination
Mortgage, Security Agreement, Assignment of Leases and Rents,
and Fixture Financing Statement dated as of November 8, 1996
made by the Borrower in favor of Lender subjecting the
property described therein as the 'Mortgaged Premises' (the
'Mortgaged Premises') to a Security Interest in favor of
Lender.
'Subsidiary Security Agreement(s)' shall mean
individually or collectively, as the case may be, the separate
Security Agreements dated as of August 30, 1996 separately
made by each of the Borrower's Subsidiaries in favor of
Lender."
(d) Paragraph 5 is amended by changing: (i) the percentage
over the Prime Rate applicable when no Event of Default has occurred
from "Four Percent (4%)"to the percentage "Five Percent (5%)"; and (ii)
the amount of minimum interest from "$7,500.00" to "10,000.00".
(e) Paragraph 17(i) is amended in its entirety to read as follows:
"(i) Pay Lender, for the period commencing on the
date of this Agreement and continuing through the Termination
Date, a non-refundable line maintenance fee (the "Line
Maintenance Fee") at the rate of 1.0% per annum of the Maximum
Principal Amount. Such Line Maintenance Fee shall be payable
to Lender in advance on the Closing Date and on each
subsequent anniversary date of this Agreement until all
amounts owing hereunder are repaid in full. The Line
Maintenance Fee shall be non-refundable and shall be deemed
earned when paid.
Notwithstanding the above subparagraph, the Line Maintenance
Fee for the first fiscal quarter of 1997 shall be increased
from 1.0% per annum to 2.0% per annum as follows: (x) if Net
Income is projected for fiscal year 1996 on Borrower's
projected income statement (the "Projected Income Statement')
attached as Exhibit C (Amended 11/96) to that certain First
Amendment to General Credit and Security Agreement and Waiver
dated as of November 8, 1996 (the 'First Amendment') between
Borrower and Lender and Borrower's 1996 Net Income shall fail
to meet or exceed a figure which is 90% of the projected Net
Income for 1996; or (y) if Net Loss is projected for fiscal
year 1996 on Borrower's Projected Income Statement and
Borrower's 1996 Net Loss is greater than (ie. a greater
negative number than) One Hundred Ten Percent (110%) of its
projected Net Loss for 1996. Borrower shall immediately pay to
Lender, on demand, the amount of any deficiency in the Line
Maintenance Fee previously paid with respect to such quarter.
Notwithstanding the above, the Line Maintenance Fee for any
subsequent fiscal quarter of 1997 or thereafter shall be
increased from 1.0% per annum to 2.0% per annum as follows:
(x) if Net Income is projected for that fiscal quarter on the
Projected Income Statement and Borrower's Net Income for that
quarter shall fail to meet or exceed a figure which is 85% of
the projected Net Income for that quarter; or (y) if Net Loss
is projected for that fiscal quarter on Borrower's Projected
Income Statement and Borrower's Net Loss for that quarter is
greater than (ie. a greater negative number than) One Hundred
Fifteen Percent (115%) of its projected Net Loss for that
quarter. Borrower shall immediately pay to Lender, on demand,
the amount of any deficiency in the Line Maintenance Fee
previously paid with respect to such quarter.
(f) Paragraph 17(l) is amended in its entirety to read as
follows:
"(l) At the end of each quarter of Borrower's fiscal
year: (w) if Net Income is projected for such quarter on
Borrower's Projected Income Statement, then Borrower must
achieve Seventy-Five Percent (75%) of its projected Net Income
and gross profit for that fiscal quarter; (x) if Net Loss is
projected for such quarter on Borrower's Projected Income
Statement, then Borrower must achieve either Net Income or a
Net Loss which is no greater than (ie. a greater negative
number than) One Hundred Twenty-Five Percent (125%) of its
projected Net Loss for that fiscal quarter; (y) if Net Income
is projected for the fiscal year to date through the end of
that quarter on Borrower's Projected Income Statement, then
Borrower must achieve Seventy-Five Percent (75%) of its
projected Net Income and gross profit for that fiscal year to
date through the end of that fiscal quarter; or (z) if Net
Loss is projected for the fiscal year to date through the end
of that quarter on Borrower's Projected Income Statement, then
Borrower must achieve either Net Income or a Net Loss which is
no greater than (ie. a greater negative number than) One
Hundred Twenty-Five Percent (125%) of its projected Net Loss
for that fiscal year to date through the end of that fiscal
quarter."
(g) Paragraph 18 is amended by removing the word "or"
following subparagraph "(r)", changing the period at the end of
subparagraph "(s)" to a semi-colon followed by the word "or", and by
adding the following new subparagraph (t):
"(t) Open any more processing or servicing centers or
retail stores in any geographic area where Borrower or its
Subsidiaries do not presently have such centers or stores as
determined by the Standard Metropolitan Statistical Area for
Borrower's and its Subsidiaries' respective existing centers
or stores."
(h) The "provided further" clause of Paragraph 23 beginning on the
fifth line of page 24 of the Original Agreement is amended its entirety to read
as follows:
"provided further, however, that if Borrower
terminates this Agreement at any time after August 30, 1997
and on or before August 30, 1998, then Borrower shall pay to
Lender a prepayment charge equal to $40,000.00; provided
further, however, that if Borrower terminates this Agreement
at any time after August 30, 1998 and on or before August 30,
1999, then Borrower shall pay to Lender a prepayment charge
equal to $35,000.00;"
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
on the date (the "Effective Date") when, and only when, the Lender shall have
received counterparts of this Amendment executed by the Borrower, and the Lender
shall have received all of the following, unless waived in writing by the
Lender:
(a) a replacement note (the "Replacement Note") in a form
provided by Lender appropriately completed and duly executed by
Borrower;
(b) an Acknowledgement and Amendment in a form provided by
Lender appropriately completed and duly executed by the Guarantors;
(c) the Mortgage, Assignment of Leases and Rents and Indemnity
Agreement in forms provided by Lender appropriately completed and duly
executed by Borrower and each Guarantor which is a party thereto
together with such surveys, title insurance policies, appraisals and
environmental audits as Lender may require;
(d) a copy of the Borrower's and each corporate Guarantor's
corporate resolutions authorizing the execution, delivery and
performance of this Amendment and the other documents required to be
executed and/or delivered by the terms hereof, certified by the
Secretary or an Assistant Secretary of the Borrower or the relevant
corporate Guarantor, as the case may be;
(e) an incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of the Borrower and each
corporate Guarantors authorized to execute this Amendment and the other
documents required to be executed and/or delivered by the terms hereof,
certified by the Secretary or an Assistant Secretary of the Borrower or
the relevant corporate Guarantor, as the case may be;
(f) a certificate stating to the effect that there has been no
further change in the Borrower's or any corporate Guarantor's articles
or certificate of incorporation or bylaws previously delivered to the
Lender, certified by the Secretary or an Assistant Secretary of the
Borrower or the relevant corporate Guarantor, as the case may be;
(g) payment in immediately available funds of a closing fee of
$20,000.00; and
(h) such other documents or items as the Lender may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Amendment, the Borrower represents and warrants to Lender as follows:
(a) The execution, delivery and performance by the Borrower of
this Amendment, the Replacement Note and any other documents required
to be executed and/or delivered by the Borrower by the terms of this
Amendment have been duly authorized by all necessary corporate action,
do not require any approval or consent of, or any registration,
qualification or filing with, any government agency or authority or any
approval or consent of any other person (including, without limitation,
any stockholder or partner), do not and will not conflict with, result
in any violation of or constitute any default under, any provision of
the Borrower's articles of incorporation or bylaws, any agreement
binding on or applicable to the Borrower or any of its property, or any
law or governmental regulation or court decree or order, binding upon
or applicable to the Borrower or of any of its property and will not
result in the creation or imposition of any security interest or other
lien or encumbrance in or on any of its property pursuant to the
provisions of any agreement applicable to the Borrower or any of its
property;
(b) The representations and warranties contained in the
Original Agreement are true and correct as of the date hereof as though
made on that date except to the extent that such representations and
warranties relate solely to an earlier date;
(c) (i) No events have taken place and no circumstances exist
at the date hereof which would give the Borrower the right to assert a
defense, offset or counterclaim to any claim by Lender for payment of
the obligations now or hereafter arising under the Original Agreement
as amended by this Amendment or any other Loan Document; and (ii) the
Borrower hereby releases and forever discharges Lender and its
successors, assigns, directors, officers, agents, employees and
participants from any and all actions, causes of action, suits,
proceedings, debts, sums of money, covenants, contracts, controversies,
claims and demands, at law or in equity, which the Borrower ever had or
now has against Lender or its successors, assigns, directors, officers,
agents, employees or participants by virtue of their relationship to
the Borrower in connection with the Loan Documents and the transactions
related thereto;
(d) The Original Agreement as amended by this Amendment, the
Replacement Note and the other Loan Documents to which the Borrower is
a party are the legal, valid and binding obligations of the Borrower
and are enforceable in accordance with their respective terms, subject
only to bankruptcy, insolvency, reorganization, moratorium or similar
laws, rulings or decisions at the time in effect affecting the
enforceability of rights of creditors generally and to general
equitable principles which may limit the right to obtain equitable
remedies; and
(e) After giving effect to this Amendment, there does not
exist any Default or Event of Default.
5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) From and after the date of this Amendment, each reference
in: (i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Loan Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Original
Agreement or any other Loan Document shall mean and be a reference to
the Original Agreement as amended hereby; and (ii) any Loan Document to
the "Note", "thereunder", "thereof", "therein" or words of like import
referring to the Note shall mean and be a reference to the Replacement
Note.
(b) Except as specifically set forth above, the Original
Agreement remains in full force and effect.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lender under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation, reproduction,
execution and delivery of this Amendment and the other documents to be delivered
hereunder or thereunder, including Lender's reasonable attorneys' fees and legal
expenses. In addition, the Borrower shall pay any and all stamp and other taxes
and fees payable or determined to be payable in connection with the execution
and delivery, filing or recording of this Amendment and the other instruments
and documents to be delivered hereunder, and the Borrower agrees to hold Lender
harmless from and against any and all liabilities with respect to, or resulting
from, any delay in the Borrower's paying or omission to pay, such taxes or fees.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
8. HEADINGS. Paragraph headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
10. WAIVERS. On the Effective Date, Lender waives the Borrower's
compliance with Paragraph 17(l) through November 8, 1996. Lender's waiver is
limited to the specific Defaults or Events of Default described above and is not
intended, and shall not be construed, to be a general waiver of any term or
provision of the Original Agreement or a waiver of any other existing or future
Default or Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
By
Its
SPECTRUM COMMERCIAL SERVICES, A DIVISION OF LYON
FINANCIAL SERVICES, INC.
By
Its
GUARANTOR ACKNOWLEDGMENT AND AMENDMENT
Each of the undersigned (individually a "Guarantor" and collectively
the "Guarantors) has entered into a certain Guaranty, dated as of August 30,
1996 (such Guarantor's "Guaranty") pursuant to which such Guarantor has
guaranteed the payment and performance of certain "Indebtedness" of Appliance
Recycling Centers of America, Inc., a Minnesota corporation ("Borrower") to
Spectrum Commercial Services, Inc. ( "Spectrum, Inc."), which Indebtedness
includes, without limitation, all obligations of Borrower under that certain
General Credit and Security Agreement dated as of August 30, 1996 between the
Borrower and Spectrum, Inc. (the "Original Agreement;" capitalized terms not
otherwise defined herein being used herein as therein defined).
Each of the Guarantors hereby acknowledges that: (a) subsequent to the
date of the Original Agreement, Spectrum, Inc.'s rights under the Original
Agreement and the other Loan Documents were assigned (the "Assignment") to Lyon
Financial Services, Inc. ("Lyon") and that, as a result of the Assignment, Lyon
is the "Lender" under the Original Agreement and has succeeded to Spectrum,
Inc.'s rights under the other Loan Documents so that each reference to the
"Lender", "SPECTRUM", "Secured Party" or other reference to Spectrum, Inc. in
the Original Agreement or any other Loan Document shall mean and be a reference
to Lyon acting in the described capacity; and (b) such Guarantor has received a
copy of the proposed First Amendment to General Credit and Security Agreement
and Waiver, to be dated as of November 8, 1996 (the "Amendment").
Each of the Guarantors hereby agrees and acknowledges that neither the
Merger nor the Amendment shall in any way impair or limit the right of the
Lender under such Guarantor's Guaranty or any other Loan Document to which such
Guarantor is a party and confirms that: (a) by such Guarantor's Guaranty, such
Guarantor continues to guaranty payment and performance of the "Indebtedness" of
the Borrower to Lender described in such Guarantor's Guaranty, including,
without limitation, Borrower's obligations to Lender under the Original
Agreement as amended by the Amendment; and (b) with respect to each corporate
Guarantor, by such Guarantor's Subsidiary Security Agreement, such Guarantor
continues to grant a security interest in the "Collateral" described in such
Guarantor's Subsidiary Security Agreement to secure the payment and performance
of the "Obligations" described therein.
Each of the corporate Guarantors hereby agrees that:
(a) its Guaranty is amended by adding the following new
Section 16:
"16. The provisions of this guaranty are
severable, and in any action or proceeding involving
any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the
obligations of the undersigned hereunder would
otherwise be held or determined to be void, invalid
or unenforceable on account of the amount of the
undersigned's liability under this guaranty, then,
notwithstanding any other provision of this guaranty
to the contrary, the amount of such liability shall,
without any further action by the undersigned,
SPECTRUM or any other person, be automatically
limited and reduced to the highest amount which is
valid and enforceable as determined in such action or
proceeding." and
(b) its Subsidiary Security Agreement is amended by adding the
following new Section 8:
"8. The provisions of this Agreement are
severable, and in any action or proceeding involving
any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the
obligations of Debtor hereunder would otherwise be
held or determined to be void, invalid or
unenforceable on account of the amount of Debtor's
liability under this Agreement, then, notwithstanding
any other provision of this Agreement to the
contrary, the amount of such liability shall, without
any further action by Debtor, the Secured Party or
any other person, be automatically limited and
reduced to the highest amount which is valid and
enforceable as determined in such action or
proceeding."
Each of the Guarantors: (a) represents and warrants to Lender that no
events have taken place and no circumstances exist at the date hereof which
would give such Guarantor the right to assert a defense, offset or counterclaim
to any claim by Lender for payment of the obligations now or hereafter arising
under the Guaranty or any other Loan Document to which such Guarantor is a
party; and (ii) hereby releases and forever discharges Lender and its
successors, assigns, directors, officers, agents, employees and participants
from any and all actions, causes of action, suits, proceedings, debts, sums of
money, covenants, contracts, controversies, claims and demands, at law or in
equity, which such Guarantor ever had or now has against Lender or its
successors, assigns, directors, officers, agents, employees or participants by
virtue of their relationship to Borrower or the Guarantors in connection with
the Loan Documents and the transactions related thereto.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Appliance Recycling Centers of America,
California, Inc.
By;
Its:
ARCA of St. Louis, Inc.
By;
Its:
ARCA-Maryland, Inc.
By;
Its:
Accepted and Agreed to this 8th day of November, 1996
Spectrum Commercial Services, a division of Lyon
Financial Services, Inc.
By:
Its:
