Exhibit 10.11
FIRST AMENDMENT TO THE
COMMERCIAL LOAN AGREEMENT
This First Amendment to the Commercial Loan Agreement ("Amendment") is
entered into the 5th day of June, 1997, by and between AB Plastics Corporation,
a California corporation ("Borrower") and SUMITOMO BANK OF CALIFORNIA ("Bank"),
with reference to the following:
RECITALS
A. Borrower and Bank have entered into a Commercial Loan Agreement,
dated September 27, 1996 (the "Agreement"), pursuant to which Bank agreed,
subject to the terms and conditions of the Agreement, to (i) on a revolving
basis, make advances to Borrower, which may not at any time exceed, in the
aggregate outstanding, a principal amount equal to the lesser of Ten Million
Dollars ($10,000,000) or the Borrowing Base (the "Revolving Line of Credit");
and (ii) make equipment loans under an Equipment Line in the aggregate principal
amount not to exceed Two Million Dollars ($2,000,000). Capitalized terms used
herein without definition shall have the meanings given them in the Agreement.
B. The Revolving Line of Credit is evidenced by that certain Revolving
Line Note dated September 27, 1996 in the maximum principal amount of Ten
Million and No/100 Dollars ($10,000,000). The Equipment Line is evidenced by
that certain Equipment Line Note dated September 27, 1996 in the maximum
principal amount of Two Million Dollars ($2,000,000).
C. In connection with the Agreement, Borrower executed that certain
Security Agreement dated as of September 27, 1996 in favor of Bank (the
"Security Agreement").
D. Borrower and Bank now desire to amend the Agreement and the other
Loan Documents as described below:
AMENDMENT
NOW THEREFORE in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrower and Bank hereby agree as follows:
1. AMENDMENTS TO THE AGREEMENT. The Agreement is hereby amended, effective as of
the date hereof, as follows:
a. Section 1.5(a), 1.5(b), and 1.5(d)(ii) are restated in their
entirety as follows:
"(a) Equipment Line Availability Period. The period under which
Borrower may draw on the Equipment Line (the "Equipment Line
Availability Period") is between the date of this Agreement and
October 31, 1997, provided that Bank need not make any Equipment
Loan upon occurrence and during the continuance of any Event of
Default or any other event which, with the giving of notice or
the passage of time (or both), would constitute an Event of
Default. The total balance outstanding under the Equipment Line
at October 31, 1997 will be termed out into an Equipment Term
Loan."
"(b) Interest Rate. During the Equipment Line Availability
Period, each Equipment Loan outstanding under the Equipment Line
will bear interest at a rate per annum equal to the Bank's Prime
Rate in effect from time to time. Commencing November 1, 1997,
the Equipment Term Loan will bear interest at a rate per annum
equal to the Bank's Prime Rate in effect from time to time plus
one quarter of one percent (0.25%).
"(d) Repayment Terms.
"(ii) The aggregate principal amount outstanding under the
Equipment Line at October 31, 1997 shall be repaid by Borrower in
forty-eight (48) equal monthly payments, with the first such
payment to be made on December 1, 1997 and then on the first day
of each month thereafter, provided that the last such payment
shall be made on November 1, 2001."
b. Section 6.6(a), (b) and (c) remain unchanged, Section 6.6 last paragraph,
is restated in its entirety as follows:
"Since the date of the most current financial statements
submitted to Bank, there has been no material adverse change in
the assets, financial condition, or operating performance of
Borrower."
c. Section 7.1 is restated in entirety as follows:
"7.1 Use of Proceeds. To use the proceeds of the Revolving Line
of Credit only for working capital purposes, except that Borrower
may, for the purpose of purchasing the real property and
improvements located at 00000 X. Xxxxxxxx Xxxxxx and West 57th
Street, Gardena, California ("Gardena Property"), borrow and
utilize in one single drawdown, a principal amount under the
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Revolving Line of Credit equal to the lesser of (a) $3,200,000,
or (b) 100% of the appraised value of the Gardena Property as
reflected in an appraisal satisfactory to Bank".
d. Section 7.2 (a), (b) and (d) are restated in their entirety as follows:
"(a) Within 120 days of Borrow's fiscal year end, the
consolidating and consolidated financial statements of Borrower
and AB Plastics Holding Corporation ("Holdings"). These financial
statement must be audited (with an unqualified opinion) by a
Certified Public Accountant ("CPA") reasonably acceptable to
Bank. Along with the financial statements, Borrower shall also
provided Bank a CPA compliance certificate in form reasonably
satisfactory to Bank."
"(b) Within 30 days of the month's end, the consolidating and
consolidated financial statements of Borrower and Holdings
(including balance sheet, income statement and statement of cash
flows). These financial statements may be Borrower prepared. The
statements shall reflect the results for the month just ended as
well as the results for the fiscal year-to-date period and shall
be accompanied by a compliance certificate in form reasonably
satisfactory to Bank."
"(d) Within 60 days after the start of each of Borrower's fiscal
years, a one year consolidated operating plan covering the
current fiscal year. Such plan will detail, on a monthly basis,
Borrower's best estimate of revenues, expenses and balance sheet
categories, and will be presented in the customary form of
balance sheet, income statement and statement of cash flows."
e. Section 7.3 is restated in its entirety as follows:
"7.3 Quick Ratio. To maintain on a consolidated basis for
Borrower and Holdings, as of the last day of each fiscal month, a
ratio of Quick Assets to Current Liabilities (as such terms are
hereinafter defined) of at least 0.45:1, effective 1/31/97 and
thereafter."
For purposes of this Section 7.3, (i) "Quick Assets" means the sum of cash, plus
unencumbered short term cash investments, plus net trade receivables, plus
unencumbered marketable securities not classified as long-term investments, and
(ii) "Current Liabilities" will include any outstanding balance under the
Revolving Line of Credit that is in excess of the amount borrowed for purposes
of funding the acquisition of the Gardena Property or funding the construction
on the Gardena Property.
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Notwithstanding the above, upon the completion of an initial public offering
("IPO") by Borrower or Holdings, the minimum Quick Ratio shall be reset at
0.85:1 effective with the first full month following the IPO"
f. Section 7.4 (Tangible Net Worth) is hereby deleted in its entirety.
g. Section 7.5 is restated in its entirety as follows:
"7.5 Total Liabilities to Tangible Net Worth. To maintain on a
consolidated basis for Borrower and Holdings as of the last day
of each fiscal month, ration of Total Liabilities Not
Subordinated to Tangible Net Worth not exceeding the amounts
indicated for each period specified below.
Period Ratio
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5/31/97 through 10/30/97 3.50:1
10/31/97 through 10/30/98 3.25:1
10/31/98 through lO/30/99 2.75:1
10/31/99 and thereafter 2.00:1
Notwithstanding the above, upon the completion of an IPO by
Borrower or Holdings, the ratio of Total Liabilities Not
Subordinated to Tangible Net Worth shall be set at a maximum of
2:1 effective with the first full month following the IPO.
"Tangible Net Worth" means the gross book value of Holding's and Borrower's
assets (excluding goodwill, patents, trademarks, trade names, organization
expenses, treasury stock, unamortized debt discount and expense, deferred
research and development costs, deferred marketing expenses, and other like
intangibles), plus debt subordinated to Bank in a manner acceptable to Bank,
less total liabilities, including, without limitation, accrued and deferred
income taxes, and any reserves against assets.
"Total Liabilities Not Subordinated" means the sum of Borrower's current
liabilities plus long term liabilities, excluding debt subordinated to
Borrower's obligations to Bank in a manner acceptable to Bank."
h. Section 7.6 is restated it is entirety as follows:
"7.6 Fixed Charge Coverage Ratio. To maintain on a consolidated
basis for Borrower and Holdings, as of last day of each fiscal
quarter, a ratio of EBITDA to Fixed Charges of at least the
levels indicated for each period specified below:
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Period Ratio
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4/30/97 through 10/31/97 1.15:1
thereafter 1.25:1
"EBITDA" means, for any period (a) net income for that period, plus (b) interest
expense for that period, plus (c) provision for income tax expense for that
period, plus (d) depreciation and depletion expenses for that period, plus (e)
amortization expense for that period.
"Fixed Charges" means, for any period, (a) interest expense for that period,
plus (b) capital expenditures (net of new purchase money financing, including
amounts borrowed for the purchase and/or development of the Gardena Property)
during such period, plus (c) income taxes paid for such period, plus (d) the
current portion of long term debt as of the date of calculation.
For any period of measurement, the (i) EBITDA would be calculated at the end of
such period using fiscal year-to-date results on an annualized basis, and (ii)
the Fixed Charges would be similarly calculated except that the current portion
of long term debt would be the amount shown on the balance sheet as of the date
of measurement."
i. Section 7.7 is restated in its entirety as follows:
"7.7. Profitability. To maintain on an unconsolidated basis for
Borrower, and also on a consolidated basis with Holdings, a positive
net income before taxes and extraordinary items and a positive net
income after taxes and extraordinary items as of the end of each of
Borrower's fiscal years. In addition, Borrower shall not experience a
negative net income (either before or after taxes and extraordinary
items) in each of any two (2) consecutive fiscal quarters."
j. Section 7.10 is restated in its entirety as follows:
"7.10 Leases. Not to permit the net aggregate payments due in any
fiscal year under all leases (including capital and opening leases for
real or personal property) to exceed Two Million Two Hundred and Fifty
Thousand Dollars ($2,250,000); however, such aggregate payments
limitation shall reduce to One Million Eight Hundred Thousand Dollars
(1,800,000) following the month of completion of the construction of a
warehouse, as approved by Bank on the Gardena Property."
k. A new Section 7.24 (i) is hereby being added:
"(i) Holdings shall not incur any debt, direct or contingent, except
for the Four Million dollars ($4,000,000) principal amount (plus
interest and charges thereon) owed to Sirrom
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Investments, Inc., or provide any guarantee of any person's one
entity's (other than Borrower's) debt without the prior written consent
of Bank."
2. AMENDMENT TO THE EQUIPMENT LINE NOTE. The third paragraph of the Equipment
Line Note dated as of September 27, 1996 is hereby restated in its entirety as
follows:
"The principal indebtedness evidenced by this Equipment Line Note shall
be payable as provided in the Agreement and any amendments thereof and
in any event in full on November 1, 2001."
3. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrower reaffirms all of
the representations and warranties contained in the Agreement.
4. ONGOING EFFECT. Except as set forth herein, all of the terms and conditions
of the Agreement and the Equipment Line Note remain unmodified and in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused their duly authorized, representatives to execute this Agreement, as of
the day and year first above written.
BORROWER: AB PLASTICS CORPORATION
a California corporation
By: /s/Xxxxxxx X. Xxxxx
----------------------
CEO
BANK: SUMITOMO BANK OF CALIFORNIA
By: /s/Xxxxxx Xxxxxx
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Xxxxxx Xxxxxx, Vice President
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