Exhibit 10.11
FIRST MODIFICATION AGREEMENT
This FIRST MODIFICATION AGREEMENT (hereinafter the
"Modification") dated as of May 28, 2004, by and between
FIVE STAR GROUP, INC., a corporation of the State of Delaware with its
principal corporate place of business at 000 Xxxxxx Xxxx, Xxxx Xxxxxxx, Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000 with its mailing address at 000 Xxxxxx Xxxx, X.X. Xxx
0000, Xxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxx Xxxxxx 00000 (hereinafter referred to as
"BORROWER")
and
FLEET CAPITAL CORPORATION, a corporation organized and existing under the
laws of the State of Rhode Island with offices at Mail Stop NJ RP 46703E, 000
Xxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxxx, Xxx Xxxxxx 00000 (being hereinafter
referred to as "LENDER")
WITNESSES THAT:
(1) WHEREAS, on June 30, 2003, BORROWER and LENDER entered into a certain
Loan and Security Agreement (such certain Loan and Security Agreement being
hereinafter referred to as the "Loan Agreement");
(2) WHEREAS, pursuant to the Loan Agreement, BORROWER received approval to
borrow up to $25,000,000 from LENDER in the form of a revolving loan (called the
"Revolving Loan" in the Loan Agreement and, except as hereby amended, such term
to have the same meaning herein that it has in the Loan Agreement);
(3) WHEREAS, the Loan Agreement matures on June 30, 2008, BORROWER having
heretofore selected the Extended Maturity Date described in the Loan Agreement;
(4) WHEREAS, in order to secure BORROWER's payment and performance
obligations under the Loan Agreement, BORROWER provided LENDER with Collateral
as more fully defined and set forth in the Loan Agreement (such Collateral being
hereinafter referred to as the "Collateral", such term to have the same meaning
herein that it has in the Loan Agreement);
(5) WHEREAS, BORROWER has requested that LENDER modify the Loan Agreement
so that: (a) the maximum amount that can be borrowed under the Revolving Loan be
increased from $25,000,000 to $28,000,000; and
(b) the Inventory sublimit be increased from $14,600,000 to $16,500,000;
and
(c) LENDER memorialize the aforesaid change by a written modification of
the Loan Agreement;
(6) WHEREAS, LENDER is willing to do the foregoing, but only if the
conditions contained in this Modification are satisfied;
(7) WHEREAS, in order to induce LENDER to enter into this Modification,
BORROWER is willing to execute this Modification and comply with the provisions
hereof;
(8) WHEREAS, BORROWER represents that its execution of this Modification
and its performance of the covenants and terms contained herein will inure to
its economic benefit and will be in furtherance of its corporate purposes;
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Modification and for other good and valuable consideration,
BORROWER and LENDER do hereby agree as follows:
ARTICLE I
AMENDMENT OF THE LOAN AGREEMENT
1.1 Unless otherwise specifically defined herein, all terms defined in
Article I of the Loan Agreement shall have the same meanings herein as those
given therein.
1.2 The definition of "Agreement" set forth in Section 1.8 of the Loan
Agreement is hereby amended as follows (it being intended that any time the term
"Agreement" appears in the Loan Agreement, that term shall collectively mean all
of the following):
(a) the Loan Agreement; as amended by
(b) this Modification; as amended by
(c) all extensions, modifications (including without limitation
modifications increasing or decreasing the amount of the Revolving
Loan or any other financial accommodation or facility now or
hereafter provided hereunder), refinancings, renewals,
substitutions, replacements and/or redatings thereof.
1.3 The definition of "Lending Formula" set forth in Section 1.40 of the
Loan Agreement is hereby amended as follows (it being intended to reflect the
facts that (1) the maximum amount of the Revolving Loan has been hereby
increased from $25,000,000 to $28,000,000 and (2) BORROWER did in fact elect the
Extended Maturity Date and executed a Master Agreement and (3) any time the term
"Lending Formula" appears in the Loan Agreement, that term shall mean the
Lending Formula set forth below):
1.40"LENDING FORMULA".40 "LENDING FORMULA means the lesser of: (a)
$28,000,000 LESS in all cases the "Swap Reserve" (i.e., the amount
approximating the marked to market exposure from time to time of
LENDER or LENDER's Affiliate under the Master Agreement), such "Swap
Reserve" to be instituted only if BORROWER's Fixed Charge Coverage
(as defined in Article V below) is less than 1.13 to 1.0 as at any
testing date which said Article V fixes for such covenant; or
(b) the total of the "loan value" of Eligible Receivables PLUS the "loan
value" of Eligible Inventory.
1.4 The definition of "Loan Value" set forth in Section 1.45 of the Loan
Agreement is hereby amended as follows (it being intended to reflect the fact
that (1) the Inventory sublimit has been increased from $14,600,000 to
$16,500,000 and (2) any time the term "Loan Value" appears in the Loan
Agreement, that term shall collectively mean all of the following):
1.45"LOAN VALUE".40 "LENDING FORMULA means:
(a) As it relates to Eligible Receivables: Eligible Receivables shall
normally have a "loan value" of eighty percent (80%) of such
Eligible Receivables, provided, however, that LENDER in good faith
and in the exercise of its reasonable commercial judgment may on
prior notice to BORROWER fix the aforesaid advance rate at some
lesser percentage; or
(b) As it relates to Eligible Inventory: Eligible Inventory shall
normally have a "loan value" of up to the lesser of $16,500,000 or
55% of the value of Eligible Inventory, provided, however, that
LENDER in good faith and in the exercise of its reasonable
commercial judgment may on prior notice to BORROWER fix the
aforesaid "loan value" at some lesser amount or percentage.
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1.5 The definition of "Maturity Date" set forth in Section 1.49 of the Loan
Agreement is hereby amended as follows (it being intended to reflect the fact
that BORROWER did in fact select the option for the Extended Maturity Date):
1.49 "MATURITY DATE" shall mean June 30, 2008.
1.6 Section 2.9(d) of the Loan Agreement is hereby amended as follows (it
being intended to make the provisions of this Section consistent with the
increase in the Revolving Loan from $25,000,000 to $28,000,000 and to reflect
the fact that BORROWER did in fact select the Extended Maturity Date):
2.9(d) Termination Charges. At the effective date of termination of this
Agreement for any reason (and whether by LENDER or by BORROWER),
BORROWER shall pay to LENDER (in addition to the then outstanding
principal, accrued interest and other charges owing under the terms
of this Agreement and any of the other Loan Documents and in
addition to any amounts payable under Section 2.10) as a premium or
liquidated damages for the loss of the bargain and not as a penalty,
the following amount:
(1) If termination occurs during the period commencing on the date
hereof and ending on June 30, 2006, BORROWER shall pay a prepayment
premium equal to 1% of the maximum potential amount that could be
borrowed under the Revolving Loan (i.e., 1% of $28,000,000.
(2) If termination occurs during the period commencing on July 1, 2006,
and ending on June 30, 2007, BORROWER shall pay a prepayment premium
equal to $210,000 (i.e., 3/4% of $28,000,000).
(3) If termination occurs during the period commencing on July 1, 2007,
and ending on June 29, 2008, BORROWER shall pay a prepayment premium
equal to $140,000 (i.e., 1/2% of $28,000,000).
1.7 Section 2.11(a) of the Loan Agreement is hereby amended as follows (it
being intended to reflect the fact that the June 20, 2003 "master" Revolving
Note has been restated and amended and replaced by a note dated as of even date
herewith in the face amount of $28,000,000):
(a) The Revolving Loan is evidenced by BORROWER's certain master
restated and amended promissory revolving note dated as of May 28,
2004, and made payable to the order of LENDER. The amounts due under
such note shall be payable as provided in this Agreement.
1.8 Section 5.21(c)(1) of the Loan Agreement is hereby amended as follows
(it being intended to reflect the fact that the definition of "Fixed Charge
Coverage" has been amended to take into account BORROWER's repurchases of
stock):
For purposes of this covenant, "Fixed Charge
Coverage" means the following ratio (calculated on a rolling
12 month basis):
BORROWER's earnings before interest, taxes,
depreciation and amortization and before the income statement
component of any change in valuation arising under the Master
Agreement
LESS BORROWER's "Unfunded Capital Expenditures"
LESS cash payment of income tax liabilities
LESS cash distributions to stockholders
LESS all scheduled principal payments paid as
allowed by the Subordinated Seller Note (at the present time
there being no scheduled payments allowed by the
Subordinated
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Seller Note)
LESS cash used by BORROWER to repurchase its stock
--divided by--
interest expense PLUS the current
maturities of long term debt as reported in
BORROWER's annual financial statements for its
fiscal year immediately preceding the
applicable test period
PLUS current maturities of Capital Lease
Obligations as reported in BORROWER's annual financial
statements for its fiscal year immediately preceding the
applicable test period
ARTICLE II
RESTATEMENT/SUBSTITUTION OF "MASTER" REVOLVING NOTE
2.1 BORROWER agrees to execute on the date hereof a "master" restated and
amended Revolving Note, such note to be dated as of even date herewith and be
entitled (in part) "Restated and Amended Promissory Note" and be in the face
amount of $28,000,000 so as to evidence the amendments to the Revolving Loan and
the Loan Documents which are made and effected by this Modification. 2.2
BORROWER foregoing $28,000,000 "master" Restated and Amended Revolving Note
restates, replaces and substitutes for the "master" Revolving Note executed by
BORROWER and dated as of June 20, 2003.
2.3 BORROWER's foregoing "master" Restated and Amended Revolving Note,
together with all extensions, modifications (including without limitation
modifications increasing or decreasing the amount thereof or any financial
accommodation provided thereunder), refinancings, renewals, substitutions,
replacements and/or redatings thereof, together with the Loan Agreement and the
records of LENDER described in the Loan Agreement, constitute and are the
"REVOLVING NOTE" as such term is used in the Loan Agreement.
ARTICLE III
MISCELLANEOUS
3.1 All of the Loan Documents described and defined in the Loan Agreement
shall be deemed to be amended in manner consistent hereto and conforming
herewith.
3.2 On and after the date hereof, the rights and obligations of LENDER and
BORROWER shall be determined by reference to the Loan Agreement and the other
aforementioned Loan Documents as amended by this Modification and as amended
from time to time hereafter.
3.3 (a) In order to induce LENDER to enter into this Modification and to
perform its obligations hereunder, BORROWER reaffirms all of the representations
and warranties which BORROWER made in the Loan Agreement and BORROWER hereby
makes and gives each and all such representations and warranties directly to
LENDER.
(b) All such representations and warranties remain true and accurate as
of the date hereof.
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(c) All such representations and warranties shall survive the execution
and delivery of this Modification.
3.4 As a condition of this Modification, BORROWER shall deliver to LENDER:
(a) this Modification;
(b) BORROWER's "master" Restated and Amended Revolving Note dated as of
even date herewith and entitled (in part) "Restated and Amended
Promissory Note" and in the face amount of $28,000,000;
(c) enabling corporate resolutions of BORROWER; (d) the consent of FIVE
STAR PRODUCTS, INC. (formerly known as AMERICAN DRUG COMPANY, INC.,
and the "Guarantor" named in the Loan Agreement;;
(e) the consent of JL DISTRIBUTORS, INC. (the "Seller" named in the Loan
Agreement);
(f) enabling corporate resolutions of the aforesaid "Guarantor"; and (g)
enabling corporate resolutions of the aforesaid "Seller".
3.5 (a) BORROWER agrees that, as of the opening of business on May 27, 2004,
there was now due and outstanding on the Revolving Loan the principal sum of
$17,749,243.65 in direct and attributed Revolving Loan borrowings (accrued
interest, if any, for the month of April 2004, having been paid in full).
(b) BORROWER agrees that there exist no defenses, recoupments, setoffs,
counterclaims or any other claims or charges against the amounts due
to LENDER under the Revolving Loan or the Loan Agreement.
(c) BORROWER agrees that there exist no claims or charges against any
actions or inactions of LENDER in extending the Loan Agreement or in
making disbursements under the Loan Agreement or in otherwise
administering the Loan Agreement.
3.6 EXCEPT AS SPECIFICALLY SET FORTH IN THIS MODIFICATION, NOTHING IN THIS
MODIFICATION IS INTENDED TO IN ANY WAY ALTER OR AFFECT THE TERMS AND PROVISIONS
OF THE LOAN AGREEMENT, INCLUDING BUT NOT LIMITED TO BORROWER'S PAYMENT AND
PERFORMANCE OF THE REVOLVING LOAN.
3.7 NOTHING IN THIS MODIFICATION IS INTENDED TO IN ANY WAY RELEASE OR
LESSEN THE COLLATERAL GIVEN TO SECURE THE PAYMENT AND THE PERFORMANCE OF THE
LOAN AGREEMENT, THE REVOLVING LOAN AND THE OTHER LIABILITIES (AS DEFINED IN THE
LOAN AGREEMENT) OF BORROWER TO LENDER.
3.8 (a) BORROWER shall pay the legal expenses of LENDER for the preparation
of this Modification, plus disbursements.
(b) BORROWER shall promptly pay such expenses within 7 days from
BORROWER's receipt of the xxxx therefor and, if not so paid,
BORROWER hereby authorizes LENDER to effect payment of such expenses
in the manner specified in the Authorization to Charge set forth in
the Loan Agreement. 3.9 This Modification may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and
the same agreement. Delivery of an executed counterpart of a
signature page to this Modification by facsimile shall be as
effective as delivery of a manually executed counterpart of this
Modification.
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IN WITNESS WHEREOF, BORROWER and LENDER have caused this Modification
Agreement to be executed by their respective duly authorized officers as of the
date and year first above written.
ATTEST: FIVE STAR GROUP, INC.
By:
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Xxxxx XxXxxxxx, Corporate Secretary Xxxxx Xxxxxxx, Exec. Vice President
FLEET CAPITAL CORPORATION
By:
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Xxxxx X. Xxxxxx, Vice President
