Exhibit 10.1
FOURTH MODIFICATION AGREEMENT
This FOURTH MODIFICATION AGREEMENT (hereinafter the "Modification") dated
September 26, 2005, but effective as of August 1, 2005, 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
BANK OF AMERICA, N.A. (successor to Fleet Capital Corporation), a national
banking association organized and existing under the laws of the United States,
with offices at 000 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 (being
hereinafter referred to as "LENDER")
WITNESSES THAT:
(1) WHEREAS, on or about June 20, 2003, BORROWER and LENDER entered into a
certain Loan and Security Agreement (such certain Loan and Security Agreement
being hereinafter referred to as the "2003 Loan Agreement");
(2) WHEREAS, the 2003 Loan Agreement was amended by the following
instruments of modification:
(a) an instrument of modification dated as of May 28, 2004 and
entitled "First Modification Agreement";
(b) an instrument of modification dated as of March 22, 2005 and
entitled "Second Modification Agreement";
(c) an instrument of modification dated as of June 1, 2005 and
entitled "Third Modification Agreement";
(3) WHEREAS, the 2003 Loan Agreement as amended by the aforementioned First
Modification Agreement, Second Modification Agreement and Third Modification
Agreement is hereinafter referred to as the "Loan Agreement";
(4) WHEREAS, pursuant to the Loan Agreement, BORROWER received approval to
borrow up to $35,000,000 from LENDER in the form of a revolving loan, such
revolving loan is 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;
(5) WHEREAS, by virtue of BORROWER's having elected the Extended Maturity
Date (as defined in the 2003 Loan Agreement), the Loan Agreement matures on June
30, 2008;
(6) 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);
(7) WHEREAS, BORROWER has requested that LENDER again modify the Loan
Agreement so that the following would occur:
(a) The advance rate against Eligible Inventory would be increased
from 60% to 65%.
(b) The advance rate against Eligible Receivables would be increased
from 80% to 85%.
(c) The rate of interest paid by BORROWER would be reduced and
determined by reference to BORROWER's Fixed Charge Coverage ratio,
determined on a rolling (i.e., trailing) 12 months' basis.
(d) LENDER's reimbursement for field examinations would be eliminated
absent the occurrence of an Event of Default.
(e) BORROWER's monthly collateral management fee would be reduced from
$3,500 per month ($42,000 per year) to $2,916.66 per month
($35,000 per year).
(f) Absent the occurrence of an Event of Default, BORROWER's
reimbursement of LENDER's legal fees for work unrelated to
BORROWER-initiated requests for modifications or renewals of the
Loan Agreement would be capped at $20,000 (not including
disbursements) until the Loan Agreement's June 30, 2008 maturity
date.
(g) LENDER would memorialize the aforesaid changes by a written
modification of the Loan Agreement;
(8) WHEREAS, LENDER is willing to do the foregoing, but only if the
conditions contained in this Modification are satisfied; (9) WHEREAS, in order
to induce LENDER to enter into this Modification, BORROWER is willing to execute
this Modification and comply with the provisions hereof; (10) 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
RESTATEMENT/REAFFIRMATION OF LOAN AGREEMENT
1.1 The terms and provisions of the Loan Agreement are restated and
reaffirmed in all respects.
ARTICLE II
AMENDMENT OF THE LOAN AGREEMENT
2.1 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.
2.2 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.
2.3 Any time the term "Fleet National Bank" appears in the Loan Agreement,
such term shall mean "Bank of America, N.A. (successor to Fleet National Bank)
and its affiliates".
2.4 Any time the term "LENDER" appears in the Loan Agreement, such term
shall mean "Bank of America, N.A., successor to Fleet Capital Corporation".
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2.5 The definition of "LENDER's Affiliate" set forth in Section 1.39 of the
Loan Agreement is hereby amended to provide as follows (it being intended to
reflect the fact that Bank of America, N.A., is the successor to Fleet Capital
Corporation):
1.41 "LENDER'S AFFILIATE" means any entity which directly or
indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, LENDER (or any
successor thereto).
2.6 The definition of "Lending Formula" set forth in Section 1.40 of the
Loan Agreement is hereby amended as follows (it being intended to conform this
section with BORROWER's having elected the Extended Maturity Date):
1.40 "LENDING FORMULA" means the lesser of:
(a) $35,000,000 LESS 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 equal to or less than
1.1 to 1.0, as at any date fixed the testing of such covenant; or
(b) the total of the loan value of Eligible Receivables PLUS the "Loan
Value" of Eligible Inventory.
2.7 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 advance rate against Eligible Inventory has been increased from 60%
to 65% and (2) the advance rate against Eligible Receivables has been increased
from 80% to 85%):
1.45 "LOAN VALUE" means:
(a) As it relates to Eligible Receivables: Eligible Receivables shall
normally have a "loan value" of eighty-five percent (85%) of such
Eligible Receivables (less an adjustment for dilution in excess of
5% calculated at the time of each field examination), 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 $18,000,000 or
65% 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.
2.8 Section 1.51, Section 1.52 and Section 1.52 are hereby deleted from the
Loan Agreement and replaced by the following provisions (it being intended to
reflect the fact that the rate of interest on the Revolving Loan shall now be
determined on the basis of BORROWER's Fixed Charge Coverage, rather than on the
basis of "Performance Benchmarks"):
1.51 "PERFORMANCE BENCHMARK #1": This Section is omitted.
1.52 "PERFORMANCE BENCHMARK #2": This Section is omitted.
1.53 "PERFORMANCE BENCHMARK #3": This Section is omitted.
2.9 Section 2.6(b)(1) of the Loan Agreement is hereby amended as follows
(it being intended to reflect the decrease in interest rate authorized by this
Modification):
(b)(1) The Prime Based Rate (the "Prime Based Rate") shall equal the
Prime Rate, floating, provided, however, that notwithstanding
the foregoing, the following shall apply:
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(A) If BORROWER's Fixed Charge Coverage, determined on a rolling 12
months basis in accordance with the formula set forth in Section
5.21 below, is 1.5 or less (but 1.25 or more), the Prime Based
Rate shall equal the Prime Rate, floating, plus one-quarter of
one percent.
(B) If BORROWER's Fixed Charge Coverage, determined on a rolling 12
months basis in accordance with the formula set forth in Section
5.21 below, is less than 1.25 but more than 1.10, the Prime
Based Rate shall equal the Prime Rate, floating, plus one-half
of one percent.
(C) If BORROWER's Fixed Charge Coverage, determined on a rolling 12
months basis in accordance with the formula set forth in Section
5.21 below, is 1.10 or less, the Prime Based Rate shall equal
the Prime Rate, floating, plus three-quarters of one percent.
Nothing in the foregoing is intended to prohibit LENDER from
declaring an Event of Default or imposing the Default Rate if
BORROWER's aforesaid Fixed Charge Coverage is 1.10 or less.
(D) In all events on and after the occurrence and continuance of an
Event of Default, per annum interest shall be charged on the
Advances Outstanding under the Revolving Loan at the Default
Rate.
(E) Nothing herein shall lessen BORROWER's obligations under Section
2.10 of the Loan Agreement or under the Master Agreement.
2.10 Section 2.6(c) of the Loan Agreement is hereby amended as follows (it
being intended to reflect the decrease in interest rate authorized by this
Modification):
(c) The LIBOR Based Rate (the "LIBOR Based Rate") shall be a rate
per annum equal to 150 basis points in excess of LIBOR (as
defined below) with respect to the applicable LIBOR Based
Interest Period (as also defined below), it being understood
that each determination of a LIBOR Based Rate shall be made by
LENDER in its sole and absolute discretion and shall be
conclusive and binding upon BORROWER, absent manifest error.
Notwithstanding the foregoing, the following shall apply:
(1) If BORROWER's Fixed Charge Coverage, determined on a rolling
12 months basis in accordance with the formula set forth in
Section 5.21 below, is 1.5 or less (but 1.25 or more), the
LIBOR Based Rate shall be a rate per annum equal to 175 basis
points in excess of LIBOR (as defined below) with respect to
the applicable LIBOR Based Interest Period (as also defined
below).
(2) If BORROWER's Fixed Charge Coverage, determined on a rolling
12 months basis in accordance with the formula set forth in
Section 5.21 below, is less than 1.25 but more than 1.10, the
LIBOR Based Rate shall be a rate per annum equal to 200 basis
points in excess of LIBOR (as defined below) with respect to
the applicable LIBOR Based Interest Period (as also defined
below).
(3) If BORROWER's Fixed Charge Coverage, determined on a rolling
12 months basis in accordance with the formula set forth in
Section 5.21 below, is 1.10 or less, the LIBOR Based Rate
shall be a rate per annum equal to 225 basis points in excess
of LIBOR (as defined below) with respect to the applicable
LIBOR Based Interest Period (as also defined below). Nothing
in the foregoing is intended to prohibit LENDER from declaring
an Event of Default or imposing the Default Rate if BORROWER's
aforesaid Fixed Charge Coverage is 1.10 or less.
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(4) In all events on and after the occurrence and continuance of
an Event of Default, per annum interest shall be charged on
the Advances Outstanding under the Revolving Loan at the
Default Rate.
(5) Nothing herein shall lessen BORROWER's obligations under
Section 2.10 of the Loan Agreement or under the Master
Agreement.
2.11 Section 2.6(d) of the Loan Agreement is hereby amended as follows (it
being intended to reflect the fact that the rate of interest on the Revolving
Loan shall now be determined on the basis of BORROWER's Fixed Charge Coverage,
rather than on the basis of "Performance Benchmarks"):
(d) The determination of BORROWER's Fixed Charge Coverage for purposes
of determining the interest rate payable on the Revolving Loan
will be made quarterly (on a rolling, i.e., trailing, four-quarter
basis) and determined by reference to the annual and
quarterly-to-date financial statements which BORROWER is required
to submit under this Agreement and by using GAAP and will be made
by LENDER within 30 Business Days after LENDER's receipt of all
necessary financial statements and other information from
BORROWER. The interest rate shall be set effective as at the
applicable test date.
2.12 Section 5.12 of the Loan Agreement is hereby amended as follows (it
being intended to reflect the fact that LENDER's reimbursement for field
examinations has been eliminated absent the occurrence of an Event of Default):
(a) LENDER shall have full access during normal business hours to, and
the right, through its officers, agents, attorneys or accountants
and at BORROWER's expense to: examine, check, inspect and make
abstracts and copies from BORROWER's books, accounts, orders,
records, audits, correspondence, and all other papers; confirm and
verify all Accounts Receivable and the other Collateral; enter
upon BORROWER's premises during business hours and from time to
time, for the purpose of examining BORROWER's records concerning
the Collateral and for inspecting the Collateral and any and all
records. So long as no Event of Default has occurred and is
continuing, LENDER's access shall be upon reasonable request and
upon prior notice to BORROWER, provided, however, that nothing in
the foregoing shall operate to limit or diminish LENDER's right to
examine BORROWER's records concerning the Collateral and for
inspecting the Collateral and any and all records relating
thereto.
(b) Unless an Event of Default occurs, BORROWER will not be obligated
to reimburse LENDER for the examination fees incurred by LENDER
pursuant to the exercise of its rights under this Section.
(c) If an Event of Default has occurred, there shall be no limit on
LENDER's right to reimbursement.
(d) By its execution of this Agreement, BORROWER authorizes LENDER to
reimburse itself for any of its expenses associated with the above
in the manner set forth in the Authorization to Charge.
2.13 Section 5.13 of the Loan Agreement is hereby amended as follows (it
being intended to reflect the fact that BORROWER's monthly collateral management
fee has been reduced from $3,500 per month ($42,000 per year) to $2,916.66 per
month ($35,000 per year)):
5.13 Collateral Management Fee.
(a) In order to compensate LENDER for its expenses in monitoring,
reviewing and analyzing BORROWER's records, financial statements
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and Collateral, BORROWER will pay LENDER a Collateral Management
Fee of $2,916.66 a month, payable on the first day of each and
every calendar month beginning August 1, 2005.
(b) By its execution of this Agreement, BORROWER authorizes LENDER to
reimburse itself for any of its expenses associated with the above
in the manner set forth in the Authorization to Charge.
2.14 Section 5.22 of the Loan Agreement is hereby amended as follows (it
being intended to reflect the fact that it being intended to reflect the fact
that the rate of interest on the Revolving Loan shall now be determined on the
basis of BORROWER's Fixed Charge Coverage, rather than on the basis of
"Performance Benchmarks"BORROWER's monthly collateral management fee has been
reduced from $3,500 per month ($42,000 per year) to $2,916.66 per month ($35,000
per year)):
5.22 Performance Benchmarks. THIS SECTION IS OMITTED.
2.15 Section 9.1 of the Loan Agreement is hereby amended as follows (it
being intended to address LENDER's address for notice purposes):
9.1 COMMUNICATIONS AND NOTICES.
(a) Any communications between the parties hereto or notices
provided herein to be given may be given by mailing the same,
certified mail, return receipt requested, postage prepaid or
by confirmed facsimile transmission or hand delivery or by an
overnight delivery service, as follows:
(1) to LENDER at:
000 Xxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Account Officer for Five Star Group
(2) to BORROWER at the address first above given for BORROWER in
this Agreement:
(3) to such other addresses as any party may in writing hereafter
indicate by notice given in conformity with this Section:
2.16 Section 9.7 of the Loan Agreement is hereby amended as follows (it being
intended to reflect the fact that BORROWER's obligation to reimburse of LENDER's
legal fees for work unrelated to BORROWER-initiated requests for modifications
or renewals of the Loan Agreement has been capped at $20,000 (not including
disbursements) until the Loan Agreement's June 30, 2008 maturity date):
9.7 LENDER'S COSTS AND EXPENSES.
(a) BORROWER will pay the reasonable fees and the reasonable
out-of-pocket expenses incurred by LENDER in connection with (1)
the preparation of this Agreement and other related documents and
(2) the making of the Revolving Loan hereunder.
(b) Effective August 1, 2005, BORROWER's obligation to reimburse of
LENDER's legal fees for work unrelated to BORROWER-initiated
requests for modifications or renewals of the Loan Agreement shall
not exceed $20,000 (not including disbursements) until the
Revolving Loan Maturity Date).
(c) Notwithstanding the foregoing, whenever any attorney is used to
collect any obligation or to enforce any right of LENDER against
BORROWER or against the Collateral under this Agreement, the
Revolving Note or any of the other Loan Documents, whether by suit
or other means, BORROWER agrees to pay the reasonable attorney's
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fees and other costs and expenses incurred by LENDER. BORROWER
also agrees to pay LENDER's attorneys a reasonable fee and costs
and expenses for enforcing against third parties any other rights
of LENDER pertaining hereto including LENDER's defending against
any claim pertaining to the Collateral, provided, however, that
BORROWER shall not be obligated to pay for more than one attorney
representing LENDER except during such period of time as an Event
of Default may have occurred and is continuing. By its execution
of this Agreement, BORROWER authorizes LENDER to reimburse itself
for any of its expenses associated with the above in the manner
set forth in the Authorization to Charge.
(c) Any payment required of BORROWER hereunder shall be made within 10
days of LENDER's request that BORROWER do so. In the event that
BORROWER fails to do so, BORROWER by its execution of this
Agreement authorizes LENDER to reimburse itself for any of its
fees, costs and expenses associated with the above in the manner
set forth in the Authorization to Charge. BORROWER's failure to
make any such payment or LENDER's inability to charge against or
add to the Revolving Loan shall be an Event of Default hereunder.
(d) Until paid by BORROWER, all of the expenses set forth in this
Section above shall bear interest at the Default Rate and all such
amounts shall be added to the Revolving Loan and shall be secured
by the Collateral.
ARTICLE III
RESTATEMENT/SUBSTITUTION OF "MASTER" REVOLVING NOTE
3.1 BORROWER reaffirms all of the terms and conditions of BORROWER's
$35,000,000 Restated and Amended Promissory Note dated as of June 1, 2005, such
note being immediately prior to giving effect to this Modification the "master"
promissory note described in Section 2.11 of the Loan Agreement.
3.2 BORROWER agrees to execute on the date hereof a "master" restated and
amended $35,000,000 (face amount) Revolving Note, such note to be made payable
to the order of LENDER and be dated as of even date herewith and be entitled (in
part) "Restated and Amended Promissory Note", so as to evidence the amendments
to the Revolving Loan which are made and effected by this Modification.
3.3 BORROWER foregoing $35,000,000 "master" Restated and Amended Revolving
Note dated even date herewith restates, replaces and substitutes for BORROWER's
$35,000,000 Restated and Amended Promissory Note dated as of June 1, 2005.
3.4 BORROWER's foregoing $35,000,000 "master" Restated and Amended
Revolving Note dated even date herewith, 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 IV
MISCELLANEOUS
4.1 Any references in the Loan Documents to Performance Benchmark #1,
Performance Benchmark #2 or Performance Benchmark #3 shall be disregarded.
4.2 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.
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4.3 (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.
(c) All such representations and warranties shall survive the
execution and delivery of this Modification.
4.4 As a condition of this Modification, BORROWER shall deliver to LENDER:
(a) this Modification;
(b) enabling corporate resolutions of BORROWER;
(c) the consent of FIVE STAR PRODUCTS, INC. (formerly known as
AMERICAN DRUG COMPANY, INC., and the "Guarantor" named in the Loan
Agreement;;
(d) the consent of JL DISTRIBUTORS, INC. (the "Seller" named in the
Loan Agreement);
(e) enabling corporate resolutions of the aforesaid "Guarantor"; and
(f) enabling corporate resolutions of the aforesaid "Seller".
4.5 (a) BORROWER agrees that, as of the opening of business on September
23, 2005, there was now due and outstanding on the Revolving Loan the principal
sum of $22,530,580 in direct and attributed Revolving Loan borrowings (accrued
interest, if any, for the month of August 2005, 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.
4.6 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.
4.7 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.
4.8 (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.
4.9 This Modification may be executed in any number of counterparts and by
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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.
THIS IS THE LAST PAGE OF THIS DOCUMENT.
THE NEXT PAGE IS THE SIGNATURE PAGE.
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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:
----------------------------------- ---------------------------------------
Xxxxx XxXxxxxx, Corporate Secretary Xxxxx Xxxxxxx, Exec. Vice President
BANK OF AMERICA, N.A. (successor to
Fleet Capital Corporation)
By:
--------------------------------------
Xxxxxxx Xxxx, Vice President
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