March 23, 2006
FIVE STAR GROUP, INC.
000 Xxxxxx Xxxx
P.O. Box 1960
East Hanover, New Jersey 07936
Attention: Xxxxx Xxxxxxx, Exec. Vice President
Re: $35,000,000 Revolving Loan from Bank of America, N.A. to Five
Star Group, Inc.
SIXTH MODIFICATION AGREEMENT:
Waiver of Fixed Charge Coverage for
the fiscal quarter and fiscal year
ending December 31 2005 and
resetting of Fixed Charge Coverage
effective as at March 31, 2006 and
thereafter and resetting of covenant
prohibiting losses in any two fiscal
consecutive quarters
Dear Xx. Xxxxxxx:
On or about June 20, 2003, Five Star Group, Inc. ("Borrower")
and Bank of America, N.A. (through its predecessor Fleet Capital Corporation and
hereinafter "Lender") entered into a certain Loan and Security Agreement which
has been amended by the following instruments of modification (such certain Loan
and Security Agreement as so amended being hereinafter referred to as the "Loan
Agreement"):
(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";
(d) an instrument of modification dated as of September
26, 2005, but effective as of August 1, 2005, and
entitled "Fourth Modification Agreement"; and
(e) an instrument of modification dated as of November
14, 2005, but effective as of August 1, 2005, and
constituting a fifth modification agreement.
Section 5.21(a) and (b) of the Loan Agreement provides as
follows:
Fixed Charge Coverage:
(a) As at March 31, 2003 and continuing at all times
thereafter, XXXXXXXX must maintain its "Fixed Charge Coverage"
at a ratio greater than 1.1 to 1.0.
(b) Compliance with this Section will be tested
quarterly and annually, using a rolling 12 month basis, by
reference to XXXXXXXX's annual and quarterly financial
statements required to be submitted pursuant to Section 5.6
above and by using GAAP.
Xxxxxxxx has failed to comply with the aforesaid covenant for
its fiscal quarter and fiscal year ending December 31 2005, because its Fixed
Charge Coverage as at such test date was less than 1.1 to 1.0. Xxxxxxxx's
failure to comply with the aforesaid covenant constitutes an Event of Default
under, among other provisions, Section 7.2 of the Loan Agreement.
Xxxxxxxx has asked that Xxxxxx waive such Event of Default for
the fiscal quarter and fiscal year ending December 31, 2005. Xxxxxxxx has also
asked that Xxxxxx reset the Fixed Charge Coverage effective with the fiscal
quarter ending March 31, 2006, and for all fiscal quarters thereafter. Xxxxxxxx
has lastly asked that Xxxxxx amend the covenant prohibiting losses in any two
fiscal consecutive quarters so that it will not be tested as at March 31, 2006.
In this regard, please be advised that Xxxxxx will honor
Xxxxxxxx's request and does hereby do each of the following:
(i) Lender does hereby waive Borrower's default for failing to
comply with the requirement set forth in Section 5.21(a) and (b) of the Loan
Agreement that Borrower's Fixed Charge Coverage be more than 1.1 to 1.0 for the
fiscal quarter and fiscal year ending December 31, 2005.
(ii) Lender does hereby amend Section 5.21(a) and Section
5.21(b) of the Loan Agreement as follows (it being intended to reset Borrower's
Fixed Charge Coverage effective with the fiscal quarter ending March 31, 2006,
and for all fiscal quarters thereafter):
(a) (1) As at March 31, 2003 and at all times
thereafter through and including June 30, 2005,
XXXXXXXX must maintain its "Fixed Charge
Coverage" at a ratio greater than 1.1 to 1.0.
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(2) As at September 30, 2005, and December 30,
2005, XXXXXXXX's compliance with any "Fixed
Charge Coverage" shall be waived.
(3) As at March 31, 2006, XXXXXXXX must
maintain its "Fixed Charge Coverage" at a ratio
greater than 1.0 to 1.0 for the three-month
period ending March 31, 2006.
(4) As at June 30, 2006, XXXXXXXX must maintain
its "Fixed Charge Coverage" at a ratio greater
than 1.1 to 1.0 for the six-month period ending
June 30, 2006.
(5) As at September 30, 2006, XXXXXXXX must
maintain its "Fixed Charge Coverage" at a ratio
greater than 1.1 to 1.0 for the nine-month
period ending September 30, 2006.
(6) As at December 31, 2006, XXXXXXXX must
maintain its "Fixed Charge Coverage" at a ratio
greater than 1.1 to 1.0 for the twelve-month
period ending December 31, 2006.
(7) As at March 31, 2007, and continuing at all
times thereafter, XXXXXXXX must maintain its
"Fixed Charge Coverage" at a ratio greater than
1.1 to 1.0.
(b) Except for the test dates March 31, 2006, and
June 30, 2006, and September 30, 2006, on which
compliance will be tested on a year-to-date
basis, compliance with this Section will be
tested quarterly and annually, using a rolling
12 month basis, by reference to XXXXXXXX's
annual and quarterly financial statements
required to be submitted pursuant to Section
5.6 above and by using GAAP.
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(iii) Lender does hereby amend Section 6.15(b) of the Loan
Agreement as follows (it being intended to waive testing as at March 31, 2006,
of the covenant prohibiting losses in any two fiscal consecutive quarters):
(b) LENDER will determine compliance with this
Section on a quarterly basis (commencing
with the fiscal quarter ending March 31,
2003) using the consolidated financial
information required to be submitted by
BORROWER under this Agreement and by using
GAAP, provided, however, that
notwithstanding the foregoing, XXXXXX will
not test this covenant on March 31, 2006.
Xxxxxx's aforesaid waiver and amendments are subject to
Xxxxxxxx's confirmation and acceptance of the following terms and conditions
(and Xxxxxxxx's acceptance of this letter by its execution of a copy hereof will
be deemed such confirmation and acceptance):
(1) (a) Borrower must confirm and, by its acceptance and
execution of a copy of this letter, does confirm that
all amounts due and owing under the Revolving Loan,
the Loan Agreement and the Loan Documents described
therein (hereinafter the "Loan Documents") are owed
to Lender without offset, defense, recoupment,
set-off, deduction, or counterclaim.
(b) Borrower must confirm and, by its acceptance and
execution of a copy of this letter, does confirm that
as of March 21, 2006, the following principal and
interest amounts were owed on the Revolving Loan:
(1) Principal $21,026,009.38
(2) Interest: interest which accrued from March 1,
2006.
(2) Borrower must confirm and, by its acceptance and execution of
a copy of this letter, does confirm that there exist no claims
or charges against any actions or inactions of Lender in
extending the Revolving Loan or in making disbursements
thereunder or in otherwise administering the Revolving Loan,
the Loan Agreement and/or the Loan Documents.
(3) Borrower must waive, release and discharge and, by its
acceptance and execution of a copy of this letter, does waive,
release and discharge any and all claims or causes of action
of any kind whatsoever, whether at law or in equity, arising
on or prior to the date hereof, which Borrower may have
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against Lender, its predecessors, its successors and assigns,
agents, employees and counsel, in connection with the
Revolving Loan, the Loan Agreement and the Loan Documents. The
waivers and releases made herein include the waiver of any
damages which may have been or may in the future be caused to
Borrower or to its properties or business prospects because of
the actions waived and released and the agreements made
herein, including without limitation, any actual or implicit,
direct or indirect, incidental or consequential damages
suffered by Borrower therefrom, including but not limited to
(a) lost profits, (b) loss of business opportunity, (c)
increased financing costs, (d) increased legal and other
administrative fees and (e) damages to business reputation.
(4) Borrower must confirm and, by its acceptance and execution of
a copy of this letter, does confirm that all of the terms,
covenants and provisions of the Revolving Loan, the Loan
Agreement and the Loan Documents (as all have been heretofore
and hereby amended) shall continue in full force and effect.
(5) Borrower must continue to comply with the terms of the
Revolving Loan and not be in default thereunder.
(6) All rights of Lender shall continue to be determined in
accordance with the Loan Agreement and the Loan Documents
until all Liabilities (as defined in the Loan Agreement) are
paid in full.
(7) This waiver with respect to the Fixed Charge Coverage of
Section 5.21 of the Loan Agreement relates only to Borrower's
fiscal quarter and fiscal year ending December 31, 2005, and
only for such fiscal quarter and such fiscal year ending
December 31, 2005.
(8) The Fixed Charge Coverage provisions of Section 5.21(a) of the
Loan Agreement, as hereby amended, will remain in effect for
all quarters effective with the fiscal quarter ending March
31, 2006, and for all fiscal quarters thereafter.
(9) This waiver with respect to the covenant prohibiting losses in
any two fiscal consecutive quarters as set forth in Section
6.15(b) of the Loan Agreement relates only to Lender's
agreement not to test such covenant as at March 31, 2006.
(10) This letter will be deemed a modification of the Loan
Agreement and Xxxxxxxx's obligations hereunder will be
considered a covenant of the Loan Agreement.
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(11) 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.
(12) Five Star Products, Inc., as guarantor of the amounts owed
under the Loan Agreement, must confirm to Lender that its
instrument of guaranty continues in full force and effect and
is not impaired or otherwise lessened or adversely affected by
the waiver and amendment granted by this letter.
(13) JL Distributors, Inc. as the holder of debt whose payment has
been subordinated to the payment of the Liabilities owed under
the Loan Agreement, must confirm to Lender that its instrument
of subordination continues in full force and effect and is not
impaired or otherwise lessened or adversely affected by the
waiver and amendment granted by this letter.
(14) Xxxxxxxx must pay for the services of Xxxxxx's counsel who was
engaged to review the Loan Agreement and to assist in the
preparation of this letter and authorizes Lender to effect
payment of such fee in the manner allowed by the
"Authorization to Charge Accounts" as set forth in the Loan
Agreement.
If Borrower is in agreement with the terms and conditions of
this letter, please execute and also have guarantor Five Star Products, Inc.,
and subordinated debt xxxxxx XX Distributors, Inc., execute the enclosed copy of
this letter and return it to me no later than March 25, 2006.
Very truly yours,
BANK OF AMERICA, N.A.
By: Xxxxxxx Xxxx, Vice President
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CONSENT OF FIVE STAR GROUP, INC.
FIVE STAR GROUP, INC., xxxxxx agrees to the terms and conditions
of the above letter as of March 23, 2006.
WITNESS: FIVE STAR GROUP, INC.
_____________________________ By: _________________________
Xxxxx XxXxxxxx, Corporate Secretary Xxxxx Xxxxxxx, Exec. VP
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