FIFTH AMENDMENT TO REVOLVING CREDIT,
TERM LOAN AND SECURITY AGREEMENT
This Fifth Amendment to Revolving Credit,
Term Loan and Security Agreement (this "Amendment") is made as of this 22'd day of January, 2016 among
APPLIANCE RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation ("ARCA"), ARCA RECYCLING, INC.,
a California corporation ("ARCA Recycling"), ARCA CANADA INC., an Ontario, Canada, corporation ("ARCA
Canada"), APPLIANCESMART, INC., a Minnesota corporation ("ApplianceSmart," together with ARCA,
ARCA Recycling and ARCA Canada, collectively, the "Borrowers" and each individually, a "Borrower"),
certain financial institutions party to the Credit Agreement from time to time as lenders (collectively, the "Lenders"),
and PNC BANK, NATIONAL ASSOCIATION, as agent and lender ("PNC," in such capacity, "Agent").
The Borrowers, Lenders and PNC are parties to that certain Revolving Credit, Term Loan and Security Agreement dated as of
January 24, 2011 (as the same may have been amended, supplemented or otherwise modified from time to time prior to the date hereof,
the "Credit Agreement"), pursuant to which PNC has made certain loans to, and extensions of credit for the account
of, the Borrowers. The Credit Agreement and all other documents executed in connection therewith to the date hereof are collectively
referred to as the "Existing Financing Agreements." All capitalized terms used not otherwise defined herein shall have
the meaning ascribed thereto in the Credit Agreement, as amended hereby.
Certain Designated Events of Default (as defined in those certain reservation of rights letters delivered to the Borrowers
by Agent on July 9, 2015 and August 27, 2015 respectively) have occurred and are continuing. In addition to the Designated Events
of Default, the Borrowers have failed to comply with Section 7.5(b) of the Credit Agreement by permitting loans to the AAP Joint
Venture to exceed $300,000 as of September 30, 2015 and thereafter (the "AAP Joint Venture Event of Default,"
together with the Designated Events of Default, the "Existing Events of Default").
The Borrowers have requested, and PNC has agreed, to waive the Existing Events of Default and amend certain provisions
of the Credit Agreement, in each case subject to the terms and conditions of this Amendment.
NOW THEREFORE, with the foregoing
background hereinafter deemed incorporated by reference herein and made part hereof, the parties hereto, intending to be legally
bound, promise and agree as follows:
of Existing Events of Default. Upon the Effective Date, Agent and Lenders hereby waive the Existing Events of
Default provided however that such waiver shall in no way constitute a waiver of any other Default or Event of Default which
may have occurred, nor shall this waiver obligate Agents or Lenders to provide any further waiver of any other Default or
Event of Default under the Credit Agreement (whether similar or dissimilar, including any further Default or Event of Default
resulting from a failure to comply with Sections 6.5(a), 7.5 or 9.7 of the Loan Agreement). This waiver shall not preclude
the future exercise of any right, power, or privilege available to Agents or Lenders whether under the Credit Agreement, the
Other Documents or otherwise upon the occurrence of any Event of Default after the date hereof. In connection with such
waiver, the Lenders hereby agree (i) to cease charging the Default Rate and (ii) to permit the Borrowers to request
Eurodollar Rate Loans in accordance with terms of the Credit Agreement.
to Credit Agreement.
Defined Terms. As of the Effective Date, the following defined term shall be added to Section 1.2 of the Credit Agreement
in the appropriate alphabetical order:
Margin" shall mean for Revolving Advances and the Term Loan as of the Fifth Amendment Date and through and including the date
immediately prior to the first Adjustment Date (as defined below) (a) an amount equal to three and one quarter of one percent (3.25%)
for Revolving Advances consisting of Domestic Rate Loans, (b) an amount equal to four and one quarter of one percent (4.25%) for
Revolving Advances consisting of Eurodollar Rate Loans, (c) an amount equal to three and three quarters of one percent (3.75%)
for Advances under the Term Loan consisting of Domestic Rate Loans, and (d) an amount equal to four and three quarters of one percent
(4.75%) for Advances under the Term Loan consisting of Eurodollar Rate Loans.
as of the first day following receipt by Agent of the quarterly financial statements of Borrowers on a Consolidated Basis and related
Compliance Certificate for the fiscal quarter ending June 30, 2016 required under Section 9.7 hereof, and thereafter on the first
day following receipt of the quarterly financial statements of Borrowers on a Consolidated Basis and related Compliance Certificate
required under Section 9.8 for the most recently completed fiscal quarter (each day of such delivery, an "Adjustment Date"),
the Applicable Margin for each type of Advance shall be adjusted, if necessary, to the applicable percent per annum set forth in
the pricing table below corresponding to the Fixed Charge Coverage Ratio for the trailing four quarter period ending on the last
day of the most recently completed fiscal quarter prior to the applicable Adjustment Date:
|FIXED CHARGE COVERAGE RATIO
||APPLICABLE MARGINS FOR DOMESTIC RATE LOANS
||APPLICABLE MARGINS FOR EURODOLLAR RATE LOANS
|Greater than 1.75 to 1.00
|Less than or equal to 1.75 to 1.00 but greater than 1.50 to 1.00
|Less than or equal to 1.50 to 1.00 but greater than 1.25 to 1.00
|Less than or equal to 1.25 to 1.00
Borrowers shall fail to deliver the financial statements, certificates and/or other information required under Sections 9.7 or
9.8 by the dates required pursuant to such sections, each Applicable Margin shall be conclusively presumed to equal the highest
Applicable Margin specified in the pricing table set forth above until the date of delivery of such financial statements, certificates
and/or other information, at which time the rate will be adjusted based upon the Fixed Charge Coverage Ratio reflected in such
statements. Notwithstanding anything to the contrary contained herein, immediately and automatically upon the occurrence of any
Event of Default, each Applicable Margin shall increase to and equal the highest Applicable Margin specified in the pricing table
set forth above and shall continue at such highest Applicable Margin until the date (if any) on which such Event of Default shall
be waived in accordance with the provisions of this Agreement, at which time the rate will be adjusted based upon the Fixed Charge
Coverage Ratio reflected on the most recently delivered financial statements and Compliance Certificate delivered by Borrowers
to Agent pursuant to Section 9.7 or 9.8 (as applicable). Any increase in interest rates payable by Borrowers under this Agreement
and the Other Documents pursuant to the provisions of the foregoing sentence shall be in addition to and independent of any increase
in such interest rates resulting from the occurrence of any Event of Default (including, if applicable, any Event of Default arising
from a breach of Sections 9.7 or 9.8 hereof) and/or the effectiveness of the Default Rate provisions of Section 3.1 hereof.
as a result of any restatement of, or other adjustment to, the financial statements of Borrowers on a Consolidated Basis or for
any other reason, Agent determines that (a) the Fixed Charge Coverage Ratio as previously calculated as of any applicable date
for any applicable period was inaccurate, and (b) a proper calculation of the Fixed Charge Coverage Ratio for any such period would
have resulted in different pricing for such period, then (i) if the proper calculation of the Fixed Charge Coverage Ratio would
have resulted in a higher interest rate for such period, automatically and immediately without the necessity of any demand or notice
by Agent or any other affirmative act of any party, the interest accrued on the applicable outstanding Advances for such period
under the provisions of this Agreement and the Other Documents shall be deemed to be retroactively increased by, and Borrowers
shall be obligated to immediately pay to Agent for the ratable benefit of Lenders an amount equal to the excess of the amount of
interest that should have been paid for such period over the amount of interest actually paid for such period; and (ii) if the
proper calculation of the Fixed Charge Coverage Ratio would have resulted in a lower interest rate for such period, then the interest
accrued on the applicable outstanding Advances for such period under the provisions of this Agreement and the Other Documents shall
be deemed to remain unchanged, and Agent and Lenders shall have no obligation to repay interest to the Borrowers; provided, that,
if as a result of any restatement or other event or other determination by Agent a proper calculation of the Fixed Charge Coverage
Ratio would have resulted in a higher interest rate for one or more periods and a lower interest rate for one or more other periods
(due to the shifting of income or expenses from one period to another period or any other reason), then the amount payable by Borrowers
pursuant to clause (i) above shall be based upon the excess, if any, of the amount of interest that should have been paid for all
applicable periods over the amounts of interest actually paid for such periods.
Offset" shall mean carbon offset credit income received by the Borrowers in an amount equal to at least $1,000,000 during
the first quarter of 2016.
Amendment" shall mean the Fifth Amendment to the Revolving Credit, Term Loan and Security Agreement, dated as of the
Fifth Amendment Date and entered into by and among the Borrowers, the Agent and the Lenders.
"Fifth Amendment Date"
shall mean January 22, 2016.
to Defined Terms. As of the Effective Date, the following defined terms shall be amended and restated as follows:
shall mean for any period the sum of (i) Earnings Before Interest and Taxes for such period, plus (ii) depreciation expenses
for such period, plus (iii) amortization expenses for such period, plus (iv) any other non-cash charges, including
without limitation, any stock or other equity consideration and/or compensation for such period, acceptable to Agent in its reasonable
discretion, plus (v) fees and expenses incurred by the Borrowers in connection with the Fifth Amendment in an amount not
to exceed $200,000 to the extent expensed and not capitalized.
Rate" shall mean for any Eurodollar Rate Loan for the then current Interest Period relating thereto, the interest rate
per annum determined by Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per
annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at
which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another
source selected by Agent which has been approved by the British Bankers' Association as an authorized information vendor for the
purpose of displaying rates at which U.S. dollar deposits are offered by leading banks in the London interbank deposit market (an
"Alternate Source"), at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such
Interest Period as the London interbank offered rate for U.S. Dollars for an amount comparable to such Eurodollar Rate Loan and
having a borrowing date and a maturity comparable to such Interest Period (or if there shall at any time, for any reason, no longer
exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by Agent
at such time (which determination shall be conclusive absent manifest error)), by (ii) a number equal 1.00 minus the Reserve Percentage;
provided, however, that if the Eurodollar Rate determined as provided above would be less than zero, such rate shall be deemed
to be zero for purposes of this Agreement. The Eurodollar Rate may also be expressed by the following formula:
of London interbank offered rates quoted by Bloomberg or appropriate Successor as shown on
Eurodollar Rate = Bloomberg
1.00 - Reserve Percentage
Rate shall be adjusted with respect to any Eurodollar Rate Loan that is outstanding on the effective date of any change in the
Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrowing Agent of the Eurodollar Rate
as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.
Charge Coverage Ratio" shall mean and include, with respect to any fiscal period, the ratio of (a) EBITDA, minus
Unfunded Capital Expenditures made during such period, minus cash distributions (including tax distributions) and cash dividends
made during such period (including any cash contributions, investments or payments made to or on behalf of AAP in excess of $800,000),
minus cash taxes paid during such period to (b) all Debt Payments made during such period.
Interest Rate" shall mean, (a) with respect to Domestic Rate Loans, an interest rate per annum equal to the sum of the
Alternate Base Rate plus the Applicable Margin, and (b) with respect to Eurodollar Rate Loans, the sum of the Eurodollar Rate
plus the Applicable Margin.
"Term Loan Rate" shall mean, (a) with respect to Domestic Rate Loans, an interest
rate per annum equal to the sum of the Alternate Base Rate plus the Applicable Margin, and (b) with respect to Eurodollar Rate
Loans, the sum of the Eurodollar Rate plus the Applicable Margin.
Covenants. As of the Effective Date, Section 6.5(a) and (b) of the Credit Agreement are amended and restated as follows:
6.5. Financial Covenants.
Fixed Charge Coverage Ratio. Commencing with the fiscal quarter ending March 31, 2016, cause to be maintained as of the
end of each fiscal quarter a Fixed Charge Coverage Ratio of not less than 1.10 to 1.0, measured on a trailing twelve-month basis,
provided, however, that for the fiscal quarter ending (i) March 31, 2016, the Fixed Charge Coverage Ratio shall be measured on
a trailing three-month basis; (ii) June 30, 2016, the Fixed Charge Coverage Ratio shall be measured on a trailing six-month basis
and (iii) September 30, 2016, the Fixed Charge Coverage Ratio shall be measured on a trailing nine-month basis; provided, further,
if Borrowers have not received the Carbon Offset on or before March 31, 2016, the Fixed Charge Coverage Ratio shall not be tested
for the fiscal quarter ending March 31, 2016.
(b) Minimum EBITDA. If Borrowers have not received the Carbon Offset on or
before March 31, 2016, achieve, for the quarter ending March 31, 2016, minimum EBITDA of not less than ($500,000) for the one
fiscal quarter then ending.
Leases. As of the Effective Date, Section 7.11 of the Credit Agreement is amended and restated as follows:
7.11 Leases. Enter as lessee
into any lease arrangement for real or personal property (unless capitalized and permitted under Section 7.6 hereof) if after giving
effect thereto, aggregate annual rental payments for all leased property would exceed $7,000,000 in any one fiscal year in the
aggregate for all Borrowers.
Loans. As of the Effective Date, Section 7.5 of the Credit Agreement is amended and restated as follows:
Loans. Make advances, loans or extensions of credit to any Person, including any Parent, Subsidiary or Affiliate except
(i) with respect to the extension of commercial trade credit in connection with the sale of Inventory in the Ordinary Course of
Business, and (ii) Borrowers may make loans to the AAP Joint Venture; provided, that, for each applicable time period set
forth below, the aggregate amount of such loans shall not exceed the amount set forth below opposite such time period:
Maximum amount of loans to
AAP Joint Venture
|From December 31, 2015 and at all times thereafter
Agent and Lenders acknowledge
and agree that the Borrowers may convert the loans owing by the AAP Joint Venture to the Borrowers to an equity investment in the
AAP Joint Venture, so long as the loans owing by the AAP Joint Venture to certain of the principals of the AAP Joint Venture are
also converted to an equity investment in the AAP Joint Venture.
Prepayment. Upon and as of the Effective Date, Section 13.1 of the Credit Agreement is amended and restated as follows:
Prepayment. This Agreement, which shall inure to the benefit of and shall be binding upon the respective successors and permitted
assigns of each Borrower, Agent and each Lender, shall become effective on the date hereof and shall continue in full force and
effect until January 31, 2017 (the “Term”) unless sooner terminated as herein provided. Borrowers may terminate this
Agreement at any time upon ninety (90) days' prior written notice upon payment in full of the Obligations.
Warranties, Covenants. Each Borrower hereby:
represents and warrants to the Agent and the Lenders that all representations and warranties set forth in the Credit Agreement
and all of the other Existing Financing Agreements are true and correct in all material respects as of the date hereof (except
to the extent any such representations and warranties specifically relate to a specific date, in which case such representations
and warranties were true and correct in all material respects on and as of such other specific date);
reaffirms all of the covenants contained in the Credit Agreement as amended hereby and covenants to abide thereby until
the satisfaction in full of the Obligations and the termination of the commitments of the Lenders under the Credit Agreement;
represents and warrants to the Agent and the Lenders that no Default or Event of Default (other than the Existing Events
of Default) has occurred and is continuing under any of the Existing Financing Agreements;
represents and warrants to the Agent and the Lenders that it has the authority and legal right to execute, deliver and
carry out the terms of this Amendment, that such actions were duly authorized by all necessary corporate or company action, as
applicable, and that the officers executing this Amendment on its behalf were similarly authorized and empowered, and that this
Amendment does not contravene any provisions of its organizational documents or of any contract or agreement to which it is a
party or by which any of its properties are bound; and
represents and warrants to the Agent and the Lenders that this Amendment is valid, binding and enforceable against the
Borrowers in accordance with its terms except as such enforceability may be limited by any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally and by general principles of equity (whether enforcement is sought
in equity or at law).
The Borrowers shall pay to Agent, for the benefit of Lenders, (i) a non- refundable closing fee in the amount of $100,000 (the
"Fifth Amendment Fee"), which fee shall be fully earned and due and payable on the Effective Date and (ii) a
non-refundable success fee in the amount of $62,750 (the "Success Fee"), which fee shall be fully earned on the Effective
Date, and due and payable on the last day of the Term.
Precedent/Effectiveness Conditions. This Amendment shall be effective upon the date (the "Effective
Date") when all of the following conditions precedent have been satisfied:
Agent shall have received this Amendment fully executed by Borrowers and the Lenders;
Agent shall have received the Fifth Amendment Fee in immediately available funds;
Agent shall have received an ALTA 11-06 endorsement to the title policy related to the Mortgage;
The Borrowers shall have Undrawn Availability of at least $750,000;
Agent shall have received (i) an updated Inventory appraisal and (ii) an updated appraisal for the real estate located at
1920 South Acacia Avenue, Compton, California, each of which shall be in form and substance satisfactory to Agent; and
No Default or Event of Default (other than the Existing Events of Default) shall have occurred and be continuing.
Assurances. Each Borrower hereby agrees to take all such actions and to execute and/or deliver to Agent and Lenders all
such documents, assignments, financing statements and other documents, as Agent and Lenders may reasonably require from time to
time, to effectuate and implement the purposes of this Amendment.
of Expenses. Borrowers shall pay or reimburse Agent for its reasonable attorneys' fees and expenses in connection with
the preparation, negotiation and execution of this Amendment and the documents provided for herein or related hereto.
of Credit Agreement. Except as modified by the terms hereof, all of the terms and conditions of the Credit Agreement,
as amended by this Amendment, and all other of the Other Documents are hereby reaffirmed and shall continue in full force and
effect as therein written.
Third Party Rights. No rights are intended to be created hereunder for the benefit of any third party
donee, creditor, or incidental beneficiary.
Loan Document. This Amendment is an "Other Document" as defined and described in the Credit
Agreement and all of the terms and provisions of the Credit Agreement relating to Other Documents shall apply hereto.
Headings. The headings of any paragraph of this Amendment are for convenience only and shall not be used
to interpret any provision hereof.
Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State
Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.
Counterparts. This Amendment may be executed in any number of counterparts and by facsimile, PDF or other
electronic transmissions, 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.
Successors and Assigns. This Amendment shall be binding upon and inure to the benefit of the parties
hereto and its respective successors and assigns.
[SIGNATURES TO APPEAR ON FOLLOWING
WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above.
||APPLIANCE RECYCLING CENTERS OF AMERICA, INC.|
||By: /s/ Edward R. Cameron |
||Name: Edward R. Cameron|
||Title: President and CEO|
||ARCA RECYLING, INC.|
||By: /s/ Edward R. Cameron |
||Name: Edward R. Cameron|
||ARCA CANADA, INC.|
||By: /s/ Edward R. Cameron |
||Name: Edward R. Cameron|
||Title: President and CEO|
||By: /s/ Edward R. Cameron |
||Name: Edward R. Cameron|
[SIGNATURE PAGE TO FIFTH AMENDMENT]
|AGENT AND LENDER:
||PNC BANK, NATIONAL ASSOCIATION, |
||as Lender and as Agent|
||By: /s/ Timothy Canon |
||Timothy Canon, Vice President|
||200 S. Wacker Drive, Suite 600|
||Chicago, IL 60606|
[SIGNATURE PAGE TO FIFTH