EXHIBIT 10.9

 

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").

 

RECITALS

 

A.              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.

 

B.              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").

 

C.              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:

 

1.       Waiver 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.

 

 

 

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2.       Amendments to Credit Agreement.

 

(a)       Additional 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:

 

"Applicable 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.

 

Effective 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     Revolving Advances Term Loan
Revolving Advances Term Loan   Greater than 1.75 to 1.00 1.75% 2.25% 2.75% 3.25%
  Less than or equal to 1.75 to 1.00 but greater than 1.50 to 1.00 2.25% 2.75%
3.25% 3.75% Less than or equal to 1.50 to 1.00 but greater than 1.25 to 1.00
2.75% 3.25% 3.75% 4.25% Less than or equal to 1.25 to 1.00 3.25% 3.75% 4.25%
4.75%                      

 

If 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.

 

 

 

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If, 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.

 

"Carbon 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.

 

"Fifth 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.

 

(b)       Changes to Defined Terms. As of the Effective Date, the following
defined terms shall be amended and restated as follows:

 

"EBITDA" 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.

 

 

 

 

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"Eurodollar 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:

 

Average of London interbank offered rates quoted by Bloomberg or appropriate
Successor as shown on

 

Eurodollar Rate =        Bloomberg Page BBAM1

 

1.00 - Reserve Percentage

 

The Eurodollar 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.

 

"Fixed 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.

 

"Revolving 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.

 

 

 

 

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(c)       Financial 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.

 

(a) 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.

 

(d)              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.

 

(e)               Loans. As of the Effective Date, Section 7.5 of the Credit
Agreement is amended and restated as follows:

 

7.5 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:

 

Time Period

Maximum amount of loans to

AAP Joint Venture

From December 31, 2015 and at all times thereafter $1,000,000

 

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.

 

(f)       Term; Prepayment. Upon and as of the Effective Date, Section 13.1 of
the Credit Agreement is amended and restated as follows:

 

13.1.       Term; 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.

 

 

 

 

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3.       Representations, Warranties, Covenants. Each Borrower hereby:

 

(a)               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);

 

(b)               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;

 

(c)          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;

 

(d)          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

 

(e)           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).

 

4.       Fees. 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.

 

5.       Conditions Precedent/Effectiveness Conditions. This Amendment shall be
effective upon the date (the "Effective Date") when all of the following
conditions precedent have been satisfied:

 

(a)                Agent shall have received this Amendment fully executed by
Borrowers and the Lenders;

 

(b)               Agent shall have received the Fifth Amendment Fee in
immediately available funds;

 

(c)                Agent shall have received an ALTA 11-06 endorsement to the
title policy related to the Mortgage;

 

(d)               The Borrowers shall have Undrawn Availability of at least
$750,000;

 

(e)                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

 

(f)                 No Default or Event of Default (other than the Existing
Events of Default) shall have occurred and be continuing.

 

6.       Further 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.

 

 

 

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7.        Payment 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.

 

8.       Reaffirmation 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.

 

9.       Miscellaneous.

 

(a)               Third Party Rights. No rights are intended to be created
hereunder for the benefit of any third party donee, creditor, or incidental
beneficiary.

 

(b)               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.

 

(c)                Headings. The headings of any paragraph of this Amendment are
for convenience only and shall not be used to interpret any provision hereof.

 

(d)               Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of Illinois.

 

(e)                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.

 

(f)                 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.

 

(g)               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 PAGES]

 

 

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first written above.

 

 

 

BORROWERS: 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   Title:
CEO           ARCA CANADA, INC.       By: /s/ Edward R.
Cameron                                      Name: Edward R. Cameron   Title:
President and CEO           APPLIANCESMART, INC.       By: /s/ Edward R.
Cameron                                      Name: Edward R. Cameron   Title:
CEO    

 

 

 

 

 

[SIGNATURE PAGE TO FIFTH AMENDMENT]

  

 

 

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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 AMENDMENT]

 

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