**Exhibit 10.40**

 

EIGHTEENTH AMENDMENT TO

GENERAL CREDIT AND SECURITY AGREEMENT

(Note:  A Fifteenth Amendmentdoes not exist)

 

THISAGREEMENT, dated and effective as of March 22, 2005, between SPECTRUMCommercial Services Company, a Minnesota Corporation, having its mailingaddress and principal place of business at Two Appletree Square, Suite 415,Bloomington, Minnesota 55425 (herein called “Lender” or “SCS”), and ApplianceRecycling Centers of America, Inc., a Minnesota corporation, having themailing address and principal place of business at 7400 Excelsior Boulevard,Minneapolis, MN 55426, (herein called “Borrower”), amends that certain GeneralCredit and Security Agreement dated August 30, 1996, (“Credit Agreement”)as amended.  Where the provisions of thisAgreement conflict with the Credit Agreement, the intent of this Agreementshall control.

 

1.               Paragraph 17(m) ishereby deleted and replaced with the following:

 

17(m). Borrower’s Periodic Financial Report shall reflect a Net Profitof at least (or Net Loss not to exceed, as the case may be):

 
| **Fiscal quarter ending** | ** ** | **Net Profit (Net Loss)** | ** ** |
|-------------------------------------|------------|------------------------------------------|------------|
| March 31, 2007                 |       | $                                        | (500,000   | ) |
| June 30, 2007                  |       | $                                        | 100,000    |   |
| September 30, 2007             |       | $                                        | 225,000    |   |
| December 31, 2007              |       | $                                        | 175,000    |   |
| All subsequent quarters             |       | $                                        | 1          |   |

 

At the end of the fiscal year ending on December 31, 2007, and asof the end of each subsequent fiscal year, Borrower’s Periodic Financial Reportfor the fiscal year shall reflect a Net Profit of at least One Dollar.

 

2.               Paragraph 23 is herebydeleted and replaced with the following:

 

23. Termination.  Subject to automatic termination of Borrower’sability to obtain additional Advances under this Agreement upon the occurrenceof any Event of Default specified in Paragraphs 20(d), (e), (f) or (g) andto Lender’s right to terminate Borrower’s ability to obtain additional Advancesunder this Agreement upon the occurrence of any other Event of Default or upondemand, this Agreement shall have a term ending on the Termination Date provided,however, that Borrower may terminate this Agreement at any earlier time uponsixty days prior written notice and will incur no prepayment fee or chargethereafter; provided further, however, that if Borrower terminates thisAgreement at any time prior to the then current Maturity Date, then Borrowershall pay to Lender a prepayment charge equal to the following:

 

·                  If termination occurs on orprior to December 31, 2005 — 3.0% of the Maximum Principal Amount.

·                  If termination occurs after December 31,2005 but on or before December 31, 2006 — 2.0% of the Maximum PrincipalAmount.

·                  If termination occurs after December 31,2006 but before the then current Maturity Date — 1.0% of the Maximum PrincipalAmount.

 

Onthe Termination Date, all obligations arising under this Agreement shall becomeimmediately due and payable without further notice or demand.  Lender’s rights with respect 

 

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tooutstanding Obligations owing on or prior to the Termination Date will not beaffected by termination and all of said rights including (without limitation)Lender’s Security Interest in the Collateral existing on such Termination Dateor acquired by Borrower thereafter, and the requirements of this Agreement thatBorrower furnish schedules and confirmatory assignments of Receivables andInventory and turn over to Lender all full and partial payments thereof shallcontinue to be operative until all such Obligations have been duly satisfied.

 

3.               The definition of “MaturityDate” appearing in Paragraph 2 is amended in its entirety to read as follows:

 

“Maturity Date” shall mean December 31, 2008, provided,however, that the then current Maturity Date shall be extended by succeedingperiods of 12 calendar months without notice to or action by either Borrower orLender, provided further however, that such extension shall not occur if: (i) Lenderhas notified Borrower of an Event of Default that has occurred and iscontinuing, or (ii) this Agreement has previously terminated as providedin the paragraph entitled “Termination”, or (iii) Lender has, in its soleand absolute discretion, demanded payment of amounts owed hereunder, or (iv) Borroweror Lender have notified the other of the intention not to renew at least sixtydays prior to the then current Maturity Date and thereafter no extension shalloccur.

 

4.               The following Paragraph 17(p) shallbe added as follows:

 

17(p) Before July 1, 2007, Borrower shall hire a Chief Financial Officer withthe skill and experience customary and appropriate for a business of Borrower’ssize, type and complexity and, further, such Chief Financial Officer shall be satisfactoryto Lender.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of thedate first above written.

 
| SPECTRUM  COMMERCIAL SERVICES COMPANY |   | APPLIANCE  RECYCLING CENTERS OF AMERICA, INC. |
|---------------------------------------|--------|----------------------------------------------------|
|                                  |   |                                               |
| By                                    |   |                                               | By |   |
| Steven  I. Lowenthal, Co-CEO          |   | Edward  R. Cameron, CEO                            |
|                                       |        |                                                    |  |  |

 

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REAFFIRMATION

Of Edward R. Cameron

 

Theundersigned, Edward R. “Jack” Cameron, hereby reaffirms all of the terms of theSupport Agreement issued by him in favor of SPECTRUM Commercial ServicesCompany (including its participants and assigns) and dated as of December 29,2004, and acknowledges that such agreement is in full force and effectaccording to its terms.  The undersignedunderstands and acknowledges that this Reaffirmation is required by SPECTRUMCommercial Services Company as a condition to the execution of the SeventeenthAmendment to the General Credit and Security Agreement between ApplianceRecycling Centers of America, Inc. and SPECTRUM Commercial ServicesCompany.

 

 
| Dated  as of: January                       , 2007 |   |               |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
|                                                                                                                                                        |   | Edward  R. Cameron |

 

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