FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19621
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
MINNESOTA 41-1454591
(I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
7400 Excelsior Blvd.
Minneapolis, Minnesota 55426-4517
(Address of principal executive offices)
(612) 930-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES __X___ NO ______
As of November 12, 1996, the number of shares outstanding of the registrant's no
par value common stock was 4,546,917 shares.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets as of
September 28, 1996 and December 30, 1995
Consolidated Statements of Operations for the Three and Nine
Months Ended September 28, 1996 and September 30, 1995
Consolidated Statements of Cash Flows for the Nine Months
Ended September 28, 1996 and September 30, 1995
Notes to Consolidated Financial Statements
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 28, December 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 206,000 $ 4,605,000
Accounts receivable 1,596,000 1,382,000
Inventories 808,000 426,000
Other current assets 293,000 325,000
Income taxes receivable 4,000 106,000
Deferred tax assets 248,000 277,000
- ---------------------------------------------------------------------------------------------------------------
Total current assets $ 3,155,000 $ 7,121,000
- ---------------------------------------------------------------------------------------------------------------
Property and Equipment, at cost
Land $ 2,103,000 $ 2,101,000
Buildings and improvements 4,564,000 3,677,000
Equipment 6,155,000 6,483,000
- ---------------------------------------------------------------------------------------------------------------
$ 12,822,000 $ 12,261,000
Less accumulated depreciation 4,517,000 3,973,000
- ---------------------------------------------------------------------------------------------------------------
Net property and equipment $ 8,305,000 $ 8,288,000
Other Assets 562,000 108,000
Deferred Tax Assets 373,000 373,000
- ---------------------------------------------------------------------------------------------------------------
Total assets $12,395,000 $ 15,890,000
===============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 1,169,000 $ -
Current maturities of long-term obligations 243,000 1,041,000
Accounts payable 1,437,000 1,536,000
Accrued expenses 649,000 1,041,000
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities $ 3,498,000 $ 3,618,000
Long-Term Obligations, less current maturities 1,758,000 2,084,000
- ---------------------------------------------------------------------------------------------------------------
Total liabilities $ 5,256,000 $ 5,702,000
- ---------------------------------------------------------------------------------------------------------------
Shareholders' Equity
Common Stock, no par value; authorized 20,000,000 shares; issued and
outstanding 4,547,000 as of September 28, 1996
and 4,227,000 as of December 30, 1995 $ 10,350,000 $ 9,177,000
Retained earnings (deficit) (3,211,000) 1,032,000
Foreign currency translation adjustment - (21,000)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 7,139,000 $ 10,188,000
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,395,000 $ 15,890,000
================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 28, September 30, September 28, September 30,
---------------- ----------------- -------------------- --------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Recycling revenues $ 1,834,000 $ 3,496,000 $ 5,000,000 $ 9,293,000
Appliance sales 1,666,000 510,000 3,851,000 1,288,000
Byproduct revenues 701,000 534,000 1,682,000 1,639,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net revenues $ 4,201,000 $ 4,540,000 $ 10,533,000 $ 12,220,000
Cost of Revenues 2,772,000 2,873,000 8,314,000 7,757,000
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit $ 1,429,000 $ 1,667,000 $ 2,219,000 $ 4,463,000
Selling, General and Administrative Expenses 2,130,000 1,537,000 6,385,000 4,291,000
- -----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (701,000) $ 130,000 $ (4,166,000) $ 172,000
Other Income (Expense):
Other income 21,000 7,000 92,000 44,000
Interest income 2,000 53,000 34,000 160,000
Interest expense (67,000) (60,000) (203,000) (198,000)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes $ (745,000) $ 130,000 $ (4,243,000) $ 178,000
Provision for (Benefit of) Income Taxes -- 49,000 -- 74,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (745,000) $ 81,000 $ (4,243,000) $ 104,000
===================================================================================================================================
Net Earnings (Loss) per Common and
Common Equivalent Share $ (0.16) $ 0.02 $ (0.96) $ 0.02
===================================================================================================================================
Weighted Average Number of Common and
Common Equivalent Shares 4,547,000 4,282,000 4,425,000 4,257,000
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 28, September 30,
------------------ ---------------------
1996 1995
- ---------------------------------------------------------------------- ------------------ ---------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ (4,243,000) $ 104,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,148,000 1,133,000
Common Stock issued for services 30,000 -
(Gain) loss on sale of equipment (76,000) 32,000
Deferred income taxes 29,000 (27,000)
Change in assets and liabilities, net of effects from
acquisition of Universal Appliance Company, Inc.
and Universal Appliance Recycling, Inc.:
(Increase) decrease in:
Receivables 41,000 1,934,000
Inventories (327,000) (67,000)
Other current assets 41,000 (47,000)
Income taxes receivable 106,000 (71,000)
(Increase) decrease in:
Accounts payable (270,000) 255,000
Accrued expenses (424,000) (482,000)
Income taxes payable (28,000) (429,000)
- ---------------------------------------------------------------------- ------------------ ---------------------
Net cash provided by (used in) operating activities $ (3,973,000) $ 2,335,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Cash Flows from Investing Activities
Purchase of equipment $ (1,226,000) $ (1,273,000)
Cash acquired for acquisition of Universal Appliance
Company, Inc. and Universal Appliance Recycling, Inc. 26,000 -
Payments for noncompete agreements (110,000) -
Proceeds from disposal of equipment 272,000 151,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Net cash provided by (used in) investing activities $ (1,038,000) $ (1,122,000)
- ---------------------------------------------------------------------- ------------------ ---------------------
Cash Flows from Financing Activities
Increase (decrease) in note payable to bank $ 1,169,000 -
Payments on long-term obligations (1,332,000) (591,000)
Proceeds from long-term debt borrowing - 712,000
Proceeds from placement of Common Stock 700,000 -
Proceeds and tax benefit from stock options 54,000 180,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Net cash provided by (used in) financing activities $ 591,000 $ 301,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Effect of foreign currency exchange rate changes
on cash and cash equivalents $ 21,000 $ 21,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Increase (decrease) in cash and cash equivalents $ (4,399,000) $ 1,535,000
Cash and Cash Equivalents
Beginning 4,605,000 2,860,000
- ---------------------------------------------------------------------- ------------------ ---------------------
Ending $ 206,000 $ 4,395,000
====================================================================== ================== =====================
</TABLE>
<TABLE>
<CAPTION>
Appliance Recycling Centers of America, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(Unaudited)
Nine Months Ended
September 28, September 30,
------------------ -------------------
1996 1995
- ------------------------------------------------------------------------ ------------------ -------------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information
Cash payments (receipts) for:
Interest $ 202,000 $ 208,000
Income taxes net of refunds $ (103,000) $ 480,000
======================================================================== ================== ===================
Supplemental Schedule of Noncash Investing and
Financing Activities
Long-term obligations incurred on purchase of equipment - $ 712,000
- ------------------------------------------------------------------------ ------------------ -------------------
Acquisition of Universal Appliance Company, Inc. and
Universal Appliance Recycling, Inc.
Working capital acquired, including cash and cash
equivalents of $26,000 $ 118,000 -
Fair value of other assets acquired, principally
property and equipment and a
noncompete agreement 176,000 -
Value assigned to Goodwill 302,000 -
Long-term debt assumed (207,000) -
- ------------------------------------------------------------------------ ------------------ -------------------
Total consideration, 84,000 shares of Common Stock $ 389,000 -
======================================================================== ================== ===================
</TABLE>
See Notes to Consolidated Financial Statements.
Appliance Recycling Centers of America, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements - In the opinion of management of the Company, the
accompanying unaudited consolidated financial statements contain all
adjustments (consisting of only normal, recurring accruals) necessary to
present fairly the financial position of the Company and its
subsidiaries as of September 28, 1996, and the results of operations for
the three-month and nine-month periods and its cash flows for the
nine-month periods ended September 28, 1996 and September 30, 1995. The
results of operations for any interim period are not necessarily
indicative of the results for the year. These interim consolidated
financial statements should be read in conjunction with the Company's
annual financial statements and related notes in the Company's Annual
Report on Form 10-K for the year ended December 30, 1995.
2. Accrued Expenses
Accrued expenses were as follows:
September 28, December 30,
1996 1995
Vacation $ 167,000 $ 171,000
Payroll 125,000 307,000
Customer Deposit 46,000 140,000
Other 311,000 423,000
------------- -----------
$ 649,000 $ 1,041,000
============= ===========
PART I: ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the Company's level
of operation and financial condition. This discussion should be read with the
consolidated financial statements appearing in Item 1.
RESULTS OF OPERATIONS
Net revenues for the three and nine months ended September 28, 1996 were
$4,201,000 and $10,533,000, respectively, compared to $4,540,000 and
$12,220,000 for the same periods in the prior year. Recycling revenues
for the three and nine months ended September 28, 1996 decreased by
$1,662,000 and $4,293,000, respectively, from the same periods in the
prior year. The decreases were primarily due to decreased revenues from
contracts with electric utility programs. In mid-September 1996, the
Company and Southern California Edison Company ("California Edison")
entered into a contract to extend the refrigerator recycling program
with the Company through 1997, subject to approval of funding for 1997
by the California Public Utilities Commission ("CPUC"). The CPUC is
currently expected to act by the end of 1996. Under the terms of the new
contract, California Edison has specified minimum refrigerator recycling
volumes of approximately 25,000 units in 1996 and approximately 30,000
units in 1997, which are expected to generate revenues of approximately
$3 million in 1996 and $3.5 million in 1997. Through the third quarter
of 1996, the Company had realized approximately $2.1 million in revenues
pursuant to this agreement. The program is subject to cancellation by
the CPUC if certain cost effectiveness ratios are not met by the
California Edison program.
Appliance sales for the three and nine months ended September 28, 1996
increased by $1,156,000 and $2,563,000, respectively, over the same
periods in the prior year. The increases were primarily due to the
Company's expansion of its retail business through a new chain of stores
under the name "Encore Recycled Appliances." As of September 28, 1996
the Company operated 26 retail locations and seven recycling centers
compared to six retail locations and 11 recycling centers as of
September 30, 1995. On October 31, 1996, the Company announced that it
intended to withdraw from three under-performing markets during the
fourth quarter of 1996. The Company currently anticipates closing 12
retail locations and three recycling centers. The Company is closing all
of its retail locations and centers in Washington, D.C./Baltimore,
Maryland; Hartford, Connecticut; and Oakland, California. In addition,
the Company is closing its retail outlets in Southern California, but
will continue to operate its Los Angeles recycling center, which will
process the units from the California Edison program. No new stores are
currently expected to be opened until after 1997.
Byproduct revenues for the three and nine months ended September 28,
1996 increased by $167,000 and $43,000 over the same periods in the
prior year. The increase was primarily due to increased sales of
reclaimed chlorofluorocarbons ("CFCs") and scrap metals. The Company
expects a small increase in total byproduct revenues for 1996 when
compared to the prior year.
Gross profit as a percentage of net revenues decreased to 34.0% for the
three months and 21.1% for the nine months ended September 28, 1996 from
36.7% for the three months and 36.5% for the nine months ended September
30, 1995. The decrease between the three and nine months ended September
28, 1996 compared to the same periods in the prior year was primarily
due to inefficiencies in the conversion to add appliance reconditioning
capabilities to six of the Company's 11 then-operating recycling
centers. Gross profit as a percentage of net revenues increased from
7.3% for the first quarter of 1996 to 17.7% for the second quarter of
1996 to 34.0% for the third quarter of 1996. Due to the expiration of
utility contracts and the implementation of cost-cutting programs, four
recycling centers were closed in the second quarter of 1996 leaving
seven centers open as of September 28, 1996. On October 31, 1996, the
Company announced that it intended to withdraw from three
under-performing markets during the fourth quarter of 1996. The Company
currently anticipates closing 12 retail stores and three recycling
centers. The Company expects the gross margin rate will significantly
decrease for the last three months of 1996 compared to the first nine
months of 1996 due to write-offs and other significant expenses related
to the closing of retail stores and recycling centers.
Selling, general and administrative expenses for the three and nine
months ended September 28, 1996 increased to $2,130,000 and $6,385,000,
respectively, from $1,537,000 and $4,291,000 in the same periods of
1995. The increases in the three and nine months ended September 28,
1996 were primarily due to costs associated with operating 26 retail
stores at September 28, 1996 compared to operating six retail stores in
the same period in the prior year, and by a small increase in general
and administrative expenses. During the first nine months of 1996, 23
retail stores were opened and six retail stores were closed. During the
fourth quarter of 1996, an additional 12 retail stores and three
recycling centers are anticipated to be closed. The Company expects
total selling, general and administrative expenses for the last three
months of 1996 to be substantially higher than the total for the third
quarter of 1996 due to expenses related to the closing of retail stores
and recycling centers.
Interest income decreased to $2,000 from $53,000 for the three months
and to $34,000 from $160,000 for the nine months ended September 28,
1996 compared to the same periods in 1995. The decrease in interest
income for the three and nine months ended September 28, 1996 resulted
from lower cash balances when compared to the same periods in the prior
year.
Interest expense was $67,000 for the three months and $203,000 for the
nine months ended September 28, 1996 compared to $60,000 and $198,000
for the same periods in 1995.
During the first nine months of 1996, the Company recorded a valuation
allowance of approximately $1,700,000, and accordingly, no tax benefit
was recorded for the first nine months of 1996. $400,000 of the deferred
tax assets as of September 28, 1996 will be realized by carrybacks to
prior taxable years and the realization of the remaining deferred tax
assets is dependent upon future taxable income.
The Company recorded a net loss of $745,000 for the three months and
$4,243,000 for the nine months ended September 28, 1996 compared to a
net income of $81,000 and $104,000 in the same periods of 1995. The
increase in loss was primarily due to the increased operational expenses
and increased selling, general and administrative expenses associated
with the development of the Company's retail business. The Company
expects the loss for the remaining three months of 1996 to be
significantly larger than initially expected due primarily to additional
write-offs and other significant expenses related to the closing of
retail stores and recycling centers.
LIQUIDITY AND CAPITAL RESOURCES
At September 28, 1996, the Company had a working capital deficit of
$343,000 compared to a working capital surplus of $3,503,000 at
December 30, 1995. Cash and cash equivalents decreased to $206,000 at
September 28,1996 from $4,605,000 at December 30, 1995. Net cash used in
operating activities was $3,973,000 for the nine months ended September
28, 1996 compared to net cash provided by operating activities of
$2,335,000 in the same period of 1995. The decrease in cash provided by
operating activities was primarily due to the net loss from operations
and an increase in inventory offset by depreciation and a decrease in
accounts receivable.
The Company's capital expenditures were approximately $1,226,000 and
$1,273,000 for the nine months ended September 28, 1996 and September
30, 1995, respectively. The 1996 capital expenditures were primarily
related to leasehold improvements to the Company's recycling centers and
additional retail stores. The Company had no material purchase
commitments for assets as of September 28, 1996. The announced closing
of certain retail stores will result in a loss of the capital
investments in these leasehold improvements, which could be significant.
The Company doesn't plan any major purchase commitments for the next 12
months.
The Company had a bank line of credit of $2,500,000 which expired in
April 1996. The Company had no borrowings under the line. The Company
negotiated a revised bank line of credit in the amount of $400,000 which
was to expire October 1, 1996. In August 1996, the Company entered into
a $1.5 million line of credit with Spectrum Commercial Services, a
division of Lyons Financial Services, Inc. ("Spectrum"), which replaced
the existing $400,000 bank line of credit. On November 8, 1996, the line
of credit was amended to increase the line to $2.0 million, of which
approximately $1.4 million is currently drawn. The amended line of
credit is secured by the receivables, inventory, equipment, real estate
and other assets of the Company and a portion is guaranteed by the
President of the Company. The line of credit provides for a stated
maturity date of August 30, 1999, and provides that the lender may
demand payment in full of the entire outstanding balance of the loan at
any time. The amended loan provides for a rate of interest equal to 5
percentage points over the prime lending rate per annum, but never less
than 10% per annum (the current rate is 13-1/4%), and minimum monthly
interest payments of $10,000 regardless of the outstanding principal
balance. Upon an event of default, the interest may increase by 6% per
annum. The loan also requires that the Company meet certain financial
covenants, provides payment penalties for noncompliance, contains
certain prepayment penalties, provides for annual fees for
administration of the loan and for maintenance of the line of credit,
limits the amount of other debt the Company can incur, and limits the
amount of spending on fixed assets. As of September 28, 1996 the Company
was not in compliance with certain financial covenants under the current
line of credit. As of November 8, 1996, Spectrum has waived the
noncompliance with certain financial covenants.
In May 1996, $700,000 was raised in a private placement of Common Stock
to an institutional investor that currently holds approximately 15% of
the outstanding shares. These proceeds were used to pay off an equipment
loan of $480,000 and for additional working capital. The proceeds were
raised from selling 200,000 shares at $3.50 each.
The Company filed a registration statement on Form S-3 to register for
resale, pursuant to certain registration rights agreements, 319,355
shares of Common Stock held by certain shareholders, including the
200,000 shares referred to above. The registration statement became
effective on November 8, 1996.
On March 26, 1996 the Company announced it signed a letter of intent to
acquire the assets of Appliance Distributors of Texas, Inc., a
reconditioned appliance retailer and recycler based in Austin, Texas,
subject to the Company's due diligence and negotiation of definitive
agreements. The Company has decided not to go forward with this
acquisition.
The Company anticipates that its current cash balance, existing and
anticipated equipment financing, and current line of credit will be
sufficient to finance its operations and capital expenditures through
December 1997. The Company's total capital requirements will depend,
among other things as discussed below, on the number of recycling
centers operated and the number and size of retail stores operating
during the fiscal year. Currently, the Company has seven centers and 26
stores in operation and expects to close three centers and 12 retail
stores by year end. If revenues are lower than anticipated, or expenses
(including expenses associated with store closings) are higher than
anticipated, the Company may require additional capital to finance
operations and expansion. Sources of additional financing, if needed in
the future, may include further debt financing or the sale of equity or
other securities. There can be no assurance that such additional sources
of financing will be available or available on terms satisfactory to the
Company or permitted by the Company's current lender.
Statements regarding the Company's operations, performance and results
and anticipated liquidity, discussed herein are forward-looking and
therefore are subject to certain risks and uncertainties, including
those discussed herein. In addition, any forward-looking information
regarding the operations of the Company will be subject to the amount of
the write-offs and costs associated with the closing of retail stores
and centers discussed previously, whether planned revenue levels are
attained by individual stores, the speed at which Encore stores reach
profitability, whether costs and expenses are realized at higher than
expected levels (including continued costs of conversion of existing
recycling centers to support the appliance resale aspect of the
Company's business), the Company's ability to secure an adequate supply
of used appliances for resale, the continued availability of the
Company's current line of credit, and the ability of California Edison
to deliver units under its contract with the Company and the timing of
such delivery.
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS - None
-----------------
ITEM 2 - CHANGES IN SECURITIES - None
---------------------
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - None
-------------------------------
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5 - OTHER INFORMATION - None
-----------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.14:
Agreement between Southern California Edison Company
and Appliance Recycling Centers of America, Inc. for
Refrigerator Recycling and Hazardous Materials
Disposal dated May 7, 1996.
Exhibit 10.15:
Line of credit between Appliance Recycling Centers of
America, Inc. and Spectrum Commercial Services, a
division of Lyons Financial Services, Inc., dated
August 30, 1996.
Exhibit 10.16
Amended line of credit between Appliance Recycling
Centers of America, Inc. and Spectrum Commercial
Services, a division of Lyons Financial Services,
Inc. dated November 8, 1996.
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K
during the three months ended September 28, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Appliance Recycling Centers of America, Inc.
Registrant
Date: November 12, 1996 /s/Edward R. Cameron
-----------------------------------
Edward R. Cameron
President
Date: November 12, 1996 /s/Kent S. McCoy
-------------------------------
Kent S. McCoy
Vice President of Finance,
Treasurer
Southern California Edison Company
Rosemead, California
Refrigerator Recycling and Hazardous Materials Disposal Agreement
1. PARTIES
The parties to the Agreement are Appliance Recycling Centers of
America, Inc., the entity responsible for the performance of the Work
as one Party (hereinafter referred to as "Contractor"), and Southern
California Edison Company, a California Corporation (hereinafter
referred to as "Edison") as the other Party.
2. RECITALS
The Agreement is entered into with reference to the following facts,
among others:
2.1 Edison and Contractor are currently parties to a contract
dated August 19, 1993 for Contractor's performance of
refrigerator recycling and hazardous materials disposal, which
contract has been modified to date by Purchase Order K1113911,
dated November 23, 1993, and by numerous change orders (said
contract, Purchase Order, and change orders hereinafter
referred to as the "Initial Contract".)
2.2 Said Initial Contract implements a Refrigerator Recycling
Program ("Program") for the removal of older, inefficient
second refrigerators and freezers ("Refrigerators and
Freezers") from Edison Customer residences thereby reducing
the load demand on the electrical system.
2.3 Edison desires to continue and increase its efforts to reduce
the load demand on the electrical system through the further
removal of older inefficient second Refrigerators and
Freezers.
2.4 Edison desires to ensure the safe, lawful recovery and
recycling or lawful disposal, as necessary, of CFCs, PCBs, and
Hazardous Materials.
2.5 In furtherance thereof, Edison desires to increase and extend
the Program by contracting with Contractor for the
comprehensive management of the Program.
2.6 Contractor desires to contract with Edison for the continued
comprehensive management of the Program, said management to
include collection and dismantling of second Refrigerators and
Freezers; removal of CFCs, PCBs and other Hazardous Materials
from collected Refrigerators and Freezers; handling storage
and legal disposal of compressor oil, PCBs and other Hazardous
Materials; recycling of metal, sulfur dioxide, and CFCs;
providing incentives to participating Edison Customers who
relinquish second Refrigerators and Freezers; and performance
of a customer survey.
2.7 Contractor represents (i) that it has knowledge of the
Metallic Discard Act, effective January 1, 1994, which
prohibits the disposal of Refrigerators and Freezers in
landfills and requires that Refrigerators and Freezers be
shredded for metal recovery following removal of CFCs, PCBs,
and other Hazardous Materials contained in discarded
Refrigerators and Freezers, (ii) that it has knowledge of the
hazards associated with the removal, handling, storage,
recycling, and legal disposal of Hazardous Materials, (iii)
that it has experience and expertise in such removal,
handling, storage, recycling, and legal disposal, (iv) that it
uses only qualified personnel, (including subcontractor's and
agent's personnel) who have been instructed and certified in
the proper safety procedures to be used in such removal,
handling, storage, recycling, or legal disposal, and (v) that
it has purchased property and has established and will
continue to operate and maintain its recycling center on said
purchased property in the City of Compton or other area
acceptable to Contractor and Edison.
2.8 Contractor has entered into a similar agreement with the Los
Angeles Department of Water and Power ("DWP") which contract
is due to expire on or before November 30, 1996, and may be
entering into agreements with other utilities or agencies.
2.9 The Parties hereto desire to set forth terms and conditions
under which the aforesaid management services shall be
performed and which shall constitute the Parties' agreement.
3. AGREEMENT
3.1 In consideration of the aforesaid Recitals, the mutual
covenants contained herein, the payments and agreement to be
made and performed by Edison as set forth in the pricing
schedules, attached hereto as Exhibits A and B incorporated by
reference herein, Contractor shall perform the Work and its
associated obligations as an independent contractor.
3.2 This Agreement shall be incorporated in a Purchase Order as
the terms and conditions for performing the work.
4. DEFINITIONS
4.1 Agreement: This document, the terms and conditions contained
in this Agreement as amended from time to time.
4.2 Basic Recycling Charge: Per-unit price for services performed
by Contractor under scope of work except for CFC-11 recovery
services and bond purchasing, incentive and financing
services.
4.3 CFCs: Chlorofluorocarbons
4.4 CFC-11: Chlorofluorocarbons contained in refrigerator and
freezer insulating foam.
4.5 CFC-11 Recovery Charge: Per-unit price for removal and
recycling of CFC-11 from refrigerator and freezer insulating
foam.
4.6 Change Order: Document issued by Edison to Contractor to
change a Purchase Order.
4.7 Combined Volume: Edison's Specified Volume combined with DWP's
Specified Volume for each or any Contract Year; provided,
however, that if DWP chooses not to participate in the Program
in the Second Contract Year, its Specified Volume for said
year shall be deemed to be zero.
DWP's Specified Volume for the First Contract Year is 10,000.
4.8 Comparable Programs: Utility sponsored Recycling Programs
similar to scope of work described in this Agreement.
4.9 Contract Year: The First Contract Year or the Second Contract
Year, as applicable, and/or each successive 12 month period
thereafter.
4.10 Documentation: Specifications, procedures, instructions,
reports, test results, analyses, calculations, manuals, and
other data specified in the Purchase Order, Change Order, this
Agreement, and any amendment to this Agreement, as required by
any legal entity having jurisdiction over the Work.
4.11 Edison's Specified Volume: The number of units to which Edison
commits for each or any Contract Year.
4.12 Eligible Customers: Residential customers in Edison service
territory who meet the customer eligibility criteria in
Section 7.
4.13 Eligible Freezers: Freezers that meet the Program appliance
eligibility criteria as set forth in Section 7.
4.14 Eligible Refrigerators: Second refrigerators that meet the
Program appliance eligibility criteria as set forth in Section
7.
4.15 First Contract Year: The period beginning on October 20, 1995
and ending on December 31, 1996.
4.16 Freezer: A freezer which provides supplementary cold storage
to a primary freezer or to the freezer section located within
the primary refrigerator in a residential household.
4.17 Hazardous Materials: Any substance or material which has been
designated as hazardous or toxic by the U.S. Environmental
Protection Agency, the California Department of Toxic
Substances Control and/or any other governmental agency now or
hereinafter authorized to regulate materials in the
environment, including, but not limited to "Materials which
require special handling" as defined in California Public
Resources Code Section 42167, which is contained in or is
derived from the Refrigerators or Freezers.
4.18 Other Specified Volumes: The number of units collected by
Contractor from other utilities pursuant to Comparable
Programs for any applicable year.
4.19 PCB: Polychlorinated Biphenyl
4.20 Participation Percentage: The percentage of the applicable
Specified Volume as reflected by the number of units actually
collected or paid for by either Edison or DWP.
4.21 Program: Refrigerator Recycling Program defined by this
Agreement.
4.22 Program Participants: Eligible customers who turn in
qualifying Refrigerators or Freezers.
4.23 Purchase Order: Document issued by Edison to Contractor and
executed by the Parties, which incorporates, by reference,
this Agreement.
4.24 Recycling Center: The site at which Contractor will process
Refrigerators and Freezers, remove CFCs, PCBs and other
Hazardous Materials, and recycle or legally dispose of
Hazardous Materials.
4.25 Second Contract Year: The period beginning on January 1, 1997
and ending December 31, 1997.
4.26 Second refrigerator: Surplus refrigerator utilized by customer
concurrently with primary refrigerator.
4.27 Specified Volume: The number of units to which Edison or DWP
commits for each or any Contract Year.
4.28 Subcontractor: Either an entity contracting directly with
Contractor to furnish services or materials as part of or
directly related to, the Work; or an entity contracting with
Subcontractor of any tier to furnish services or materials as
a part of, or directly related to, the Work.
4.29 Work: Any and all obligations of Contractor to be performed
pursuant to this Agreement or a Purchase Order incorporating
this Agreement, such as Refrigerator and Freezer collection,
Refrigerator and Freezer processing, handling, storing,
recycling, and legal disposal, of Hazardous Materials and
Documentation preparation.
5. CONTRACT DOCUMENTS
5.1 The contract between the Parties shall consist of the
following documents: Change Orders, Purchase Order, this
Agreement, and any amendments to this Agreement. In the event
of conflicting provisions within the contract, the provisions
of the contract shall govern in the following order:
5.1.1 Amendments to the Agreement in chronological order
from the most recent to the earliest;
5.1.2 Change Orders incorporating and reflecting any
Amendments to the Agreement in chronological order
from the most recent to the earliest.
5.1.3 This Agreement.
5.1.4 Purchase Order incorporating this Agreement.
5.2 Each party shall notify the other immediately upon the
determination of any such conflict or inconsistency.
6. SCOPE OF WORK
6.1 Contractor shall be responsible for customer services
including provision of inbound 800 telephone numbers for
Customers' use and all communication services, scheduling of
Refrigerator and Freezer collection appointments, verification
of customer and appliance eligibility, and documentation of
customer data.
6.2 Contractor shall (i) collect all Eligible Refrigerators and
Eligible Freezers from Customers' residences within 10 to 15
working days from the date of initial customer contact (unless
otherwise requested by the customer, in remote areas of the
service territory, or approved by Edison's program manager
because of program response in excess of the Edison's
Specified Volume for which approval shall not be unnecessarily
withheld, and collection shall be no later than 25 working
days from the date of the initial customer contract, unless
otherwise requested by customer), (ii) ensure Refrigerator or
Freezer is an operating unit before removal from residence,
(iii) disable the unit prior to leaving pick-up location, and
(iv) process unit at its Recycling Center.
6.3 Contractor shall be solely responsible for all methods,
techniques, sequences, and procedures for the dismantling of
Refrigerators and Freezers, processing of metal panels and
components, recycling of recovered scrap metal, removal,
recycling, or lawful disposal of Hazardous Materials.
6.4 Contractor shall be solely responsible for all methods,
techniques, sequences, and procedures for the removal and
management of all capacitors found in Refrigerators and
Freezers, and the removal and disposal of compressor oil,
PCBs, and other Hazardous Materials from the time Contractor
collects Refrigerators and Freezers pursuant to this
Agreement.
6.5 Contractor shall document and maintain records for services
under this Agreement, or the Purchase Order, incorporating
this Agreement, as follows:
6.5.1 A Customer Comment Tracking System for recording
customer inquiries, complaints, and positive
feedback.
6.5.2 Appliance Turn-in Order Form to collect data such as
customer name, address, home and work phone numbers;
utility account number, Refrigerator or Freezer
manufacturer's name; Refrigerator or Freezer model
and style; defrost type; color, size, and estimated
age of unit; location of Refrigerator or Freezer
within the residence; amperage, final disposition
code (which indicates operating condition of
Refrigerator or Freezer), identification of units
containing CFC-11; special pick-up instructions (if
applicable); and signature of customer following
customer certification that the unit is a Second
Refrigerator or Freezer in continuous use for a
minimum of six months and that in the event
refrigerator or freezer is discovered not to be an
Eligible Refrigerator or Freezer as certified,
customer acknowledges liability to Edison for
recycling costs.
6.5.3 Compilation of data in paragraphs 6.5.1 and 6.5.2 in
electronic mode, employing the Microsoft XCEL
software program.
6.6 Contractor shall conduct a customer survey, comparable to
Exhibit C, attached and incorporated by reference herein,
using a stratified purposeful sample of 5 to 20% of the
Program Participants. The stratification and frequency of the
survey may be modified periodically by Edison, provided that
an Amendment to this Agreement or a separate agreement shall
be entered into if any such modification necessitates
unreasonable labor, as substantiated by Contractor, requiring
the negotiation of a charge separate from the Basic Recycling
Charge. The purpose of the survey shall be to elicit
information such as appliance use, customer demographics and
customer satisfaction. Stratification and frequency of survey
shall be modified periodically as determined by Edison
provided modified survey is comparable to Exhibit C.
6.7 Contractor and Edison shall establish and implement a
financial incentive service as follows:
6.7.1 The incentive will be a savings bond with a face
value of Fifty dollars ($50.00) or, in the
alternative, a check in the amount of Twenty Five
Dollars ($25.00).
6.7.2 Contractor shall provide Edison with a weekly listing
for approval of Customers qualifying for bonds or
checks. Customers qualifying for the incentive are
Program Participants who turn in an Eligible
Refrigerator or Freezer for which Edison will pay a
per-unit price as set forth in paragraph 10.1.
6.7.3 Contractor shall send customer list to Minneapolis
Federal Reserve District and purchase bonds, obtain
Edison's approval for listed customers and send bonds
to customers. If the customer requests a check as an
incentive, then Contractor shall issue a check to
customer and Edison shall reimburse Contractor for
such incentives in accordance with Section 9.5.1.
6.7.4 Upon reimbursement by Edison to Contractor of the
incentives under Section 9.5.1 of this Agreement,
Edison shall be under no further obligation with
respect to reimbursement of such amounts and such
reimbursement shall constitute full payment to
Contractor on behalf of the program Participants
entitled to incentives. Moreover, upon Edison's
payment to Contractor of the amounts described above,
Contractor shall be deemed the holder of such
property as far as the interests of the Program
Participants entitled thereto are concerned for any
and all purposes, including, but not limited to,
complying with the unclaimed property laws of
California and any and all other applicable states.
At no time after such reimbursement to Contractor is
Edison to assume any responsibility for other
disposition of such amounts and shall not be entitled
to the reversion of any amounts so paid.
6.7.5 Customers eligible for the Program pursuant to
Section 7.3.4, below, shall not be entitled to
receive the bond or check incentive provided for by
this Agreement for any units otherwise eligible for
the Program.
6.8 Contractor shall provide Edison with reports for the services
performed under this Agreement as follows:
6.8.1 A monthly report, provided no later than the 15th day
of the month, listing the number of Refrigerators and
Freezers processed through the Recycling Center
during the previous month and containing size in
cubic feet, year of manufacture, style, and defrost
type.
6.8.2 A quarterly report, presented within 15 days of the
new quarter, summarizing the monthly report
information from the previous quarter and containing
environmental data such as an estimated breakdown of
amount of refrigerants recovered; number of pounds of
capacitors removed; number and size of CFC-11 units
and amount of CFC-11 recovered; amount of sulfur
dioxide recovered, amount of compressor oil recycled,
and weight of metals and nonrecyclable materials sold
for shredding.
6.8.3 A quarterly report presented within fifteen (15) days
of the new quarter summarizing the monthly Customer
Comment Tracking System information in Section 6.5.1.
6.8.4 By the 15th day of January, April, July and October
of each calendar year during the term of this
Agreement, Contractor shall provide Edison with
quarterly aging reports indicating the number of
Refrigerators and Freezers that were collected during
the preceding quarter and that were scheduled for
collection from customers during that quarter, the
date of the initial contact with the Customer, the
date or dates the appliance was scheduled for
collection, and the actual collection date.
6.8.5 Annual summary reports covering all activity
requested in quarterly reports plus information from
any incomplete quarter.
6.8.6 An annual report by January 31 of each year of all
amounts paid by Contractor in compliance with any
unclaimed property laws pursuant to Section 6.7.4,
hereof.
6.8.7 Upon reasonable written request from an authorized
representative of Edison, special and nonrecurring
reports during course of program. Such report content
will be developed by the parties in anticipation of
requests from the CPUC, Edison internal audits, or
compilation of data relevant to Rebuild LA
activities. An amendment to this Agreement or a
separate agreement shall be entered into only if any
such report necessitates unreasonable labor, as
substantiated by Contractor, requiring the
negotiation of a charge separate from the Basic
Recycling Charge.
7. Customer and Refrigerator Eligibility
7.1 Customer eligibility for the Program shall depend on the
following:
7.1.1 Customer is a resident in the Edison service
territory and occupies a single-family residential
(Domestic Rate) or multi-unit dwelling or mobile
home.
7.1.2 Customer owns the Eligible Refrigerator or Freezer or
possesses written consent from the Refrigerator or
Freezer owner to turn in Eligible Refrigerator or
Freezer.
7.1.3 Customer turns in no more than two Eligible
Refrigerators and two Eligible Freezers per year
unless written Edison approval is obtained for any
additional Refrigerator or Freezer.
7.2 Commercial customers do not qualify for the Program.
7.3 Refrigerator and Freezer eligibility for the Program shall
depend on the following:
7.3.1 Refrigerator or Freezer must be capable of cooling or
freezing, or both, as applicable, at time of
collection.
7.3.2 Refrigerator or Freezer minimum size is 10 cubic feet
and maximum size is 25 cubic feet.
7.3.3 Refrigerator or Freezer is certified by the customer
to have been in use for a minimum of six months as a
Second Refrigerator or Freezer, as the case may be.
7.3.4 Subcontractors who provide new refrigerators to
participants in Edison's Direct Assistance
Refrigerator Replacement Program may turn in the
working refrigerator that was replaced by an energy
efficient model to Contractor. The limit imposed
above under Section 7.1.3 shall not apply to such
subcontractors. No freezers may be accepted by
Contractor from such subcontractors. Subcontractors
shall be allowed to deliver replaced refrigerators to
Contractor's facilities for recycling. Refrigerators
collected pursuant to this Section 7.3.4 shall count
towards Edison's Specified Volume at a ratio of three
refrigerators collected for one Specified Volume
unit. For example, if 300 units are collected by
Contractor pursuant to this Section 7.3.4, Edison
shall receive credit for 100 units against its
Specified Volume. Contractor shall not be responsible
for determining the eligibility requirements for said
units. Contractor's record keeping requirements for
purposes of units collected pursuant to this Section
7.3.4 shall be adjusted to reflect the scope of
Contractor's work pursuant to this Section 7.3.4. All
costs associated with the Direct Assistance
Refrigerator Replacement Program, whether said costs
are Edison's costs or Contractor's costs, and whether
said costs are direct or indirect, shall not be
included for purposes of determining the TRC and UC
ratios for the Refrigerator Recycling Program
addressed and defined below in Section 19.3.
7.4 Commercial refrigerators, ammonia-containing gas
refrigerators, commercial freezers, and room air conditioners
do not qualify for the Program.
8. OWNERSHIP AND CONFIDENTIALITY
8.1 All information disclosed by Edison during meetings or
negotiations with regard to the Program, and any information
contained in drawings, specifications, technical reports, and
data provided by Edison to Contractor during performance of
this Agreement shall be held in confidence by Contractor and
used only for the performance of the Work pursuant to this
Agreement.
8.2 Contractor, its employees, and any subcontractors shall not
disclose any Program or customer information to any person
other than Edison's personnel either during the term of this
Agreement or after its completion, without Contractor having
obtained the prior written consent of Edison, except as
provided by lawful court order or subpoena and provided
Contractor gives Edison advance written notice of such order
or subpoena. Prior to any approved disclosure, persons
receiving said information, including Contractor, its
employees, or third parties, must enter into a nondisclosure
agreement with Edison. Contractor agrees to require its
employees and subcontractors to execute a nondisclosure
agreement prior to performing any services under this
Agreement.
8.3 All material provided by Edison to the Contractor during the
performance of this Agreement shall be returned to Edison
after this Agreement is terminated or at the request of
Edison. The Contractor shall not duplicate any material
furnished by Edison without prior written approval from
Edison.
8.4 All information, material, and documents prepared or caused to
be prepared under this Agreement by Contractor shall become
the property of Edison. Such information, or derivative
information, materials, and documents, shall be used by the
Contractor only for work done directly for Edison, shall not
be used in Contractor's general course of business, and shall
neither be disclosed nor revealed in any way to a third party
without the prior express written consent of Edison.
8.5 All information disclosed by Contractor to Edison during
meetings or negotiations with regard to the Program, and any
information contained in drawings, specifications, technical
reports, and data provided by Contractor to Edison during
performance of this Agreement, shall be held in confidence by
Edison, and used only in relation to the Work pursuant to this
Agreement.
8.6 Except as required by the CPUC, Edison, its employees and any
subcontractors of Edison shall not disclose any confidential
or proprietary information of Contractor ("Contractor's
Confidential Information") to any person other than
Contractor's personnel, either during the term of the
Agreement, or after its completion, without having obtained
the prior written consent of Contractor. By way of example,
Contractor's Confidential Information shall include, without
limitation, Contractor's systems for oil degassing, CFC
recovery, CFC-11 recovery and Contractor's computer software.
Prior to any approved disclosure, persons to receive
Contractor's Confidential Information, including Edison, its
employees or any third-party, must enter into a nondisclosure
agreement with Contractor. Edison agrees to require its
employees to execute appropriate nondisclosure agreements
prior to any contact with, or evaluation of Contractor's
Confidential Information.
8.7 Edison agrees that, without the prior written consent of
Contractor, it will not, during the term or after termination
of this Agreement, directly or indirectly, disclose to any
individual, corporation, or other entity, or use for its own
or such other's benefit, any of Contractor's Confidential
Information, whether reduced to written or other tangible
form, which:
8.7.1 Is not generally known to the public or in the
industry;
8.7.2 Has been treated by the Contractor or any of its
subsidiaries as confidential or proprietary; and
8.7.3 Is of a competitive advantage to Contractor or any of
its subsidiaries and in the confidentiality of which
the Contractor or any of its subsidiaries has a
legally protectable interest.
8.8 Contractor's Confidential Information which becomes generally
known to the public or in the industry, or, in the
confidentiality of which, the Contractor and its subsidiaries
cease to have a legally protectable interest, shall cease to
be subject to the restrictions of this Paragraph 8.
9. COMMERCIAL TERMS
9.1 Payment
No payment shall be made under this Agreement until Edison has
received a signed "Acceptance Copy" of the Purchase Order from
Contractor. Edison shall pay to Contractor, as full
compensation for completing the Work, the prices set forth in
Exhibits A and B in accordance with the payment provisions set
forth in paragraphs 9.2 through 9.7.
9.2 Summary of Charges
9.2.1 Basic Recycling Charge Edison shall pay to Contractor
a per-unit Basic Recycling Charge for the greater of
the number of units collected, or specified per
section 9.3.2 below, pursuant to this Agreement at
the price or prices set forth in Section 9.3 below.
The Basic Recycling Charge covers the scope of work
described in paragraph 6.1 through 6.9 excluding
CFC-11 Recovery and Bond or incentive purchasing and
financing services.
9.2.2 CFC-11 Recovery Charge Edison shall pay to Contractor
a per-unit CFC-11 Recovery Charge for the greater of
the number of units collected, or specified in
section 9.3.2 below, pursuant to this Agreement at
the price or prices set forth in Section 9.4, below.
9.2.3 Bond or Incentive Cost and Finance Charges. Edison
shall pay to Contractor bond and incentive costs and
finance charges as specified in Section 9.5, below.
9.2.4 Other Charges. All other costs for services shall be
negotiated between the parties and implemented by an
amendment to the Agreement.
9.3 Pricing - Basic Recycling Charge
9.3.1 The per-unit Basic Recycling Charge to be paid by
Edison for the First Contract Year and the Second
Contract Year shall be as set forth on Exhibit A and
is based upon the Combined Volume of units specified
by Edison and DWP prior to the commencement of each
such Contract Year. If DWP enters into an agreement
with Contractor to extend its agreement, or enters
into a new agreement, for a Comparable Program, for
the Second Contract Year, then the per-unit Basic
Recycling Charge to be paid by Edison for the Second
Contract Year shall be as set forth on Exhibit "A"
and shall be based upon the Combined Volume of units
specified by Edison and DWP.
9.3.2 On or prior to the commencement of each Contract
Year, Edison shall commit to, and notify Contractor
of the number of units it wishes Contractor to
collect for the ensuing year ("Edison's Specified
Volume"). Contractor shall obtain a similar number
from DWP each such year ("DWP's Specified Volume"),
provided that DWP has decided to participate that
year. The combination of Edison's Specified Volume
and DWP's Specified Volume shall be defined as the
Combined Volume. The price column on Exhibit A
applicable for such Contract Year shall be identified
by that number of units most closely approximating
and equal to or less than the Combined Volume chosen
by Edison and DWP.
9.3.3 Units collected from Edison's customers or paid for
by Edison and units collected from DWP's customers or
paid for by DWP and Other Specified Volumes shall all
be counted toward the Combined Volume and as units
collected on Exhibit A within the pricing column
determined in subsection 9.3.2, above, applicable for
said year.
9.3.4 Edison's Specified Volume for each of the First and
Second Contract Years for purposes of subsection
9.3.2 shall be 30,000 units. Units collected in
connection with Edison's Direct Assistance
Refrigerator Replacement Program under Subsection
7.3.4 shall be counted towards Edison's Specified
Volume at the rate of three units collected pursuant
to Subsection 7.3.4 to equal one unit counted towards
Edison's Specified Volume.
9.3.5 Edison shall receive a $5.00 per unit credit against
the Basic Recycling Charge for the first 15,271 units
collected after July 31, 1996, excluding units
collected pursuant to Subsection 7.3.4.
9.4 Pricing - CFC-11 Recovery Charge
9.4.1 The per-unit CFC-11 Recovery Charge to be paid
by Edison shall be as set forth on Exhibit B,
assuming an initial experience rate of 48%. The price
column on Exhibit B, applicable for such Contract
Year, shall be identified by that number most closely
approximating, and equal to or less than, the
Combined Volume chosen for such Contract Year. If the
DWP enters into an agreement with Contractor to
extend its agreement, or enter into a new agreement,
for a Comparable Program, then the per unit CFC-11
Recovery Charge to be paid by Edison for the Second
Contract Year shall be as set forth on Exhibit B and
shall be based upon the Combined Volume of units
specified by Edison and DWP. Edison and Contractor
are exploring other methods of cost recovery of the
per-unit CFC-11 Recovery Charge from that provided in
this Subsection. If other methods are identified
which are reasonably agreeable to Edison and
Contractor, then the parties hereto agree to
participate in good faith negotiations to further
amend this Agreement to provide for such alternative
method or methods of cost recovery of the CFC-11
Recovery Charge. In no event shall such alternative
cost recovery method result in an increase in the
per-unit fee of CFC-11 Recovery Charge paid to
Contractor.
9.4.2 At the end of each quarter, Contractor shall adjust
its pricing for such quarter to reflect the
difference between the actual number of units
processed containing CFC-11 foam and the estimated
number of such units. Contractor shall immediately
invoice or credit Edison accordingly.
9.5 Pricing - Bond or Incentive Costs and Finance Charges
9.5.1 Edison shall reimburse Contractor for the cost of
each bond or incentive payment distributed to Program
Participants.
9.5.2 Edison shall pay to Contractor monthly interest at
the rate of three-quarter of one percent (0.75%) on
the average monthly balance of the outstanding bond
or incentive costs.
9.6 Combined Volume Commitment
In any Contract Year in which the Combined Volume is not
achieved, and if Edison has not met it Specified Volume for
such year, Edison shall pay to Contractor a Basic Recycling
Charge and CFC-11 Recovery Charge on its proportionate share
of the shortfall with said share determined by the process
described in 9.6.2.
9.6.1 The shortfall shall be determined by subtracting from
the Combined Volume all units collected from Edison
and DWP for said year and further subtracting Other
Specified Volumes.
9.6.2 In any year in which DWP has decided to participate
in the Program, the shortfall shall be paid by Edison
and/or DWP in full in accordance with the following:
9.6.2.1 The utility (Edison or DWP) with the
lower Participation Percentage will
contribute to said shortfall until its
Participation Percentage equals the
higher Participation Percentage of the
other utility.
9.6.2.2 The Participation Percentage shall be
determined by dividing either Edison's
or DWP's actual units collected or paid
for by Edison's or DWP's Specified
Volume respectively.
Actual Units
------------
Specified Volume
9.6.2.3 The remaining shortfall, if any, after
application of 9.6.2.1 and 9.6.2.2 will
be paid by Edison and/or DWP on a pro
rata basis consistent with the ratio of
the Specified Volume to the Combined
Volume.
Specified Volume
----------------
Combined Volume
9.6.2.4 In any year in which DWP has decided not
to participate in the Program, the
shortfall as determined pursuant to
Section 9.6 shall be paid by Edison.
9.6.3 In no Contract Year shall Edison's payment pursuant
to this Section 9.6 exceed its Specified Volume.
9.6.4 For purposes of this Section 9.6 the CFC-11 Recovery
Charge shall be calculated upon actual percentage
results achieved from the most recent quarter
applicable to said year (or in absence thereof, 20%)
at the pricing column in Exhibit B.
EXAMPLE:
9.6.4.1 Edison's Specified Volume for year 1 is
60,000
9.6.4.2 DWP's Specified Volume for year 1 is 15,000
9.6.4.3 Combined Volume = 75,000
9.6.4.4 Other Specified Volume = 6,000
9.6.4.5 Units actually collected for Edison = 30,000
9.6.4.6 Units actually collected for DWP = 9,000
9.6.4.7 Shortfall = Combined Volume (75,000) -Other
Specified Volume (6,000) - Units collected
for Edison (30,000) - Units collected for
DWP (9,000) = 30,000
75,000 - 6,000 - 30,000 - 9,000 = 30,000
9.6.4.8 Contractor is entitled to 30,000 from Edison
and/or DWP
9.6.4.9 Edison's Participation Percentage =
Actual Units Collected or Paid For
----------------------------------
Specified Volume
= 30.000
------
60,000 = 50%
Edison has achieved half of its
Participation Percentage.
9.6.4.10 DWP's Participation Percentage =
9,000 = 60%
-----
15,000
DWP has achieved 60% of its Participation
Percentage.
9.6.4.11 Edison must first contribute to the
shortfall until its Participation Percentage
reaches DWP's Participation Percentage or
until Edison reaches its Specified Volume.
For Edison to reach DWP's Participation
Percentage of 60%, Edison must add 6000
units to the units actually collected for
Edison.
30,000 (actually collected) + 6000 units = 60%
----------------------------------------
60,000
9.6.4.12 A shortfall of 24,000 still remains (30,000
less 6000 paid for by Edison) and is divided
between Edison and DWP:
Edison's Specified Volume (60,000) = 80%
----------------------------------------
Combined Volume (75,000)
DWP's Specified Volume (15,000) = 20%
-------------------------------------
Combined Volume (75,000)
Thus: Edison pays 80% of 24,000 = 19,200
DWP pays 20% of 24,000 = 4,800
Edison has paid for 55,200 units (30,000 +
6,000 + 19,200) and Edison's final
contribution, as a percentage of its
Specified Volume, is equal to
55,200 = 92%
------
60,000
DWP has paid for 13,800 units (9,000 +
4,800) and DWP's final contribution, as a
percentage of its Specified Volume, is equal
to 13,800 = 92%
------
15,000
9.7 Miscellaneous
9.7.1 Contractor agrees that any agreement it has, or in
which it may enter with other utilities or agencies
for a recycling program, shall not detrimentally
affect Contractor's services under this Agreement.
9.7.2 Edison and Contractor agree that the number of units
collected for Edison between October 20, 1995 and
December 31, 1995 equals 5,207 units (the "1995
Units"), and that the 1995 Units shall be counted
towards Edison's Specified Volume for the First
Contract Year. The per-unit Basic Recycling Charge to
be paid by Edison for the 1995 Units shall be $110.00
per-unit, less a $5.00 per unit credit.
9.8 Pricing - Direct Assistance Refrigerator Replacement Program
Contractor shall be paid by Edison for residential
refrigerators delivered to Contractor for recycling as part of
Edison's Direct Assistance Refrigerator Replacement Program
for the 1996 and 1997 program year as follows:
Description Fixed Unit Price
----------- ----------------
Basic Recycling Charge for$28.50
1996 and 1997 program years
CFC-11 Recovery Charge forPer Exhibit B
1996 and 1997 program years
10. BILLING
10.1 Contractor shall submit a weekly invoice reflecting the
per-unit charge for the refrigerators and freezers collected,
processed, and recycled, the CFC-11 units processed, and for
the purchase and approval of U.S. Savings Bonds and
incentives. Contractor shall apply a per-unit charge on units
that have been disabled and only for the following
transactions:
10.1.1 Collection of an Eligible Refrigerator or Freezer.
10.1.2 Collection contact made for Eligible Refrigerator or
Freezer that cannot be removed due to obstruction
because of size or structural barrier provided that
Contractor obtains written permission from Customer
to permanently disable said unit, and Contractor then
permanently disables the unit.
10.1.3 Collection of an oversized Eligible Refrigerator or
Freezer that requires additional trips, personnel, or
equipment to execute removal. Additional services for
removal of an oversized Eligible Refrigerator or
Freezer shall be charged as a single appointment with
no extra charge for said additional services.
10.1.4 Collection of an Eligible Refrigerator or Freezer
that could not be inspected for eligibility
confirmation.
10.2 Contractor shall submit a final invoice in hard copy and in
electronic format acceptable to Edison, for each Contract
Year. The final invoice shall reflect the credit applied to
Edison for collection of refrigerators from DWP or any other
source, if any.
10.3 Contractor shall apply a 25% per unit discount to the Basic
Recycling Charge to any additional units when two or more
refrigerators or freezers are removed during a single
collection appointment from Customer's residence. Said
discount shall be clearly documented and identified in
Contractor's invoice. This Subsection shall not apply to units
collected pursuant to Subsection 7.3.4, above.
10.4 Contractor shall submit a weekly invoice for the purchase
price of the bonds and for other incentive payments and a
monthly invoice for the interest charge identified in
paragraph 9.5.
10.5 Edison shall make payment (less any unsubstantiated or
incorrect charge):
10.5.1 For bond and check incentive services within thirty
days of receipt of invoice by Edison's Accounts
Payable Department.
10.5.2 Of Basic Recycling Fee and CFC-11 Recovery Fee the
first of each month for the prior month's invoiced
services.
11. RIGHT TO AUDIT
Edison, or its Authorized Representative, shall have the right and free
access, at any reasonable time during normal business hours, to
examine, audit, and copy all Contractor's records and books as related
to Contractor's obligations under this Agreement, including, but not
limited to, verification of costs to Edison, as claimed by Contractor.
12. CHANGES
12.1 Changes to this Agreement shall be made by mutual agreement of
the Parties through a written amendment to the Agreement,
which shall be incorporated into the Purchase Order by Change
Order.
13. PERMITS, CODES, AND STATUTES
13.1 Contractor shall perform the Work set forth in this Agreement
in accordance with all applicable Federal, state, and local
laws, rules, and/or ordinances. Prior to performance of any
services, Contractor shall, at its own cost, have obtained,
and shall have required all Subcontractors to obtain, all
licenses and permits required by law, rule, regulation, and
ordinance, or any of them, to engage in the activities
required in connection with this transaction. Contractor also
represents and warrants that, to the best of its knowledge,
based upon reasonable and prudent inquiry, any storage site
and any disposal facility to which the Hazardous Materials may
be moved are in compliance with any and all federal, state and
local laws and regulations pertaining thereto and that such
storage sites and disposal facilities are suitable and may
lawfully receive and/or dispose of the Hazardous Materials.
13.2 Contractor shall comply with all applicable local, state, and
federal safety and health laws in effect on the date of this
Agreement, including, but not limited to, EPA, California EPA,
RCRA, the Occupational Safety and Health Act of 1970 (OSHA),
and all standards, rules, regulations, and orders issued
pursuant to such local, state, and federal safety and health
laws. Should any such law, rule, or regulation be enacted or
promulgated subsequent to the date of this Agreement, which
renders Contractor's performance impractical, Contractor and
Edison shall, in good faith, negotiate an amendment to this
Agreement reasonably compensating Contractor for its
additional costs; provided, however, that the requirement in
Section 19.3 of this Agreement that the TRC and UC ratios each
be 1.0 or greater continue to be met.
14. WARRANTY
Contractor warrants to Edison that the Work shall be performed in a
competent manner, in accordance with this Agreement, and that the
acceptance, handling, storage, recycling, and disposal of the
Refrigerators and Freezers and the Hazardous Materials shall be in
accordance with (i) the requirements of this Agreement and (ii) the
applicable local, state, and federal laws and regulations in effect at
the time of the work performed.
15. TITLE
15.1 Title to the Hazardous Materials shall pass to Contractor when
Contractor collects refrigerators and freezers from customers.
15.2 Title of collected Refrigerators and Freezers shall pass to
Contractor.
16. INSURANCE
16.1 Without limiting Contractor's liability to Edison, including
the requirements of Section 18.0 Indemnity, Contractor shall
maintain for the Work, and shall require that each
Subcontractor of the first tier maintain, at all times during
the Work and at its own expense, valid and collectible
insurance as described below. This insurance shall not be
terminated, expire, not be materially altered, except on
thirty days prior written notice to Edison. Contractor shall
furnish Edison with certificates of insurance on forms
acceptable to Edison and shall require each Subcontractor of
the first tier to furnish Contractor with certificates of
insurance, as evidence that policies do provide the required
coverages and limits of insurance listed below. Such
certificates shall be furnished to Edison's Program Manager by
Contractor by January 1 of each Contract year upon receipt of
the Purchase Order, but in any event prior to start of the
Work for each Contract Year, and by Subcontractor for the
first tier upon receipt of its subcontract, but in any event
prior to start of its portion of the Work. Any other insurance
carried by Edison, its officers, agents, and employees, which
may be applicable, shall be deemed to be excess insurance, and
Contractor's insurance shall be deemed primary for all
purposes notwithstanding any conflicting provision in
Contractor's policies to the contrary.
(i) Workers' Compensation Insurance with statutory
limits, as required by the state in which the Work is
performed, and Employer's Liability Insurance with
limits of not less than $5,000,000. Carriers
furnishing such insurance shall be required to waive
all rights of subrogation against Edison, its
officers, agents, employees, and other contractors
and subcontractors.
(ii) Comprehensive Bodily Injury and Property Damage
Liability Insurance, including owners' and
contractors' protective liability, product/completed
operations liability, contractual liability, and
coverage for liability incurred as a result of sudden
and accidental discharge, dispersal, release or
escape of polluting materials, (excluding automobile)
with a combined single limit of not less than
$3,000,000 for each occurrence. Such insurance shall:
(a) acknowledge Edison, its officers, agents, and
employees, and additional insureds; (b) be primary
for all purposes; and (c) contain standard
crossliability provisions.
(iii) Automobile Bodily Injury and Property Damage
Liability Insurance with a combined single limit of
not less than $3,000,000 for each occurrence. Such
insurance shall cover liability arising out of the
use by Contractor and Subcontractors of owned, non
owned and hired automobiles in the performance of the
Work. As used herein, the term "automobile" means
vehicles licensed or required to be licensed under
the Vehicle Code of the state in which the Work is
performed. Such insurance shall acknowledge Edison as
an additional insured and be primary for all
purposes.
(iv) Environmental Impairment Expense Insurance with
a combined single limit of not less than $5,000,000
for each occurrence and overall limits of
$10,000,000. Such insurance shall provide coverage
for necessary costs or expense of removing,
cleaning-up, transporting, nullifying, and rendering
ineffective, or any of them, any substance which has
caused environmental impairment and such insurance
shall contain no exclusions for non-sudden and/or
non-accidental discharge, release or escape of
polluting materials. Such insurance shall acknowledge
Edison as an additional insured and be primary for
all purposes.
Contractor shall report immediately to Edison and
confirm in writing any injury, loss, or damage
incurred by Contractor or Subcontractors in excess of
$500.00, or its receipt of notice of any claim by a
third party in excess of $500.00, or any occurrence
that might give rise to such claim.
If Contractor fails to comply with any of the
provisions of this Section 16.0, Contractor shall, at
its own cost, defend, indemnify, and hold harmless
Edison, its officers, agents, employees, assigns, and
successors in interest, from and against any and all
liability, damages, losses, claims, demands, actions,
causes of action, costs, including attorney's fees
and expenses, or any of them, resulting from the
death or injury to any person or damage to any
property to the extent that Edison would have been
protected had Contractor complied with all of the
provisions of this Section.
17. ADDITIONAL PARTICIPATION LEVELS
Contractor acknowledges that the Program funding for the First Contract
Year and the Program funding for the Second Contract Year contemplated
by this Agreement are subject to approval by the California Public
Utilities Commission ("CPUC").
Edison shall take all reasonable actions necessary to apply for and
obtain funding for the First Contract Year and for the Second Contract
Year at 50,000 units for each of said years and to take reasonable
actions necessary to obtain Customer participation for such years at
such levels provided that the TRC and UC ratios required under Section
19.3 are still met. Edison shall not take any action before the CPUC
which could be reasonably calculated to influence the CPUC or any
board, division, committee or member thereof to reject Edison's
proposed funding of the Program, at the level of 50,000 units per year,
for the First Contract Year and 50,000 units for the Second Contract
Year. In addition to such other efforts as Edison shall take to
encourage Customer participation in the Program, Edison shall spend not
less than Five Hundred Thousand Dollars ($500,000) in both the First
Contract Year and not less than an additional Five Hundred Thousand
Dollars ($500,000) in the Second Contract Year for advertising and
promotion of the Program. Contractor acknowledges and understands that
Edison's annual forecast advice filing for the Second Contract Year
(due October 1, 1996 to the CPUC) shall not reflect an amount greater
than Edison's Specified Volume for the Second Contract Year.
18. INDEMNITY
18.1 Contractor shall, at its own cost, indemnify, defend,
reimburse, and hold harmless Edison, its officers, directors,
employees, agents, assigns, and successors in interest, from
and against any and all liability, damages, losses, claims,
suits, demands, actions, causes of action, costs, expenses,
including attorney's fees and expenses, or any of them
resulting from the death or injury to any person or damage to
or destruction of any property caused by Contractor,
Subcontractors, and employees, officers and agents of either
Contractor or Subcontractors, or any of them, and arising out
of or attributable to the performance or nonperformance of
Contractor's obligations under this Agreement and including,
without limitation, failure to comply fully with every
federal, state, or local law, statute, regulation, rule,
ordinance, or government directive which directly or
indirectly regulates or affects the handling, storage,
recycling, or disposal of the Hazardous Materials to be
managed by Contractor hereunder. In all cases of death or
injury to employees, officers or agents of either Contractor
or Subcontractors, whether or not caused by Contractor, Edison
shall be indemnified by Contractor for any and all liability
except to the extent such death or injury results from the
negligence of Edison.
18.2 Contractor shall, at its own cost, indemnify, defend,
reimburse, and hold harmless Edison, its officers, directors,
employees, and agents, assigns, and successors in interest,
from and against any and all liability imposed upon, or to be
imposed upon Edison, under any law imposing liability for the
environmental clean-up of the Hazardous Materials at any
location (other than Edison's property) where the Hazardous
Materials have been placed, stored or disposed of in the
performance or nonperformance of Contractor's obligations
under this Agreement, or any other site to which the Hazardous
Materials have migrated.
18.3 The indemnities set forth in this Section 18.0 shall not be
limited by the insurance requirements set forth in Section
16.0.
19. TERM AND TERMINATION
19.1 This Agreement shall commence on the date hereof and shall
continue in effect until December 31, 1997, or until
Contractor has picked up all units called in prior to December
31, 1997, whichever is later. This Agreement may be extended
as agreed to in writing by the parties.
19.2 Either Party may terminate the Agreement for cause by 180 days
advance written notice, and failure to cure, to the other
Party. If the default has not been cured within said time
period, the non-defaulting party may declare this contract
terminated, effective the last day of said notice period.
Contractor shall be paid for its services rendered to the date
of said termination with all required specified volumes
prorated to the date of termination.
FOR EXAMPLE:
Notice of Termination March 1. Termination effective September
1. Edison's Specified Volume 30,000. Edison's prorated
Specified Volume 22,500. Actual units collected from Edison
customers 17,500. Other Specified Volume, prorated to
September 1, is 500.
Edison pays for 22,500 units (since greater than actual number
collected) less any units invoiced and for which Edison has
already paid and less 500 Other Specified Volume Units.
19.3 Under Rule No. 6 of the CPUC's Adopted Rules, Terms and
Definitions for DSM Programs, as adopted in D.95-06-016, the
CPUC requires that the Program's Total Resource Cost ("TRC")
ratio and Utility Cost ("UC") ratio each be 1.0 or greater.
Edison and Contractor are working together on Program design,
and measurement and evaluation, and alternative sources of
cost recovery of the per-unit CFC-11 Recover Charge in an
effort to ensure that the Program will have TRC and UC ratios,
each, of 1.0 or greater for the Second Contract Year. Edison
and Contractor agree that all costs associated with the Direct
Assistance Refrigerator Replacement Program, including,
without limitation, any Edison costs or any Contractor costs,
whether direct or indirect, shall not be included for purposes
of determining the TRC and UC ratios for the Refrigerator
Recycling Program described herein.
At the same time that Edison provides a draft of its annual
forecast advice filing (due October 1, 1996 to the CPUC) to
Edison's Policy Advisory Group (approximately thirty (30) days
prior to October 1, 1996), Edison shall provide Contractor
with Edison's preliminary forecast of the TRC ratio and UC
ratio for the Program's Second Contract Year, along with
assumptions pertinent to said determination. If the TRC and UC
ratios are forecasted to be less than 1.0, then Edison shall
provide Contractor with all reports, findings, research data,
assumptions, summaries and other information or data pertinent
to said determination. If the TRC ratio and the UC ratio are
each not 1.0 or greater, Edison shall work with Contractor to
determine if the TRC and UC ratios for the Second Contract
Year are correct. If upon preparation of Edison's annual
forecast advice filing (due October 1, 1996 to the CPUC),
Edison still reasonably determines that, despite the foregoing
efforts, the Program for the Second Contract Year is
forecasted not to achieve a TRC ratio and UC ratio each of at
least 1.0 or greater, Edison shall have the right to terminate
this Agreement upon 30 days prior written notice to Contractor
with respect to the Second Contract Year only. In the event
the Agreement is terminated pursuant to this Subsection, then
Edison shall be released from any and all of its obligations
under this Agreement for the Second Contract Year only,
including, but not limited to, payments to Contractor for
Edison's Specified Volume for the Second Contract Year.
19.4 Edison shall have the right to terminate this Agreement by 30
days advance written notice to Contractor upon CPUC mandate,
or upon depletion of the amount of funding authorized by the
CPUC for each of the First Contract Year and Second Contract
Year. In the event the Agreement is terminated upon CPUC
mandate, Edison shall pay Contractor all amounts owed under
the Agreement as of 30 days after Edison's written notice to
Contractor of the CPUC's mandate (the "Termination Date"). In
such event, Edison shall only be obligated to pay Contractor
for such Refrigerators and Freezers actually collected by
Contractor for recycling as of the Termination Date, and shall
not be obligated to pay Contractor for units not collected but
which would otherwise be required to be paid for as units
comprising Edison's Specified Volume.
19.5 In the event of termination pursuant to Section 19, Contractor
and Edison shall work cooperatively to facilitate the
termination of the Program.
19.6 Each Party shall immediately provide at no cost to the other
any testimony, or any communications with the CPUC, or any
board, division, committee or member thereof, which could
reasonably be anticipated to effect the Program or which
addresses the Program in any manner.
20. SUBCONTRACTS
20.1 Contractor shall contractually require each Subcontractor of
the first tier providing service in connection with the Work
to be bound by general terms and conditions protecting Edison
which are equivalent to the terms and conditions of this
Agreement.
20.2 Contractor shall, at all times, be responsible for the Work,
and acts and omissions, of Subcontractors and persons directly
or indirectly employed by them for services in connection with
the Work. The Purchase Order and this Agreement shall not
constitute a contractual relationship between any
Subcontractor and Edison nor any obligation for payment to any
Subcontractor.
21. CALIFORNIA PUBLIC UTILITIES COMMISSION
This Agreement and the Purchase Order incorporating this Agreement
shall at all times be subject to such changes or modifications by the
CPUC as it may from time to time direct in the exercise of its
jurisdiction.
22. NON-WAIVER
None of the provisions of the Agreement shall be considered waived by
either Party unless such waiver is specifically stated in writing.
23. ASSIGNMENT
Neither party shall delegate or assign the Agreement, or any Purchase
Order incorporating this Agreement, or any part or interest thereof,
without the prior written consent of the other Party, and any
assignment without such consent shall be void and of no effect.
24. FORCE MAJEURE
Failure of Contractor to perform any of the provisions of this
Agreement by reason of any of the following shall not constitute an
event of default or breach of this Agreement: strikes, picket lines,
boycott efforts, earthquakes, fires, floods, war (whether or not
declared), revolution, riots, insurrections, acts of God, acts of
government (including, without limitation, any agency or department of
the United States of America), acts of the public enemy, scarcity or
rationing of gasoline or other fuel or vital products, inability to
obtain materials or labor, or other causes which are reasonably beyond
the control of the Contractor.
25. GOVERNING LAW
The contract shall be interpreted, governed, and construed under the
laws of the State of California as if executed and to be performed
wholly within the State of California.
26. SECTION HEADINGS
Section headings appearing in this Agreement are for convenience only
and shall not be construed as interpretations of text.
27. SURVIVAL
Notwithstanding completion or termination of the Work, of this
Agreement, any amendment to the Agreement, or of any Purchase Order or
Change Order, the Parties shall continue to be bound by the provisions
of this Agreement and any Purchase Order incorporating this Agreement,
amendment to this Agreement and Change Orders, which by their nature
shall survive such completion or termination. Such provisions shall
include, but not be limited to, Contractor's indemnity protecting
Edison from any liability for environmental clean up as provided in
Section 18 of this Agreement.
28. NONRELIANCE
Neither party has relied upon any representation, warranty, projection,
estimate or other communication from the other not specifically so
identified in this Agreement.
29 ATTORNEYS' FEES
In the event of any legal action or other proceeding between the
parties arising out of this Agreement or the transactions contemplated
herein, the prevailing party in such legal action or proceeding shall
be entitled to have and recover from the other party all costs and
expenses incurred therein, including reasonable attorneys' fees.
30. COOPERATION
Each of the parties agrees to cooperate with the other in whatever
manner reasonably required to facilitate such parties' successful
completion of the Agreement.
31. ENTIRE AGREEMENT
This Agreement contains the entire agreement and understanding between
the Parties and merges and supersedes all prior representations and
discussions pertaining to the Agreement, including Contractor's
proposal. Any changes, exceptions, or different terms and conditions
proposed by Contractor, or contained in Contractor's acknowledgment of
the Agreement, or Change Order, are hereby rejected unless expressly
stated in the Agreement or incorporated by a Change Order.
CONTRACTOR:
APPLIANCE RECYCLING CENTERS SOUTHERN CALIFORNIA
OF AMERICA, INC. EDISON COMPANY
By: _________________________ By: __________________________
Its:_____________________ Its:_____________________
Dated as of __________________ Dated as of __________________
GENERAL CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of August 30, 1996, between SPECTRUM
Commercial Services, Inc., a Minnesota corporation, having its mailing address
and principal place of business at 7900 International Drive, Suite 890,
Bloomington, Minnesota 55425-1581 (herein called "Lender" or "SCS"), and
Appliance Recycling Centers of America, Inc., a Minnesota corporation, having
the mailing address and principal place of business at 7400 Excelsior Boulevard,
Saint Louis Park, Minnesota 55426 (herein called "Borrower").
AGREEMENT. This Agreement states the terms and conditions
under which Borrower may obtain certain loans from Lender.
CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following meanings:
"Acceptable Distributions" shall mean, with respect to
Borrower, cash distributions made to Borrower's shareholders during any period
in which Borrower has made an effective S Corporation election, in an amount
equal to the combined federal and state income tax liability of such
shareholders arising from their respective allocable share of the earnings and
profit of Borrower (with each shareholder's federal and state income tax
liability, including any minimum tax liability, to be computed on the basis of
the applicable marginal tax rate for individuals under the Code and relevant
state law as such applicable marginal tax rates are reduced by deductions for
state income taxes with respect to the Code and for federal income taxes with
respect to the relevant state law; provided, however, that no such
distribution(s) shall be made if and to the extent that, after giving effect
thereto, the aggregate amount distributed to all shareholders pursuant to this
provision in any given period exceeds an amount equal to the amount of regular
state and federal income tax that would be assessed against Borrower for such
period if Borrower were subject to the tax provisions applicable to a C
Corporation but not including any penalty tax provisions such as provisions for
accumulated earnings taxes or personal holding company taxes.
"Advance(s)" shall have the meaning provided in Paragraph
4(a).
"Affiliate" shall include, with respect to any party, any
Person which directly or indirectly controls, is controlled by, or is under
common control with such party and, in addition, in the case of Borrower, each
officer, director or shareholder of Borrower, and each joint venturer and
partner of Borrower.
"Borrower" shall have the meaning provided in the preamble
hereto.
"Borrowing Base" shall mean the sum of (i) Eighty percent
(80%) of the net amount of Eligible Receivables or such greater or lesser
percentage as Lender, in its sole discretion, shall deem appropriate, plus (ii)
the lesser of (x) Two Hundred Twenty Five Thousand and No/100ths Dollars
($225,000.00) or (y) Twenty Five percent (25%) of the net amount of Eligible
Inventory, or such greater or lesser dollars and/or percentage as Lender, in its
sole discretion, shall deem appropriate, plus (iii) One Hundred Sixty Four
Thousand and No/100ths Dollars ($164,000.00) for liquidation value of equipment
or such greater or lesser dollars as Lender, in its sole discretion, shall deem
appropriate.
"Business Day" shall mean any day on which commercial banks in
Minneapolis, Minnesota are open for the transaction of business of the kind
contemplated by this Agreement.
"Chattel Paper" shall have the meaning ascribed to such term
in Article 9 of the Commercial Code.
"Closing Date" shall mean the day specified by Borrower on
which all of the conditions precedent specified in Paragraph 21 shall have been
satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commercial Code" shall mean the Uniform Commercial Code as
enacted in the State of Minnesota, as amended from time to time.
"Consolidated" shall, when used with reference to any
financial information pertaining to (or when used as a part of any defined term
or statement pertaining to the financial condition of) any Person, mean the
accounts of such Person and its subsidiaries, determined on a consolidated
basis, all determined as to principles of consolidation and, except as otherwise
specifically required by the definition of such term or by such statement as to
such accounts, in accordance with GAAP.
"Contingent Obligations" shall mean, with respect to any
Person, all of such Person's liabilities and obligations which are contingent
upon and will not mature unless and until the occurrence of some event or
circumstance and which are not included within the definition of Liabilities of
such Person.
"Current Assets" shall have the meaning given to that term in
accordance with GAAP.
"Current Liabilities" shall have the meaning given to that
term in accordance with GAAP, except that the outstanding principal amount of
the Advance shall, in any event, be excluded.
"Customer(s)" shall have the meaning provided in Paragraph
7(a).
"Default" shall mean any event which, with the giving of
notice or passage of time, or both, would constitute an Event of Default.
"Eligible Inventory" shall mean the dollar value of only that
Inventory in which only Lender holds a senior security interest and as to which
Lender, in its sole discretion, shall elect from time to time to constitute
Eligible Inventory. Without limiting the discretion of Lender to consider any
Inventory not to be Eligible Inventory, and by way of example of types of
Inventory that Lender will consider not to be Eligible Inventory, Lender,
notwithstanding any earlier classification of eligibility, may consider any
Inventory not to be Eligible Inventory if: (i) such Inventory does not
constitute finished goods (eg: "Fixed" or "Scratch & Dent"); (ii) such Inventory
does not meet all standards imposed by any governmental agency having regulatory
authority over such goods and/or their use, manufacture or sale; (iii) such
Inventory has not been physically received in the continental United States by
Borrower; (iv) such Inventory is not currently usable or currently salable in
the normal course of Borrower's operations; (v) such Inventory is on consignment
to or from any other Person or is subject to any bailment; (vi) such Inventory
is subject to any lien, security interest or other encumbrance whatsoever,
except for the security interest of Lender under this Agreement; (vii) such
Inventory has been sold to any other person; or (viii) such Inventory is located
in a place other than Borrower's processing centers or stores which are listed
on Schedule A. The value of Eligible Inventory shall be the lower of the cost or
market value of the Eligible Inventory computed on a first-in, first-out basis
in accordance with generally accepted accounting principles on the basis of the
most recent inventory certificates delivered to Lender pursuant to Paragraph
17(a)(v).
"Eligible Receivables" shall mean the dollar value of only
such Receivables of Borrower arising from the sale of Inventory or the rendition
of services in the ordinary course of business which has been fully performed by
Borrower and in which only Lender holds a senior security interest and as to
which Lender, in its sole discretion, shall from time to time determine to be
Eligible Receivables. Without limiting the discretion of Lender to consider any
Receivable not to be an Eligible Receivable, and by way of example only of types
of Receivables that Lender will consider not to be Eligible Receivables, Lender,
notwithstanding any earlier classification of eligibility may consider any
Receivable not to be an Eligible Receivable if: (i) any warranty is breached as
to the Receivable; (ii) the Receivable is not paid by the account debtor within
90 days from the date of the invoice relating to such Receivable; (iii) the
account debtor disputes liability or makes any claim with respect to the
Receivable; (iv) a petition in bankruptcy or other application for relief under
any insolvency law is filed with respect to the account debtor owing the
Receivable; (v) the account debtor on the Receivable makes an assignment for the
benefit of creditors, becomes insolvent, fails, suspends, or goes out of
business; (vi) the Receivable arises from a sale to an account debtor outside
the United States, unless the sale is on terms acceptable to Lender in its sole
discretion; (vii) the Receivable is owed by an account debtor who owes
Receivables of which more than 10% are more than 90 days past the date of the
invoices relating to such Receivables; (viii) the account debtor is an Affiliate
or employee of Borrower; (ix) the account debtor is also a supplier or creditor
of Borrower; (x) the account debtor is the United States of America, or any
department or any agency of any thereof, unless Borrower has complied with the
Assignment of Claims Act to Lender's satisfaction; (xi) the Receivable is either
a consignment Receivable or a bonded Receivable or a retainage; or (xii) In its
reasonable discretion, Lender shall become dissatisfied with the
creditworthiness of an account debtor owing a Receivable.
"Equipment" shall have the meaning provided in Paragraph 3(c).
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may from time to time be amended, and the rules and
regulations promulgated thereunder by any governmental agency or authority, as
from time to time in effect.
"ERISA Affiliate" shall mean, with respect to any Person, any
trade or business (whether or not incorporated) which is a member of a group of
which such Person is a member and which is under common control within the
meaning of Section 414 of the Code, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"ERISA Event" shall mean: (a) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the PBGC
under such regulations); (b) the withdrawal of Borrower or any ERISA Affiliate
from a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA; (c) the filing of a notice of intent to
terminate a Plan or the treatment of a Plan amendment as a termination under
Section 4041 of ERISA; (d) the institution of proceedings to terminate a Plan by
the PBGC under Section 4042 of ERISA; or (e) any other event or condition that
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning provided in
Paragraph 20.
"GAAP" shall mean generally accepted accounting principles
consistently applied and maintained throughout the period indicated and
consistent with the audited financial statements delivered to Lender pursuant to
Paragraph 16(h). Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
"General Intangibles" shall have the meaning provided in
Paragraph 3(d).
"Guarantor" shall mean EDWARD R. CAMERON and any other Person
who enters into a Guaranty hereof.
"Guaranty(ies)" shall mean those certain Guaranties dated as
of AUGUST 30, 1996, FROM EDWARD R. CAMERON and any other agreement whereby a
Person guarantees the payment or performance of any of the Obligations.
"Independent Public Accountants" shall mean MCGLADREY &
PULLEN, LLP, or any other firm of independent public accountants which is
acceptable to Lender.
"Inventory" shall have the meaning provided in Paragraph 3(b).
"Liabilities" of any Person shall mean those items which, in
accordance with GAAP, appear as liabilities on a balance sheet.
"Line Maintenance Fee" shall have the meaning provided in
Paragraph 17(j).
"Loan Administration Fee" shall have the meaning provided in
Paragraph 17(h).
"Loan Document(s)" shall mean individually or collectively, as
the case may be, this Agreement, the Note, the Guaranty[ies], and any and all
other documents executed, delivered or referred to herein or therein, as
originally executed and as amended, modified or supplemented from time to time.
"Material Adverse Occurrence" shall mean any occurrence of
whatsoever nature (including, without limitation, any adverse determination in
any litigation, arbitration or governmental investigation or proceeding) which
Lender shall determine, in its sole discretion, could materially adversely
affect the present or prospective financial condition or operations of Borrower
or a Guarantor or impair the ability of Borrower or a Guarantor to perform its
obligations under this Agreement or any other Loan Document.
"Maturity Date" shall mean August 30, 1999.
"Maximum Principal Amount" shall mean, at any date, One
Million Five Hundred Thousand and No/100ths Dollars ($1,500,000.00).
"Monthly Payment Date" shall mean the first day of each month.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA to which Borrower is making or accruing
an obligation to make contributions, or has within any of the preceding three
plan years made or accrued an obligation to make contributions.
"Net Income" for any period shall mean net income for such
period, determined in accordance with GAAP excluding, however, (i) extraordinary
gains, and (ii) gains (whether or not extraordinary) from sales or other
dispositions of assets other than the sale of Inventory in the ordinary course
of Borrower's business.
"Note" shall mean the promissory note in the form of Exhibit B
attached hereto and made a part hereof made by Borrower payable to the order of
Lender to evidence the Advances.
"Obligations" shall have the meaning provided in Paragraph 3.
"Origination Fee" shall have the meaning provided in Paragraph
17 (i) .
"Participant" shall mean each Person who purchases a
participation interest from Lender in the obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor board, authority, agency, officer or official of the United States
administering the principal functions assigned on the date hereof to the Pension
Benefit Guaranty Corporation under ERISA.
"Person" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan" shall mean each employee benefit plan or other class of
benefits covered by Title IV of ERISA, in either case whether now in existence
or hereafter instituted, of Borrower or any of its Subsidiaries.
"Prime Rate" shall mean the publicly announced base rate (or
other publicly announced reference rate) charged by Norwest Bank Minnesota,
National Association; Borrower acknowledges that the Prime Rate may not be the
lowest rate made available by Lender to its customers and that Lender may lend
to its customers at rates that are at, above or below the Prime Rate.
"Receivables" shall have the meaning provided in Paragraph
3(a).
"Reportable Event" shall have the meaning given to that term
in Title IV of ERISA.
"Security Interest" shall mean any lien, pledge, mortgage,
encumbrance, charge or security interest of any kind whatsoever (including,
without limitation, the lien or retained security title of a conditional vendor)
whether arising under a security instrument or as a matter of law, judicial
process or otherwise or the agreement by Borrower to grant any lien, security
interest or pledge, mortgage or encumber any asset.
"Subordinated Debt" shall mean indebtedness of Borrower for
borrowed money which is subordinated to the Obligations on terms satisfactory to
Lender in its sole discretion.
"Subsidiary" of any Person shall mean any other corporation of
which more than 50% of the outstanding shares of capital stock having ordinary
voting power for the election of directors is owned directly or indirectly by
such Person, by such Person and one or more Subsidiaries, or by one or more
other Subsidiaries.
"Surplus Cash Flow" for any period shall mean Net Income for
such period plus depreciation, amortization and other non-cash expenses for such
period minus scheduled principal payments of indebtedness for borrowed money
payable during such period (excluding principal payments with respect to the
Advances, but including any scheduled reductions in the Borrowing Base or the
Maximum Principal Amount) minus Acceptable Distributions for such period.
"Termination Date" shall mean the earliest of (i) the Maturity
Date or (ii) the date upon which Lender's obligation to make Advances is
terminated pursuant to Paragraph 20, or (iii) the date upon which the
obligations are declared to be due and payable (or automatically become due and
payable) upon the occurrence of an Event of Default as provided in Paragraph 20
or otherwise, or (iv) the date upon which this Agreement terminates as provided
in Paragraph 23, or (v) upon demand by Lender in its sole and absolute
discretion.
"Withdrawal Liability" shall have the meaning given to that
term in Title IV of ERISA.
"Working Capital" at any date shall mean Current Assets at
such date minus Current Liabilities at such date.
SECURITY. As security for all present and future sums loaned
or advanced by Lender to Borrower and for all other obligations now or hereafter
chargeable to Borrower's loan account hereunder, and all other obligations and
liabilities of any and every kind of Borrower to Lender, due or to become due,
direct or indirect, absolute or contingent, joint or several, howsoever created,
arising or evidenced, now existing or hereafter at any time created, arising or
incurred (herein called "Obligations'), Borrower hereby grants to Lender a
security interest in and to the following property:
All Receivables of Borrower now owned or hereafter
acquired or arising, together with all customer lists, original books
and records, ledger and account cards, computer tapes, discs, printouts
and records, whether now in existence or hereafter created.
"Receivables" means all rights of Borrower to the payment of money,
whether or not earned and howsoever evidenced or arising, including
(without limitation) all present and future "Accounts", accounts
receivable, "Chattel Paper", "Instruments", and rights to payment which
are "General Intangibles" (as those terms are used in the Commercial
Code), all security therefor and all of Borrower's rights as an unpaid
seller of goods (including rescission, replevin, reclamation and
stopping in transit) and all of Borrower's rights to any goods
represented by any of the foregoing including returned or repossessed
goods;
All Inventory of Borrower, whether now owned or
hereafter acquired and wherever located. "Inventory" includes all Goods
(as defined in Article 9 of the Commercial Code) intended for sale or
lease or to be furnished under contracts of service, all raw materials
and work in process therefor, all finished goods thereof, all materials
and supplies of every nature used or usable or consumed or consumable
in connection with the manufacture, packing, shipping, advertising,
selling, leasing or furnishing of such Goods, and all accessories
thereto and all documents of title therefor evidencing the same;
All Equipment of Borrower, whether now owned or
hereafter acquired and wherever located. "Equipment" includes all of
Borrower's Goods other than Inventory, all replacements and
substitutions therefor and all accessions thereto, and specifically
includes, without limitation, all present and future machinery,
equipment, vehicles, manufacturing equipment, shop equipment, office
and record keeping equipment, furniture, fixtures, parts, tools and all
other Goods (except Inventory) used or acquired for use by Borrower for
any business or enterprise;
All General Intangibles (as defined in Article 9 of
the Commercial Code) of Borrower, whether now owned or hereafter
acquired, including (without limitation) all present and future
domestic and foreign patents, patent applications, trademarks,
trademark applications, copyrights, trade names, trade secrets, patent
and trademark licenses (whether Borrower is licensor or licensee), shop
drawings, engineering drawings, blueprints, specifications, parts
lists, manuals, operating instructions, customer and supplier lists,
licenses, permits, franchises, the right to use Borrower's corporate
name and the goodwill of Borrower's business; and
All products and proceeds of any and all of the
foregoing and all products and proceeds of any other Collateral (as
hereinafter defined) including the proceeds of any insurance covering
any of the Collateral.
All such Receivables, Inventory, Equipment, General Intangibles, products and
proceeds, together with all other assets and properties of Borrower in or on
which Lender is now or hereafter granted a security interest, mortgage, lien or
encumbrance pursuant to this Agreement or otherwise, are hereinafter sometimes
referred to as "Collateral".
ADVANCES.
At the request of Borrower, Lender agrees, subject to
the terms and conditions hereinafter set forth, to make loans (each
such loan being herein sometimes called individually an "Advance" and
collectively the "Advances") to Borrower from time to time on any
Business Day during the period from the date hereof and ending on the
Termination Date; provided, however, that Lender shall not be required
to make any Advance if, after giving effect to such Advance, the
aggregate unpaid principal amount of Advances outstanding would exceed
the lesser of the Borrowing Base or the Maximum Principal Amount. The
amount of each such Advance shall be charged to Borrower's loan
account. Borrower acknowledges that Lender may, but shall not be
obligated to, make an Advance at any time in an amount equal to any
overdraft in any account of Borrower maintained with Lender or any
Participant even if the aggregate unpaid principal amount of Advances
exceeds or would exceed the Borrowing Base or the Maximum Principal
Amount.
In order to obtain an Advance, Borrower shall give
written or telephonic notice to Lender, by not later than 11:00 a.m.
(Minneapolis time) on the date the requested Advance is to be made.
Lender, shall make such Advance by transferring the amount thereof in
immediately available funds for credit to an account (other than a
payroll account) of Borrower at Lender, as specified in such notice. At
the request of Lender, Borrower shall confirm in writing any telephonic
notice.
The obligation of Lender to make Advances shall
terminate on the Termination Date.
If at any time the sum of the aggregate outstanding
principal balance of the Advances exceeds the lesser of (i) the Maximum
Principal Amount or (ii) the Borrowing Base, then Borrower agrees to
make, on demand, a principal repayment on the Advances in an amount
equal to such excess together with accrued interest on the amount
repaid to the date of repayment. Borrower agrees that, on the
Termination Date, it will repay the entire outstanding principal
balance of the Advances together with accrued interest thereon and all
accrued fees without presentment or demand for payment, notice of
dishonor, protest or notice of protest, all of which are hereby waived.
The Advances shall be evidenced by the Note made by
Borrower payable to the order of Lender in a principal amount equal to
the Maximum Principal Amount; subject, however, to the provisions of
the Note to the effect that the principal amount payable thereunder at
any time shall not exceed the then unpaid principal amount of all
Advances made by Lender. Borrower hereby irrevocably authorizes Lender
to make or cause to be made, at or about the time of each Advance made
by Lender, an appropriate notation on the records of Lender, reflecting
the principal amount of such Advance, and Lender shall make or cause to
be made, on or about the time of receipt of payment of any principal of
the Note, an appropriate notation on its records reflecting such
payment. The aggregate amount of all Advances set forth on the records
of Lender shall be rebuttable presumptive evidence of the principal
amount owing and unpaid on the Note.
4A. DEMAND FACILITY. All interest, principal, Advances, and any other
amounts owing hereunder are due ON DEMAND and Lender specifically reserves the
absolute right to demand payment of all such amounts at any time, with or
without advance notice, for any reason or no reason whatsoever. Lender's right
to make such demand is not exclusive and Lender may coincidentally or separately
from such demand make further demand for payment pursuant to Paragraph 20 or
otherwise hereunder and, further, amounts may become due hereunder (pursuant to
Paragraph 20 or otherwise) without a demand by Lender, as provided in this
agreement.
INTEREST. Borrower agrees to pay interest on the outstanding
principal amount of the Note, at the close of each day at a fluctuating rate per
annum (computed on the basis of actual number of days elapsed and a year of 360
days) which is at all times equal to Four Percent (4%) in excess of the Prime
Rate; each change in such fluctuating rate caused by a change in the Prime Rate
to occur simultaneously with the change in the Prime Rate; provided, however,
that (i) in no event shall the interest rate in effect hereunder at any time be
less than 10% per annum; and (ii) interest payable hereunder with respect to
each calendar month shall not be less than $7,500.00 regardless of the amount of
loans, Advances or other credit extensions that actually may have been
outstanding during the month. Interest accrued through the last day of each
month will be due and payable to Lender on the next Monthly Payment Date,
commencing October 1, 1996. Interest shall also be payable on the Maturity Date
or on any earlier Termination Date. Interest accrued after the Maturity Date or
earlier Termination Date shall be payable on Demand. Interest may be charged to
Borrower's loan account as an Advance at Lender's option, whether or not
Borrower then has the right to obtain an Advance pursuant to the terms of this
Agreement. Notwithstanding the foregoing, after an Event of Default, this Note
shall bear interest until paid at 5% per annum in excess of the rate otherwise
then in effect, which rate shall continue to vary based on further changes in
the Prime Rate; provided, however, that after an Event of Default, (i) in no
event shall the interest rate in effect hereunder at any time be less than 15%
per annum; and (ii) interest payable hereunder with respect to each calendar
month shall not be less than $7,500.00 regardless of the amount of loans,
Advances or other credit extensions that actually may have been outstanding
during the month. The undersigned also shall pay the holder of this Note a late
fee equal to 10% of any payment under this Note that is more than 10 days past
due.
SET-OFF; ETC. Upon the occurrence of a Default or an Event of
Default, Lender is hereby authorized at any time and from time to time, without
notice to Borrower (any such notice being expressly waived by Borrower), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender or any Participant to or for the credit or the account of Borrower,
including specifically any amounts held in any account maintained at Lender or
any Participant, against any and all amounts which may be owed to Lender or any
Participant by Borrower whether in connection with this Agreement or otherwise
and irrespective of whether Borrower shall have made any requests under this
Agreement.
REPORTS AND COLLECTION.
Borrower agrees to furnish to Lender, at least
weekly, schedules describing Receivables created or acquired by
Borrower (including confirmatory written assignments thereof), and, if
requested by Lender, copies of all invoices to account debtors and
other obligors (all herein referred to as "Customers") and original
shipping or delivery receipts for all goods sold, but if Borrower fails
to do so the rights of Lender as a secured party will not be impaired.
At any time after the occurrence of an Event of Default, Lender may
notify Customers at any time that Receivables have been assigned to
Lender and collect them directly in Lender's own name but unless and
until Lender does so or gives Borrower other instructions, Borrower
shall make collection for Lender at Borrower's sole cost and expense.
Borrower shall advise Lender promptly of any goods which are returned
by Customers or otherwise recovered involving an amount in excess of
$5,000.00 and, unless instructed to deliver such goods to Lender,
Borrower shall resell them for Lender and assign or deliver to Lender
the resulting Receivables or other proceeds. Borrower shall also advise
Lender promptly of all disputes and claims by Customers involving an
amount in excess of $5,000.00 and settle or adjust them at no expense
to Lender. At any time after the occurrence and during the continuance
of an Event of Default, Lender may at all times settle or adjust such
disputes and claims directly with the Customers for amounts and upon
terms which Lender considers advisable. If Lender so directs at any
time after an Event of Default, no discount, credit or allowance shall
be granted by Borrower to any Customer and no return of goods shall be
accepted by Borrower without Lender's written consent.
Borrower agrees to furnish to Lender Inventory
certifications in accordance with Paragraph 17(a)(v) and a physical
listing of all Inventory, wherever located, at least once every twelve
months or, in either case, as more frequently requested by Lender.
All full and partial payments arising from the sale
or other disposition of Collateral shall immediately be delivered by
Borrower to Lender in their original form, except for endorsement where
necessary. Until such payments are so delivered to Lender, such
payments shall be held in trust by Borrower for and as Lender's
property and shall not be commingled with any funds of Borrower. The
net amount received by Lender as proceeds arising from the sale or
other disposition of Collateral will be credited by Lender to
Borrower's loan account (subject to final collection thereof) after
allowing the number of days required by the applicable bank for
collection of checks and other instruments.
WARRANTY AS TO COLLATERAL. Borrower warrants that:
all Receivables listed in or reported on Borrower's
schedules will, when Borrower delivers the schedules to Lender, be bona
fide existing obligations created by the sale and actual delivery of
goods or the rendition of services to Customers in the ordinary course
of business, which Borrower then owns free of any Security Interest
except for the Security Interest in favor of Lender created by this
Agreement or Security Interests permitted under Paragraph 18(d), and
which are then unconditionally owing to Borrower without defense,
offset or counterclaim; and that all shipping or delivery receipts,
invoice copies and other documents furnished to Lender in connection
therewith will be genuine; and
all Inventory and Equipment is and shall be owned by
Borrower, free of any Security Interest except for the Security
Interest of Lender created by this Agreement or Security Interests
permitted by Paragraph 18(d).
Lender's rights to and security interest in the Collateral will not be impaired
by the ineligibility of any such Collateral for Advances and will continue to be
effective until all obligations chargeable to Borrower's loan account have been
fully satisfied.
POWER OF ATTORNEY. Borrower appoints Lender, or any of
Lender's officers, employees or agents whom Lender may from time to time
designate, as Borrower's attorney with power to: (a) to endorse Borrower's name
on any checks, notes, acceptances, drafts or other forms of payment or security
that may come into Lender's possession; (b) to sign Borrower's name on any
invoice or bill of lading relating to any Receivables, on drafts against
Customers, on schedules and confirmatory assignments of Receivables, on notices
of assignment, financing statements and amendments under the Commercial Code and
other public records, on verifications of accounts and on notices to Customers;
(c) to notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender; (d) to receive, open and
dispose of all mail addressed to Borrower; (e) to send requests for verification
of accounts to Customers; and (f) to do all things necessary to carry out this
Agreement; provided however, that the powers specified in clauses (c) and (d)
above may be exercised only after the occurrence of an Event of Default.
Borrower ratifies and approves all acts of the attorney. Neither Lender nor the
attorney will be liable for any acts of commission or omission nor for any error
in judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable so long as any Receivable in which Lender has a
security interest or any Obligation remains unpaid. Borrower waives presentment
and protest of all instruments and notice thereof, notice of default and
dishonor and all other notices to which Borrower may otherwise be entitled.
LOCATION OF COLLATERAL. Borrower warrants that its chief
executive office is at the address stated in the opening paragraph of this
Agreement and that its books and records concerning Receivables are located
there. Borrower's Inventory, Equipment and other goods are at the location or
locations as designated on Schedule A annexed hereto. Borrower shall immediately
notify Lender if any additional locations for Collateral are subsequently
established. Borrower shall not change the location of its chief executive
office, the place where it keeps its books and records, or the location of any
Collateral (except for sales of Inventory in the ordinary course of business)
until Borrower has obtained the written consent of Lender and all necessary
filings have been made and other actions taken to continue the perfection of
Lender's Security Interest in such new location. Lender's Security Interest
attaches to all the Collateral wherever located, and the failure of Borrower to
inform Lender of the location of any item or items of Collateral shall not
impair Lender's Security Interest therein.
OWNERSHIP AND PROTECTION OF COLLATERAL. Borrower warrants,
represents and covenants to Lender that the Collateral is now and, so long as
Borrower is obligated to Lender, will be owned by Borrower free and clear of all
Security Interests except for the Security Interest in favor of Lender created
by this Agreement and except the Security Interests, if any, permitted by
Paragraph 18(d), and that said Collateral, including the Receivables and
proceeds resulting from the collection, sale or other disposition thereof, will
remain free and clear of any and all Security Interests except for the Security
Interest in favor of Lender created by this Agreement and except the Security
Interests, if any, permitted under Paragraph 18(d). Borrower will not sell,
lease or otherwise dispose of the Collateral, or attempt so to do (except for
sales of Inventory in the ordinary course of business and sales of obsolete and
worn equipment not in excess of $25,000.00 in the aggregate in any calendar
year) without the prior written consent of Lender and unless the proceeds of any
such sale are paid to Lender for application on Borrower's Obligations. After
the occurrence of a Default or an Event of Default, Lender will at all times
have the right to take physical possession of any Inventory and Equipment
constituting Collateral and to maintain such possession on Borrower's premises
or to remove the same or any part thereof to such other places as Lender may
wish. If Lender exercises Lender's right to take possession of such Collateral,
Borrower shall on Lender's demand, assemble the same and make it available to
Lender at a place reasonably convenient to Lender. Borrower shall at all times
keep the Equipment constituting Collateral in good condition and repair. All
expenses of protecting, storing, warehousing, insuring, handling and shipping of
the Collateral, all costs of keeping the Collateral free of any Security
Interests prohibited by this Agreement and of removing the same if they should
arise, and any and all excise, property, sales and use taxes imposed by any
state, federal or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by Borrower and if Borrower fails to
promptly pay any thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower's loan account therefor. Borrower
agrees to renew all insurance required by this Paragraph 11 or Paragraph 13 at
least 30 days prior to its expiration. Borrower agrees that, with respect to any
Inventory maintained in a public warehouse, (i) Borrower will ensure that any
warehouse receipts issued are not in a negotiable form, (ii) Borrower will, upon
request from Lender, deliver all warehouse receipts to Lender, and (iii)
Borrower will cause the public warehouseman to execute an agreement similar to
those delivered pursuant to Paragraph 21(m) and in form and substance
satisfactory to Lender.
PERFECTION OF SECURITY INTEREST. Borrower agrees to execute
such financing statements together with any and all other instruments or
documents and take such other action, including delivery, as may be required to
create, evidence, perfect and maintain Lender's Security Interest in the
Collateral and Borrower shall not in any manner do any act or omit to do any act
which would in any manner impair or invalidate Lender's Security Interest in the
Collateral or the perfection thereof.
INSURANCE. Borrower shall maintain insurance coverage on any
Collateral other than Receivables with such companies, against such hazards, and
in such amounts as may from time to time be acceptable to Lender and shall
deliver such policies or copies thereof to Lender with satisfactory lender's
loss payable endorsements naming Lender. Each policy of insurance shall contain
a clause requiring the insurer to give not less than 30 days prior written
notice to Lender in the event of any anticipated cancellation of the policy for
any reason and a clause that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower nor by the occupation of the
premises wherein such Collateral is located for purposes more hazardous than are
permitted by said policy. Borrower will maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies of such types (which may include,
without limitation, public and product liability, larceny, embezzlement, or
other criminal misappropriation insurance) and in such amounts as may from time
to time be required by Lender.
BORROWER'S ACCOUNT. Lender may charge to Borrower's loan
account at any time the amounts of all Obligations (and interest, if any,
thereon) owing by Borrower to Lender, including (without limitation) loans,
Advances, debts, liabilities, obligations acquired by purchase, assignment or
participation and all other obligations, whenever arising, whether absolute or
contingent and whether due or to become due; also the amount of all costs and
expenses and all attorneys' fees and legal expenses incurred in connection with
efforts made to enforce payment of such obligations, or to obtain payment of any
Receivables, or the foreclosure of any Collateral or in the prosecution or
defense of any actions or proceedings relating in any way to this Agreement
whether or not suit is commenced, including reasonable attorneys' fees and legal
expenses incurred in connection with any appeal of a lower court's order or
judgment; and also the amounts of all unpaid taxes and the like, owing by
Borrower to any governmental authority or required to be deposited by Borrower,
which Lender pays or deposits for Borrower's account. All of Borrower's
borrowings hereunder and (unless otherwise specified) all other obligations
which are chargeable to Borrower's loan account shall be payable ON DEMAND;
recourse to security will not be required at any time. All sums at any time
standing to Borrower's credit on Lender's books and all of Borrower's property
at any time in Lender's possession or upon or in which Lender has a Security
Interest, may be held by Lender as security for all obligations which are
chargeable to Borrower's loan account. Subject to the foregoing, Lender, at
Borrower's request, will remit to Borrower any net balance standing to
Borrower's credit on Lender's books. Lender will account to Borrower monthly and
each monthly accounting will be fully binding on Borrower, unless, within thirty
days thereafter, Borrower gives Lender specific written notice of exceptions.
All debit balances in Borrower's loan account will bear interest as provided in
Paragraph 5 of this Agreement. If Lender so requests at any time, Borrower will
immediately execute and deliver to Lender a promissory note in negotiable form
payable on demand to Lender's order in a principal amount equal to the amount of
the debit balance in Borrower's loan account, with interest as provided in
Paragraph 5 of this Agreement. In any event, Borrower covenants to pay all
Advances, debts, accounts and interest when due.
PARTICIPATIONS. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to any such Person
holding a participation, and such Person shall have and is hereby given a
continuing Security Interest in any money, securities and other property of
Borrower in the custody or possession of such Participant, including the right
of set-off as fully as if such Participant had lent directly to Borrower the
amount of such participation.
GENERAL REPRESENTATIONS AND WARRANTIES. To induce Lender to
make Advances hereunder, Borrower makes the following representations and
warranties, all of which shall survive the initial Advance:
Borrower is a corporation duly organized, existing,
and in good standing under the laws of the state of Minnesota has
corporate power to own its property and to carry on its business as now
conducted, and is duly qualified to do business in all states in which
the nature of its business requires such qualification. During the past
five years, Borrower has done business solely under the names listed on
Schedule B attached hereto. Borrower does not own any capital stock of
any corporation, except as set forth on Schedule C attached hereto.
The execution and delivery of this Agreement and the
other Loan Documents and the performance by Borrower of its obligations
hereunder and thereunder do not and will not conflict with any
provision of law, or of the charter or bylaws of Borrower, or of any
agreement binding upon Borrower.
The execution and delivery of this Agreement and the
other Loan Documents have been duly authorized by all necessary
corporate action by directors and shareholders of Borrower; and this
Agreement and the other Loan Documents have in fact been duly executed
and delivered by Borrower and constitute its lawful and binding
obligations, legally enforceable against it in accordance with their
respective terms.
Except as disclosed to Lender on Schedule D attached
hereto, there is no action, suit or proceeding at law or equity, or
before or by any federal, state, local or other governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, pending or, to the knowledge of Borrower,
threatened against Borrower or any Guarantor or the property of
Borrower or any Guarantor which, if determined adversely, would be a
Material Adverse Occurrence or would affect the ability of Borrower or
any Guarantor to perform its obligations under the Loan Documents; and
neither Borrower nor any Guarantor is in default with respect to any
final judgment, writ, injunction, decree, rule or regulation of any
court or federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, where the effect of such default would be a Material Adverse
Occurrence.
The authorization, execution and delivery of this
Agreement, and the payment of the loans and interest hereon, is not,
and will not be, subject to the jurisdiction, approval or consent of
any federal, state or local regulatory body or administrative agency.
All of the assets of Borrower are free and clear of
Security Interests except those listed on Schedule E attached hereto.
Borrower has filed all federal, state and local tax
returns which, to the knowledge of Borrower, are required to be filed,
and Borrower has paid all taxes shown on such returns and all
assessments which are due. Borrower has made all required withholding
deposits. Federal income tax returns of Borrower have been examined and
approved or adjusted by the applicable taxing authorities or closed by
applicable statutes for all fiscal years prior to and including the
fiscal year ended on . Borrower does not have knowledge of any
objections to or claims for additional taxes by federal, state or local
taxing authorities for subsequent years which would be a Material
Adverse Occurrence.
Borrower has furnished to Lender the financial
statements listed on Schedule G attached hereto. These statements were
prepared in accordance with GAAP and present fairly the financial
condition of Borrower and its Consolidated Subsidiaries. There has been
no material adverse change in the condition of Borrower and its
Consolidated Subsidiaries, financial or otherwise, since the date of
the most recent of such financial statements.
The value of the assets and properties of Borrower at
a fair valuation and at their then present fair salable value is and,
after giving effect to any pending Advance and the application of the
amount advanced, will be materially greater than its total liabilities,
including Contingent Obligations, and Borrower has (and has no reason
to believe that it will not have) capital sufficient to pay its
liabilities, including Contingent Obligations, as they become due.
Borrower is in compliance with all requirements of
law relating to pollution control and environmental regulations in the
respective jurisdictions where Borrower is presently doing business or
conducting operations.
All amounts obtained pursuant to Advances will be
used for Borrower's working capital purposes.
Except for the trademarks, patents, copyrights and
franchise rights listed on Schedule F attached hereto, Borrower is not
the owner of any patent, trademark, copyright or franchise rights.
(i) Each Plan is in compliance in all material
respects with all applicable provisions of ERISA and the Code; (ii) the
aggregate present value of all accrued vested benefits under all Plans
(calculated on the basis of the actuarial assumptions specified in the
most recent actuarial valuation for such Plans) did not exceed as of
the date of the most recent actuarial valuation for such Plans the fair
market value of the assets of such Plans allocable to such benefits;
(iii) Borrower is not aware of any information since the date of such
valuations which would materially affect the information contained
therein; (iv) no Plan which is subject to Part 3 of Subtitle B of Title
I of ERISA or Section 412 of the Code has incurred an accumulated
funding deficiency, as that term is defined in Section 302 of ERISA or
Section 412 of the Code (whether or not waived); (v) no liability to
the PBGC (other than required premiums which have become due and
payable, all of which have been paid) has been incurred with respect to
any Plan, and there has not been any Reportable Event which presents a
material risk of termination of any Plan by the PBGC; and (vi) Borrower
has not engaged in a transaction which would subject it to tax, penalty
or liability for prohibited transactions imposed by ERISA or the Code.
Borrower does not contribute to any Multiemployer Plan.
No part of any Advance shall be used at any time by
Borrower to purchase or carry margin stock (within the meaning of
Regulation U promulgated by the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Borrower is not engaged
principally, or as one of its important activities, in the business of
extending credit for the purposes of purchasing or carrying any such
margin stock. No part of the proceeds of any Advance will be used by
Borrower for any purpose which violates, or which is inconsistent with,
any regulations promulgated by the Board of Governors of the Federal
Reserve System.
Borrower is not an "investment company", or an
"affiliated person" of, or a "promoter" or "principal underwriter" for,
an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended. The making of the Advances, the
application of the proceeds and repayment thereof by Borrower and the
performance of the transactions contemplated by this Agreement will not
violate any provision of said Act, or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
The number of shares and classes of the capital stock
of Borrower and the ownership thereof are accurately set forth on
Schedule H attached hereto. Borrower has not: (i) issued any
unregistered securities in violation of the registration requirements
of Section 5 of the Securities Act of 1933, as amended, or any other
law; or (ii) violated any rule, regulation or requirement under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, in either case where the effect of such violation
would be a Material Adverse Occurrence. No proceeds of the Advances
will be used to acquire any security in any transaction which is
subject to Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended.
Except for Contingent Obligations shown on Schedule I
attached hereto, Borrower does not have any Contingent obligations.
All factual information heretofore or herewith
furnished by or on behalf of Borrower to Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby
is, and all other such factual information hereafter furnished by or on
behalf of Borrower to Lender will be, true and accurate in every
material respect on the date as of which such information is dated or
certified and no such information contains any material misstatement of
fact or omits to state a material fact or any fact necessary to make
the statements contained therein not misleading.
Each representation and warranty shall be deemed to
be restated and reaffirmed to Lender on and as of the date of each
Advance under this Agreement except that any reference to the financial
statements referred to in Paragraph 16(h) shall be deemed to refer to
the financial statements then most recently delivered to Lender
pursuant to Paragraphs 17(a)(i) and (ii).
AFFIRMATIVE COVENANTS. Borrower agrees that it will:
Furnish to Lender in form satisfactory to Lender:
Within 90 days after the end of each fiscal
year of Borrower, a complete audited financial report prepared
and certified without qualification or explanatory language by
Independent Public Accountants on a Consolidated and
consolidating basis for Borrower and any Consolidated
Subsidiaries of Borrower; together with a copy of the
management letter or memorandum, if any, delivered by such
independent certified public accountant to Borrower and
Borrower's response thereto. If Borrower shall fail to supply
the report within such time limit, Lender shall have the right
(but not the duty) to employ certified public accountants
acceptable to Lender to prepare such report at Borrower's
expense;
Within 30 days after the end of each month,
a balance sheet with operating figures as to that month,
certified as correct by the chief financial officer or
treasurer of Borrower but subject to adjustments as to
inventories or other items to which an officer of Borrower
directs attention in writing, together with a reconciliation
of any variances between the information provided on such
balance sheet and the information for that day previously
delivered to Lender pursuant to Paragraph 17(a)(v);
With the financial statements described in
Paragraph 17(a)(i) and (ii), a compliance certificate in the
form attached as Exhibit A certified as true and accurate by
the chief financial officer or treasurer of Borrower;
Within 10 days after the end of each month,
an aging of accounts receivable together with a reconciliation
in a form satisfactory to Lender and an aging of accounts
payable in form acceptable to Lender and certified as true and
accurate by an officer of Borrower;
Within 10 days after the end of each month,
an inventory certification report for all Inventory locations
in form acceptable to Lender and certified as true and
accurate by an officer of Borrower; and
From time to time, at Lender's request, any
and all other material, reports, information, or figures
reasonably required by Lender.
Permit Lender and its representatives access to, and
the right to make copies of, the books, records, and properties of
Borrower at all reasonable times; and permit Lender and its
representatives to discuss Borrower's financial matters with officers
of Borrower and with its Independent Public Accountant (and, by this
provision, Borrower authorizes its Independent Public Accountant to
participate in such discussions).
Pay when due all taxes, assessments, and other
liabilities against it or its properties except those which are being
contested in good faith and for which an adequate reserve has been
established; Borrower shall make all withholding payments when due;
during any period for which Borrower has made an effective S
Corporation election, Borrower shall promptly provide Lender with
evidence of payment by Borrower's shareholders of estimated income
taxes.
Promptly notify Lender in writing of any substantial
change in present management of Borrower.
Pay when due all amounts necessary to fund in
accordance with its terms any Plan.
Comply in all material respects with all laws, acts,
rules, regulations and orders of any legislative, administrative or
judicial body or official applicable to Borrower's business operation
or Collateral or any part thereof; provided, however, that Borrower may
contest any such law, act, rule, regulation or order in good faith by
appropriate proceedings so long as (i) Borrower first notifies Lender
of such contest, and (ii) such contest does not, in Lender's sole
discretion, adversely affect Lender's right or priority in the
Collateral or impair Borrower's ability to pay the Obligations when
due.
Pay Lender for the period commencing on the date of
this Agreement and continuing through the date of payment of all
Obligations after the Termination Date, a reasonable administration fee
(herein called the "Loan Administration Fee"), which so long as no
Default or Event of Default exists under this Agreement, shall be equal
to the sum of $1,000.00 per quarter (commencing with the quarter
beginning October 1, 1996) plus all out-of-pocket expenses incurred by
Lender in conducting examinations. The Loan Administration Fee shall be
non-refundable, shall be deemed earned when paid and shall be payable
to Lender in advance on October 1, 1996 and on the first day of each
subsequent 3 month period/quarter. Borrower hereby consents to such
examinations by Lender.
Pay to Lender an origination fee (the "Origination
Fee") in the amount of Five Thousand and No/100ths Dollars ($5,000.00).
Pay to Lender a survey fee (the "Survey Fee") in the amount of Three
Thousand Five Hundred and No/100ths Dollars ($3,500.00), receipt of
which is hereby acknowledged. The entire amount of the Origination Fee
and Survey Fee shall be nonrefundable and shall be deemed to have been
earned upon execution of this Agreement.
Pay Lender, for the period commencing on the date of
this Agreement and continuing through the Termination Date, a
non-refundable line maintenance fee (the "Line Maintenance Fee") at the
rate of 1.0% per annum of the Maximum Principal Amount. Such Line
Maintenance Fee shall be payable to Lender in advance on the Closing
Date and on each subsequent anniversary date of this Agreement until
all amounts owing hereunder are repaid in full. The Line Maintenance
Fee shall be non-refundable and shall be deemed earned when paid.
Notwithstanding the above subparagraph, should Borrower's 1996 Net
Income (before provision for income taxes) or gross profit fail to meet
or exceed a figure which is 90% of the projected Net Income for 1996
(as it appears on Borrower's projected income statement attached as
Exhibit C), then the Line Maintenance Fee for the first calendar
quarter of 1997 shall be increased from 1.0% per annum to 1.5% per
annum, and Borrower shall immediately pay to Lender, on demand, the
amount of any deficiency in the Line Maintenance Fee previously paid
with respect to such quarter.
Notwithstanding the above subparagraph, during 1997, should Borrower's
Net Income (before provision for income taxes) or gross profit in any
calendar quarter fail to meet or exceed a figure which is 85% of the
projected Net Income for that quarter (as it appears on Borrower's
projected income statement attached as Exhibit C), then the Line
Maintenance Fee for the next calendar quarter shall be increased from
1.0% per annum to 1.5% per annum, and Borrower shall immediately pay to
Lender, on demand, the amount of any deficiency in the Line Maintenance
Fee previously paid with respect to such quarter.
Promptly notify Lender in writing of (x) any
litigation which (i) involves an amount in dispute in excess of
$10,000.00 (ii) relates to the matters which are the subject of this
Agreement, or (iii) if determined adversely to Borrower would be a
Material Adverse Occurrence; and (y) any adverse development in any
litigation described in clause (x).
Promptly notify Lender of any Default or Event of
Default.
At the end of each quarter of the Borrower's fiscal
year, Borrower must achieve Seventy-Five percent (75%) of their
projected Net Income (before provision for income taxes) and gross
profit both for that calendar quarter and for the fiscal year to date
through the end of that quarter, as reflected in the projections which
are attached hereto as Exhibit A.
NEGATIVE COVENANTS. Borrower agrees that it will not:
Without Lender's consent, expend or contract to
expend an aggregate in excess of $400,000.00 for fixed assets in any
fiscal year, whether by way of purchase, lease or otherwise, and
whether payable currently or in the future.
Purchase or redeem any shares of Borrower's capital
stock; or declare or pay any dividends (other than dividends payable in
capital stock); or make any distribution to stockholders of any assets
of Borrower; (provided, however, that so long as no Default or Event of
Default exists or would result from such distributions, Borrower may
make Acceptable Distributions to be used by Borrower's shareholders
solely to make required income tax payments.
Without Lender's consent, incur or permit to exist
any indebtedness, secured or unsecured, for money borrowed, except: (i)
borrowings under this Agreement; (ii) borrowings, if any, which are
existing on the date of this Agreement and which are disclosed on
Schedule J attached hereto; or (iii) indebtedness, not exceeding
$50,000.00 at any one time in the aggregate outstanding incurred to
acquire fixed assets but only to the extent that such fixed asset
acquisition is permitted by Paragraph 18(a).
Create or permit to exist any Security Interest on
any assets now owned or hereafter acquired except: (i) those created in
Lender's favor and held by Lender; (ii) liens of current taxes not
delinquent or taxes which are being contested in good faith for which
an adequate reserve has been established; (iii) purchase money security
interests securing indebtedness permitted by Paragraph 18(c)(iii);
provided, however, that such Security Interest extends only to the
fixed assets acquired with the proceeds of such indebtedness; and (iv)
Security Interests disclosed on Schedule E attached hereto, securing
only debt outstanding on the date of this Agreement and disclosed on
Schedule J.
Effect any recapitalization; or be a party to any
merger or consolidation; or, except in the normal course of business,
sell, transfer, convey or lease all or any substantial part of its
property; or sell or assign (except to Lender), with or without
recourse, any Receivables or General Intangibles.
Enter into a new business or purchase or otherwise
acquire any business enterprise or any substantial assets of any person
or entity; or make any loans to any person or entity; or purchase any
shares of stock of, or similar interest in, or make any capital
contribution to or investment in, any entity.
Permit more than $150,000.00 to be owing at any one
time to Borrower by all of Borrower's employees, officers, directors,
or shareholders, or members of their families, as a result of any
borrowings, purchases, travel advances or other transactions or events;
Become a guarantor or surety or pledge its credit or
its assets on any undertaking of another, except for the Contingent
Obligations shown on Schedule I attached hereto;
In any fiscal year pay excessive or unreasonable
salaries, bonuses, fees, commissions, fringe benefits or other forms of
compensation (such salaries, bonuses, fees, commissions, fringe
benefits or other forms of compensation being 'Compensation") to any of
its officers or directors; or increase the Compensation of any officers
by more than percent (10%) or pay any such increases in Compensation of
officers other than from profits earned in the year of such payment;
Permit any default to occur under the terms of any
note, loan agreement, lease, mortgage, contract for deed, security
agreement, or other contractual obligation binding upon Borrower;
Make any substantial change in present management or
policy or in its present business or enter into a new business;
Enter into any agreement providing for the leasing by
Borrower of property which has been or is to be sold or transferred by
Borrower to the lessor thereof, or which is substantially similar in
purpose to the property so sold or transferred;
Change its terms of trade with respect to the due
date of any Receivable;
Change its fiscal year;
(i) Permit or suffer any Plan maintained for
employees of Borrower or any commonly controlled entity to engage in
any transaction which results in a liability of Borrower under Section
409 or 502(i) of ERISA or Section 4975 of the Code; (ii) permit or
suffer any such Plan to incur any "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA and Section 412 of the
Code), whether or not waived; (iii) terminate, or suffer to be
terminated, any Plan covered by Title IV of ERISA maintained by
Borrower or any commonly controlled entity or permit or suffer to exist
a condition under which PBGC may terminate any such Plan; or (iv)
permit to exist the occurrence of any Reportable Event (as defined in
Title IV of ERISA) which represents termination by the PBGC of any
Plan;
Enter into any transaction with any Affiliate of
Borrower upon terms and conditions less favorable to Borrower than the
terms and conditions which would apply in a similar transaction with an
unrelated third party;
Enter into any agreement containing any provision
which would be violated or breached by Borrower under any Loan Document
or by the performance by Borrower of its obligations under any Loan
Document;
Amend or modify the provisions of any Subordinated
Debt; or
Maintain any Inventory at a warehouse which issues
negotiable warehouse receipts with respect to such inventory.
AVAILABILITY OF COLLATERAL. Lender may from time to time, for
its convenience, segregate or apportion the Collateral for purposes of
determining the amounts and maximum amounts of Advances which may be made
hereunder. Nevertheless, Lender's security interest in all such Collateral, and
any other collateral rights, interests and properties which may now or hereafter
be available to Lender, shall secure and may be applied to the payment of any
and all loans, Advances and other Obligations secured by Lender's security
interest, in any order or manner of application and without regard to the method
by which Lender determines to make Advances hereunder.
DEFAULT AND REMEDIES. It shall be an Event of Default under
this Agreement if:
Borrower fails to make any payment when due or
required under this Agreement, or any present or future supplements
hereto, or any note issued by Borrower in favor of Lender, or any other
agreement between Borrower and Lender (including payments due upon
demand should demand be made); or
Borrower fails to perform or observe any covenant,
condition or agreement contained in this Agreement or in any other Loan
Document; or
Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Guarantor proves
to have been false, incorrect or misleading in a material respect when
made; or
A proceeding seeking an order for relief under the
Bankruptcy Code is commenced by or against Borrower or any Guarantor,
provided however, that if such a proceeding is commenced against
Borrower or any Guarantor on an involuntary basis, then only if such
action is not dismissed within 60 days of first being filed; or
Borrower or any Guarantor becomes insolvent or
generally fails to pay, or admit in writing its or his inability to
pay, its or his debts as they become due; or
Borrower or any Guarantor applies for, consents to,
or acquiesces in, the appointment of a trustee, receiver or other
custodian for it or him or for any of its or his property, or makes a
general assignment for the benefit of creditors; or, in the absence of
such application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for Borrower or for Guarantor or for a
substantial part of Borrower's or any Guarantor's property; or
Any other reorganization, debt arrangement, or other
case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding is commenced in respect of
Borrower or any Guarantor, provided however, that if such a proceeding
is commenced against any Guarantor on an involuntary basis, then only
if such action is not dismissed within 60 days of first being filed; or
Borrower or any Guarantor takes any action to
authorize, or in furtherance of, any of the events described in the
foregoing clauses (d) through (g); or
Any judgments, writs, warrants of attachment,
executions or similar process (not covered by insurance) in the
aggregate amount that exceeds $10,000.00 is issued or levied against
Borrower, any Guarantor or any of its or his assets and is not
released, vacated or fully bonded prior to any sale and in any event
within five days after its issue or levy; or
(k) the attachment of any tax lien to any property of Borrower
or any Guarantor which is other than for taxes or assessments not yet
due and payable; or
there is a material adverse change in the condition
(financial or otherwise), business or property of Borrower or any
Guarantor; or
Any Guarantor dies or attempts to revoke his or its
guaranty.
Upon the occurrence of any Event of Default described in Paragraphs 20(d), (e),
(f), (g) or (h), all Obligations shall be and become immediately due and payable
without any declaration, notice, presentment, protest, demand or dishonor of any
kind (all of which are hereby waived by Borrower) and Borrower's ability to
obtain any additional Advances under this Agreement shall be immediately and
automatically terminated. Upon the occurrence of any other Event of Default,
Lender, without notice to Borrower, may terminate Borrower's ability to obtain
any additional Advances under this Agreement and may declare all or any portion
of the Obligations to be due and payable, without notice, presentment, protest
or demand or dishonor of any kind (all of which are hereby waived), whereupon
the full unpaid amount of the obligations which shall be so declared due and
payable shall be and become immediately due and payable. Upon the occurrence of
an Event of Default, Lender shall have all the rights and remedies of a secured
party under the commercial Code and may require Borrower to assemble the
Collateral and make it available to Lender at a place designated by Lender, and
Lender shall have the right to take immediate possession of the Collateral and
may enter any of the premises of Borrower or wherever the Collateral is located
with or without process of law and to keep and store the same on said premises
until sold (and if said premises be the property of Borrower, Borrower agrees
not to charge Lender or a purchaser from Lender for storage thereof for a period
of at least 90 days). upon the occurrence of an Event of Default, Lender,
without further demand, at any time or times, may sell and deliver any or all of
the Collateral at public or private sale, for cash, upon credit or otherwise, at
such prices and upon such terms as Lender deems advisable, at its sole
discretion. Any requirement under the Commercial Code or other applicable law of
reasonable notice will be met if such notice is mailed to Borrower at its
address set forth in the opening paragraph of this Agreement at least ten days
before the date of sale. Lender may be the purchaser at any such sale, if it is
public. The proceeds of sale will be applied first to all expenses of retaking,
holding, preparing for sale, selling and the like, including attorneys' fees and
legal expenses (whether or not suit is commenced) including, without limitation,
reasonable attorneys' fees and legal expenses incurred in connection with any
appeal of a lower court's order or judgment, and second to the payment (in
whatever order Lender elects) of all other obligations chargeable to Borrower's
loan account hereunder. Subject to the provisions of the Commercial Code, Lender
will return any excess to Borrower and Borrower shall remain liable to Lender
for any deficiency. Borrower agrees to give Lender immediate notice of the
existence of any Default or Event of Default.
CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Lender to make the initial Advance is subject to the condition precedent that
Lender shall have received on or before the date of the initial Advance copies
of all of the following, unless waived by Lender:
A favorable opinion of counsel to Borrower and the
Guarantors in form and substance satisfactory to Lender;
UCC-1 Financing Statements in a form acceptable to
Lender appropriately completed and duly executed by Borrower;
Acceptable recent UCC, tax lien, judgment, and
bankruptcy searches from the filing offices in all states required by
Lender;
The Guaranties, in form attached hereto as Exhibit D,
appropriately completed and duly executed by each Guarantor;
Subordination Agreements relating to all notes
payable under which Borrower is obligated;
A certified copy of all documents evidencing any
necessary consent or governmental approvals (if any) with respect to
the Loan Documents or any other documents provided for in this
Agreement;
A certificate by the Secretary or any Assistant
Secretary of Borrower certifying as to: (i) attached resolutions of
Borrower's Board of Directors authorizing or ratifying the execution,
delivery and performance of the Loan Documents to which Borrower is a
party and any other documents provided for by this Agreement, (ii) the
names of the officers of Borrower authorized to sign the Loan Documents
together with a sample of the true signature of such officers, and
(iii) attached bylaws of Borrower;
Certificates of Good Standing for Borrower issued by
its state of incorporation and by those states requested by Lender;
A copy of the articles of incorporation of each
Guarantor that is a corporation certified by the Secretary of State;
Evidence of insurance for all insurance required by
the Loan Documents;
An officer certificate, in form and substance
satisfactory to Lender, executed by the President of Borrower;
The Note, in form and substance satisfactory to
Lender, appropriately completed and duly executed by the Borrower;
Appropriate collateral account agreements executed by
Borrower and the other parties thereto;
A collateral assignment of life insurance in the
amount of Five Hundred Thousand and No/100ths Dollars ($500,000.00) on
the life of Eward R. Cameron in form and substance satisfactory to
Lender; and
Such landlord lien waivers and mortgagee consents as
Lender, in its sole discretion, may require, in form and substance
satisfactory to Lender in its sole discretion, appropriately completed
and duly executed;
Such other approvals, opinions or documents as Lender
may require.
CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Lender
to make any Advance (including the initial Advance) shall be subject to the
satisfaction of each of the following conditions, unless waived in writing by
Lender:
The representations and warranties of Borrower set
forth in this Agreement are true and correct on the date of the Advance
(and after giving effect to the Advance then being made);
No Default, no Event of Default and no Material
Adverse Occurrence shall then have occurred and be continuing on the
date of the Advance or result from the making of the Advance; and
No litigation, arbitration or governmental
investigation or proceeding shall be pending or, to the knowledge of
Borrower or any Guarantor, threatened against Borrower or any Guarantor
or affecting its business or operations or its ability to perform its
obligations hereunder which, if adversely determined to Borrower or any
Guarantor, would constitute a Material Advance Occurrence.
TERMINATION. Subject to automatic termination of Borrower's
ability to obtain additional Advances under this Agreement upon the occurrence
of any Event of Default specified in Paragraphs 20(d), (e), (f) or (g) and to
Lender's right to terminate Borrower's ability to obtain additional Advances
under this Agreement upon the occurrence of any other Event of Default or upon
demand, this Agreement shall have a term ending on the Termination Date
provided, however, that Borrower may terminate this Agreement at any earlier
time upon sixty days prior written notice; provided further, however, that if
Borrower terminates this Agreement at any time on or prior to August 30, 1997,
then Borrower shall pay to Lender a prepayment charge equal to the product
arrived at by multiplying $7,500.00 times the number of calendar months (whole
and fractional) from the Termination Date to and including August 30, 1999;
provided further, however, that if Borrower terminates this Agreement at any
time after August 30, 1997 and on or before August 30, 1999, then Borrower shall
pay to Lender a prepayment charge equal to $20,000.00; provided further,
however, that if Borrower terminates this Agreement on or prior to August 30,
1999 and repays all amounts owing to Lender hereunder completely from funds
borrowed from Western State Bank (and not from any other source of funds), then
no prepayment charge shall be due. On the Termination Date, all obligations
arising under this Agreement shall become immediately due and payable without
further notice or demand. Lender's rights with respect to outstanding
Obligations owing on or prior to the Termination Date will not be affected by
termination and all of said rights including (without limitation) Lender's
Security Interest in the Collateral existing on such Termination Date or
acquired by Borrower thereafter, and the requirements of this Agreement that
Borrower furnish schedules and confirmatory assignments of Receivables and
Inventory and turn over to Lender all full and partial payments thereof shall
continue to be operative until all such Obligations have been duly satisfied.
GRANT OF LICENSE TO USE PATENTS AND TRADEMARKS COLLATERAL. For
the purpose of enabling Lender to exercise rights and remedies under this
Agreement, Borrower hereby grants to Lender an irrevocable, non-exclusive
license (exercisable without payment of royalty or other compensation to
Borrower) to use, license or sublicense any patent or trademark now owned or
hereafter acquired by Borrower and wherever the same may be located, and
including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer and automatic
machinery software and programs used for the compilation or printout thereof.
MISCELLANEOUS.
The performance or observance of any affirmative or
negative covenant or other provision of this Agreement and any
supplement hereto may be waived by Lender in a writing signed by Lender
but not otherwise. No delay on the part of Lender in the exercise of
any remedy, power or right shall operate as a waiver thereof, nor shall
any single or partial exercise of any remedy, power or right preclude
other or further exercise thereof or the exercise of any other remedy,
power or right. Each of the rights and remedies of Lender under this
Agreement will be cumulative and not exclusive of any other right or
remedy which Lender may have hereunder or as allowed by law.
Any notice, demand or consent authorized by this
Agreement to be given to Borrower shall be deemed to be given when
transmitted by telex or telecopier (provided a confirmation copy
thereof is sent by First Class U.S. mail within 24 hours of
transmission) or personally delivered, or three days after being
deposited in the U.S. mail, postage prepaid, or one day after delivery
to Federal Express or other overnight courier service, in each case
addressed to Borrower at its address shown in the opening paragraph of
this Agreement, or at such other address as Borrower may, by written
notice received by Lender, designate as Borrower's address for purposes
of notice hereunder. Any notice or request authorized by this Agreement
to be given to Lender shall be deemed to be given when personally
delivered, or three days after being deposited in the U.S. mail,
certified, return receipt requested, postage prepaid, or one day after
delivery to Federal Express or other overnight courier, in each case
addressed to Lender at its address shown in the opening paragraph of
this Agreement, or at such other address as Lender may, by written
notice received by Borrower, designate as Lender's address for purposes
of notice hereunder; provided, however, that any notice to Lender given
pursuant to Paragraph 4(b) shall not be deemed given until received.
This Agreement, including exhibits and schedules and
other agreements referred to herein, is the entire agreement between
the parties supersedes and rescinds all prior agreements relating to
the subject matter herein, cannot be changed, terminated or amended
orally, and shall be deemed effective as of the date it is accepted by
Lender.
Borrower agrees to pay and will reimburse Lender on
demand for all out-of-pocket expenses incurred by Lender arising out of
this transaction including without limitation filing and recording fees
and attorneys' fees and legal expenses, including costs of in-house
counsel (whether or not suit is commenced), whether incurred in the
negotiation and preparation of this Agreement, in the protection and
perfection of Lender's security interest in the Collateral, in the
enforcement of any of the provisions of this Agreement or of Lender's
rights and remedies hereunder and against the Collateral, in the
defense of any claim or claims made or threatened against Lender
arising out of this transaction, or otherwise including, without
limitation, in each instance, all reasonable attorneys' fees and legal
expenses incurred in connection with any appeal of a lower court's
order or judgment. Lender is authorized to deduct any such expenses
from any amount due Borrower and/or to add such expenses to Borrower's
loan account hereunder.
Borrower acknowledges that Lender has certain
responsibilities in connection with the taking of Advances and the
administration of this Agreement.
Borrower hereby agrees to indemnify, exonerate and hold Lender, and its
officers, directors, employees and agents (the "Indemnified Parties")
free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities and damages, and expenses in
connection therewith including, without limitation, reasonable
attorneys' fees and disbursements (the 'Indemnified Liabilities"),
incurred by the Indemnified Parties or any of them as a result of, or
arising out of, or relating to:
any transaction financed or to be financed in
whole or in part directly or indirectly with proceeds of any
Advance, or
the execution, delivery, performance or
enforcement of this Agreement or any document executed
pursuant hereto by any of the Indemnified Parties, except for
any such Indemnified Liabilities arising on account of any
Indemnified Party's gross negligence or willful misconduct.
If and to the extent that the foregoing undertaking may be
unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The
provisions of this Paragraph shall survive termination of this
Agreement.
This Agreement is made under and shall be governed by
and interpreted in accordance with the internal laws of the state of
Minnesota, except to the extent that the perfection of the Security
Interest hereunder, or the enforcement of any remedies hereunder with
respect to any particular Collateral, shall be governed by the laws of
a jurisdiction other than the State of Minnesota. Captions herein are
for convenience only and shall not be deemed part of this Agreement.
This Agreement shall be binding upon Borrower and
Lender and their respective successors, assigns, heirs, and personal
representatives and shall inure to the benefit of Borrower, Lender and
the successors and assigns of Lender, except that Borrower may not
assign or transfer its rights hereunder without the prior written
consent of Lender, and any assignment or transfer in violation of this
provision shall be null and void. In connection with the actual or
prospective sale by Lender of any interest or participation in the
obligations, Borrower authorizes Lender to furnish any information in
its possession, however acquired, concerning Borrower or any of its
Affiliates to any person or entity.
Borrower hereby irrevocably consents and submits to
the personal jurisdiction of any Minnesota state court or federal court
over any action or proceeding arising out of or relating to the
Agreement, and Borrower hereby irrevocably agrees that all claims in
respect of such action or proceeding may be shall be venued (at the
sole option of Lender) in either the District Court of Dakota or
Hennepin County, Minnesota, or the United States District Court,
District of Minnesota. Borrower hereby irrevocably waives, to the
fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. Borrower
irrevocably consents to the service of copies of the summons and
complaint and any other process which may be served in any such action
or proceeding by the mailing by United States certified mail, return
receipt requested, of copies of such process to Borrower's address
stated in the preamble hereto. Borrower agrees that judgment final by
appeal, or expiration of time to appeal without an appeal being taken,
in any such action or proceeding shall be conclusive and may be
enforced in any other jurisdictions by suit on the judgment or in any
other manner provided by law. Nothing in this Paragraph shall affect
the right of Lender to serve legal process in any other manner
permitted by law or affect the right of Lender to bring any action or
proceeding against Borrower or its property in the courts of any other
jurisdiction. Borrower agrees that, if it brings any action or
proceeding arising out of or relating to this Agreement, it shall bring
such action or proceeding in the District Court of Hennepin County,
Minnesota.
(continued)
(i) A photocopy or other reproduction hereof may be
filed as a financing statement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LENDER: SPECTRUM COMMERCIAL SERVICES, INC.
By
Its
BORROWER: APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
By
Its
Fed. Tax ID #: 41-1454591
List of Exhibits
Exhibit A Compliance Certificate
Exhibit B Form of Note
Exhibit C Borrower's Financial Projections
Exhibit D Form of Guaranties
List of Schedules
Schedule A Locations of Inventory and Equipment
(Paragraph 10)
Schedule B Names Under Which Borrower Has Done Business (Paragraph 16(a))
Schedule C Capital Stock of Corporations Owned by Borrower
(Paragraph 16(a))
Schedule D Litigation (Paragraph 16(d))
Schedule E Security Interests (Paragraphs 16(f) and 18(d))
Schedule F Patents, Trademarks, Copyrights and Franchise Rights
(Paragraph 16(l))
Schedule G Financial Statements (Paragraph 16(h))
Schedule H Stock and Stock Ownership of Borrower (Paragraph 16(p))
Schedule I Contingent Obligations (Paragraph 16(q))
Schedule J Permitted Existing Indebtedness (Paragraphs 18(c) and (d))
FIRST AMENDMENT
TO
GENERAL CREDIT AND SECURITY AGREEMENT AND WAIVER
THIS FIRST AMENDMENT TO GENERAL CREDIT AND SECURITY AGREEMENT AND
WAIVER, dated as of November 8, 1996 (the "Amendment"), between APPLIANCE
RECYCLING CENTERS OF AMERICA, INC., a Minnesota corporation (the "Borrower") and
SPECTRUM COMMERCIAL SERVICES, A DIVISION OF LYON FINANCIAL SERVICES, INC., the
successor to Spectrum Commercial Services, Inc. ("Spectrum, Inc.") with Lyon
Financial Services, Inc. (the "Lender").
RECITALS:
A. The Borrower and the Lender, as the successor to Spectrum, Inc., are
parties to that certain General Credit and Security Agreement, dated as of
August 30, 1996 (the "Original Agreement").
B. The Borrower has requested the Lender to amend certain provisions of
the Original Agreement.
C. Subject to the terms and conditions of this Amendment, the Lender
will agree to the Borrower's foregoing requests.
NOW, THEREFORE, the parties agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. AMENDMENT. The Original Agreement is hereby amended as follows:
(a) The definitions of "Borrowing Base," "Guarantor,"
"Guaranties," "Loan Documents," and "Net Income" appearing in Paragraph
2 are respectively amended in their entirety to read as follows:
"'Borrowing Base' shall mean the sum of (i) Eighty
percent (80%) of the net amount of Eligible Receivables or
such greater or lesser percentage as Lender, in its sole
discretion, shall deem appropriate, plus (ii) the lesser of
(x) One Hundred Fifty Thousand and No/100ths Dollars
($150,000) or (y) Twenty Five percent (25%) of the net amount
of Eligible Inventory, or such greater or lesser dollars
and/or percentage as Lender, in its sole discretion, shall
deem appropriate, plus (iii) One Hundred Sixty Four Thousand
and No/100ths ($164,000.00) for liquidation value of equipment
or such greater or lesser dollars as Lender, in its sole
discretion shall deem appropriate, plus (iv) Six Hundred Fifty
Thousand and No/100ths ($650,000.00) for the value of the
Mortgaged Premises or such greater or lesser dollars as
Lender, in its sole discretion, shall deem appropriate.
'Guarantor" shall mean EDWARD R. CAMERON, APPLIANCE
RECYCLING CENTERS OF AMERICA, CALIFORNIA, INC., ARCA OF ST.
LOUIS, INC., and ARCA-MARYLAND, INC. and any other Person who
enters into a Guaranty hereof.
'Guaranty(ies)' shall mean individually or
collectively, as the case may be, the separate Guaranties
dated as of August 30, 1996 separately made by each of the
Guarantors in favor of Lender and any other agreement whereby
a Person guarantees the payment or performance of any of the
Obligations.
'Loan Document(s)' shall mean individually or
collectively, as the case may be, this Agreement, the Note,
the Guaranties, the Subsidiary Security Agreements, the
Mortgage, the Assignment of Leases and Rents, the Indemnity
Agreement and any and all other documents executed, delivered
or referred to herein or therein, as originally executed and
as amended, modified or supplemented from time to time.
'Net Income' or 'Net Loss' for any period shall mean
net income or loss for such period, determined in accordance
with GAAP excluding, however, (i) extraordinary gains, and
(ii) gains (whether or not extraordinary) from sales or other
dispositions of assets other than the sale of Inventory in the
ordinary course of Borrower's business; and (iii) provisions
for income taxes."
(b) The definition of "Maximum Principal Amount" appearing in
Paragraph 2 is amended by changing the amount "One Million Five Hundred
Thousand and No/100ths Dollars ($1,500,000.00)" to the amount "Two
Million and No/100ths Dollars ($2,000,000.00)".
(c) Paragraph 2 is further amended by adding the following
definitions of "Assignment of Leases and Rents," "Indemnity Agreement,"
"Mortgage" and "Subsidiary Security Agreement(s)" in proper
alphabetical order:
"'Assignment of Leases and Rents' shall mean that
certain Assignment of Leases and Rents dated as of November 8,
1996 made by the Borrower in favor of Lender relating to the
Mortgaged Premises.
'Indemnity Agreement' shall mean that certain
Environmental and ADA Indemnification Agreement dated as of
November 8, 1996 made by the Borrower and the Guarantors in
favor of Lender relating to the Mortgaged Premises.
'Mortgage' shall mean that certain Combination
Mortgage, Security Agreement, Assignment of Leases and Rents,
and Fixture Financing Statement dated as of November 8, 1996
made by the Borrower in favor of Lender subjecting the
property described therein as the 'Mortgaged Premises' (the
'Mortgaged Premises') to a Security Interest in favor of
Lender.
'Subsidiary Security Agreement(s)' shall mean
individually or collectively, as the case may be, the separate
Security Agreements dated as of August 30, 1996 separately
made by each of the Borrower's Subsidiaries in favor of
Lender."
(d) Paragraph 5 is amended by changing: (i) the percentage
over the Prime Rate applicable when no Event of Default has occurred
from "Four Percent (4%)"to the percentage "Five Percent (5%)"; and (ii)
the amount of minimum interest from "$7,500.00" to "10,000.00".
(e) Paragraph 17(i) is amended in its entirety to read as follows:
"(i) Pay Lender, for the period commencing on the
date of this Agreement and continuing through the Termination
Date, a non-refundable line maintenance fee (the "Line
Maintenance Fee") at the rate of 1.0% per annum of the Maximum
Principal Amount. Such Line Maintenance Fee shall be payable
to Lender in advance on the Closing Date and on each
subsequent anniversary date of this Agreement until all
amounts owing hereunder are repaid in full. The Line
Maintenance Fee shall be non-refundable and shall be deemed
earned when paid.
Notwithstanding the above subparagraph, the Line Maintenance
Fee for the first fiscal quarter of 1997 shall be increased
from 1.0% per annum to 2.0% per annum as follows: (x) if Net
Income is projected for fiscal year 1996 on Borrower's
projected income statement (the "Projected Income Statement')
attached as Exhibit C (Amended 11/96) to that certain First
Amendment to General Credit and Security Agreement and Waiver
dated as of November 8, 1996 (the 'First Amendment') between
Borrower and Lender and Borrower's 1996 Net Income shall fail
to meet or exceed a figure which is 90% of the projected Net
Income for 1996; or (y) if Net Loss is projected for fiscal
year 1996 on Borrower's Projected Income Statement and
Borrower's 1996 Net Loss is greater than (ie. a greater
negative number than) One Hundred Ten Percent (110%) of its
projected Net Loss for 1996. Borrower shall immediately pay to
Lender, on demand, the amount of any deficiency in the Line
Maintenance Fee previously paid with respect to such quarter.
Notwithstanding the above, the Line Maintenance Fee for any
subsequent fiscal quarter of 1997 or thereafter shall be
increased from 1.0% per annum to 2.0% per annum as follows:
(x) if Net Income is projected for that fiscal quarter on the
Projected Income Statement and Borrower's Net Income for that
quarter shall fail to meet or exceed a figure which is 85% of
the projected Net Income for that quarter; or (y) if Net Loss
is projected for that fiscal quarter on Borrower's Projected
Income Statement and Borrower's Net Loss for that quarter is
greater than (ie. a greater negative number than) One Hundred
Fifteen Percent (115%) of its projected Net Loss for that
quarter. Borrower shall immediately pay to Lender, on demand,
the amount of any deficiency in the Line Maintenance Fee
previously paid with respect to such quarter.
(f) Paragraph 17(l) is amended in its entirety to read as
follows:
"(l) At the end of each quarter of Borrower's fiscal
year: (w) if Net Income is projected for such quarter on
Borrower's Projected Income Statement, then Borrower must
achieve Seventy-Five Percent (75%) of its projected Net Income
and gross profit for that fiscal quarter; (x) if Net Loss is
projected for such quarter on Borrower's Projected Income
Statement, then Borrower must achieve either Net Income or a
Net Loss which is no greater than (ie. a greater negative
number than) One Hundred Twenty-Five Percent (125%) of its
projected Net Loss for that fiscal quarter; (y) if Net Income
is projected for the fiscal year to date through the end of
that quarter on Borrower's Projected Income Statement, then
Borrower must achieve Seventy-Five Percent (75%) of its
projected Net Income and gross profit for that fiscal year to
date through the end of that fiscal quarter; or (z) if Net
Loss is projected for the fiscal year to date through the end
of that quarter on Borrower's Projected Income Statement, then
Borrower must achieve either Net Income or a Net Loss which is
no greater than (ie. a greater negative number than) One
Hundred Twenty-Five Percent (125%) of its projected Net Loss
for that fiscal year to date through the end of that fiscal
quarter."
(g) Paragraph 18 is amended by removing the word "or"
following subparagraph "(r)", changing the period at the end of
subparagraph "(s)" to a semi-colon followed by the word "or", and by
adding the following new subparagraph (t):
"(t) Open any more processing or servicing centers or
retail stores in any geographic area where Borrower or its
Subsidiaries do not presently have such centers or stores as
determined by the Standard Metropolitan Statistical Area for
Borrower's and its Subsidiaries' respective existing centers
or stores."
(h) The "provided further" clause of Paragraph 23 beginning on the
fifth line of page 24 of the Original Agreement is amended its entirety to read
as follows:
"provided further, however, that if Borrower
terminates this Agreement at any time after August 30, 1997
and on or before August 30, 1998, then Borrower shall pay to
Lender a prepayment charge equal to $40,000.00; provided
further, however, that if Borrower terminates this Agreement
at any time after August 30, 1998 and on or before August 30,
1999, then Borrower shall pay to Lender a prepayment charge
equal to $35,000.00;"
3. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective
on the date (the "Effective Date") when, and only when, the Lender shall have
received counterparts of this Amendment executed by the Borrower, and the Lender
shall have received all of the following, unless waived in writing by the
Lender:
(a) a replacement note (the "Replacement Note") in a form
provided by Lender appropriately completed and duly executed by
Borrower;
(b) an Acknowledgement and Amendment in a form provided by
Lender appropriately completed and duly executed by the Guarantors;
(c) the Mortgage, Assignment of Leases and Rents and Indemnity
Agreement in forms provided by Lender appropriately completed and duly
executed by Borrower and each Guarantor which is a party thereto
together with such surveys, title insurance policies, appraisals and
environmental audits as Lender may require;
(d) a copy of the Borrower's and each corporate Guarantor's
corporate resolutions authorizing the execution, delivery and
performance of this Amendment and the other documents required to be
executed and/or delivered by the terms hereof, certified by the
Secretary or an Assistant Secretary of the Borrower or the relevant
corporate Guarantor, as the case may be;
(e) an incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of the Borrower and each
corporate Guarantors authorized to execute this Amendment and the other
documents required to be executed and/or delivered by the terms hereof,
certified by the Secretary or an Assistant Secretary of the Borrower or
the relevant corporate Guarantor, as the case may be;
(f) a certificate stating to the effect that there has been no
further change in the Borrower's or any corporate Guarantor's articles
or certificate of incorporation or bylaws previously delivered to the
Lender, certified by the Secretary or an Assistant Secretary of the
Borrower or the relevant corporate Guarantor, as the case may be;
(g) payment in immediately available funds of a closing fee of
$20,000.00; and
(h) such other documents or items as the Lender may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES. To induce Lender to enter into this
Amendment, the Borrower represents and warrants to Lender as follows:
(a) The execution, delivery and performance by the Borrower of
this Amendment, the Replacement Note and any other documents required
to be executed and/or delivered by the Borrower by the terms of this
Amendment have been duly authorized by all necessary corporate action,
do not require any approval or consent of, or any registration,
qualification or filing with, any government agency or authority or any
approval or consent of any other person (including, without limitation,
any stockholder or partner), do not and will not conflict with, result
in any violation of or constitute any default under, any provision of
the Borrower's articles of incorporation or bylaws, any agreement
binding on or applicable to the Borrower or any of its property, or any
law or governmental regulation or court decree or order, binding upon
or applicable to the Borrower or of any of its property and will not
result in the creation or imposition of any security interest or other
lien or encumbrance in or on any of its property pursuant to the
provisions of any agreement applicable to the Borrower or any of its
property;
(b) The representations and warranties contained in the
Original Agreement are true and correct as of the date hereof as though
made on that date except to the extent that such representations and
warranties relate solely to an earlier date;
(c) (i) No events have taken place and no circumstances exist
at the date hereof which would give the Borrower the right to assert a
defense, offset or counterclaim to any claim by Lender for payment of
the obligations now or hereafter arising under the Original Agreement
as amended by this Amendment or any other Loan Document; and (ii) the
Borrower hereby releases and forever discharges Lender and its
successors, assigns, directors, officers, agents, employees and
participants from any and all actions, causes of action, suits,
proceedings, debts, sums of money, covenants, contracts, controversies,
claims and demands, at law or in equity, which the Borrower ever had or
now has against Lender or its successors, assigns, directors, officers,
agents, employees or participants by virtue of their relationship to
the Borrower in connection with the Loan Documents and the transactions
related thereto;
(d) The Original Agreement as amended by this Amendment, the
Replacement Note and the other Loan Documents to which the Borrower is
a party are the legal, valid and binding obligations of the Borrower
and are enforceable in accordance with their respective terms, subject
only to bankruptcy, insolvency, reorganization, moratorium or similar
laws, rulings or decisions at the time in effect affecting the
enforceability of rights of creditors generally and to general
equitable principles which may limit the right to obtain equitable
remedies; and
(e) After giving effect to this Amendment, there does not
exist any Default or Event of Default.
5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) From and after the date of this Amendment, each reference
in: (i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Loan Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Original
Agreement or any other Loan Document shall mean and be a reference to
the Original Agreement as amended hereby; and (ii) any Loan Document to
the "Note", "thereunder", "thereof", "therein" or words of like import
referring to the Note shall mean and be a reference to the Replacement
Note.
(b) Except as specifically set forth above, the Original
Agreement remains in full force and effect.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lender under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation, reproduction,
execution and delivery of this Amendment and the other documents to be delivered
hereunder or thereunder, including Lender's reasonable attorneys' fees and legal
expenses. In addition, the Borrower shall pay any and all stamp and other taxes
and fees payable or determined to be payable in connection with the execution
and delivery, filing or recording of this Amendment and the other instruments
and documents to be delivered hereunder, and the Borrower agrees to hold Lender
harmless from and against any and all liabilities with respect to, or resulting
from, any delay in the Borrower's paying or omission to pay, such taxes or fees.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
8. HEADINGS. Paragraph headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original.
10. WAIVERS. On the Effective Date, Lender waives the Borrower's
compliance with Paragraph 17(l) through November 8, 1996. Lender's waiver is
limited to the specific Defaults or Events of Default described above and is not
intended, and shall not be construed, to be a general waiver of any term or
provision of the Original Agreement or a waiver of any other existing or future
Default or Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
APPLIANCE RECYCLING CENTERS OF AMERICA, INC.
By
Its
SPECTRUM COMMERCIAL SERVICES, A DIVISION OF LYON
FINANCIAL SERVICES, INC.
By
Its
GUARANTOR ACKNOWLEDGMENT AND AMENDMENT
Each of the undersigned (individually a "Guarantor" and collectively
the "Guarantors) has entered into a certain Guaranty, dated as of August 30,
1996 (such Guarantor's "Guaranty") pursuant to which such Guarantor has
guaranteed the payment and performance of certain "Indebtedness" of Appliance
Recycling Centers of America, Inc., a Minnesota corporation ("Borrower") to
Spectrum Commercial Services, Inc. ( "Spectrum, Inc."), which Indebtedness
includes, without limitation, all obligations of Borrower under that certain
General Credit and Security Agreement dated as of August 30, 1996 between the
Borrower and Spectrum, Inc. (the "Original Agreement;" capitalized terms not
otherwise defined herein being used herein as therein defined).
Each of the Guarantors hereby acknowledges that: (a) subsequent to the
date of the Original Agreement, Spectrum, Inc.'s rights under the Original
Agreement and the other Loan Documents were assigned (the "Assignment") to Lyon
Financial Services, Inc. ("Lyon") and that, as a result of the Assignment, Lyon
is the "Lender" under the Original Agreement and has succeeded to Spectrum,
Inc.'s rights under the other Loan Documents so that each reference to the
"Lender", "SPECTRUM", "Secured Party" or other reference to Spectrum, Inc. in
the Original Agreement or any other Loan Document shall mean and be a reference
to Lyon acting in the described capacity; and (b) such Guarantor has received a
copy of the proposed First Amendment to General Credit and Security Agreement
and Waiver, to be dated as of November 8, 1996 (the "Amendment").
Each of the Guarantors hereby agrees and acknowledges that neither the
Merger nor the Amendment shall in any way impair or limit the right of the
Lender under such Guarantor's Guaranty or any other Loan Document to which such
Guarantor is a party and confirms that: (a) by such Guarantor's Guaranty, such
Guarantor continues to guaranty payment and performance of the "Indebtedness" of
the Borrower to Lender described in such Guarantor's Guaranty, including,
without limitation, Borrower's obligations to Lender under the Original
Agreement as amended by the Amendment; and (b) with respect to each corporate
Guarantor, by such Guarantor's Subsidiary Security Agreement, such Guarantor
continues to grant a security interest in the "Collateral" described in such
Guarantor's Subsidiary Security Agreement to secure the payment and performance
of the "Obligations" described therein.
Each of the corporate Guarantors hereby agrees that:
(a) its Guaranty is amended by adding the following new
Section 16:
"16. The provisions of this guaranty are
severable, and in any action or proceeding involving
any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the
obligations of the undersigned hereunder would
otherwise be held or determined to be void, invalid
or unenforceable on account of the amount of the
undersigned's liability under this guaranty, then,
notwithstanding any other provision of this guaranty
to the contrary, the amount of such liability shall,
without any further action by the undersigned,
SPECTRUM or any other person, be automatically
limited and reduced to the highest amount which is
valid and enforceable as determined in such action or
proceeding." and
(b) its Subsidiary Security Agreement is amended by adding the
following new Section 8:
"8. The provisions of this Agreement are
severable, and in any action or proceeding involving
any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the
obligations of Debtor hereunder would otherwise be
held or determined to be void, invalid or
unenforceable on account of the amount of Debtor's
liability under this Agreement, then, notwithstanding
any other provision of this Agreement to the
contrary, the amount of such liability shall, without
any further action by Debtor, the Secured Party or
any other person, be automatically limited and
reduced to the highest amount which is valid and
enforceable as determined in such action or
proceeding."
Each of the Guarantors: (a) represents and warrants to Lender that no
events have taken place and no circumstances exist at the date hereof which
would give such Guarantor the right to assert a defense, offset or counterclaim
to any claim by Lender for payment of the obligations now or hereafter arising
under the Guaranty or any other Loan Document to which such Guarantor is a
party; and (ii) hereby releases and forever discharges Lender and its
successors, assigns, directors, officers, agents, employees and participants
from any and all actions, causes of action, suits, proceedings, debts, sums of
money, covenants, contracts, controversies, claims and demands, at law or in
equity, which such Guarantor ever had or now has against Lender or its
successors, assigns, directors, officers, agents, employees or participants by
virtue of their relationship to Borrower or the Guarantors in connection with
the Loan Documents and the transactions related thereto.
Edward R. Cameron
Appliance Recycling Centers of America,
California, Inc.
By;
Its:
ARCA of St. Louis, Inc.
By;
Its:
ARCA-Maryland, Inc.
By;
Its:
Accepted and Agreed to this 8th day of November, 1996
Spectrum Commercial Services, a division of Lyon
Financial Services, Inc.
By:
Its:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 206,000
<SECURITIES> 0
<RECEIVABLES> 1,600,000
<ALLOWANCES> 0
<INVENTORY> 808,000
<CURRENT-ASSETS> 3,155,000
<PP&E> 12,822,000
<DEPRECIATION> 4,517,000
<TOTAL-ASSETS> 12,395,000
<CURRENT-LIABILITIES> 3,498,000
<BONDS> 0
0
0
<COMMON> 10,350,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,395,000
<SALES> 10,533,000
<TOTAL-REVENUES> 10,533,000
<CGS> 8,314,000
<TOTAL-COSTS> 8,314,000
<OTHER-EXPENSES> (92,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> (4,243,000)
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,243,000)
<EPS-PRIMARY> (.96)
<EPS-DILUTED> (.96)
</TABLE>
