FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT ("Agreement") is entered into as of August 1,
1999, by and among ALLSTATE FINANCIAL CORPORATION, a corporation organized under
the laws of the Commonwealth of Virginia ("Borrower"), IBJ WHITEHALL BUSINESS
CREDIT CORPORATION ("IBJWBCC") and NATIONAL BANK OF CANADA ("NBC") (IBJWBCC and
NBC each a "Lender" and collectively the "Lenders") and IBJWBCC as agent for the
Lenders (IBJWBCC, in such capacity, the "Agent").
BACKGROUND
Borrower, Lenders, and Agent are parties to an Amended and Restated
Revolving Credit and Security Agreement dated as of May 17, 1997, (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
pursuant to which Agent and Lenders provide Borrower with certain financial
accommodations.
An Event of Default now exists under the Loan Agreement arising from
Borrower's failure to maintain Undrawn Availability of not less than $2,000,000,
which failure is a violation of Section 7.20 of the Loan Agreement (such Event
of Default, the "Availability Default") by reason of which Agent and Lenders
have no obligation to make any additional Advances and Agent has the full legal
right to exercise its rights and remedies under the Loan Agreement. Borrower
also anticipates that as a result of its financial performance for the quarters
ended June 30, 1999 and September 30, 1999, a Default shall exist with respect
to one or all of the financial covenants set forth in Section 7.19 of the Loan
Agreement (the "Anticipated Defaults"). The Availability Default and the
Anticipated Defaults are hereinafter referred to as the "Designated Defaults."
Borrower has requested that Agent forbear for a period of time from
exercising its rights and remedies under the Loan Agreement and that Agent and
Lenders continue to make Advances available to Borrower.
NOW, THEREFORE, in consideration of any loan or advance or grant of credit
heretofore or hereafter made to or for the account of Borrower by Agent and
Lenders, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Definitions. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Loan Agreement.
2. Acknowledgement. Borrower acknowledges that the Availability Default has
occurred and exists as of the date hereof, and that, absent the implementation
of the Forbearance Period set forth in Section 4 hereof, Borrower is
unconditionally obligated to pay all of the Obligations, all without default,
setoff or counterclaim of any kind or nature whatsoever.
3. Outstanding Obligations. Borrower affirms and acknowledges that (i) as
of August 1, 1999 there is presently due and owing to Agent and Lenders, under
the Loan Agreement, approximately $8,002,320.91 in principal amount of Advances
(inclusive of the undrawn amount of outstanding Letters of Credit) together with
accrued interest thereon and costs and expenses; (ii) all such Obligations are
valid obligations of Borrower and there are no claims, setoffs or defenses to
the payment by Borrower of the Obligations; and (iii) the Loan Agreement and the
Other Documents are and shall continue to be legal, valid and binding
obligations and agreements of Borrower enforceable in accordance with their
respective terms.
4. Forbearance. During the period (the "Forbearance Period") commencing on
the Effective Date (as such term is defined in Section 7 hereof) and ending on
the earlier to occur of: (i) October 31, 1999 or (ii) the date of any
Forbearance Default (as defined in Section 6 hereof) Agent will forbear from
exercising its rights and remedies under the Loan Agreement with respect to the
Designated Defaults. All Obligations shall be due and payable in full at the end
of the Forbearance Period. In the event the Effective Date does not occur on or
prior to August 25, 1999, all Obligations shall be due and payable in full on
the following Business Day and Agent shall be entitled to exercise all rights
and remedies with respect to the Designated Defaults.
5. Additional Agreements.
(a) (i) Subject to the terms and conditions of this Agreement and provided
no Forbearance Default shall have occurred, Agent and Lenders shall make
Advances to Borrower in accordance with the provisions of Sections 2.1, 2.2 and
2.2A of the Loan Agreement; provided, however, (A) the term "Maximum Revolving
Advance Amount" is hereby amended to mean "$10,000,000" and (B) the outstanding
balance of Advances shall not exceed an amount equal to the lesser of (x) the
Maximum Revolving Advance Amount and (y) the Borrowing Base.
(ii) The Maximum Revolving Advance Amount shall be further reduced, at
Agent's discretion, on a dollar for dollar basis by the amount of gross proceeds
received by Borrower in connection with each Liquidity Event (as hereafter
defined); provided, however, in no event shall proceeds from a Liquidity Event
described in (A) Section 5(d)(ii) hereof reduce the Maximum Revolving Advance
Amount by more than the actual amounts due to Borrower from a Client and (B)
Section 5(d)(iii) hereof reduce the Maximum Revolving Advance Amount by more
than 50% of the amount collected in connection with such Liquidating Event (net
of associated reasonable out of pocket expenses) in excess of $100,000;
provided, that, an amount equal to 75% of the amount collected in connection
with such Liquidating Event (net of associated reasonable out of pocket
expenses), shall be remitted to Agent to reduce the outstanding obligations.
(b) Borrower shall not be entitled to obtain any additional Eurodollar Rate
Loans or convert any Domestic Rate Loans to a Eurodollar Rate Loan.
(c) Effective August 1, 1999, all Advances shall bear interest at the
Default Rate. Upon and after the occurrence of a Forbearance Default, and during
the continuation thereof, the Advances shall bear interest at the applicable
Revolving Interest Rate plus four (4%) percent.
(d) Upon the occurrence of a Liquidity Event, Borrowers shall remit the
gross proceeds therefrom to Agent, as provided in this Agreement, as a repayment
of the outstanding Obligations. For purposes hereof, "Liquidity Event" shall
mean each receipt of cash proceeds from the sale of assets or stock of Borrower
or any Subsidiary, each of which shall be in form and substance satisfactory to
Agent, including, without limitation, each receipt of cash proceeds from: (i)
the sale of all or substantially all of the factoring assets of Borrower, (ii)
the sale of certain asset based loans to Resource Capital Bidco, Inc. or another
third party and (iii) the collection by Borrower, in cash, of all or part of
that certain Receivable payable by Jarnow, or each receipt by Borrower of any
cash proceeds of Agent's Collateral to the extent such Collateral is not
included in the Borrowing Base, less associated reasonable out of pocket
expenses.
(e) (i) Borrower shall not be entitled to transfer funds from the Lockbox
Accounts to its Operating Account and all proceeds of Collateral, including all
proceeds received in connection with a Liquidity Event subject to Section 5(a)
above, shall be deposited to a deposit account which is subject to a blocked
account arrangement which is satisfactory to Agent and which shall provide,
among other things, for all such proceeds to be remitted to Agent's Depository
Account to be applied to the Obligations in such order as Agent may determine
and in accordance with the following wire instructions:
Bank: IBJ Whitehall Bank & Trust Company
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ABA# ▇▇▇▇▇▇▇▇▇
Account# ▇▇▇▇▇▇▇▇
For Credit to: IBJ Whitehall Business Credit Corporation
Reference: Allstate Financial Corporation
(ii) The parties hereto acknowledge that the Borrower shall have the right
to pay to a participant in a Factoring Agreement or an Inventory Collateral
Funding Repayment Agreement such participant's share of any proceeds of
Collateral, whether or not an Event of Default or a Forbearance Default shall
have occurred and be continuing. The only Factoring Agreement and Inventory
Collateral Funding Repayment Agreement with respect to which there is a
participant are the agreements with MGV. The participant is Reservoir Capital
and its participation percentage in amounts outstanding under such Factoring
Agreement is 20%.
(f) The Undrawn Availability requirement set forth in Section 7.20 of the
Loan Agreement shall be amended from "$2,000,000" to "the sum of (x) $200,000
plus (y) the amount by which the Maximum Revolving Advance Amount has been
reduced pursuant to Section 5(ii)(B) of the Forbearance Agreement."
(g) Borrower shall deliver to Agent a Borrowing Base Certificate each day
as and for the prior day.
(h) Borrower shall furnish Agent within thirty (30) days after the end of
each month (45 days in the case of any month ending a calendar quarter), an
unaudited balance sheet of Borrower and its Subsidiaries on a consolidated and
consolidating basis and unaudited statements of income and stockholders' equity
and cash flow of Borrower and its Subsidiaries on a consolidated and
consolidating basis reflecting results of operations from the beginning of the
fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports shall be
accompanied by a certificate of Borrower's President, Chief Financial Officer or
Chief Operating Officer which shall state that, based on an examination
sufficient to permit him to make an informed statement, no Default or Event of
Default exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrower with respect to such event and, such certificate shall
have appended thereto calculations which set forth Borrower's compliance with
the financial covenants contained in Sections 7.6, 7.11, 7.19 and 7.20.
(i) Borrower shall be permitted to incur subordinated debt not to exceed
$3,500,000 to consummate the acquisition of 100% of the outstanding capital
stock of Resource Capital BIDCO, Inc., a Tennessee corporation. The subordinated
debt may be secured by a pledge of 100% of the outstanding capital stock of
Business Funding of America, Inc., provided that such pledge shall be
subordinated in all respects to the prior pledge of such stock to Agent. The
subordinated debt holders shall execute a subordination agreement in form and
substance satisfactory to Agent, which subordination agreement shall provide,
among other things, that such subordinated debt holder shall not exercise any
rights or remedies prior to payment in full of all amounts owing to Agent and
Lenders.
(j) Borrower shall have received a $1,000,000 working capital loan from
Value Partners Ltd., a Texas limited partnership, which shall be unsecured and
which shall bear interest at a rate of 10% per annum. Unless the obligations
have been paid in full and the Lenders' obligations under the Loan Agreement
have been terminated, the working capital loan lender shall not be entitled to
receive any payments prior to March 31, 2000 except for an amount equal to 25%
of the amount collected (net of reasonable out of pocket expenses) by Borrower,
in cash, with respect to any Liquidity Event described in Section 5(d)(iii)
hereof.
6. Forbearance Defaults. Each of the following shall constitute a
Forbearance Default:
(a) The existence of an Event of Default under the Loan Agreement
(other than a Designated Default);
(b) Borrower shall fail to keep or perform any of the covenants or
agreements contained herein; or
(c) Any representation or warranty of Borrower contained herein shall
be false, misleading or incorrect in any material respect.
Upon the occurrence of a Forbearance Default, all Obligations shall, at
Agent's option, be immediately due and payable and Agent shall be entitled
immediately to exercise all of its rights and remedies under the Loan Agreement
and the Other Documents.
7. Conditions of Effectiveness. This Agreement shall become effective (the
"Effective Date") upon (a) receipt by Agent of a copy of this Agreement executed
by Lenders, Borrower and acknowledged by Guarantors, (b) receipt by Agent of
$1,000,000 representing the making of the $1,000,000 working capital loan
referred to in Section 5(j) hereof (which $1,000,000 shall be applied to the
outstanding Obligations with no reduction of the Maximum Revolving Advance
Amount) and (c) receipt by Agent for the ratable benefit of Lenders of a fee in
the amount of $10,000 which fee shall be charged to Borrower's account.
8. Representations and Warranties. Borrower hereby represents and warrants
as follows:
(a) This Agreement, the Loan Agreement as amended hereby and all Other
Documents (collectively, the "Documents"), constitute legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their respective terms.
(b) As to Borrower, other than the Designated Defaults, no material
Event of Default or Default has occurred and is continuing or would exist
after giving effect to this Agreement.
(c) Borrower has no defense, counterclaim or offset with respect to
the Documents.
(d) Borrower has the corporate power, and has been duly authorized by
all requisite corporate action, to execute and deliver this Agreement and
to perform its obligations hereunder. This Agreement has been duly executed
and delivered by Borrower.
(e) Borrower's execution, delivery and performance of this Agreement
does not and will not (i) violate any law, rule, regulation or court order
to which Borrower is subject, (ii) conflict with or result in a breach of
Borrower's Articles of Incorporation or By-laws or any agreement or
instrument to which Borrower is a party or by which it or its properties
are bound, or (iii) result in the creation or imposition of any lien,
security interest or encumbrance on any property of Borrower, whether now
owned or hereafter acquired, other than liens in favor of Agent.
(f) Intentionally omitted.
(g) The recitals set forth in the Background paragraph above are
truthful and accurate and are an operative part of this Agreement.
(h) Agent has and will continue to have a valid first priority lien
and security interest in all Collateral, and Borrower expressly reaffirms
all security interests and liens granted to Agent pursuant to the
Documents.
9. Waiver. Borrower waives and affirmatively agrees not to allege or
otherwise pursue any or all defenses, affirmative defenses, counterclaims,
claims, causes of action, setoffs or other rights that it may have to contest
(a) the Designated Defaults which could be declared by Agent; (b) any provision
of the Documents or this Agreement; (c) the security interest of Agent in any
property, whether real or personal, tangible or intangible, or any right or
other interest, now or hereafter arising in connection with the Collateral; or
(d) the conduct of Agent in administering the financing arrangements between
Borrower and Lenders on and prior to the date of execution of this Agreement by
Borrower.
10. Release. Borrower hereby releases, remises, acquits and forever
discharges Agent, Lenders and Agent's and each Lender's employees, agents,
representatives, consultants, attorneys, fiduciaries, officers, directors,
partners, predecessors, successors and assigns, subsidiary corporations, parent
corporations, and related corporate divisions (all of the foregoing hereinafter
called the "Released Parties"), from any and all actions and causes of action,
judgments, executions, suits, debts, claims, demands, liabilities, obligations,
damages and expenses of any and every character, known or unknown, direct and/or
indirect, at law or in equity, of whatsoever kind or nature, for or because of
any matter or things done, omitted or suffered to be done by any of the Released
Parties prior to and including the date of execution hereof, and in any way
directly or indirectly arising out of or in any way connected to this Agreement
or the Documents (all of the foregoing hereinafter called the "Released
Matters"). Borrower acknowledges that the agreements in this Section are
intended to be in full satisfaction of all or any alleged injuries or damages
arising in connection with the Released Matters.
11. Effect and Construction of Agreement. Except as expressly provided
herein, the Documents shall remain in full force and effect in accordance with
their respective terms, and this Agreement shall not be construed to:
(a) impair the validity, perfection or priority of any lien or
security interest securing the Obligations;
(b) waive or impair any rights, powers or remedies of Agent under, or
constitute a waiver of, any provision of the Documents upon termination of
the Forbearance Period; or
(c) constitute an agreement by Agent or Lenders or require Agent or
Lenders to extend the Forbearance Period, grant additional forbearance
periods, or extend the time for payment of any of the Obligations.
12. Conflicts. In the event of any express conflict between the terms of
this Agreement and any of the Documents, this Agreement shall govern.
13. Presumptions. Borrower acknowledges that it has consulted with and been
advised by its counsel and such other experts and advisors as it has deemed
necessary in connection with the negotiation, execution and delivery of this
Agreement and has participated in the drafting hereof. Therefore, this Agreement
shall be construed without regard to any presumption or rule requiring that it
be construed against any one party causing this Agreement or any part hereof to
be drafted.
14. Expenses. Borrower shall pay all reasonable costs, fees and expenses of
Agent (including the costs, fees and expenses of Agent's counsel) incurred by
Agent in connection with the negotiation, preparation, administration and
enforcement of this Agreement.
15. Entire Agreement. This Agreement sets forth the entire agreement among
the parties hereto with respect to the subject matter hereof. Borrower has not
relied on any agreements, representations, or warranties of Agent or any Lender,
except as specifically set forth herein. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, signed by each party hereto. Borrower
acknowledges that it is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
16. Further Assurance. Borrower shall execute such other and further
documents and instruments as Agent may reasonably request to implement the
provisions of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first written above.
ALLSTATE FINANCIAL CORPORATION
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
IBJ WHITEHALL BUSINESS CREDIT CORPORATION,
as Agent and as Lender
By: /s/▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Vice President
NATIONAL BANK OF CANADA
By: /s/R.A. Incorvatia
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Name: R.A. Incorvatia
Title: Vice President
By: /s/▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Vice President
ACKNOWLEDGED AND AGREED TO:
LIFETIME OPTIONS, INC., A VIATICAL SETTLEMENT COMPANY
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
SETTLEMENT SOLUTIONS, INC.
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
AFC HOLDING CORPORATION
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
PREMIUM SALES NORTHEAST, INC.
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
BUSINESS FUNDING OF AMERICA, INC.
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
RECEIVABLE FINANCING CORPORATION
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
BUSINESS FUNDING OF FLORIDA, INC.
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer