EXHIBIT 10.1
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT, dated as of June 5, 2009 (this
"FORBEARANCE"), is made by and among XXXXXX FINANCIAL GROUP, INC., a Delaware
corporation (the "COMPANY") and the holders of the Promissory Notes (as such
term is defined below) on SCHEDULE I hereto (each, a "HOLDER" and collectively,
the "HOLDERS"). Capitalized terms used but not otherwise defined herein shall
have the meanings provided in the Subscription Agreements referred to below.
W I T N E S S E T H
WHEREAS, the Company and each Holder is a party to a Subscription
Agreement for Promissory Note and Common Stock, dated on or about June 10, 2008
(each, a "SUBSCRIPTION AGREEMENT" and collectively, the "SUBSCRIPTION
AGREEMENTS"), pursuant to which the Company issued to each Holder a promissory
note (the "PROMISSORY NOTES");
WHEREAS, (i) pursuant to the terms of the Promissory Notes, the first
two of 20 equal quarterly installments of principal and interest payable
thereunder were to have been paid on December 10, 2008 and March 10, 2009 (the
"INITIAL AMORTIZATION PAYMENTS"); (ii) as the result of upheavals and
dislocations in the capital markets, the Company was unable to either refinance
the indebtedness evidenced by the Promissory Notes or make the Initial
Amortization Payments to the Holders when due; and (iii) an Event of Default (as
such term is defined in the Promissory Notes) has occurred under the Promissory
Notes as a result of the Company's failure to make pay the Initial Amortization
Payments within 14 days after same became due and payable (the "ACKNOWLEDGED
EVENTS OF DEFAULT");
WHEREAS, the Company continues diligent efforts to obtain permanent
financing to repay the outstanding balance due under the Promissory Notes, while
at the same time pursuing the business plans of the Company with the intention
of increasing the Company's profitability and cash flow from operations to
enable it to meet its obligations to make quarterly amortization payments in
accordance with the terms of the Promissory Notes;
WHEREAS, the Company has asked the Holders to forbear from exercising
their rights and remedies arising from the Acknowledged Events of Default until
the Forbearance Termination Date (as defined below); and
WHEREAS, (i) each Holder recognizes that if such Holder exercises its
remedies under the Promissory Notes, the Company may be forced to suspend
operations and the business and prospects of the Company, including prospects
for full repayment of the Promissory Notes, could be severely damaged and (ii)
accordingly, the Holders are, upon and subject to the terms and conditions
specified in this Forbearance, willing to forbear from exercising their rights
and remedies arising from the Acknowledged Events of Default until the
Forbearance Termination Date.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Company acknowledges, confirms and agrees that (a) the Company's
obligation to repay the outstanding principal amount of the Promissory Notes and
all accrued and unpaid interest in respect thereof is unconditional and not
subject to any offsets, defenses or counterclaims, (b) the Holders have
performed fully all of their respective obligations under the Subscription
Agreements, (c) by entering into this Forbearance, the Holders do not waive or
release any term or condition of the Subscription Agreements or the Promissory
Notes or any of their rights or remedies under the Subscription Agreements or
the Promissory Notes or applicable law or any of the obligations of the Company
thereunder and (d) the Acknowledged Events of Default have occurred and are
continuing. The Holders (a) acknowledge receipt of payment from the Company of
all interest payable under the Promissory Notes through September 10, 2008 and
(b) acknowledge, confirm and agree that the Company has performed fully all of
its obligations under the Subscription Agreements and the Promissory Notes
(other than the Acknowledged Events of Default).
2. Subject to the terms and conditions of this Forbearance, the Holders
hereby agree that the Company may satisfy its obligation to make the Initial
Amortization Payments by making 8 consecutive quarterly payments of $67,185
each, commencing September 10, 2009, and continuing on the payment dates
prescribed by the Amortization Schedule for the Promissory Notes and ending on
June 10, 2011 (collectively, the "PAYMENTS"), it being understood that the
Payments shall result in the payment of the principal of and interest on the
unpaid portion of the Initial Amortization Payments at the rate of 10% per annum
from and after the originally scheduled payment dates. The Payments shall be
allocated among and paid to the Holders in accordance with the balances due to
each. The Company may at any time prepay the balance remaining due with respect
to the principal of the Initial Amortization Payments by paying the amount
thereof, together with interest accrued through the date of such prepayment.
3. Subject to the terms and conditions of this Forbearance, the Holders
hereby agree to forbear the exercise of rights and remedies otherwise available
under the Subscription Agreements and the Promissory Notes solely on account of
the Acknowledged Events of Default from the date of this Forbearance until the
occurrence of a Forbearance Default. Notwithstanding the foregoing, subject to
the terms and conditions of this Forbearance, the Holders shall be free to
exercise any or all of their rights and remedies arising on account of the
Acknowledged Events of Default at any time after the occurrence of a Forbearance
Default. For purposes of this Agreement, the term "FORBEARANCE DEFAULT" means
the existence or occurrence of any or all of the following: (a) any of Default
under the Promissory Notes (other than the Acknowledged Events of Default), (b)
the failure of the Company to make the Payments to the Holders in accordance
with the schedule prescribed by paragraph 2 hereof and, in all events, on or
prior to the Forbearance Termination Date, or (c) a breach by the Company of any
other representation, covenant or condition set forth in this Forbearance; and
the term "FORBEARANCE TERMINATION DATE" means June 24, 2011.
4. The Company hereby represents and warrants to the Holders that there
is no indebtedness for money borrowed of the Company or any of its subsidiaries
outstanding that is senior in right of payment to the Promissory Notes. For so
long as the Promissory Notes shall remain outstanding, the Company agrees that
it shall not, and shall not permit any of its subsidiaries to, incur any
indebtedness for money borrowed that is senior in right of payment to the
Promissory Notes, PROVIDED, that the foregoing shall not restrict the Company or
any of its subsidiaries from incurring indebtedness for money borrowed that is
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senior in right of payment to the Promissory Notes issued in exchange for, or
the net proceeds of which are used to refinance or retire, the Promissory Notes.
The provisions of this paragraph 4 shall terminate and be of no further force
and effect upon the payment by the Company of the Payments in full on or prior
to the Forbearance Termination Date.
5. For so long as the Promissory Notes shall remain outstanding, the
Company agrees that it shall not declare or pay any cash dividend or make any
cash distribution on or with respect to any class or series of its capital
stock. The provisions of this paragraph 5 shall terminate and be of no further
force and effect upon the payment by the Company of the Payments in full on or
prior to the Forbearance Termination Date.
6. The Company and each Holder hereby acknowledge and agree that the
obligations of the Company under the Promissory Notes and hereunder shall be
entitled to the benefits of that certain General Hypothecation and Pledge
Agreement, of even date herewith (the "PLEDGE AGREEMENT"), by and between the
Company and the Collateral Agent (as defined below). Each holder hereby
irrevocably designates and appoints ______________ as the initial collateral
agent (the "COLLATERAL AGENT") for the ratable benefit of the Holders under the
Pledge Agreement and each Holder irrevocably authorizes the Collateral Agent, in
such capacity, to take such action on its behalf under the provisions of the
Pledge Agreement and to exercise such powers and perform such duties as are
expressly delegated to the Collateral Agent by the terms of the Pledge
Agreement, together with such other powers as are reasonably incidental thereto.
Each Holder further agrees that it shall not be entitled to exercise any
remedies under the Promissory Notes and hereunder at any time when there is a
Collateral Agent serving as such under the Pledge Agreement. The Collateral
Agent may resign as Collateral Agent upon ten (10) days' notice to each Holder
and the Company. If the Collateral Agent shall resign as Collateral Agent under
the Pledge Agreement, then the Holders representing a majority of the
outstanding principal amount of all loans evidenced by the Promissory Notes (the
"MAJORITY HOLDERS") shall appoint from among such Holders a successor Collateral
Agent for the Holders, which successor agent shall be subject to approval by the
Company (which approval shall not be unreasonably withheld), whereupon such
successor Collateral Agent shall succeed to the rights, powers and duties of the
initial Collateral Agent, and the former Collateral Agent's rights, powers and
duties as Collateral Agent shall be terminated, without any other or further act
or deed on the part of such former Collateral Agent or any Holder. If no
successor collateral agent has accepted appointment as Collateral Agent by the
date that is ten (10) days following a retiring Collateral Agent's notice of
resignation, the retiring Collateral Agent's resignation shall nevertheless
thereupon become effective, and the Holders shall assume and perform all of the
duties of the Collateral Agent hereunder until such time, if any, as the
Majority Holders appoint a successor agent as provided for above. The provisions
of this paragraph 6 shall terminate and be of no further force and effect upon
the payment by the Company of the Payments in full on or prior to the
Forbearance Termination Date.
7. For so long as the Promissory Notes shall remain outstanding, the
Company shall permit one (1) representative of the Holders (the "OBSERVER") to
attend all meetings of the board of directors of the Company (the "BOARD OF
DIRECTORS"); PROVIDED, that notwithstanding anything to the contrary contained
herein, (x) the Observer shall not have any right to vote, whether the Observer
attends such meeting in person, telephonically, or otherwise and (y) the Company
shall have the right to condition the Observer's attendance of any meeting of
the Board of Directors on the execution and delivery by the Observer of a
customary confidentiality agreement in form and substance reasonably
satisfactory to the Company. The Company shall (i) give the Observer notice of
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all such meetings, at substantially the same time as furnished to the Board of
Directors and (ii) provide to the Observer all notices, documents and
information furnished to the Board of Directors whether at or in anticipation of
such meetings, or in connection with any material actions by written consents or
otherwise, at substantially the same time furnished to the Board of Directors.
The Company shall have the right to exclude the Observer from (x) any portion of
a meeting of the Board of Directors and/or committee and/or (y) the distribution
of a certain portion of the documentation provided to the Board of Directors
and/or committee in connection with such meeting, if the presence of such
Observer or the receipt of such materials would, in the reasonable opinion of
outside counsel to the Company, result in the loss of attorney-client privilege
of the Company or any of its Affiliates with respect to such portion of the
meeting or documents. If _____________________ is no longer willing or able to
serve as the Observer, then a successor Observer shall be designated by the
Majority Holders (which successor Observer shall be reasonably acceptable to the
Company). The provisions of this paragraph 7 shall terminate and be of no
further force and effect upon the payment by the Company of the Payments in full
on or prior to the Forbearance Termination Date.
8. Effective as of the date hereof, the Company shall issue to each
Holder a number of Common Shares equal to such Holder's Pro Rata Share of 2.8%
of the outstanding Common Shares (the "SHARES").
9. Nothing set forth herein or contemplated hereby is intended to or
shall be construed as a waiver of or acquiescence to the Acknowledged Events of
Default, which shall continue in existence subject only to the terms of the
Forbearance and all restrictions in the Promissory Notes applicable after an
Event of Default shall remain applicable except as otherwise expressly provided
in this Forbearance.
10. Nothing set forth herein or contemplated hereby shall constitute an
agreement by the Holders to forbear the exercise of any of the rights and
remedies available to the Holders under the Promissory Notes (all of which
rights and remedies are hereby expressly reserved by the Holders) upon and after
the occurrence of a Forbearance Default.
11. The Company hereby acknowledges and consents to all of the terms
and conditions of this Forbearance and agrees that this Forbearance and all
documents executed in connection herewith do not operate to reduce or discharge
any obligations under the Subscription Agreements or the Promissory Notes.
Except as expressly provided herein, this Forbearance shall not modify or affect
the Company's obligation to comply fully with any other duty, term, condition or
covenant contained in the Subscription Agreements and the Promissory Notes or
the rights and remedies of the Holders under the Subscription Agreements and the
Promissory Notes (including, without limitation, the obligation of the Company
to issue additional Common Shares to the Holders pursuant to Section 2.1(c) of
the Subscription Agreements commencing March 10, 2009 if the Promissory Notes
remain outstanding as of such date). Except as expressly modified hereby, all of
the terms and provisions of the Subscription Agreements and the Promissory Notes
shall remain in full force and effect.
12. Each Holder hereby agrees that it shall not sell, transfer, assign,
convey, pledge, mortgage, encumber, hypothecate or otherwise dispose of or
suffer the creation of any interest in or lien on (a "TRANSFER") any Promissory
Note without obtaining an agreement in writing in form and substance reasonably
satisfactory to the Company from such transferee to the effect that such
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transferee (and any subsequent transferee of such transferee) acknowledges and
agrees that it shall take the Promissory Note in such Transfer subject to the
terms and condition of this Forbearance (including, without limitation,
paragraph 2 hereof). Each Holder hereby agrees to indemnify and hold the Company
harmless from and against any and all losses, costs, expenses, claims, damages
and other liabilities, including, without limitation, reasonable attorneys fees
and disbursements, which the Company has suffered, incurred or become subject to
arising out of, based upon or otherwise in respect of a breach by such Holder
(or any such transferee) of its obligations pursuant to this paragraph 12.
13. The Company hereby represents and warrants to the Holders that: (a)
the Company has taken all necessary action to authorize the execution, delivery
and performance of this Forbearance; (b) this Forbearance has been duly executed
and delivered by the Company and constitutes the Company's legal, valid and
binding obligation, enforceable in accordance with its terms; and (c) the
Company has the power and authority to issue the Shares, and, when issued in
accordance herewith, the Shares shall be fully paid and non-assessable.
14. Each Holder hereby makes the representations and warranties to the
Company set forth on SCHEDULE II hereto and covenants with the Company as set
forth on SCHEDULE II hereto. Such representations, warranties and covenants are
hereby incorporated by reference herein.
15. This Forbearance, the Subscription Agreements, the Promissory Notes
and the Pledge Agreement embody the entire agreement between the parties hereto
and supersede all prior agreements and understandings, oral or written, if any,
relating to the subject matter hereof.
16. This Forbearance shall not be deemed or construed to be a
satisfaction, reinstatement, novation, or release of the Promissory Notes, or,
except as expressly provided herein, a waiver by any Holder of any of its rights
thereunder, or at law or in equity.
17. This Forbearance may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. Delivery of executed
counterparts of this Forbearance by telecopy shall be effective as an original
and shall constitute a representation that an original will be delivered.
18. This Forbearance and the rights and obligations of the parties
under this Forbearance shall be governed by, and construed and interpreted in
accordance with, the law of the State of West Virginia.
[The parties signatures appear on the following page.]
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Forbearance to be duly executed under seal and delivered as of the date
and year first above written.
XXXXXX FINANCIAL GROUP, INC.
a Delaware corporation
By:
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Name: Name: Xxxx X. Xxxxxx
Title: President
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Name: Name:
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Name: Name:
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Name: Name:
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Name: Name:
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Name: Name:
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Name: Name:
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Name: Name:
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SCHEDULE I
HOLDERS
SCHEDULE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE HOLDERS
Defined terms used in this SCHEDULE II and not otherwise defined in
this SCHEDULE II shall have the meanings ascribed to such terms in the
Forbearance to which this SCHEDULE II is attached.
Each Holder represents and warrants to, and agrees with the Company,
that:
1. The Forbearance has been duly authorized, executed and delivered by
the Holder, and constitutes a legal, valid and binding obligation of the Holder,
enforceable in accordance with its terms.
2. The Holder understands the confidential nature of the subject matter
of the Forbearance and agrees not to disclose the name of the Company or any
matters associated therewith prior to the public announcement by the Company of
the transactions effected hereby. Further, Holder understands that trading in
the Common Stock of the Company based upon information derived from the Company
in the process of the issuance of the Shares is strictly prohibited and subject
to legal prohibitions and sanctions under federal securities laws.
3. The Holder has had the opportunity to review the Forbearance and the
Pledge Agreement with its counsel or other financial advisors.
4. The Holder has knowledge and experience in financial and business
matters sufficient to enable it to evaluate the merits and risks of an
investment in the Shares.
5. The Holder is acquiring the Shares hereunder for its own account,
solely for investment and not with a view to the resale or distribution thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
6. The Holder understands that its acquisition of the Shares is an
illiquid and may be a long-term investment; and, without impairing its financial
condition, it is able to hold the Shares for an indefinite period of time and
would be able to suffer a complete loss of its investment without undue
financial hardship.
7. The Holder has had an opportunity to ask questions of and receive
answers from the Company and its officers concerning the Company and the terms
and conditions of the Shares and has had an opportunity to obtain additional
information from the Company to the extent deemed necessary or advisable by the
Holder in order to verify the accuracy of the information obtained. The Holder
has, to the extent deemed necessary by the Holder, consulted with its own
advisors (including the Holder's attorney, accountant or investment advisor)
regarding the Holder's investment in the Shares and understands the significance
and effect of its representations, warranties, acknowledgments and agreements
set forth in the Forbearance.
8. The Holder has reviewed copies of the public filings of the Company,
including those on Forms 10-KSB and 10-QSB. The Holder has, to the extent deemed
necessary by the Holder, completed due diligence and such independent
investigation concerning the Company and the terms and conditions of the sale of
the Shares contemplated hereby as it has deemed advisable.
9. The Holder acknowledges that neither the Company, nor any of its
officers, representatives or affiliates, nor any other person or entity, has
made any representations or warranties with respect to the Company, its business
or the Shares other than as set forth in the Forbearance.
10. The Holder understands that the Shares have not been registered
under the Securities Act in reliance upon an exemption from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof, that the
Shares have not been registered under applicable state securities laws, and that
the Shares may not be sold or otherwise disposed of unless registered under the
Securities Act and applicable state securities laws (the Company being under no
obligation to so register such Shares) or exempted from registration. [The
Holder further understands that the exemption from registration afforded by Rule
144 promulgated under the Securities Act is not presently available with respect
to the Shares.]
11. The Holder is an "Accredited Investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act. The Holder has
previously accurately completed and delivered to the Company Appendix A to the
Subscription Agreement and the information set forth on such Appendix A with
respect to such Holder is true and correct as of the date hereof.
12. The Holder acknowledges that neither the Company nor any person or
entity acting on its behalf has offered to sell any of the Shares to the Holder
by means of any form of general solicitation or advertising, including without
limitation (i) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media, or broadcast over
television or radio, and (ii) any seminar or meeting whose attendees have been
invited by any general solicitation or general advertising.
