FORBEARANCE AGREEMENT
Exhibit 4.2
FORBEARANCE AGREEMENT, dated as of February 6, 2008 (this “Agreement”), among
(a) Home Solutions of America, Inc., a Delaware corporation (the “Borrower”), (b) each of
the lenders party hereto (individually, together with its successors and assigns, a
“Lender” and collectively, the “Lenders”), (c) each of the Debtors set forth in the
Pledge and Security Agreement dated as of November 1, 2006 (collectively, the “Debtors” or
each, a “Debtor”), (d) the Guarantors (as such term is defined in the Credit Agreement)
(collectively, with the Debtors and the Borrower, the “Credit Parties” and each,
individually, a “Credit Party”) and (e) Texas Capital Bank, National Association,
as Lender, Administrative Agent, Arranger and Sole Bookrunner (the “Agent”).
WITNESSETH:
WHEREAS, on or about November 1, 2006, the Borrower, the Agent, and the Lenders party thereto
entered into the Credit Agreement dated as of November 1, 2006 (as it may be amended from time to
time, the “Credit Agreement”).1
WHEREAS, pursuant to the Credit Agreement, the Lenders agreed to make available a Revolving
Credit Commitment in an aggregate principal amount at any time outstanding up to, but not
exceeding, $45,000,000 (the “Revolving Loan”) subject to termination as set forth in the
Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lenders agreed to make Term Loan Advances in
the aggregate principal amount up to, but not exceeding, $15,000,000 (the “Term Loan”)
subject to termination as set forth in the Credit Agreement.
WHEREAS, pursuant to the Credit Agreement, the Lenders have issued the following two letters
of credit: (i) LC 676 in the original amount of $2,000,000 and (ii) LC 796 in the original amount
of $500,000.
WHEREAS, on or about November 1, 2006, the Debtors executed a Guaranty Agreement pursuant to
which the Debtors guaranteed the prompt payment and performance of the Borrower’s obligations under
the Credit Agreement.
WHEREAS, on or about November 1, 2006, the Agent, the Lenders, the Borrower, and the Debtors
executed a Pledge and Security Agreement (the “Pledge Agreement”) pursuant to which the
Borrower and each Debtor pledged, assigned and granted to the Agent, the Lenders and each of their
Affiliates, a security interest in all of such Borrower’s or Debtor’s right, title and interest in
and to the Collateral (as such term is defined in the Pledge Agreement) to secure the prompt and
complete payment and performance of the Secured Obligations (as such term is defined in the Pledge
Agreement).
| 1 | Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. |
WHEREAS, Fireline Restoration, Inc. (“Fireline”), a Subsidiary of the Borrower, is a
Debtor under the Pledge Agreement.
WHEREAS, on or about July 24, 2007, Fireline, a general contractor, entered into a settlement
agreement (the “Settlement Agreement”) with Vista Royale Association, Inc. (“Vista
Royale”) pursuant to which Vista Royale assigned to Fireline, subject to certain limitations
set forth in the Settlement Agreement, Vista Royale’s right to claim in certain suits and to
receive from the Florida Insurance Guaranty Association (“FIGA”) monies (the
“Settlement Proceeds”) to be paid to Vista Royale in settlement of Vista Royale’s insurance
claims (the “Assigned Claim”).
WHEREAS, in or about August 2007, Fireline, Vista Royale, and the Borrower entered into an
addendum to the Settlement Agreement (the “Addendum”). The parties to the Addendum agreed
that any monies remaining after the Settlement Proceeds were applied in the manner set forth in the
Addendum would be remitted to Fireline (such remaining amount, the “Vista Proceeds”).
WHEREAS, on or about January 22, 2008, Fireline, the Borrower and Vista Royale entered into a
settlement with FIGA concerning the Assigned Claim (the “FIGA Settlement Agreement”).
WHEREAS, on or about October 17, 2007, the Borrower, the Agent (in its individual capacity and
as Agent), and the Lenders party thereto entered into a consent agreement (the “Consent
Agreement”) pursuant to which the Agent and the Lenders party thereto consented to the entry by
the Borrower into the RGA Transaction (as such term is defined in the Consent Agreement).
WHEREAS, in the Consent Agreement, the Borrower agreed that, notwithstanding any
other provision of the Consent Agreement or any other Loan Document, the Borrower would repay the
Obligations in full on or before December 31, 2007 (the “Final Payment”).
WHEREAS, in the Consent Agreement, Fireline agreed that the Agent has a Lien on the FIGA
Receivables (as such term is defined in the Consent Agreement), and that Fireline would take the
steps set forth in Section 3.3 of the Consent Agreement.
WHEREAS, the Borrower did not make the Final Payment on or before December 31, 2007.
WHEREAS, failure by the Borrower to make the Final Payment on or before December 31, 2007
constituted an Event of Default under the Credit Agreement (the “Payment Breach”).
WHEREAS, in addition to the Payment Breach, other Events of Default, including but
not limited to an Event of Default arising from the Borrower’s failure to deliver its Borrowing
Base Report for any applicable period after August 31, 2007, exist under the Credit Agreement
(collectively, with the Payment Breach, the “Existing Events of Default”).
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WHEREAS, as of December 31, 2007, the outstanding principal balance on the Revolving
Loan was $37,611,166.10 (the “Current Revolving Loan Commitment”) plus interest.
WHEREAS, as of December 31, 2007, the outstanding principal balance on the Term Loan
was $10,000,000 plus interest.
WHEREAS, as of December 31, 2007, the Letter of Credit Liabilities in respect of
issued and outstanding Letters of Credit totalled $2,385,471.69.
WHEREAS, as of the date of the execution of this Agreement, Fireline is in the
process of entering into a settlement agreement with Xxxxxx Condominium Association
(“Xxxxxx”) pursuant to which Fireline expects it or certain other Credit Parties will
receive certain proceeds (the “Xxxxxx Proceeds”) in settlement of its claims against
Xxxxxx.
WHEREAS, the Borrower currently anticipates receiving a Federal Income Tax refund
(the “Federal Income Tax Refund”), subject to negotiation with the Internal Revenue
Service, on or before April 15, 2008.
WHEREAS, the Borrower has requested, and the Lenders have agreed, subject to the
terms and conditions of this Agreement, to forbear during the Forbearance Period (as defined below)
from exercising rights and remedies under the Loan Documents with respect to the Existing Events of
Default.
NOW, THEREFORE, in consideration of the premises and the agreements hereinafter contained, and
for other good and valuable consideration, the parties hereto hereby agree as follows:
1. Forbearance. During the period from the Effective Date (as defined below) through July 1,
2008 (the “Forbearance Period”), the Lenders hereby agree to forbear from exercising rights
and remedies under the Loan Documents with respect to the Existing Events of Default;
provided that the Forbearance Period shall automatically and immediately terminate,
and the Lenders shall be entitled to exercise any and all rights and remedies under any Loan
Document and applicable law without further notice, upon the occurrence of any of (i) any Default
or an Event of Default (other than with respect to the Existing Events of Default) under any Loan
Document or (ii) the failure by any credit party to satisfy the terms and conditions set forth in
this Agreement (excluding the conditions set forth in Section 17 of this Agreement, which
conditions shall constitute conditions to the effectiveness of this Agreement) (a “Forbearance
Event of Default”).
2. Maturity. Notwithstanding any other provision of this Agreement or any other Loan
Document, the Borrower irrevocably and unconditionally covenants and agrees (a) to indefeasibly
repay the Obligations in full, subject to and in the manner prescribed below, on or before July 1,
2008 (the “Maturity Date”) and (b) the Term Loan Commitment and the Revolving Credit
Commitment will terminate on or before the Maturity Date as provided in this Agreement. The
Borrower further agrees that any and all obligations to issue Letters of Credit under the Credit
Agreement will terminate, and all outstanding Letters of Credit will be cash secured by the
Borrower, on or before June 30, 2008.
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3. Control Agreements; Cash Sweeps.
(a) Establishment of Central Account. By February 15, 2008 (or by such later date as may be
agreed by the Agent in its sole discretion), the Credit Parties shall execute control agreements
(the “Control Agreements”) requested by the Agent and Lenders providing for a central sweep
account at Texas Capital Bank, National Association (the “Central Account”) of all funds
received by the Credit Parties deposited at any of the Credit Parties’ depository banks (the
“Collection Accounts”). The Credit Parties represent and warrant that all of their
depository accounts are listed on Schedule 3(a) annexed hereto.
(b) Remittance of Funds. The Credit Parties shall instruct all Account Debtors (as such term
is defined in the Pledge Agreement) or obligors under the Receivables (as such term is defined in
the Pledge Agreement) to remit all collections in respect thereof to such Central Account or to
such other Collection Account as shall be reasonably designated by the Agent. The Credit Parties
hereby agree that (i) all good funds on deposit in each of the Collection Accounts shall be swept
pursuant to standing instructions (by wire or ACH transaction) on a daily basis to the Central
Account and (ii) all collections and other amounts received by the Credit Parties from any Account
Debtor or any other source shall, promptly upon receipt, be deposited into the Central Account.
Each Credit Party shall cause its Affiliates, officers, employees, agents, directors or other
Persons acting for or in concert with the Credit Party (each a “Related Person”) to (i)
hold in trust for the Agent, for the benefit of itself and the Lenders, all checks, cash and other
items of payment received by the Credit Party or any such Related Person on behalf of such Credit
Party of any checks, cash or other items of payment, and (ii) within one (1) Business Day after
receipt by the Credit Party or any such Related Person on behalf of such Credit Party of any
checks, cash, or other items of payment, deposit the same into a Collection Account. The Credit
Parties and each Related Person thereof acknowledge and agree that all cash, checks or other items
of payment constituting the proceeds of Collateral are part of the Collateral.
(c) Crediting Payments. Upon the terms and subject to the conditions set forth in the Control
Agreements, all amounts received in the Collection Accounts shall be wired each Business Day into
the Central Account. Upon the occurrence of a Default or Event of Default (except with respect to
the Existing Events of Default) under any Loan Document or a Forbearance Event of Default under
this Agreement, the receipt of any funds by the Agent (whether from transfers to Agent from the
Collection Accounts or otherwise) immediately shall be applied to provisionally reduce the
Obligations outstanding under the Credit Agreement, but shall not be considered a payment on
account unless such collection item is a wire transfer of immediately available federal funds and
is made to the Central Account or unless and until such collection item is honored when presented
for payment. Should any collection item not be honored when presented for payment, then the Credit
Party shall not be deemed to have made such payment and interest shall be recalculated accordingly.
Any collection item shall be deemed received by the Agent only if it is received into the Central
Account on a Business Day on or before 11:00 a.m. Central time. If any collection item is received
in to the Central Account on a non-Business Day or after 11:00 a.m. Central time on a Business Day,
it shall be deemed to have been received by the Agent as of the opening of business on the
immediately following Business Day.
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4. Remittance of Xxxxxx Proceeds. Within three (3) Business Days after any Credit Party’s
receipt of the Xxxxxx Proceeds, and in any event no later than March 31, 2008, such Credit Party
shall remit to the Agent the Xxxxxx Proceeds; provided, however, so long as (i) no
Default or Event of Default has occurred or is continuing under any Loan Document (except with
respect to the Existing Events of Default) and (ii) no Forbearance Event of Default (as defined
below) has occurred or is continuing under this Agreement, the Credit Party shall be entitled to
retain thirty-five percent (35%) of the first $5,000,000 of the Xxxxxx Proceeds plus the next
$700,000 after the first $5,000,000 (the “Retained Xxxxxx Amount”). In no event, however,
shall the Retained Xxxxxx Amount exceed the sum of $1,750,000 of the first $5,000,000 plus
the next $700,000 after the first $5,000,000 is collected, or $2,450,000 in the aggregate. From
and after the occurrence of a Default or Event of Default under any Loan Document (except with
respect to the Existing Events of Default) or Forbearance Event of Default under this Agreement,
any Credit Party in possession of the Xxxxxx Proceeds shall, within three (3) Business Days after
any such occurrence, remit to the Agent any portion of the Xxxxxx Proceeds not previously remitted
to the Agent (including, but not limited to, the Retained Xxxxxx Amount). The Agent shall apply
any Xxxxxx Proceeds received from any Credit Party to reduce the Borrower’s outstanding obligations
under the Revolving Credit Advances and, as set forth in Section 11 below, to permanently reduce
the Current Revolving Loan Commitment.
5. Remittance of Federal Income Tax Refund. Within three (3) Business Days after any Credit
Party’s receipt of the Federal Income Tax Refund, and in any event no later than April 15, 2008,
such Credit Party shall remit to the Agent the Federal Income Tax Refund; provided,
however, so long as (i) no Default or Event of Default has occurred or is continuing under
any Loan Document (except with respect to the Existing Events of Default) and (ii) no Forbearance
Event of Default (as defined below) has occurred or is continuing under this Agreement, such Credit
Party shall be entitled to retain twenty-five percent (25%) of the first $5,000,000 of the Federal
Income Tax Refund (the “Retained Federal Income Tax Amount”). In no event, however, shall
the Retained Federal Income Tax Amount exceed $1,250,000. From and after the occurrence of a
Default or Event of Default under any Loan Document (except with respect to the Existing Events of
Default) or Forbearance Event of Default under this Agreement, the Credit Party shall, within three
(3) Business Days after any such occurrence, remit to the Agent any portion of the Federal Income
Tax Refund not previously remitted to the Agent (including, but not limited to, the Retained
Federal Income Tax Amount). The Agent shall apply any Federal Income Tax Refund received from the
Credit Party to reduce the Borrower’s outstanding obligations under the Revolving Credit Advances
and, as set forth in Section 11 below, to permanently reduce the Current Revolving Loan Commitment.
6. Remittance of Related Party Proceeds. Within three (3) Business Days after receipt thereof,
the Borrower shall remit or cause to be remitted to the Agent any proceeds, net of reasonable
collection expenses, received by the Borrower or any Credit Party on account of, or in connection
with (a) claims, demands, or suits of any kind asserted by the Borrower or its Subsidiaries against
Mr. Xxxxx Xxxxxxxx (“Xxxxxxxx”) and/or any entities related to or affiliated with Xxxxxxxx
or by which Xxxxxxxx was employed in any capacity and (b) receivables from any related party
including without limitation receivables booked by Xxxxxxxx on the Borrower’s or its Subsidiaries’
books and records, a non-exclusive list of which has been heretofor delivered to the Agent
(collectively, the “Xxxxxxxx Proceeds”). The Agent shall apply the Xxxxxxxx Proceeds to
reduce the Borrower’s outstanding obligations under the Revolving
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Credit Advances and, as set forth in Section 11 below, to permanently reduce the Current
Revolving Loan Commitment.
7. Remittance of Vista Proceeds. The Borrower shall remit or cause to be remitted to the
Agent (i) in accordance with Section 17 below, on or before the Effective Date, the Vista Proceeds
received by it or any other Credit Party and (ii) within one (1) Business Day of receipt thereof,
any Vista Proceeds received by the Borrower or any Credit Party after the Effective Date;
provided, however, so long as (x) no Default or Event of Default has occurred or is
continuing under any Loan Document (except with respect to the Existing Events of Default) and (y)
no Forbearance Event of Default (as defined below) has occurred or is continuing under this
Agreement, such Credit Party shall be entitled to retain the first $3,958,855.76 exceeding
$10,100,000.00 of Vista Proceeds remitted to the Agent (the “Retained Vista Proceeds”).
From and after the occurrence of a Default or Event of Default under any Loan Document (except with
respect to the Existing Events of Default) or Forbearance Event of Default under this Agreement,
the Borrower shall, within one (1) Business Day after any such occurrence, remit or cause to be
remitted to the Agent any portion of the Vista Proceeds not previously remitted to the Agent
(including, but not limited to, the Retained Vista Proceeds). The Agent shall apply any Vista
Proceeds received from the Borrower or any other Credit Party to reduce the Borrower’s outstanding
obligations under the Revolving Credit Advances and, as set forth in Section 11 below, to
permanently reduce the Current Revolving Loan Commitment.
8. Remittance of Fireline Asset Sale Proceeds. Within three (3) Business Days after any
Credit Party’s receipt of the proceeds from the sale of all or any portion of the Fireline assets
listed on Schedule 8 annexed hereto (the “Fireline Non-Core Asset Sale Proceeds”), and in
any event no later than March 31, 2008, such Credit Party shall remit to the Agent the Fireline
Non-Core Asset Sale Proceeds. In no event shall the aggregate of all Fireline Non-Core Assets Sale
Proceeds total less than $400,000. The Agent shall apply any Fireline Non-Core Asset Sale Proceeds
received from any Credit Party to reduce the Borrower’s outstanding obligations under the Revolving
Credit Advances and, as set forth in Section 11 below, to permanently reduce the Current Revolving
Loan Commitment.
9. Cash Collateral. The Credit Parties hereby agree that any of the Vista Proceeds, the
Federal Income Tax Refund, the Xxxxxx Proceeds and the Xxxxxxxx Proceeds remitted or required to be
remitted to the Agent pursuant to this Agreement shall constitute “cash collateral” (as such term
is used in 11 U.S.C. § 363(a)) of the Lenders in any bankruptcy case filed by or against any Credit
Party pursuant to title 11 of the United States Code to the extent contemplated by 11 U.S.C. §
363(a).
10. Exit Fee. The Borrower hereby agrees to pay to the Agent, for itself and for the benefit
of the Lenders an exit fee, as set forth in the table below upon satisfaction of the Obligations
under the Loan Documents, including, but not limited to this Agreement.
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| Date on which Obligations are Satisfied In Full | Exit Fee to be Paid to the Agent | |
1-90 days following the Effective Date
|
0.00% of the sum of the Revolving Credit Commitment and the Term Loan Commitment | |
91-120 days following the Effective Date
|
.50% of the sum of the Revolving Credit Commitment and the Term Loan Commitment | |
121-180 days following the Effective Date
|
1.50% of the sum of the Revolving Credit Commitment and the Term Loan Commitment |
11. Revolving Credit Advances Payments.
(a) Reduction of Revolving Credit Commitment. The Agent shall apply (i) the Vista Proceeds
received by the Agent, (ii) any Xxxxxx Proceeds received by the Agent, (iii) any Federal Income Tax
Refund received by the Agent, and (iv) the Xxxxxxxx Proceeds (each of which shall be remitted by
the Borrower or other Credit Party, as applicable, in accordance with the deadlines set forth in
this Agreement) to (x) repay the outstanding Revolving Credit Advances and (y) permanently reduce
the Current Revolving Loan Commitment by an equal amount (collectively, “Permanent
Reductions”). Amounts by which the Current Revolving Loan Commitment is reduced may not be
borrowed or reborrowed.
(b) Revolving Credit Advances. Subject to the terms and conditions of the Credit Agreement,
as modified by this Agreement, each Lender severally, and not jointly, agrees to make one or more
Revolving Credit Advances to the Borrower from time to time from the date hereof to and including
the Maturity Date in an aggregate principal amount at any time outstanding up to but not exceeding
the amount of its Percentage Share of the Current Revolving Loan Commitment, provided
that (i) the aggregate amount of all Revolving Credit Advances, at any time outstanding
shall not exceed the amount of the Current Revolving Loan Commitment minus the Permanent Reductions
then having been made and shall be subject to the then-current Borrowing Base and (ii) after giving
effect to the Borrower’s request for a Revolving Credit Advance, any Overadvance (as defined below)
requested by the Borrower shall not exceed the amounts prescribed in Section 11(c) below;
provided further that the Lenders shall not be obligated to make any
Revolving Credit Advance to the Borrower if (x) a Forbearance Event of Default shall occur or be
continuing, (y) an Event of Default under any other Loan Document (except the Existing Events of
Default) shall occur or be continuing, or (z) the accuracy of Borrowing Base Report delivered to
the Agent by the Borrower on or before the Effective Date shall not have been verified by the
Agent’s Financial Consultant (defined below) in accordance with the deadlines set forth in this
Agreement.
(c) Overadvances. If the Borrower requests that Lenders make, or permit to remain outstanding
Revolving Credit Advances in excess of the Borrowing Base (any such excess Revolving Credit Advance
is herein referred to as an “Overadvance”), the Agent may elect to make, or permit to
remain outstanding such Overadvance; provided, however, that
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such Overadvance may not exceed (i) between the Effective Date and March 31, 2008, $28,000,000
less the amount of any Permanent Reductions prior to March 31, 2008; and (ii) from and after March
31, 2008, $21,000,000 (on any date, the “Permitted Overadvance”). Commencing April 1,
2008, and continuing monthly through and until the Maturity Date, the Agent shall further reduce
the Permitted Overadvance by $750,000 per month.
(d) Repayment of Revolving Credit Advances. The Borrower shall repay the unpaid principal
amount of all Advances on the Maturity Date, unless due sooner pursuant to any provision of this
Agreement.
(e) Interest. The unpaid principal amount of the Revolving Credit Advances shall, subject to
the following sentence, bear interest beginning on January 1, 2008, at the Prime Rate plus 3.00%
percentage points. Accrued and unpaid interest on the Revolving Credit Advances shall be payable
on the first day of each and every month commencing February 1, 2008.
(f) Payment Deadlines. If any payment due under this Section 11 shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of interest or fees,
as the case may be.
12. Term Loan Payments.
(a) Repayment of Principal and Interest. During the forbearance period and subject to prior
acceleration due to the Borrower’s failure to comply with the terms and conditions set forth in
this Agreement (excluding the conditions set forth in Section 17 of this Agreement, which
conditions shall constitute conditions to the effectiveness of this Agreement), the Borrower shall
repay the unpaid principal and interest on the Term Loan as set forth in the chart below:
| Payment Date | Required Payments | |
February 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)) and (ii) the Agent’s reasonable out of pocket expenses | |
March 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)) and (ii) the Agent’s reasonable out of pocket expenses | |
April 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)) and (ii) the Agent’s reasonable out of pocket expenses |
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| Payment Date | Required Payments | |
May 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)), (ii) $425,000 to be applied by the Agent to unpaid principal obligations under the Term Loan, and (iii) the Agent’s reasonable out of pocket expenses | |
June 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)), (ii) $425,000 to be applied by the Agent to unpaid principal obligations under the Term Loan, and (iii) the Agent’s reasonable out of pocket expenses | |
July 1, 2008
|
(i) Accrued and unpaid interest (in accordance with Section 12(b)), (ii) all remaining unpaid principal obligations under the Term Loan, and (iii) the Agent’s reasonable out of pocket expenses |
(b) Interest. The unpaid principal amount of the Term Loan shall, subject to the following
sentence, bear interest beginning on January 1, 2008 at the Prime Rate plus 3.00% percentage
points. Accrued and unpaid interest on the Term Loan shall be payable on the first day of each and
every month commencing February 1, 2008.
(c) Payment Deadlines. If any payment due under this Section 12 shall be stated to be due on
a day other than a Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of interest or fees,
as the case may be.
13. Assignment of Claims. The Borrower hereby irrevocably and unconditionally assigns to the
Agent any right, title or interest of the Borrower to make a claim, bring suit, or otherwise make a
demand in respect of an occurrence of employee theft, dishonesty or misconduct under any applicable
insurance policy of Borrower including Borrower’s package insurance policies with Hartford.
14. Reporting Requirements. Notwithstanding anything to the contrary in the Credit Agreement,
during the Forbearance Period, the Borrower will provide (or cause to be provided) to the Agent
(with sufficient copies of each document for each Lender) the documents set forth in this Section
14 in the manner prescribed below.
(a) Borrowing Base Reports. On or before the Effective Date, the Borrower shall have provided
to the Agent the most recent Borrowing Base Report, such Borrowing Base Report to be for the period
ending no earlier than December 31, 2007. The accuracy of the most recent Borrowing Base Report
provided to the Agent on or before the Effective Date shall have been verified by the Agent’s
Financial Consultant (defined below) within thirty (30) days after receipt of said Borrowing Base
Report. Commencing on February 15, 2008 and continuing every two weeks thereafter, the Borrower
shall provide to the
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Agent a Borrowing Base Report, each Borrowing Base Report to relate to the immediately preceding two
(2) week period, as certified by the chief financial officer of the Borrower and Xxxxx Xxxxxxxx,
the chairman and chief executive officer of the Borrower, which Borrowing Base Report shall be
accompanied by the details of calculation thereof by an accounts receivable aging summary and
detailed aging reports, in each case by entity.
(b) 2007 Financial Statements. On or before April 30, 2008, the Borrower shall provide to the
Agent a copy of the final annual audit report of the Borrower and its Subsidiaries for the fiscal
year 2007 containing, on a consolidated and consolidating basis, balance sheets and statements of
income, retained earnings, and cash flow as at the end of fiscal year 2007 and for the 12-month
period then ended, in each case setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and audited and certified by independent certified public
accountants of recognized standing reasonably acceptable to the Agent, to the effect that such
report has been prepared in accordance with GAAP and containing no material qualifications or
limitations on scope.
(c) Thirteen-Week Cash Flow Forecast. On or before the Effective Date, the Borrower shall
provide to the Agent, the Borrower’s most recent thirteen-week cash flow forecast. The
reasonableness of the most recent thirteen-week cash flow forecast provided to the Agent on or
before the Effective Date shall have been confirmed by the Agent’s Financial Consultant (defined
below) within thirty (30) days after receipt by the Agent. Commencing February 15, 2008, and
continuing every two (2) weeks thereafter throughout the Forbearance Period, the Borrower shall
provide to the Agent the Borrower’s thirteen-week cash flow forecast.
(d) Accounts Payable Aging. Commencing on March 1, 2008 and continuing every two weeks
thereafter, the Borrower shall provide to the Agent a schedule and aging of the Borrower’s accounts
payable.
(e) Reporting Deadlines. If any deliverable due under this Section 14 shall be stated to be
due on a day other than a Business Day, such deliverable shall be made on the next succeeding
Business Day.
15. Financial Consultant. The Credit Parties agree to cooperate with any financial consultant
(the “Financial Consultant”) retained by the Agent and to allow the Financial Consultant
full access to the Credit Parties’ premises, books, and records upon reasonable notice and during
normal business hours.
16. Other Debt. During the Forbearance Period, other than amounts paid to the Agent and
payments from time to time due to trade creditors, subcontractors, or professionals as are
reasonably necessary to be made in the ordinary course of the Borrower’s business, the Borrower
shall not make any scheduled or unscheduled payments on any Subordinated Debt or unscheduled
payments on any other Existing Debt.
17. Conditions to Effectiveness. This Agreement shall become effective as of the date (the
“Effective Date”) the following conditions precedent have been satisfied:
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(a) The Borrower shall have remitted to the Agent, for the benefit of itself and the Lenders,
all accrued interest and fees in respect of the Obligations through January 31, 2008;
(b) The Borrower or its counsel shall have retained for the duration of this Agreement a
financial advisor (the “Financial Advisor”) reasonably acceptable to the Agent (the Agent
acknowledges that the firm Xxxxxxx and Marsal is acceptable), and shall have provided to the Agent
with a copy of the executed engagement agreement between the Borrower or its counsel and the
Financial Advisor;
(c) The Agent shall have received at least $10,100,000 of Vista Proceeds;
(d) The Agent shall have received a copy of the FIGA Settlement;
(e) The Borrower shall have provided to the Agent a copy of an unaudited financial report of
the Borrower and its Subsidiaries as of the end of the third quarter of 2007 containing, on a
consolidated basis, a balance sheet and statement of income, retained earnings, and cash flow, in
each case setting forth in comparative form the figures for the corresponding period of the
preceding fiscal year, all in reasonable detail certified by the chief financial officer of the
Borrower and Xxxxx Xxxxxxxx, the chairman and chief executive officer of the Borrower, to have been
prepared in accordance with GAAP and to fairly and accurately present in all material respects
(subject to year-end audit adjustments) the financial condition and results of operations of the
Borrower and its Subsidiaries, on a consolidated basis, at the date and for the periods indicated
therein;
(f) Each Credit Party shall have duly executed a counterpart of this Agreement; and
(g) The Agent shall have received a duly executed counterpart of this Agreement, executed by
each Lender, and the Agent shall have duly executed a counterpart hereof.
18. Representations and Warranties. Each Credit Party hereby represents that (a) other than
the Existing Events of Default, no Event of Default or Default under any Loan Document has occurred
and is continuing and (b) all of the representations and warranties made by each Credit Party
contained in any Loan Document are true and correct in all material respects with the same effect
as though made on and as of the date hereof, except to the extent such representations and
warranties expressly relate to an earlier date, in which case such representation and warranties
shall have been true and correct on and as of such earlier date.
19. Releases. Each of Credit Party hereby affirms its obligations under the Credit Agreement
and Loan Documents and represents and warrants that there are no liabilities, claims, suits, debts,
liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind,
character or nature whatsoever, known or unknown, fixed or contingent (collectively, the
“Claims”) that any Credit Party may have or claim to have against the Agent, any Lender or
any Participant, or any of their respective affiliates, agents, employees, officers, directors,
representatives, attorneys, successors and assigns (collectively, the “Lender Released
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Parties”), which might arise out of or be connected with any act of commission or
omission of the Lender Released Parties existing or occurring on or prior to the date of this
Agreement, including, without limitation, any Claims arising with respect to the Obligations or any
Loan Documents. In furtherance of the foregoing, each Credit Party hereby releases, acquits and
forever discharges the Lender Released Parties from any and all Claims that any Credit Party may
have or claim to have, relating to or arising out of or in connection with the Obligations or any
Loan Documents or any other agreement or transaction contemplated thereby or any action taken in
connection therewith from the beginning of time up to and including the date of the execution and
delivery of this Agreement. Each Credit Party further agrees forever to refrain from commencing,
instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released
Parties with respect to any and all Claims which might arise out of or be connected with any act of
commission or omission of the Lender Released Parties existing or occurring on or prior to the date
of this Agreement, including, without limitation, any Claims arising with respect to the
Obligations or any Loan Documents.
20. Reference to and Effect on the Loan Documents.
(a) All of the terms of any Loan Document shall remain unchanged and in full force and effect
except as specifically modified hereby.
(b) This Agreement is and shall be a Loan Document.
(c) The execution, delivery and effectiveness of this Agreement shall not operate as a waiver
or cure of any Default or Event of Default, right, power or remedy under any Loan Document, nor
constitute a waiver of any other provision of any Loan Document, including, but not limited to,
with respect to the Existing Events of Default, other than with respect to the Lenders’ agreement
to forbear as set forth in Section 1. The Credit Parties acknowledge that, notwithstanding the
execution, delivery and effectiveness of this Agreement, the Existing Events of Default exist and
are continuing until payment in full of the Obligations under this Agreement and the other Loan
Documents.
(d) Except as expressly provided herein, the Lenders reserve all rights, claims and remedies
that they have or may have against the Borrower, the Debtors, and any other Credit Parties.
21. Forbearance Fee. The Borrower shall pay to the Agent, for the benefit of itself and the
Lenders, a forbearance fee of $100,000, payable in installments of $15,000 each on March 1, 2008,
April 1, 2008, May 1, 2008 and June 1, 2008 and in one installment of $40,000 on July 1, 2008.
22. Fees, Costs and Expenses. The Borrower agrees to pay on demand, in accordance with the
terms of any Loan Document, all reasonable costs and expenses of the Agent in connection with the
preparation, production, reproduction, execution and delivery of this Agreement, including the
reasonable fees and out-of-pocket expenses of counsel and advisors for the Agent.
23. Execution in Counterparts. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which,
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when so executed and delivered, shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
24. Governing Law. This Agreement shall be governed by and construed in accordance with the
law of the State of Texas.
25. Headings. Section headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other purpose.
26. Section Numbers. Unless otherwise indicated, all references to section numbers are
references to sections of this Agreement.
27. Amendments. This Agreement may not be amended or modified, or any provisions hereof
waived, except by a written agreement signed by the Lenders.
[Remainder of Page Intentionally Left Blank]
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In Witness Whereof, the parties hereto have caused this Agreement to be executed by their
respective officers and members thereunto duly authorized, as of the date first above written.
| BORROWER: HOME SOLUTIONS OF AMERICA, INC. as Borrower |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| DEBTORS AND GUARANTORS: CORNERSTONE MARBLE & GRANITE, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| FIBER-SEAL SYSTEMS, L.P. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| FIRELINE RESTORATION, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| HOME SOLUTIONS RESTORATION OF LOUISIANA, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| X.X. XXXXXXXX, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| SOUTHERN EXPOSURE UNLIMITED OF FLORIDA, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| S.E. TOPS OF FLORIDA, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| FSS HOLDING CORP. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| SOUTHERN EXPOSURE HOLDINGS, INC. |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
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| LENDERS: TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, as Administrative Agent |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| AMEGY BANK, N.A., as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| BANK OF OKLAHOMA, N.A., as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| COMPASS BANK, as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
16
| AMARILLO NATIONAL BANK, as Lender |
||||
| By: | ||||
| Name: | ||||
| Title: | ||||
17
SCHEDULES TO BE PROVIDED BY HSOA
3(a) Collection accounts
8 Fireline Non-Core Assets
Other deliverables:
FIGA settlement
Updated A&M engagement letter
Q3 Financials
13-week cash flow
Borrowing base report
HSOA board resolution authorizing execution of agreement
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