[EXECUTION DRAFT]
56408
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT is made as of June 5, 1998 by and among
TEXFI INDUSTRIES, INC., a Delaware corporation (the "Borrower"), BANKBOSTON,
N.A., THE CIT GROUP/COMMERCIAL SERVICES, INC. and NATIONAL BANK OF CANADA (the
"Lenders") and BANKBOSTON, N.A., as the agent (the "Agent") for the Lenders.
Preliminary Statement
The Borrower, the Lenders and the Agent are parties to an Amended and
Restated Loan and Security Agreement dated as of December 19, 1997 (the "Loan
Agreement", terms defined therein and not otherwise defined herein being used
herein as therein defined).
Events of Default have occurred and are continuing under the Loan
Agreement. Specifically, the Loan Agreement requires (1) maintenance of $2
million of Availability at all times, (2) that EBITDA for the first two Fiscal
Quarters of Fiscal Year 1998 (ended May 2, 1998) be at least $7 million and (3)
that the ratio of Adjusted Operating Cash Flow to Total Debt Service for the
first two Fiscal Quarters of Fiscal Year 1998 (ended May 2, 1998) be not less
than 0.80 to 1. Availability was less than $2 million for a period of
approximately 10 days during the month of May 1998; as of the date of this
Agreement, financial statements for the first two Fiscal Quarters of Fiscal Year
1998 submitted to the Agent and the Lenders by the Borrower reflect EBITDA for
such period of $4.73 million and a ratio of Adjusted Operating Cash Flow to
Total Debt Service for such period of 0.51 to 1. The Agent has notified the
Borrower in writing of the foregoing Events of Default. In addition, the
Borrower intends to write off in full the Rival Note and to restate certain of
its financial statements as a result of such write off. Additional Events of
Default may occur solely as a result of such write off and restatement, although
the Borrower does not anticipate any specific additional Events of Default. All
Events of Default referred to in this paragraph, whether existing or potential,
and any continuation or repetition of such Events of Default, are referred to
hereinafter as the "Forbearance Defaults."
The Borrower has requested, and the Lenders and the Agent have agreed,
upon and subject to all of the terms, conditions and provisions of this
Agreement, to forbear for a specified period from exercising the various rights
and remedies available to the Lenders and the Agent when an Event of Default has
occurred and is continuing under the Loan Agreement.
Accordingly, in consideration of the Loans, the mutual undertakings
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Acknowledgments and Agreements by Borrower. The Borrower
acknowledges and agrees that:
(a) Events of Default have occurred and now exist under the Loan
Documents and are continuing;
(b) The Loan Documents executed and delivered by the Borrower are the
legal, valid and binding obligations of the Borrower, enforceable against it in
accordance with their respective terms;
(c) The Security Interest granted by the Borrower to the Agent in the
Collateral is a duly perfected, first priority Lien, subject only to Permitted
Liens; and
(d) All of the Secured Obligations are absolutely due and owing by the
Borrower to the Lenders and the Agent without any defense, deduction, offset or
counterclaim.
Section 2. Agreement to Forbear. The Agent and the Lenders agree that
during the Forbearance Period (as hereinafter defined) they will not, solely by
reason of the Forbearance Defaults, exercise any right or remedy available to
them upon default by the Borrower, other than as expressly set forth in this
Agreement. Further, during the Forbearance Period the Lenders may continue in
their discretion to make Revolving Credit Loans to the Borrower in accordance
with the provisions of the Loan Agreement except as modified as follows:
(a) In no event shall the aggregate outstanding principal amount of
Revolving Credit Loans exceed $31 million;
(b) The excess of the Borrowing Base plus the amount available to be
drawn under the letter of credit referred to in Section 3(d) over the sum of the
aggregate outstanding principal amount of Revolving Credit Loans plus the
aggregate amount of issued checks of the Borrower not yet presented for payment,
shall be at least $1 million at all times;
(c) Notwithstanding any contrary provision of any notice or other
communication by the Agent to the Borrower prior to the date hereof, interest
shall be payable from and after June 1, 1998 until the end of the Forbearance
Period on all Loans and, to the extent permitted by Applicable Law, on all other
Secured Obligations, at the rate otherwise applicable pursuant to Section 5.1 of
the Loan Agreement, plus 0.50%, payable on demand or, if no demand is made,
monthly on the first day of each month;
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(d) No repayments of principal of the Term Loan shall be required to be
made prior to July 24, 1998; and
(e) In addition to the other reports and notices required by the Loan
Agreement, the Borrower shall provide to the Agent (i) before the close of
business on each Business Day, a report of sales and collections for the
preceding Business Day and (ii) not later that Tuesday of each week, a cash
budget for the 90-day period beginning on the preceding Monday including at
least budgeted sales, collections, cash receipts and disbursements, accounts
receivable and accounts payable balances, inventory, and Loan balance and
availability under the Revolving Credit Facility, on a weekly basis, such
reports to be in form satisfactory to the Agent.
"Forbearance Period" means the period beginning on the date hereof and ending on
the earlier of July 24, 1998 and the date on which any Forbearance Condition (as
hereinafter defined) fails or ceases to be satisfied.
Section 3. Forbearance Conditions. The following conditions shall
constitute the "Forbearance Conditions":
(a) The Borrower shall timely perform all of its obligations under this
Agreement;
(b) No Default or Event of Default, other than the Forbearance Defaults
shall occur or be continuing;
(c) No payments shall be made by the Borrower after the date of this
Agreement to Mentmore or any other Affiliate of the Borrower, provided that the
Borrower may reimburse Mentmore for out-of-pocket costs and expenses incurred in
the ordinary course of Mentmore's provision of services to the Borrower, up to a
maximum amount of such reimbursement during the Forbearance Period of $20,000;
(d) On or before June 10, 1998, Mentmore or another Affiliate of the
Borrower acceptable to the Lenders in their reasonable judgment, shall have
executed and delivered a guaranty agreement in form and substance satisfactory
to the Lenders, the Agent and such the guarantor thereunder, guaranteeing the
Secured Obligations to the extent of $1,000,000 and expressly recognizing and
confirming the subrogation rights of such guarantor, and shall have obtained for
the benefit of and delivered to the Agent, a standby letter of credit in the
face amount of $1,000,000 as security for such guaranty, drawings under which
shall be available upon presentation by the Agent to the issuer of such letter
of credit certifying that the Secured Obligations are due and payable and unpaid
after demand upon guarantor at least to the extent of the amount of the
requested drawing, and which shall otherwise be in form acceptable to the Agent;
(e) The Borrower shall, and shall demonstrate to the Agent's
satisfaction from time to time upon request by the Agent that the Borrower does,
timely deduct from the
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wages of its employees all payroll taxes and make timely and proper deposits of
all payroll and other "trust fund" taxes;
(f) The Borrower shall have established, as promptly as practicable
after the date hereof, a Lockbox with BankBoston to which payments of certain
Receivable can be deposited;
(g) A comparison of the Borrower's results of operations and financial
condition during the period from May 15, 1998 through any comparison date on or
prior to July 31, 1998 to the business plan dated May 15, 1998 (adjusted for the
increase in the interest rate applicable to the Loans as provided in Section
2(c)) submitted by the Borrower to the Agent and the Lenders (the "Business
Plan") for the same period, shall not result in any material adverse variance;
and
(h) Not later than June 26, 1998, a crisis consultant, turnaround
manager or other similar, independent, qualified professional or firm acceptable
to the Lenders in their reasonable judgment shall have been retained by the
Borrower (including as an independent contractor, at the Borrower's election) to
consult with it as needed and to assist it in fulfilling the Business Plan and
implementing a turnaround plan, including handling creditor relationships.
Section 4. Forbearance Terminated. If any one or more of the
Forbearance Conditions is not satisfied, the agreement of the Lenders and the
Agent to forbear as set forth in Section 2 shall, at the election of the
Required Lenders, terminate without notice to the Borrower, and the Lenders and
the Agent shall thereupon have and may exercise from time to time all of the
remedies available to them under the Loan Documents and Applicable Law by reason
of the existence of continuing Events of Default.
Section 5. Representations and Warranties of Borrower. The Borrower
hereby represents and warrants to the Agent and the Lenders that:
(a) The Borrower has no knowledge of any Defaults or Events of Default
existing under the Loan Documents other than the Forbearance Defaults;
(b) Subject to such existing Events of Default, the representations and
warranties of the Borrower set forth in the Loan Documents are true and correct
in all material respects on the date of this Agreement;
(c) The Borrower has the power and authority and has taken all
necessary steps to authorize it to execute, deliver and perform its obligations
under this Agreement in accordance with its terms, this Agreement has been duly
executed and delivered by the Borrower and is the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance with
its terms; and
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(d) The execution, delivery and performance by the Borrower of this
Agreement does not require any Governmental Approval, violate any Applicable
Law, conflict with or result in a breach of the Borrower's certificate of
incorporation or by-laws, or conflict with or result in a breach of or
constitute a default under any material provisions of any indenture, agreement
or other instrument to which the Borrower is a party or by which the Borrower or
any of its property may be bound or any Governmental Approval applicable to the
Borrower or its property.
Section 6. Application of Proceeds. The Borrower hereby agrees, any
provision of the Loan Agreement or any other Loan Document to the contrary
notwithstanding, that as between the Borrower, on one hand, and the Agent and
the Lenders on the other, the Agent shall have the right to apply and reapply
any and all Collateral, proceeds thereof, other amounts received by the Agent
for application to the Secured Obligations and any property of the Borrower at
any time in the possession of the Agent or any Lender or any Affiliate of the
Agent or any Lender to the payment of the Secured Obligations in any order that
the Agent in its sole and absolute discretion may determine from time to time.
Section 7. Governing Law; General Provisions. (a) This Agreement shall
be governed by and construed in accordance with the laws of the State of Georgia
(without reference to conflict of laws principles).
(b) This Agreement may be executed in any number of copies and by the
parties on separate copies, all of which taken together shall constitute a
single agreement.
(c) Captions of Sections, subsections, schedules or exhibits herein or
attached hereto are for convenience of reference only and shall not be
considered in interpreting or construing any provision of this Agreement and its
attachments.
(d) The parties to this Agreement do not intend to create, and no
provision hereof shall be deemed to have created, any rights in favor of any
Person not a party to this Agreement.
(e) This Agreement may not be amended or otherwise modified except in
writing, signed by the parties to this Agreement.
(f) This Agreement is not intended to be, and it shall not be construed
to be, a novation or accord and satisfaction and, except as expressly modified
hereby, the Loan Agreement and the other Loan Documents remain in full force and
effect and are hereby ratified and confirmed.
Section 8. No Waiver. The Agent and the Lenders acknowledge that the
Borrower has expressed its intention to submit one or more proposals for the
modification of the Borrower's capital structure and the terms of the credit
facilities available under the Loan Agreement. The Agent and the Lenders will
review, but without any obligation or
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commitment of any kind to accept, any such reasonable proposal made in writing
and in good faith by the Borrower. None of this Agreement, the forbearance by
the Agent and the Lenders hereunder, the Lenders' continued Revolving Credit
Loans to the Borrower in accordance with the terms of the Loan Agreement and
this Agreement or the Agent's or the Lenders' review of, or discussions or
negotiations with the Borrower or any Affiliate of the Borrower as to, the
potential restructuring of the facilities available under the Loan Agreement are
intended to be, nor are they nor shall they be deemed to be a waiver of or
consent to the Events of Default referred to herein or any other Default or
Event of Default. The Borrower agrees that no Default or Event of Default has
been waived or released, or shall be considered to have been cured by reason of
the Agent and the Lenders entering into this Agreement or performing the terms
hereof, including, without being limited to, forbearing from the exercise of
available remedies and making further Revolving Credit Loans to the Borrower.
Section 9. Release; Waiver of Jury Trial. (a) TO INDUCE THE LENDERS AND
THE AGENT TO ENTER INTO THIS AGREEMENT, THE BORROWER HEREBY RELEASES EACH LENDER
AND THE AGENT, THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
ASSIGNS, FROM ANY AND ALL CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION AND OTHER
LIABILITIES OF ANY KIND, WHETHER MATURED OR UNMATURED OR CONTINGENT, LIQUIDATED
OR UNLIQUIDATED, AT LAW OR IN EQUITY, THAT THE BORROWER HAS OR HAS HAD AGAINST
ANY LENDER OR THE AGENT.
(b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT IT MAY HAVE TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT.
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BORROWER:
[Corporate Seal] TEXFI INDUSTRIES, N.A.
Attest:
By: ______________________________________
By: ______________________________ Xxxxxx Xxxxxx
Xxxxxx X. Xxxxxxxxx President and Chief Operations Officer
Executive Vice President and
Chief Financial Officer
AGENT:
BANKBOSTON, N.A.
By: ______________________________________
Xxxxxxxxx X. Xxxxxx
Managing Director
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LENDERS:
BANKBOSTON, N.A.
By:
Xxxxxxxxx X. Xxxxxx
Managing Director
Address:
000 Xxxxxxxxx Xxxxxx Xxxxx, X.X.
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxxxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
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THE CIT GROUP/COMMERCIAL
SERVICES, INC.:
By:________________________________
Name:__________________________
Title:_________________________
Address:
Two First Union Center
P. O. Xxx 00000
Xxxxxxxxx, XX 00000-0000
Attn: Xxxx Xxxx
Facsimile No.: (000) 000-0000
0
XXXXXXXX XXXX XX XXXXXX
By:________________________________
Name:__________________________
Title:_________________________
By:________________________________
Name:__________________________
Title:_________________________
Address:
Two First Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx
Facsimile No.: (000) 000-0000
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