EXHIBIT 10.28
FORBEARANCE AGREEMENT
Franklin Ophthalmic Instruments Co., Inc.
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxx X. Xxxxxxx
Xx. Xxxxx X. Xxxxxxx
Xx. Xxxxx Xxxxx
Re:Defaults and requests for forbearance under that certain
Amended and Restated Loan and Security Agreement dated of
December 30, 1997, as amended (the "Credit Agreement")
Gentlemen:
This Agreement will confirm various recent conversations among
representatives of Xxxxxx Trust and Savings Bank (the "Bank") and
representatives of Franklin Ophthalmic Instruments Co., Inc. (the
"Company") and the individuals to whom this letter is addressed
(collectively the "Guarantors") regarding the defaults described in
the letter dated April 21, 1999 from the Bank's counsel to the
Company, the Confirmation of Default dated July 9, 1999 from the Bank
to the Company, the Notice of Default dated October 20, 1999 from the
Bank to the Company and the Notice of Action on Default dated
November 10, 1999 from the Bank to the Company. For convenience, we
will refer to these various defaults collectively as the "Existing
Defaults". Capitalized terms used herein without definition shall
have the same meanings in this Agreement that such terms have in the
Credit Agreement
In response to the Company's severe financial problems, the
Company has decided to liquidate and dissolve its business. In recent
discussions, the Company has requested that the Bank forbear from
exercising its rights and remedies with respect to the Existing
Defaults for a limited time to permit the Company the possibility of a
more orderly liquidation of its assets. To that end, the Company
devised and furnished the Bank a budget (the "Budget") projecting the
Company's cash receipts and disbursements during such a liquidation (a
copy of which budget is attached to this Agreement as Exhibit A). The
Bank has not yet determined what actions to take in response to the
Existing Defaults. While the Bank is not willing at this time to
waive the Existing Defaults, the Bank is currently willing to
accommodate the Company by temporarily forbearing from:
(i) accelerating the Obligations outstanding under the
Credit Agreement, and
(ii) enforcing its rights, powers and remedies against the
Company and the Guarantors under the Credit Agreement, the
Security Documents and the other Loan Documents or at law or
equity or by statute, including, without limitation, its right to
foreclose on the Collateral
in each case during the period (which we will refer to as the
"Standstill Period") beginning on November 15, 1999 and ending on the
earlier of March 31, 2000 (the "Scheduled Standstill Expiration Date")
or such other date on which any Standstill Termination occurs.
This Agreement will confirm the terms, conditions and provisions
upon which the Bank is agreeing to so forbear. Bear in mind, however,
the Bank is not waiving the Existing Defaults or any other Defaults or
Events of Default that may occur. Accordingly, effective upon the
satisfaction of the conditions set forth in Section 21 of this
Agreement, the Bank agrees to maintain its current credit arrangements
with the Company modified as follows:
1. Forbearance. Unless and until a Standstill Termination
occurs, the Bank will not accelerate the Obligations and will not, for
the benefit of the Obligations, either enforce any of the liens
granted under the Security Documents or exercise any other rights or
remedies available to the Bank solely by reason of the Existing
Defaults.
2. No Additional Credit. During the Standstill Period, no new
Revolving Credit Loans will be made by the Bank and no new Letters of
Credit or LC Guaranties will be issued by the Bank. Any amounts paid
or prepaid on the Revolving Credit Note may not be reborrowed. As was
the case before, no amounts paid or prepaid on the Term Note may be
reborrowed.
3. Application and Release of Collections. The Company and the
Guarantors agree that all proceeds of the Company's inventory,
accounts receivable and other assets (collectively, the "Collections")
shall be remitted to the Bank (in the same form as received, but with
any necessary endorsement) on a daily basis for deposit in a newly
created remittance account maintained with, and under the exclusive
control of, the Bank. The Collections will be applied by the Bank
from time to time in reduction of the Obligations in such order and
manner as the Bank shall deem appropriate; provided, however, that
during the Standstill Period, unless and until a Standstill
Termination occurs, the Bank will release to the Company, Collections
received by the Bank in collected funds on and after the time at which
the Bank opens for business on November 15, 1999, solely to fund
(unless the Bank shall agree in its sole discretion to fund other
items) the payment of costs and expenses of the type, in the amount
and during the week specified in the Budget (it being understood and
agreed that the aggregate amount of Collections so released shall in
no event exceed the Collections received by the Bank in collected
funds on a cumulative basis on and at any time after the time at which
the Bank opens for business on November 15, 1999); further provided,
however, that the undertaking of the Bank to release Collections shall
in any event cease on January 8, 2000. The Collections to be so
released to the Company shall be made available by crediting the same
to a newly created disbursement account of the Company maintained with
the Bank in Chicago; provided, however, that the Collections released
to the Company for income and employment tax withholdings and sales
tax liabilities shall be remitted to newly created separate special
trust accounts of the Company maintained for such purposes with the
Bank in Chicago.
4. Adherence to Budget. A Standstill Termination shall be
deemed to occur if the aggregate gross amount of Collections received
by the Bank in collected funds on a cumulative basis on and at any
time after the time at which the Bank opens for business on
November 15, 1999 (not just the portion thereof applied in reduction
of the Obligations) does not equal or exceed for any period commencing
on such November 15 date and ending on a date specified below, the
amount set forth immediately to the right of such period below:
During the period commencing on Cumulative Gross Collections
November 15, 1999 and ending on: must equal or exceed:
---------------- --------
December 6, 1999 $150,000
December 20, 1999 $275,000
January 3, 2000 $500,000
5. Taxes and Insurance. The Company and the Guarantors agree
that the Company will remain at all times current during the
Standstill Period in the payment of all its taxes and withholdings and
that insurance on the Bank's Collateral shall be maintained during the
Standstill Period in accord with the requirements of the relevant Loan
Documents.
6. No Overdrafts. The Company has previously overdrawn its
account at the Bank. The Company acknowledges that the Bank will
continue its policy of not covering overdrafts.
7. Liquidation. The Bank's willingness to enter into this
Agreement has made in reliance in large part on the Company's
representation that it will continue to devote xxxxxxx effort to its
expressed intention of liquidating its assets with the objective of
reducing the Obligations. The Company and Guarantors agree to make
every reasonable effort to collect and reduce the assets of the
Company to cash in an orderly fashion as promptly as is practicable
under the circumstances, but the Company and Guarantors agree that
without the prior written consent of the Bank, they will not permit
any of the accounts receivable to the Company to be sold at a discount
(as opposed to collected) and that there will be no non-cash sale of
inventory and no sales of inventory on terms which are more
disadvantageous to the Company than the Company's ordinary and
customary trade terms.
8. Costs in Year 2000. The Guarantors will pay out of their own
funds, all costs and expenses incurred after January 3, 2000 in
connection with the liquidation of the Company's assets.
9. Inspection. The Company and the Guarantors agree that they
will permit representatives of the Bank (including as such, any third
party retained by the Bank) from time to time to audit and inspect the
books and records of account of the Company and the Collateral, to
discuss the affairs of the Company with its officers and employees and
to make photocopies or extracts of such books and records.
10. Information. The Company must keep the Bank reasonably
apprised of its effort to sell its assets. The Company must also
continue to provide the Bank with whatever information the Bank
reasonably requests regarding the condition and prospects, financial
or otherwise, of the Company and the Guarantors; and without any such
request, the Company will furnish the Bank the following:
(a) as soon as available, but in any event no later than
the second Business Day of each calendar week (commencing
November 30, 1999), an aging of the Company's accounts payable
and accounts receivable and inventory status report, all in
reasonable detail and signed by an officer of the Company
reasonably acceptable to the Bank;
(b) as soon as available, but in any event no later than
the second Business Day of each calendar week (commencing
November 30, 1999), a comparison in reasonable detail of the
Company's actual expenditures during the immediately preceding
week against those reflected for such items in the Budget, signed
by an officer of the Company reasonably acceptable to the Bank;
and
(c) as soon as available, but in any event no later than
the second Business Day of each calendar week (commencing
November 30, 1999), a report in reasonable detail of open checks
theretofore issued by the Company which to its knowledge have not
yet been presented for payment.
On or prior to the date hereof, the Company shall furnish to the Bank
(or shall cause to be furnished to the Bank) updated personal
financial statements for each of the Guarantors.
11. Standstill Termination. As used in this Agreement,
"Standstill Termination" shall mean the occurrence of the Scheduled
Standstill Expiration Date, or, if earlier, the occurrence of any one
or more of the following events: (a) any Default or Event of Default
other than (i) the Existing Defaults, (ii) any noncompliance with
Section 8.1(J), 9.1(J), 9.1(O) or any of the financial covenants set
forth in Sections 9.3 of the Credit Agreement or (iii) any failure of
the Company prior to the Standstill Period to pay taxes; (b) any
failure by the Company or any Guarantor for any reason to comply with
any term, condition or provision contained in this Agreement; (c) any
representation made, or information submitted, by or on the behalf of
the Company or any Guarantor in this Agreement or pursuant to it
(including without limitation, any report as to the value of the
Company's receivables and inventory) proves to be incorrect or
misleading in any material respect when made (whether or not
intentional); (d) any repossession, levy or similar process succeeds
as against any assets of the Company aggregating in excess of $10,000
in value; (e) the commencement by or against the Company of any
bankruptcy, reorganization, arrangement or insolvency proceeding or
other proceedings for the relief of debtors; (f) the Company shall
overdraft any of its accounts at the Bank (excluding any overdraft to
the extent resulting solely from the reversal of funds which the Bank
previously had stated to the Company were collected funds in response
to a request from the Company for such information); (g) the
occurrence of any other event or circumstance which, in the good faith
judgment of the Bank, may preclude the Company from winding up its
operations in an orderly fashion; or (h) any change shall occur in the
condition or prospects, financial or otherwise, of the Company or any
Guarantor or in the value or collectibility of any Collateral for the
Obligations which the Bank in good xxxxx xxxxx materially adverse to
the Company winding up its operations in an orderly fashion or to the
Bank's application in reduction of the Obligations of proceeds of its
Collateral. The occurrence of any Standstill Termination shall be
deemed an Event of Default under the Credit Agreement. Upon the
occurrence of a Standstill Termination, the Standstill Period will
terminate effective upon the Bank's sending the Company written notice
of such termination (it being understood and agreed that notice by
facsimile transmission shall be effective for such purposes if sent to
the Company and the Company's counsel, Xxxxxxx Xxxxxxxx of Messrs.
Xxxxxxxxx & Taurig, shall be effective as if such notice were sent
directly to the Company). Effectively immediately upon such
termination, the Bank is then permitted and entitled, among other
things, to accelerate the Obligations and to exercise any other rights
and remedies that may be available to the Bank under the Credit
Agreement, the Security Documents, the other Loan Documents or
applicable law.
12. Reaffirmation of Guaranty Agreements. Each of the Guarantors
must reaffirm his obligations under his December 30, 1997 Continuing
Guaranty Agreement in favor of the Bank (the "Personal Guaranty"). As
more fully set forth in the Personal Guaranty, the Bank's right of
recovery under the Personal Guaranty against the Guarantors (the
"Right of Recovery") is limited to the sum of $200,000 plus "Expenses"
(as such term is defined in the Guaranty). By its acceptance below,
the Bank agrees to reduce the Right of Recovery on the Personal
Guaranty as follows:
(a) If, but only if, before any Standstill Termination
(excluding any Standstill Termination consisting of the
commencement against the Company of any involuntary bankruptcy
proceeding if within 30 days of the date such proceeding is
commenced, (i) the relevant bankruptcy court has entered an order
lifting the automatic stay so as to permit the continued
liquidation of the Company, (ii) Collections can lawfully
continue to be applied in reduction of the Obligations as
contemplated by this Agreement and (iii) no other Standstill
Termination has occurred), the Bank has received and applied in
reduction of the Obligations, Collections aggregating more than
$500,000, the Right of Recovery shall be reduced by 25% of the
lesser of $100,000 or the amount by which such Collections exceed
$500,000; and
(b) If, but only if, before any Standstill Termination
(excluding any Standstill Termination consisting of an
involuntary bankruptcy proceeding under the circumstances
described in clause (a) above), the Bank has received and applied
in reduction of the Obligations, Collections aggregating more
than $600,000, the Right of Recovery shall be reduced by 50% of
the amount by which such Collections exceed $600,000.
The liability of the Company for the Obligations shall remain
unlimited. Time is of the essence in determining whether the Right of
Recovery on the Personal Guaranty should be reduced as aforesaid. For
purposes of determining the Bank's Right of Recovery, all references
to Collections in this Section shall refer to Collections applied to
the Obligations subsequent to the time at which the Bank opens for
business on November 15, 1999 and shall in any event exclude any such
Collections subsequently recovered from the Bank. In the event that
any items at any time applied to the Obligations are returned or
otherwise do not collect, the loan balance and Right of Recovery shall
be correspondingly adjusted.
14. Expenses. All costs and expenses of or incurred by the Bank
in connection with the negotiation, preparation, execution and
delivery of this Agreement and the transactions contemplated hereby,
including the fees and expenses of the Bank's counsel and all account
and lockbox and related service charges and fees, shall constitute
part of the Obligations secured by the Collateral.
15. Accounts. Each account at the Bank to which Collections are
remitted to the Bank or in which Collections are held at the Bank or
into which Collections are released to the Company (other than the
special trust accounts referenced in paragraph numbered 3 above) are
in each case subject to a lien in favor of the Bank to secure the
Obligations (the Company hereby granting the Bank a lien on each such
account to the extent it is not already have one).
16. Stipulation to Entry of Replevin Order. The Company hereby
agrees that from and after a Standstill Termination as defined above,
and in the event an action is filed by the Bank to, among other
things, replevy collateral standing as security for repayment of the
Obligations, the Company will execute a stipulation to entry of an
order of replevin, without bond, to allow the Bank to fully and freely
take possession of any and all such collateral.
17. Consent to Order for Relief from Stay. In the event
bankruptcy proceedings are commenced by or against the Company, the
Company hereby agrees that it will consent to any action by the Bank
to seek relief from the automatic stay so as to permit the Bank's
foreclosure or other realization on the Collateral.
18. No Waiver and Reservation of Rights. As stated above, the
Bank is not waiving the Existing Defaults, but is simply agreeing to
forbear from exercising its rights with respect to the Existing
Defaults to the extent expressly set forth in this Agreement. The
Bank is not obligated in any way to continue beyond the Standstill
Period to forbear from enforcing its rights or remedies, and the Bank
is entitled to act on the Existing Defaults after the occurrence of a
Standstill Termination as if such Existing Defaults had just occurred
and the Standstill Period had never existed. The Bank makes no
representations as to what actions, if any, the Bank will take after
the Standstill Period or upon the occurrence of any Standstill
Termination, a Default or an Event of Default, and the Bank must and
does hereby specifically reserve any and all rights and remedies the
Bank has (after giving effect hereto) with respect to the Existing
Defaults and each other Default or Event of Default that may occur.
19. Acknowledgments. The Bank's agreements in this Agreement
are based in part on the understanding that the Company and Guarantors
are obligated under the Loan Documents. Accordingly, the Company
acknowledges and agrees that as of the opening of the Bank for
business on November 15, 1999, (a) the unpaid principal amount of the
Revolving Credit Note is $2,036,448.55 (b) the unpaid principal amount
of the Term Note is $210,500, and (c) such principal (plus accrued and
unpaid interest thereon) is absolutely and unconditionally due and
owing from the Company and the Company has no defense, offset or
counterclaim to payment of any Obligations.
20. RELEASE. FOR VALUE RECEIVED, INCLUDING WITHOUT LIMITATION,
THE AGREEMENTS OF THE BANK IN THIS AGREEMENT, THE COMPANY AND EACH
GUARANTOR HEREBY RELEASES THE BANK, ITS CURRENT AND FORMER
SHAREHOLDERS, DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND PROFESSIONAL
ADVISORS (COLLECTIVELY, THE "RELEASED PARTIES") OF AND FROM ANY AND
ALL DEMANDS, ACTIONS, CAUSES OF ACTION, SUITS, CONTROVERSIES, ACTS AND
OMISSIONS, LIABILITIES, AND OTHER CLAIMS OF EVERY KIND OR NATURE
WHATSOEVER, BOTH IN LAW AND IN EQUITY, KNOWN OR UNKNOWN, WHICH THE
COMPANY OR ANY GUARANTOR HAS OR EVER HAD AGAINST THE RELEASED PARTIES
FROM THE BEGINNING OF THE WORLD TO THIS DATE, INCLUDING, WITHOUT
LIMITATION, THOSE ARISING OUT OF THE EXISTING FINANCING ARRANGEMENTS,
AND THE COMPANY AND EACH GUARANTOR FURTHER ACKNOWLEDGE THAT, AS OF THE
DATE HEREOF, THEY DO NOT HAVE ANY COUNTERCLAIM, SET-OFF OR DEFENSE
AGAINST THE RELEASED PARTIES, EACH OF WHICH THE COMPANY AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVES.
21. Loan Documents Remain Effective. Except as expressly set
forth in this Agreement, the Credit Agreement, the Notes, the Security
Documents and the other Loan Documents remain unchanged and in full
force and effect. Without limiting the foregoing, the Bank expects
and requires that the Company comply with all of the terms, conditions
and provisions of the Loan Documents, as amended hereby, except to the
extent such compliance is irreconcilably inconsistent with the express
provisions of this Agreement. This Agreement and the Loan Documents,
as amended hereby, are intended by the Bank as a final expression of
its agreement and are intended as a complete and exclusive statement
of the terms and conditions of that agreement.
22. Governing Law; Counterparts. This Agreement shall be
governed by, and construed in accordance with, the internal laws of
the State of Illinois without regard to principles of conflicts of
laws. This Agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts and by
facsimile, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
23. Effectiveness. This Agreement will not take effect unless
before 5:00 p.m. (Chicago time) on the November 29, 1999 (i) the
Company accepts this Agreement in the space provided below for that
purpose and returns to us a counterpart of this Agreement which has
been so accepted, (ii) the Company delivers to us the updated personal
financial statements of the Guarantors required by Section 9 hereof
and (iii) the Guarantors accept this Agreement in the space provided
for that purpose below.
Dated as of November 24, 1999.
XXXXXX TRUST AND SAVINGS BANK
By /s/ Xxxxxxxxx XxXxxxx
Its Vice President
Accepted and agreed to.
FRANKLIN OPHTHALMIC INSTRUMENTS CO.,
INC.
By /s/ Xxxxxxx X. Xxxxxxx
Its President and Chief Executive
Officer
The undersigned each hereby joins in the above and foregoing
Agreement and unconditionally reaffirms, jointly and severally, all of
his obligations under the Personal Guaranty (as modified by the above
Agreement), and each jointly and severally and unconditionally
guarantees repayment of the Obligations in accordance with the terms
and conditions of the Personal Guaranty (as so modified). Each of the
undersigned also hereby represents, warrants and acknowledges that the
Personal Guaranty is valid and there are no defenses, setoffs, claims
or counterclaims which could be asserted against the Bank arising from
or in connection with the Personal Guaranty or the Obligations.
Each of the undersigned acknowledges that he has executed and
delivered the above Agreement after due consideration of its
consequences and after consultation with counsel and such other
advisors as he deems appropriate under the circumstances.
/s/ Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxxxx
/s/ Xxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
/s/ Xxxxx X.Xxxxx
Xxxxx X. Xxxxx
