AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT
EXHIBIT 4.2
EXECUTION COPY
AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT
AMENDMENT NO. 1 TO FORBEARANCE AGREEMENT, dated as of June 3, 2008 (this
“Amendment”), 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, on or about February 6, 2008, the Borrower, the Agent, the Lenders, the Debtors, and
the Credit Parties entered into a Forbearance Agreement (the “Forbearance Agreement”)
pursuant to which the Lenders agreed to forbear, during the Forbearance Period (as such term is
defined in the Forbearance Agreement), from exercising their rights and remedies under the Loan
Documents with respect to certain then-existing Events of Default (the “Existing Events of
Default”).
WHEREAS, certain defaults exist and are continuing under the Forbearance Agreement
(collectively, the “Existing Forbearance Events of Default”).
WHEREAS, notwithstanding the existence of the Existing Forbearance Events of Default, the
Borrower has requested, and the Lenders have agreed, to amend the Forbearance Agreement as set
forth below.
NOW, THEREFORE, in consideration of the premises and the agreements hereinafter contained, and
for other good and valuable consideration, notwithstanding any provisions of the Credit Agreement
or the Forbearance Agreement to the contrary, the parties hereto hereby agree as follows:
1. Extension of Forbearance Period. Notwithstanding anything to the contrary in Paragraph 1
of the Forbearance Agreement, the Lenders agree to extend the Forbearance Period (as defined in the
Forbearance Agreement) to August 1, 2008, provided that the Credit Parties shall continue to comply
with the conditions and requirements set forth in this Amendment. If the Credit Parties fail to
comply with any of the conditions or requirements of this Amendment, the Forbearance Period shall
terminate without any further notification by the Lenders to the Borrower.
| 1 | Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. |
2. Collection and Delivery of Accounts Receivable. The Credit Parties shall continue to
deliver to the Agent for the benefit of the Lenders, as and when collected, 100% of all amounts
directly or indirectly collected in respect of their respective accounts receivable, which amounts
shall be applied by the Agent to the outstanding obligations under the Loan Documents as provided
in the Forbearance Agreement and in the following order: (i) first, to the payment of any
outstanding fees and/or expenses then due and owing under Section 12.1 of the Credit Agreement,
(ii) second, to the payment of any outstanding due and unpaid interest on the Obligations, and
(iii) third, to the reduction of any outstanding and unpaid principal amount of the Borrower’s
Obligations under the Credit Agreement. From and after the Closing Date until the date all Pay-Off
Conditions have been satisfied, the Borrower shall deliver to the Agent daily reports of the Credit
Parties’ previous day’s collections of accounts receivable.
3. Satisfaction and Treatment of Obligations Under the Credit Agreement. Upon the occurrence
of all of the following conditions ((a), (b), (c), and (d) collectively, the “Pay-Off
Conditions”) and the satisfaction of the condition for release of collateral provided in
Paragraph 9 below, (i) the obligation of the Credit Parties to pay to the Agent the portion of the
net recoveries resulting from the Xxxxxxxx Claims as provided in Paragraph 5 below will be treated
as a non-recourse obligation of the Credit Parties secured by (x) any claims, demands, suits or
causes of action of any kind, whether presently asserted or not, whether fixed or contingent, of
the Borrower or its Subsidiaries (collectively, the “Xxxxxxxx Claims”), against Mr. Xxxxx
Xxxxxxxx and/or any entities related to, or affiliated with, Xx. Xxxxxxxx or by which Xx. Xxxxxxxx
was employed in any capacity (collectively, “Xxxxxxxx”) and (y) any claims against Xxxxxxxx
which currently may be pursued by the Lenders and which subsequently are treated as property of a
Credit Party’s bankruptcy estate by reason of such Credit Party becoming a debtor under title 11 of
the United States Code (the “Bankruptcy Code”) and (ii) all other obligations of the Credit
Parties under the Loan Documents will be deemed satisfied:
(a) Notwithstanding anything to the contrary in Paragraphs 10, 11 and 12 of the Forbearance
Agreement, during the period commencing on May 19, 2008 and ending on August 1, 2008 (the
“Pay-Off Period”), the Borrower shall have made to the Agent for the benefit of the
Lenders payments, whether from the collection of accounts receivable or otherwise and after
taking into account the order of application set forth in Paragraph 2 above, that result in the
reduction of the principal amount of the Borrower’s Obligations under the Credit Agreement in the
aggregate amount of $10,500,000 (the “Pay-Off Amount”), including minimum interim
aggregate reductions of principal of $1,150,000 within twenty-four (24) hours of the execution of
this Amendment; $3,500,000 by June 15, 2008; $5,450,000 by July 1, 2008; $6,950,000 by July 15,
2008; and $10,500,000 by August 1, 2008 (each, a “Minimum Interim Reduction”). If any
such payments are funded with the proceeds of a disposition of an asset other than accounts
receivable, and the Lenders have granted prior written consent of such disposition, the Agent
shall release its lien on such asset, contemporaneously with its receipt of 100% of the proceeds
of such disposition in readily available funds.
(b) The Borrower shall have remitted to the Agent all fees and expenses owing pursuant to
Section 12.1 of the Credit Agreement.
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(c) On or before August 1, 2008, the Borrower shall have canceled, replaced, or provided
cash collateral in form satisfactory to the Agent to cover the Letters of Credit described in
Paragraph 4 below.
(d) The Borrower shall have issued the Lenders’ Warrants (as defined below) as described in
Paragraph 7 below.
Notwithstanding anything contained in this Paragraph to the contrary, until the Pay-Off Conditions
are satisfied, all Obligations under the Loan Documents shall remain valid, binding and
enforceable, and the Borrower shall continue to pay interest on the unpaid principal amount of the
Revolving Credit Advances and the unpaid principal amount of the Term Loan in accordance with
Paragraphs 11 and 12 of the Forbearance Agreement, respectively (collectively, the “Continued
Interest Payments”); provided, however, that, notwithstanding anything in Paragraphs 11 and 12
of the Forbearance Agreement, the Continued Interest Payments shall be payable on the following
dates: June 1, 2008, June 15, 2008, July 1, 2008, July 15, 2008 and August 1, 2008. The Continued
Interest Payments will not be credited toward the Pay-Off Amount. The Borrower’s failure to comply
with the Minimum Interim Reductions shall result in an Event of Default under the Credit Agreement,
the Forbearance Agreement and this Amendment, and the Borrower shall not be entitled to a grace
period in order to cure such Event of Default.
4. Letter of Credit Cancellation. On or before August 1, 2008, the Borrower shall cancel or
replace (or provide cash collateral to cover) LC 676 in the original amount of $2,000,000 and LC
796 in the original amount of $500,000 (collectively, the “Letters of Credit”).
Cancellation of the Letters of Credit shall not be applied toward the Pay-Off Amount.
5. Recoveries Resulting from Xxxxxxxx Claims. The Credit Parties shall use their commercially
reasonable efforts to pursue the Xxxxxxxx Claims and to defend any claims against them asserted by
Xxxxxxxx. The Credit Parties shall keep the Agent informed of the status of their pursuit of the
Xxxxxxxx Claims, the defense of all claims brought against them by Xxxxxxxx, and the Credit Parties
shall not settle or compromise any Xxxxxxxx Claims without the prior written consent of the
Lenders, which consent will not be unreasonably withheld. The Credit Parties shall pay to the
Agent for the benefit of the Lenders 70% of all recoveries resulting from pursuit of the Xxxxxxxx
Claims, net of actual, reasonable costs of collection including fees of attorneys or other
professionals; provided, however, that any resulting recoveries and payments to the Agent shall not
be applied to the Pay-Off Amount. The Credit Parties hereby acknowledge that the Lenders are
relying on the Credit Parties’ agreement to pursue the Xxxxxxxx Claims and defend against claims
asserted by Xxxxxxxx in entering into this Amendment.
6. Cancellation of Revolving Availability. Any borrowing availability currently existing
under the Revolving Loan will be cancelled as of the Closing Date. From and after the Closing
Date, the Borrower shall not be required to comply with the reporting requirements set forth in
Paragraphs 14(a) (Borrowing Base Reports) and 14(c) (Thirteen-Week Cash Flow Forecast) of the
Forbearance Agreement.
7. Lenders’ Warrants. On or before August 1, 2008, subject to certain trading restrictions
and dilution protection to be embodied in a warrant agreement to be agreed to
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by the Borrower and the Agent no later than June 6, 2008, the Borrower shall issue to the each
of the Lenders its pro rata share of warrants to acquire an aggregate of 2,100,000 shares (which
warrants shall expire seven (7) years after the issuance thereof) at a cashless exercise price per
share (collectively, the “Lenders’ Warrants”) at the strike prices as set forth in the
table below:
| Number of Warrants | Strike Price Per Warrant | |||
700,000 |
$ | 1.00 | ||
700,000 |
$ | 1.50 | ||
700,000 |
$ | 2.25 | ||
8. Funding Commitment. On or before June 6, 2008, the Borrower shall provide the Agent with a
copy of a fully executed bridge Funding Commitment or other arrangement in form, substance and
amount satisfactory to the Lenders and in any event in no less an amount than $2,500,000 in excess
of and in addition to any amounts previously committed or funded (the “Funding
Commitment”), which Funding Commitment shall designate the Lenders as third party beneficiaries
of same, to provide liquidity from the Closing Date until August 1, 2008 to the Borrower in amounts
sufficient to maintain the financial viability of the Borrower and to make the payments required
under this Amendment.
9. Release of Collateral. Provided that none of the Credit Parties shall be a debtor or
alleged debtor in a case under the Bankruptcy Code, on the earlier to occur of (i) the second
Business Day after the date that is ninety (90) days after the date on which the Pay-Off Conditions
are satisfied by the Borrower and (ii) the date the Borrower has satisfied the Pay-Off Conditions
and closed a new secured credit agreement provided by an unaffiliated lender in the amount of at
least $10,500,000 and secured by the accounts receivable and tangible real and personal property of
the Credit Parties, the Agent will release any Collateral currently held by Agent securing the
Obligations of the Borrower under the Loan Documents other than claims against Xxxxxxxx consistent
with Paragraph 3 above, and, subject to Paragraph 3 above, the Lenders and the Borrower shall then
exchange mutually satisfactory releases in respect thereof (it being understood that neither the
Borrower nor the Lenders will release Xxxxxxxx from any claim or causes of action then pending or
to be asserted against Xxxxxxxx).
10. Conditions to Effectiveness. This Amendment shall become effective as of the date the
following conditions precedent (collectively, the “Conditions Precedent”) have been
satisfied, in no event later than June 3, 2008 (the “Closing Date”):
(a) The Borrower shall have deposited, into an account for the Borrower’s sole use, an
amount of not less than $1,000,000 of newly raised capital subordinate to the Obligations of the
Credit Parties under the Credit Agreement (for avoidance
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of doubt, such newly raised capital shall not be generated from the sale of the Credit
Parties’ assets or collection of their accounts receivable); 2
(b) On or before June 2, 2008, the Borrower shall have provided to the Agent (i) a list of
all of the Borrower’s accounts receiveable, the sum of which equals at least the Pay-Off Amount
and (ii) commencing June 2, 2008, and thereafter on June 15, 2008, July 1, 2008, July 15, 2008,
and August 1, 2008, a schedule of and aging of the Credit Parties’ accounts receivable the sum of
which equals at least the Pay-Off Amount less any Minimum Interim Reductions already paid;
(c) On or before June 2, 2008, the Borrower shall have provided to the Agent a
reconciliation of all account receivable collections for the month of May 2008;
(d) The Agent shall have received an unredacted copy of the report prepared by Xxxxxx and
Xxxxx, LLP in connection with its special investigation at the request of the audit committee of
the board of directors of the Borrower;
(e) The Agent shall have received from each Credit Party a duly executed counterpart of this
Amendment;
(f) The Agent shall have received from each Lender a duly executed counterpart of this
Amendment; and
(g) The Agent shall have duly executed a counterpart of this Amendment.
11. Ratification. Except as expressly amended hereby, the Forbearance Agreement, the Credit
Agreement and each other Loan Document remain in full force and effect, and each Credit Party
hereby ratifies and confirms each such Loan Document.
12. Releases. Each Credit Party hereby acknowledges its status as a Credit Party and 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 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 Amendment, 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
| 2 | The Lenders acknowledge satisfaction of this condition 10(a) prior to the execution of this Amendment. |
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from the beginning of time up to and including the date of the execution and delivery of this
Amendment. 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
Amendment, including, without limitation, any Claims arising with respect to the Obligations or any
Loan Documents and any Claims, demands or causes of action brought pursuant to chapter 5 of the
Bankruptcy Code.
13. 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 Amendment is, and shall be, a Loan Document.
(c) The execution, delivery and effectiveness of this Amendment 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 or Existing Forbearance Events of
Default, other than with respect to the Lenders’ agreement to forbear as set forth in Paragraph 1
of the Forbearance Agreement. The Credit Parties acknowledge that, notwithstanding the
execution, delivery and effectiveness of this Amendment, the Existing Events of Default and the
Existing Forbearance Events of Default exist and are continuing until payment in full of the
Obligations under the 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.
14. Execution in Counterparts. This Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which, 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.
15. Headings. Section headings in this Amendment are included herein for convenience of
reference only and shall not constitute a part of this Amendment for any other purpose.
16. Section Numbers. Unless otherwise indicated, all references to section numbers are
references to sections of this Amendment.
[Remainder of Page Intentionally Left Blank]
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In Witness Whereof, the parties hereto have caused this Amendment 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 |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| DEBTORS AND GUARANTORS: CORNERSTONE MARBLE & GRANITE, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| FIBER-SEAL SYSTEMS, L.P. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| FIRELINE RESTORATION, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| HOME SOLUTIONS RESTORATION OF LOUISIANA, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
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| X.X. XXXXXXXX, INC. |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| SOUTHERN EXPOSURE UNLIMITED OF FLORIDA, INC. |
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| 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 |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, as Lender |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| AMEGY BANK, N.A., as Lender |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| BANK OF OKLAHOMA, N.A., as Lender |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| COMPASS BANK, as Lender |
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| By: | ||||
| Name: | ||||
| Title: | ||||
| AMARILLO NATIONAL BANK, as Lender |
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| By: | ||||
| Name: | ||||
| Title: | ||||
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