EXHIBIT 10.4
FORBEARANCE AGREEMENT
Forbearance Agreement ("Agreement") made this 10th day of April, 2001,
between MARGATE INDUSTRIES, INC., a Delaware corporation ("Margate"),
XXXXXX INDUSTRIES, INC., a Michigan corporation ("Xxxxxx"), and NEW HAVEN
FOUNDRY, a Michigan corporation ("Foundry").
R E C I T A L S:
- - - - - - - -
X. Xxxxxx is indebted to Margate pursuant to the terms of a Seller
Note dated March 24, 1998 ("Seller Note"), in the original
principal amount of $700,000 which provides for quarterly
principal payments of $35,000 each, plus interest as provided
therein.
B. The Seller Note is secured by 29,682 shares of capital stock of
the Foundry constituting 45% of the outstanding capital stock of
the Foundry (the "Pledged Shares") pursuant to the terms of a
Pledge Agreement dated March 24, 1998 ("Pledge Agreement").
X. Xxxxxx and Foundry are parties to a Cleaning Contract dated March
24, 1998 ("Cleaning Contract"), pursuant to which, among other
things:
i. Margate has the exclusive right to provide cleaning services
as set forth in the Cleaning Contract for the minimum 7-year
term of the Cleaning Contract on the payment terms as set
forth in the Cleaning Contract; and
ii. Foundry is indebted to Margate for the payment of a "Service
Fee" in the original principal amount of $2,800,000 which is
payable quarterly in the amount of $140,000, plus interest
on delinquent amounts as provided therein.
D. Payment of the Service Fee under Section 4(C) of the Cleaning
Contract is also secured by the Pledged Shares under the Pledge
Agreement.
E. The Foundry is also indebted to Margate and/or its subsidiary,
Yale Industries, Inc., according to the following instruments and
agreements
i. A Management Oversight Fee in the total amount of $147,600
payable at the rate of $6,150 per month with payments due on
the 15th day of each month through January 15, 2002; and
ii. The Accounts Receivable Note in the original principal
amount of $700,000 payable in installments of $32,250 per
month payable on the first day of each month through
February 1, 2002; and
iii. Rent payments for the painting room at the Yale Industries,
Inc. ("Yale") facility in Yale, Michigan, of $4,167 per
month base rent plus a percentage of sales payable on the
first day of each month;
iv. Weekly labor paid on Friday of each week; and
v. Monthly health insurance payments for Xxxxxxx Xxxxxx.
F. Foundry is in default under the Cleaning Contract for failure to
make the last four quarterly installment payments of the Service
Fee in the total amount of $560,000 (four payments of $140,000
each due on July 1, 2000, October 1, 2000, January 1, 2001 and
April 1, 2001, respectively) ("Service Fee Payment Default") plus
interest on the delinquent payments as set forth on Exhibit A
attached hereto.
G. The Foundry is in default for failure to make the March 1
principal payment in the amount of $35,000 due under the Seller
Note plus interest as set forth on Exhibit A.
H. The Foundry is in default for failure to make the principal
payments in the amount of $32,250 each under the Accounts
Receivable Note due February 1, 2001, and March 1, 2001, plus
interest as set forth on Exhibit A.
I. The Foundry is further in default under the Cleaning Contract and
under various other agreements with Margate for the failure to
make payments as designated on Exhibit A under the heading of
"Cleaning Contract and Miscellaneous Charges"in the amounts set
forth on Exhibit A.
J. Margate has provided Xxxxxx with notice of the Service Fee
Payment Default referenced in Recital F and pursuant to the terms
of the Pledge Agreement and the Cure Period as provided in
paragraph 6(C) of the Pledge Agreement has expired without cure
by Xxxxxx or the Foundry.
K. Pursuant to paragraph 6(E) of the Pledge Agreement, Margate has
provided Xxxxxx with notice that Margate may retain the Pledged
Shares as a result of the Service Fee Payment Default which has
not been cured.
X. Xxxxxx and Foundry have requested that Margate forbear from
immediately exercising its rights and remedies under the Pledge
Agreement and from
-2-
exercising its rights and remedies with respect to the Service
Fee Payment Default and the other defaults referenced in Recitals
G, H and I above and Margate has agreed to do so in accordance
with the terms and conditions set forth in this Agreement.
NOW, THEREFORE, based upon the foregoing recitals (all of which are
incorporated into this Agreement and all of which constitute
representations, warranties and covenants of Xxxxxx and the Foundry), the
parties hereto agree as follows:
1. CONDITIONS TO FORBEARANCE B PAYMENT OBLIGATIONS. The forbearance
to be provided by Margate under this Agreement shall be subject to the
following conditions:
(1) LOAN CLOSING B LUMP SUM PAYMENT. Foundry and Xxxxxx have
represented to Margate that they will be entering into a
refinancing of the Foundry's credit facility with Comerica
Bank on or before April __, 2001 (hereinafter
"Refinancing"). Xxxxxx and the Foundry agree that upon the
closing of the Refinancing, Margate shall cause the Foundry
to pay and the Foundry shall pay to Margate a lump sum
payment in the amount of $709,838.75 to be applied to the
charges owing to Margate under the Cleaning Contract and
designated in Item 4 as "Total Charges" on Exhibit A
attached hereto.
(2) SELLER NOTE. On or before April 10, 2001, Xxxxxx shall have
paid the principal payments due March 1 2001, in the amount
of $35,000 each under the Seller Note plus all interest
payments due under the Seller Note as of April 1, 2001.
(3) ACCOUNTS RECEIVABLE NOTE. On or before April 10, 2001,
Xxxxxx shall cause the Foundry to pay and the Foundry shall
pay the principal payments due on February 1, 2001, March 1,
2001, and April 1, 2001, under the Accounts Receivable Note
in the amount of $32,250 each plus interest owing under the
Accounts Receivable Note through April 1, 2001.
(4) ALL PAYMENTS CURRENT. As of April 10, 2001, all payments
owing to Margate from the Foundry under the Cleaning
Contract (other than the Service Fee which is otherwise
address in paragraph 2 below) shall be current within 45
days as provided under paragraph 4(B) of the Cleaning
Contract including, without limitation, payments for
specials, defect analysis, salvage, scrap, shipper=s cost,
surcharge and interest charges.
-3-
Upon satisfaction of the foregoing payments by Xxxxxx and the Foundry as of
Xxxxx 0, 0000, Xxxxxxx shall xxxxx Xxxxxx and the Foundry the forbearance
as set forth in paragraph 2 below.
2. FORBEARANCE. Subject to the execution and delivery of this
Agreement and the satisfaction of all conditions and compliance with all
covenants set forth in paragraph 1 above, Margate agrees to forbear from
enforcing its rights and remedies under the Pledge Agreement as a result of
the Service Fee Payment Default and agrees to defer the delinquent
quarterly payments of the Service Fee referenced in Recital E above and the
Service Fee otherwise due through January 1, 2002, as provided in paragraph
3 below.
3. AMENDMENT TO CLEANING CONTRACT. The Cleaning Contract is hereby
amended as follows:
(1) Paragraph 4(C) of the Cleaning Contract is amended to
provide that:
1. The quarterly Service Fee payments payable under
paragraph (C) of the Cleaning Contract through and
including the January 1, 2002, payment shall be
deferred to the following payment dates:
Service Fee Deferred
Payment Date Payment Date
------------ ------------
July 1, 2000 deferred to July 1, 2003
October 1, 2000 deferred to Oct. 1, 2003
January 1, 2001 deferred to Jan. 1, 2004
April 1, 2001 deferred to April 1, 2004
July 1, 2001 deferred to July 1, 2004
October 1, 2001 deferred to Oct. 1, 2004
January 1, 2002 deferred to Jan. 1, 2005
The Service Fee payments due and payable from and after
April 1, 2002, through January 1, 2003, shall remain
payable in accordance with paragraph 4(C) of the
Cleaning Contract.
-4-
2. The accumulated interest on the delinquent Service Fee
payments due on July 1, 2000, October 1, 2000, and
January 1, 2001, as of the date of this Agreement shall
be paid in a lump sum with the final deferred Service
Fee payment on July 1, 2004.
3. Interest on the deferred Service Fee payments of April
1, 2001, July 1, 2001, and October 1, 2001, shall
commence at the rate of nine percent (9%) and shall
accrue from the original due date of each Service Fee
payment under paragraph (C) of the Cleaning Contract
and shall be due and payable in a lump sum on the final
deferred payment date of July 1, 2004.
4. In the event any non-deferred Service Fee payment
(i.e., payments due April 1, 2002, through and
including January 1, 2003) are not paid when due, such
payments shall accrue interest at eighteen percent
(18%) until paid.
5. In the event the payment of any Service Fee is not made
within three (3) months of the date on which it is due
(taking into account the deferred payment dates as
provided herein) Margate may at its option accelerate
payment of the remaining balance of the Service Fee B
consisting of all future installment payments whether
deferred or otherwise B which balance shall become
immediately due and owing upon providing of written
notice of acceleration by Margate. Margate shall also
be entitled to exercise all rights and remedies
afforded by law or otherwise available under the Pledge
Agreement, this Agreement or any other agreements in
effect between the parties.
(2) Paragraph 6(A) of the Cleaning Contract is amended to
provide that the minimum 7-year term of the Cleaning
Contract shall be extended until the later of: (i) March
24, 2005; or (ii) that date which is one year after the
payment in full of all amounts owing from the Foundry to
Margate under all of the agreements referenced in Recitals
A through E above.
(3) Yale will xxxx the Foundry on Tuesday of each week for the
previous week's shipments (i.e., the preceding Monday
through Sunday) and all additional xxxxxxxx. The billed
amount will be faxed to the accounts payable department of
the Foundry and the Foundry will make a check in payment of
this amount available for pickup by Yale
-5-
representatives on Thursday morning of each week.
Accompanying the weekly xxxxxxxx, Yale will also provide the
Foundry with a statement of any amount exceeding 45 days as
of the week being processed. Such amount in excess of 45
days will also be included by the Foundry with the previous
week's xxxxxxxx and remitted to Yale on Thursday of each
week as provided herein.
All remaining terms and conditions of the Cleaning Contract remain in
effect.
4. FURTHER DEFAULT. In the event the occurrence of a payment
default under the Seller Note, Cleaning Contract, Pledge Agreement or this
Agreement (other than defaults for which forbearance has been specifically
granted herein) including the Foundry and/or Wesley's failure to pay the
amounts set forth in paragraph 1 above on or before April 10, 0000, Xxxxxxx
shall be entitled to exercise all rights and remedies available to it under
any of the foregoing agreements or otherwise available to Margate under law
and the forbearance granted under this Agreement shall be deemed
terminated.
5. RESERVATION OF RIGHTS. This Agreement grants a conditional and
limited forbearance only on the terms set forth herein and, accordingly,
all of Margate's rights and remedies under the Seller Note, Cleaning
Contract, Pledge Agreement (subject to the specific forbearance provided
herein with regard to the payment defaults described herein) or any other
agreements between Margate on the one hand and Xxxxxx and/or the Foundry on
the other, are expressly reserved including, without limitation, all rights
and remedies resulting from or arising in connection with the Service Fee
Payment Default and Margate may exercise any such rights or remedies in
whole or in part, independently or in conjunction with each other and
Margate=s exercise of any such right or remedy shall not be deemed to be an
election preventing the exercise of any additional rights and remedies at
any future time.
6. SUCCESSORS AND ASSIGNS; THIRD-PARTY BENEFICIARY. This Agreement
shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns. Margate may assign its
rights and remedies under this Agreement to any of its existing
subsidiaries or any subsidiary created after the date of this Agreement
("Margate Subsidiary") and Xxxxxx and the Foundry specifically consent to:
(1) The assignment by Margate of the Seller Note to any Margate
Subsidiary such that the respective Margate Subsidiary shall
be deemed the holder of the Seller Note for all purposes;
and
(2) The assignment by Margate to any Margate Subsidiary, and the
assumption by the respective Margate Subsidiary of all of
Margate's under, the Pledge Agreement;
-6-
(3) The assignment by Margate to any Margate Subsidiary of all
of Margate's rights, and the assumption by the respective
Margate Subsidiary of all of Margate's obligations under,
the Cleaning Contract; and
(4) Comerica Bank is deemed to be a third-party beneficiary of
this Agreement.
No further written instrument or agreement other than this Agreement shall
be required in order to effectuate or evidence the consent of Xxxxxx and
the Foundry to any such assignment or assumption.
7 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Michigan.
8. CAPITALIZED TERMS. The terms capitalized in this Agreement shall
have the meaning provided to them under the Seller Note, Cleaning Contract
or Pledge Agreement, as applicable, unless otherwise specifically set forth
herein.
MARGATE INDUSTRIES, INC., a
Delaware corporation
By: /s/ XXXXX X. XXXXXX
-------------------------------
Xxxxx X. Xxxxxx
Its: Secretary
XXXXXX INDUSTRIES, INC., a Michigan
corporation
By: /s/ XXXXXXX XXXXXXX
-------------------------------
Its: President
NEW HAVEN FOUNDRY, a Michigan
corporation
By: /s/ XXXXXXX XXXXXXX
-------------------------------
Its: President
-7-
