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Champion Industries, Inc.
Limited Forbearance Agreement and Third Amendment to Credit Agreement
This Limited Forbearance Agreement and Third Amendment to Credit Agreement (herein, the “Agreement” ) is entered into as of December 28, 2011, by and among Champion Industries, Inc. (the “Borrower” ), Mr. Marshall Reynolds, individually (the “Shareholder” ), each of the undersigned Guarantors ( “Guarantors” ), the Lenders party hereto, and Fifth Third Bank, an Ohio banking corporation, as a Lender, L/C Issuer, and Administrative Agent for the Lenders (the “Administrative Agent” ).
A.The Borrower, the Lenders, and the Administrative Agent are party to a Credit Agreement, dated as of September 14, 2007 (as such agreement has been amended and may further be amended, supplemented and otherwise modified from time to time, the “Credit Agreement” ).
B.The Borrower, the Administrative Agent and Marshall Reynolds, individually (the “Shareholder” ), are party to a Contribution Agreement and Cash Collateral Security Agreement, dated as of March 31, 2010 (as such agreement may be amended, supplemented and otherwise modified from time to time, the “Contribution Agreement” ).
C.The Guarantors have entered into that certain Guaranty Agreement dated as of September 14, 2007 (the “Guaranty”).
D.The Borrower is not in compliance with (i) the Leverage Ratio requirement of Section 6.20(a) of the Credit Agreement for the period ending October 31, 2011 and as may occur on January 31, 2012 and April 30, 2012, (ii) the Fixed Charge Coverage Ratio requirement of Section 6.20(b) of the Credit Agreement for the period ending October 31, 2011 and as may occur on January 31, 2012 and April 30, 2012 (collectively, the “Fixed Charge Designated Default”) , and (iii) the Minimum EBITDA requirement of Section 6.20(d) of the Credit Agreement for the period ending October 31, 2011 (including the requirement of Section 6.20(d)(ii) as set forth in Section 9(k) below) (collectively, the “Designated Defaults”).
E.The Lenders are not willing to waive the Designated Defaults.
F.Notwithstanding the Designated Defaults, the Borrower has requested the Administrative Agent and the Lenders, during the Forbearance Period (defined below), (i) temporarily forbear from exercising certain rights and remedies under the Credit Agreement, the other Loan Documents and applicable law with respect to such Designated Defaults, and (ii) continue to make Revolving Loans available to the Borrower in accordance with the provisions of Section 2.2 of the Credit Agreement.
G.Subject to the terms and conditions set forth herein, and in order to accommodate the Borrower’s request, during and only during the Forbearance Period, the Lenders are willing to (i) temporarily forbear from exercising certain of their default-related rights and remedies against the Borrower available solely by reason of the Designated Defaults, and (ii) continue to advance Revolving Loans in accordance with the provisions of Section 2.2 of the Credit Agreement.
H.This Agreement shall constitute a Loan Document and these Recitals shall be construed as part of this Agreement.
Now, Therefore , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. Incorporation of Recitals; Defined Terms. The Borrower acknowledges that the Recitals set forth above are true and correct in all material respects. The defined terms in the Recitals set forth above are hereby incorporated into this Agreement by reference. All other capitalized terms used herein without definition shall have the same meanings herein as such terms have in the Credit Agreement.
2. Amounts Owing . The Borrower acknowledges, confirms and agrees that the aggregate principal amount of Loans and Letters of Credit as of December 28, 2011 (immediately prior to the effectiveness of this Agreement) is $47,609,720 ($37,884,224.03 in Term Loans, $9,725,495.87 in Revolving Loans, $-0- in Swing Loans, and $-0- in outstanding Letters of Credit) [numbers to be verified as of execution date] . All such Loans and Reimbursement Obligations and any future Loans and Reimbursement Obligations, together with interest accrued and accruing thereon, and fees, costs, expenses and other charges now or hereafter payable by the Borrower to the Administrative Agent or the Lenders, are unconditionally owing by the Borrower to the Administrative Agent and the Lenders, without offset, defense or counterclaim of any kind, nature or description whatsoever, all of which are hereby waived by the Borrower.
3. Acknowledgment of Defaults . The Borrower hereby acknowledges and agrees that (i) the Designated Defaults have occurred and are continuing, each of which constitutes an Event of Default, and, as a result of the Designated Defaults, as well as any other Defaults or Events of Default that may exist, the Administrative Agent and the Lenders are entitled to exercise any and all default-related rights and remedies under the Credit Agreement, other Loan Documents and/or applicable law, including without limitation, making a determination not to make further Loans or incur further Letter of Credit Obligations, to terminate the Commitments, to accelerate the Obligations, to exercise rights against Collateral, to enforce Liens granted under the Collateral Documents, or to exercise any other rights or remedies that may be available under the Loan Documents or under applicable law, and (ii) that the Borrower has no valid defense to the enforcement of such default-related rights and remedies.
4. Administrative Agent Discretion. The Borrower hereby acknowledges and agrees that the terms “acceptable” or “satisfactory” to the Administrative Agent or words of similar import when used in this Agreement without further qualification refer to the Administrative Agent’s sole and unilateral discretion.
5. Forbearance . (a) As used herein, the term “Forbearance Period” shall mean the period commencing on the date hereof and ending on the earlier to occur of (i) April 30, 2012 (5:00 p.m. New York time) and (ii) the occurrence of any one or more of the following events: (A) the occurrence of any Default or Event of Default under the Credit Agreement, other than the Designated Defaults; (B) any failure by the Borrower for any reason to comply with any term, condition, or provision contained in this Agreement; (C) any failure by any other party to this Agreement, other than the Administrative Agent, Lenders or Borrower, for any reason to comply with any term, condition, or provision contained in this Agreement; (D) any representation made by the Borrower, any Guarantor or the Shareholder in this Agreement or pursuant to it proves to be incorrect or misleading in any material respect when made; (E) any Material Adverse Effect shall occur as determined in good faith by the Administrative Agent or the Required Lenders; and (F) any act of fraud, intentional misrepresentation, criminal misconduct or gross negligence by the Borrower, any Guarantor or the Shareholder. The occurrence of any of the events set forth in clauses (A) through (F) above shall constitute an immediate Event of Default under the Credit Agreement and the Forbearance Period is automatically terminated and the Administrative Agent and Lenders are then permitted and entitled under Section 7 of the Credit Agreement, among other things, to decline to provide additional credit to the Borrower, to permanently terminate the Commitments, to accelerate the Obligations, to require cash collateral for outstanding Letters of Credit, and to exercise any other rights and remedies that may be available under the Loan Documents or applicable law.
(b) During the Forbearance Period, neither the Administrative Agent nor any Lender will take action, on account of the Designated Defaults only, (i) to accelerate the maturity of the Loans, to terminate the Commitments, or to otherwise enforce payment of the Obligations of the Borrower under the Loan Documents, or (ii) other than as set forth herein, to exercise any other rights and remedies available to them under the Loan Documents or applicable law. Automatically and without any notice or action by the Administrative Agent or the Lenders, upon termination or expiration of the Forbearance Period, the Administrative Agent and the Lenders shall be entitled (but not required) to exercise any of the rights and remedies with respect to the Designated Defaults (or otherwise) available to them under the Loan Documents or applicable law.
6. Revolving Credit. During the Forbearance Period, the Administrative Agent shall continue to make additional Revolving Loans available to the Borrower in accordance with Section 2.2 of the Credit Agreement and as provided for herein. Any request for credit under the Revolving Credit during the Forbearance Period shall be subject to the satisfaction of the conditions precedent set forth in Section 3.1 of the Credit Agreement, except to the extent non-compliance with the conditions set forth therein relate solely to the Designated Defaults.
7. Principal Payments. The Borrower shall continue to pay all principal on the Loans and Reimbursement Obligations on all Letters of Credit when due, including, without limitation, the Borrower shall continue to make all scheduled payments of principal on the Term Loans as and when due under the Credit Agreement (except for any excess cash flow payment which may be due).
8. Interest and Fee Payments . The Borrower will keep interest and fees current on the Loans and Letters of Credit.
9. Additional Agreements. In order to induce the Administrative Agent and Lenders into this Agreement, the Borrower further agrees that:
(a) CRA Engagement Letter . On or before December 31, 2011, and pursuant to an authorizing resolution of the Borrower’s board of directors (in form and substance satisfactory to the Administrative Agent), the Borrower shall deliver to the Administrative Agent a fully executed engagement letter between the Borrower and [Conway], [Phoenix] or another Person reasonably acceptable to the Administrative Agent (and the Borrower shall have made such Person available for discussions with the Administrative Agent prior to its engagement), on terms and conditions acceptable to the Administrative Agent, providing for the retention of such Person to serve in the capacity as a chief restructuring advisor ( “CRA”) to the Borrower to conduct due diligence and to assist the Borrower with developing and proposing a written restructuring plan for the Borrower’s business operations (the “Proposed Restructuring Plan”) (the “CRA Engagement Letter” ). The Borrower shall not terminate or otherwise modify the terms of the CRA Engagement Letter without the prior written consent of the Administrative Agent. The Borrower shall, and shall cause its officers, directors, employees and advisors to (i) cooperate with the CRA throughout the development and delivery of the Proposed Restructuring Plan and (ii) direct the CRA to answer reasonable inquiries of, and meet with, the Administrative Agent or Lenders, or their representatives, advisors or Consultants (as defined below), regarding the Proposed Restructuring Plan at such times as may be reasonably requested. The parties hereto agree that (x) neither the Administrative Agent nor any Lender (A) influenced or will influence the Borrower in its selection of the CRA or the development and delivery of the Proposed Restructuring Plan nor (B) shall be in any way responsible for any advice that is given or that fails to be given by the CRA to the Borrower and (y) the CRA’s duty of loyalty shall at all times be to the Borrower and neither the Administrative Agent nor any Lender, or any Consultant, shall be deemed to control the CRA by virtue of their communications with the CRA or otherwise. For avoidance of doubt, nothing herein shall preclude or limit the rights of the Administrative Agent and Lenders to directly retain financial advisors and Consultants in accordance with the terms of the Loan Documents.
(b) Delivery of Proposed Restructuring Plan. The Borrower shall provide the Administrative Agent with the terms of a written Proposed Restructuring Plan, which shall be supported in all respects by the CRA, on or before February, 15, 2012. Nothing in this provision or Agreement shall be deemed to be an acknowledgement or approval of, or consent or agreement to enter into, any Proposed Restructuring Plan by the Administrative Agent or any of the Lenders; all of the Administrative Agent’s and Lenders’ rights with respect to any Proposed Restructuring Plan are fully reserved and not waived.
(c) Information Access; Cooperation with Consultant. Any financial advisor or consultant ( “Consultant” ) retained by the Administrative Agent or its counsel, beginning February 1, 2012, shall have reasonable access to the offices, properties, business records, accounting systems, officers, CRA, and senior management of the Borrower and its Subsidiaries at such reasonable times during normal business hours and as often as may be reasonably requested. The Borrower agrees to reasonably respond and shall cause its officers, directors, senior management and employees of the Borrower, advisors and the CRA to (i) reasonably cooperate with the Consultant as it undertakes its responsibilities during the Forbearance Period and respond to reasonable information requested by the Consultant; and (ii) meet with the Consultant at such reasonable times during normal business hours and as often as may be reasonably requested. All fees, expenses and costs related to the Consultant shall be paid by Borrower, provided, however, the Borrower shall only be obligated to pay a maximum amount of $200,000 for services rendered by such Consultant during the Forbearance Period.
(d) Forbearance Fee. Borrower shall pay a forbearance fee due at the Third Amendment Effective Date (defined below) to each Lender party to this Agreement an amount equal to 0.10 % of such Lender’s then-outstanding Loans, interests in Letters of Credit and Unused Revolving Credit Commitments, measured after giving effect to Section 9(g) hereof.
(e) Application of Cash Collateral. The Borrower and Shareholder each separately agrees, acknowledges and confirms that $2.0 million of the cash held in the Cash Collateral Account, as defined in the Contribution Agreement, shall be applied on the Third Amendment Effective Date by the Administrative Agent to the outstanding Term Loans in the inverse order of maturity, which payment, subject to the following sentence, shall satisfy in full (i) any Fixed Charge Violation (as defined in the Contribution Agreement) during the Forbearance Period or resulting from the Fixed Charge Designated Default and (ii) any Excess Cash Flow payment due during the Forbearance Period pursuant to Section 2.8(b)(iii) of the Credit Agreement, in each instance regardless of the amount during the Forbearance Period to which the Lenders would be entitled (a) to withdraw from the Cash Collateral Account pursuant to the Contribution Agreement with respect to any Fixed Charge Violation during the Forbearance Period or resulting from the Fixed Charge Designated Default, or (b) to receive as payment from the Borrower pursuant to Section 2.8(b)(iii) of the Credit Agreement with respect to any Excess Cash Flow Payment. Notwithstanding the previous sentence, in the event the Borrower, Administrative Agent and applicable Lenders have not by April 30, 2012 entered into a new agreement or an agreement amending or modifying this Agreement by April 30, 2012, all Designated Defaults, in addition to any other Events of Default, if any, that might arise, shall be deemed immediately existing and uncured and any remaining funds in the Cash Collateral Account shall be immediately available to the Administrative Agent for application pursuant to the Contribution Agreement.
(f) Amended Definition of EBITDA. The definition of “EBITDA” set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety to read as follows:
“EBITDA” means with reference to any period, Net Income for such period minus (a) non-cash ordinary and extraordinary gains for such period, plus (b) the sum of all amounts deducted in arriving at such Net Income amount in respect of (i) Interest Expense for such period, (ii) federal, state, and local income taxes for such period, (iii) depreciation of fixed assets and amortization of intangible assets for such period, (iv) non-cash, non-recurring extraordinary charges for such period to the extent approved in writing by the Administrative Agent in its sole discretion, and (v) with respect to any period that includes any fiscal month of the Borrower ending on or before April 30, 2012, Restructuring Costs incurred during such period.
(g) Amendment of Revolving Credit Commitment. The last sentence of the defined term “Revolving Credit Commitment” set forth in Section 1.1 of the Credit Agreement shall be amended and restated in its entirety to read as follows:
The Borrower and the Lenders acknowledge and agree that the Revolving Credit Commitments of the Lenders aggregate $15,000,000 on the Third Amendment Effective Date.
(h) New Definition of Restructuring Costs. Section 1.1 of the Credit Agreement shall be further amended by adding the following new defined term in its appropriate alphabetical location:
“Restructuring Costs” means those cash payments made by the Borrower and its Subsidiaries for non-recurring costs and expenses arising from contracts and other commitments that the Borrower and its Subsidiaries have incurred pursuant to the Limited Forbearance Agreement and Third Amendment to Credit Agreement by and among the Administrative Agent, Lender parties thereto, Borrower, Guarantors and Shareholder ( “Forbearance Agreement”), including, without limitation, (i) the forbearance fee provided for in Section 9(d) of the Forbearance Agreement, (ii) investment banking advisory fees payable to Raymond James and Associates, Inc. ( “Raymond James”) pursuant to the engagement letter dated October 21, 2011 between the Borrower and Raymond James (the “RJ Engagement
Letter”) , (iii) the reasonable fees and expenses of the CRA incurred pursuant to the CRA Engagement Letter, (iv) the reasonable fees and expenses of any consultant or advisor retained to conduct a valuation of the Borrower’s business, for GAAP reporting or otherwise, (v) the Borrower’s, Lender’s and Administrative Agent’s reasonable legal fees and expenses incurred in connection with the transactions contemplated by this Agreement and (vi) the reasonable fees and exp