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EXHIBIT 10.2
SUPPLEMENTAL LIMITED FORBEARANCE
AGREEMENT
THIS SUPPLEMENTAL LIMITED
FORBEARANCE AGREEMENT (this " Agreement ") dated
effective as of November ___, 2006 (the " Effective Date ")
is entered into by and among PIZZA INN, INC., a Missouri
corporation (the " Borrower "), the Guarantors identified on
the signature pages hereto (the " Guarantors "), NEWCASTLE
PARTNERS, LP, a Texas limited partnership (" Newcastle ")
and WELLS FARGO BANK, NATIONAL ASSOCIATION (successor to Wells
Fargo Bank (Texas), National Association) (the " Bank ").
The Borrower and the Guarantors are sometimes collectively referred
to herein as the " Obligors ", and the Obligors and
Newcastle are sometimes collectively referred to herein as the "
Borrower Parties ". Capitalized terms used and not otherwise
defined herein shall have the meanings as set forth in the Loan
Agreement (as defined below).
PRELIMINARY STATEMENTS
A. The Borrower and the Bank
have entered into that certain Third Amended and Restated Loan
Agreement dated as of January 22, 2003 (as amended or
otherwise modified from time to time, the " Loan Agreement
").
B. Borrower, the other
Obligors and the Bank have entered into that certain Limited
Forbearance Agreement dated as of August 8, 2006 (the "
Original Forbearance Agreement ").
C. The forbearance period
established in connection with the Original Forbearance Agreement
expired on October 1, 2006.
D. On October 13, 2006,
the Bank exercised its right to terminate the Revolving Credit
Commitment and to accelerate all unpaid principal and accrued
interest under the Notes, along with all other unpaid obligations
under the Loan Documents (the " Acceleration ") and all such
obligations are now immediately due and payable.
NOW
THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth and for
other good and valuable consideration, the parties hereto hereby
agree as follows:
SECTION 1. Acceleration of the
Obligations and Default Interest . The Obligors each
acknowledge that as a result of the Acceleration, all unpaid
principal and accrued interest under the Notes, along with all
other unpaid obligations under the Loan Documents became
immediately due and payable, and subject to the terms of this
Agreement, all such obligations remain immediately due and payable
as of the date hereof. Each of the Obligors further acknowledges
that except during the Forbearance Period as set forth in
Section 4 hereof, all such unpaid obligations which remain
outstanding after October 13, 2006 shall bear interest at
lesser of (i) the default rate of interest applicable thereto
under the Loan Documents or (ii) the Maximum Rate.
SECTION 2. Existing Events of
Default . The Obligors each hereby acknowledge that the
following defaults and events of default currently exist under the
Loan Documents and shall continue to exist under the Loan Documents
under the Forbearance Period (the " Existing Events of
Default "):
(a) The
failure of Borrower to immediately pay, upon the Acceleration, all
unpaid principal and accrued interest under the Notes, along with
all other unpaid obligations under the Loan Documents and the
continued failure of Borrower to pay such amounts during the
Forbearance Period;
(b) The
failure of Borrower to maintain the required Fixed Charge Coverage
Ratio as required by Section 12.1 of the Loan Agreement for
all periods ended on or before the Forbearance Termination
Date;
(c) The
failure of Borrower to maintain profitable operations as required
by Section 12.3 of the Loan Agreement for all periods ended on
or before the Forbearance Termination Date; and
(d) The
failure of Borrower to maintain the ratio of Consolidated
Liabilities less Subordinated Debt to Tangible Net Worth as
required by Section 12.2 of the Loan Agreement for all periods
ended on or before the Forbearance Termination Date.
SECTION 3. Forbearance .
(a) The Obligors hereby agree that but for the forbearance of
the Bank set forth below, which is subject to the satisfaction of
the terms and conditions set forth herein, the Bank would be
entitled to pursue it rights and remedies for the enforcement of
the Obligors’ obligations under the Loan Documents. The
Obligors further agree that (i) the Existing Events of Default
are not cured or waived by reason of the Bank’s execution of
this Agreement and (ii) the Acceleration shall not be affected
by the forbearance of Bank set forth below. The Bank is only
agreeing in this Agreement to forbear from the exercise of its
rights and remedies which may arise or have arisen by virtue of the
Existing Events of Default, and upon termination of the Forbearance
Period (as hereinafter defined), the Bank shall remain entitled to
pursue any and all of its rights and remedies which may arise or
have arisen by virtue of the Existing Events of Default.
(b) The
Bank agrees that for a period (the " Forbearance Period ")
commencing on the Effective Date and ending on the Forbearance
Termination Date (as hereinafter defined), the Bank will not
commence any Foreclosure Proceedings as a result of the Existing
Events of Default. The Bank’s forbearance under this
Agreement will automatically terminate without any notice to the
Borrower Parties or any other Person on such date (the "
Forbearance Termination Date ") being the earliest of
(i) 4:59 p.m., (Houston, Texas time) on December 28,
2006, (ii) the occurrence of any default or event of default
under the Loan Documents (other than the Existing Events of
Default), (iii) the date on which any of the Forbearance
Conditions described in Section 5 below shall fail to be satisfied
and (iv) the date on which any of the Borrower Parties shall
fail to satisfy any of their obligations or covenants under this
Agreement or any representation or warranty made by any Borrower
Party in this Agreement fails to be true and correct in any
material respect. On the Forbearance Termination Date, the
Bank’s agreement hereunder to forebear from exercising its
remedies under the Loan Documents with respect to the Existing
Events of Default shall automatically cease and terminate and be of
no further force and effect.
(c) Notwithstanding
the provisions of this Agreement, the Bank is entitled to take any
and all action as may be necessary and appropriate to perfect,
protect and defend the priority
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of any liens or security interests granted to it pursuant to the
Loan Documents against the claims and actions of any other
creditors (including any bankruptcy trustee) and to make such
filings as may be necessary and appropriate to insure or maintain
the priority and perfection of such liens. No failure on the part
of the Bank to exercise, and no delay in exercising, any right or
remedy hereunder shall operate as a waiver of any such right or
remedy nor shall any single or partial exercise of any right or
remedy hereunder preclude any other or further exercise thereof or
the exercise of any other right or remedy. The rights and remedies
herein provided are cumulative and not exclusive of any rights or
remedies provided by applicable law.
SECTION 4. Interest Rate During
Forbearance Period . During the Forbearance Period, the Bank
and the Borrower Parties agree that all unpaid principal and
accrued interest under the Notes, along with all other unpaid
obligations under the Loan Documents, shall bear interest at the
lesser of (i) the sum of the Prime Rate in effect from day to
day plus two and three quarters percent (2.75%) per annum or
(ii) the Maximum Rate. After the Forbearance Termination Date,
all such obligations shall bear interest at the lesser of
(i) the Maximum Rate or (ii) the default rate of interest
applicable thereto.
SECTION 5. Conditions to
Forbearance . Each of the following conditions shall constitute
a " Forbearance Condition " and the Obligors agree that all
of the following shall be satisfied as a condition to the
Bank’s agreements hereunder:
(a) Newcastle
shall have delivered to the Bank either (i) a letter of credit
in favor of the Bank in the amount of $1,500,000 issued by a
credit-worthy financial institution containing terms and conditions
acceptable to the Bank in its sole discretion (the " Newcastle
Letter of Credit ") or (ii) a guaranty agreement in form
an substance acceptable to the Bank in its sole discretion
guaranteeing all the Obligations (the " Newcastle Guaranty
");
(b) Newcastle
shall have executed and delivered to the Bank a subordination
agreement in form and substance acceptable to the Bank in its sole
discretion;
(c) Borrower
shall have paid any Swap Termination Payment owing to the Bank as a
result of the termination of the Swap Agreement pursuant to
Section 7 hereof;
(d) This
Agreement must be fully executed by all parties hereto and the Bank
must be in possession of original signatures of each party hereto;
and
(e) The
Borrower shall have paid all reasonable attorneys fees of the Bank
and all other costs of the Bank incurred in connection with the
negotiation and preparation of this Agreement and in connection
with prior negotiations, matters, events and transactions related
to the Loan Documents for which Borrower has been provided with a
written invoice prior to the Effective Date.
SECTION 6. Newcastle Letter of
Credit and the Newcastle Guaranty . The Obligors and Newcastle
agree that if any Obligations shall remain outstanding on the
Forbearance Termination Date, the Bank shall be entitled to draw on
the Newcastle Letter of Credit or enforce its rights under the
Newcastle Guaranty, as applicable, at any time following such
Forbearance Termination Date. If the amount drawn by the Bank under
the Newcastle Letter of Credit exceeds the amount of Obligations
then outstanding (as determined by the Bank in its sole
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discretion), the Bank shall promptly refund such excess amount
to Newcastle. The Bank shall promptly return the Newcastle Letter
of Credit to Newcastle upon the payment in full of the
Obligations.
SECTION 7. Termination of the
Swap Agreement . The Obligors and the Bank agree that the
Interest Rate Swap Agreement dated as of February 27, 2001
between the Borrower and the Bank (as amended or otherwise modified
from time to time, the " Swap Agreement ") is hereby
terminated without necessity of any further action or notice by any
party. If any amounts are owing from Borrower to the Bank as a
result of such termination (a " Borrower Swap Termination
Payment "), such amounts shall automatically become part of the
Obligations and shall be immediately due and payable. For avoidance
of doubt, it is understood that the Forbearance Period shall not
begin until all Borrower Swap Termination Payments have paid. If
any amounts are owing from the Bank to Borrower as a result of the
termination of the Swap Agreement, such amounts shall be applied to
the repayment of the Obligations in accordance with the Loan
Documents.
SECTION 8. Additional Advances
under the Loan Documents . As a result of the Existing Events
of Default and the termination of the Revolving Credit Commitment,
the Bank has no obligation of any kind or type to make advances
under the Loan Documents. Notwithstanding the foregoing, during the
Forbearance Period the Bank agrees to fund requests for additional
Revolving Credit Advances so long as the aggregate principal amount
of all Revolving Credit Advances at any time outstanding (without
giving effect to any Letter of Credit Liabilities) does not exceed
$2,020,000. Any advances so made by the Bank shall be evidenced by
the Revolving Credit Note and shall become a part of the
Obligations without necessity of any further action, and shall bear
interest as set forth in this Agreement.
SECTION 9. Outstanding Letter
of Credit in Favor of Northwestern National Insurance Company .
Pursuant to the Loan Agreement, the Bank has issued a Letter of
Credit in favor of Northwestern National Insurance Company (or its
affiliate) in the amount of $230,000 which will expire on
November 30, 2006. The Bank has notified Northwestern National
Insurance Company that the Bank does not intend to renew such
Letter of Credit. In the event such Letter of Credit is drawn upon,
all disbursements made by the Bank in connection with such Letter
of Credit shall become a part of the Obligations and shall bear
interest as set forth in this Agreement. For avoidance of doubt, if
the Letter of Credit issued in favor of Northwestern National
Insurance Company is drawn upon, the occurrence of such drawing
shall not cause the Forbearance Period to terminate.
SECTION 10. Remedies Upon
Termination of the Forbearance Period . Upon the occurrence of
the Forbearance Termination Date, the Forbearance Period shall
terminate without further act or action by the Bank, and the Bank
shall be entitled immediately to institute Foreclosure Proceedings
(as defined below) against any collateral securing the Obligations
and to exercise any and al
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