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Forbearance Agreement

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EXHIBIT 10.15


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FORBEARANCE AGREEMENT


DATED JANUARY 5, 1996


CONFORMED COPY


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TABLE OF CONTENTS


Page SECTION 1. Arlen Default and Inability to Cure......................... 11


SECTION 2. Forbearance................................................. 12


SECTION 3. Interest on the Notes....................................... 12


SECTION 4. Mandatory Payments in Respect of the Notes.................. 12


SECTION 5. Defaults Under the Notes.................................... 14


SECTION 6. Extension of Lezam Obligations.............................. 14


SECTION 7. Acquisition of Leumi Indebtedness........................... 14


SECTION 8. Procedures for a Commercially Reasonable UCC Sale;
No Assumption of Liabilities or Obligations of
Arlen, Rucon or Rucon's Subsidiaries....................... 16


SECTION 9. Satisfaction of Morgan Indebtedness......................... 16


SECTION 10. Satisfaction of Secured Obligations......................... 17


SECTION 11. General Provisions Relating to the Satisfaction of
the Morgan Indebtedness and the Secured
Obligations................................................ 18


SECTION 12. Assignment of Automotive Accessories Holdings,
L.L.C. Promissory Note..................................... 19


SECTION 13. Cancellation of Certain Agreements between Rucon
and its Subsidiaries and Arlen; Cancellation of
Certain Provisions of the Stock Transfer and
Assumption Agreement; Cancellation of Current
Obligations Agreement...................................... 19


SECTION 14. Exchange of Releases........................................ 19


SECTION 15. 17 Battery Notes............................................ 20


SECTION 16. Security For the Payment of the Notes....................... 20


SECTION 17. Tax Reserve Payments........................................ 21


SECTION 18. Effectiveness of this Agreement............................. 21


(i) 4 SECTION 19. Representations and Warranties.............................. 22


(a) Due Execution................................................. 22
(b) Certain Corporate Changes of Arlen............................ 22


SECTION 20. Indemnification............................................. 23


SECTION 21. Integrated Transaction...................................... 25


SECTION 22. Payment of Expenses......................................... 25


SECTION 23. Miscellaneous............................................... 25


(a) Waiver........................................................ 26
(b) Notices....................................................... 26
(c) Headings...................................................... 27
(d) Severability.................................................. 27
(e) Entire Agreement.............................................. 27
(f) Assignment; Successors and Assigns............................ 28
(g) No Third Party Beneficiaries.................................. 28
(h) Amendment..................................................... 28
(i) Governing Law; Consent to Jurisdiction........................ 28
(j) Further Action................................................ 28
(k) Counterparts.................................................. 29
(l) Specific Performance.......................................... 29


SCHEDULES


SCHEDULE A LIST OF AGC NOTES


SCHEDULE B LIST OF LEVIEN NOTES


SCHEDULE C LIST OF LEZAM NOTES


SCHEDULE D CONSOLIDATED, MODIFIED AND RESTATED MORTGAGE
NOTES


SCHEDULE E COMPONENTS OF A COMMERCIALLY REASONABLE UCC SALE


EXHIBITS


EXHIBIT A FORM OF NON-RECOURSE ASSIGNMENT OF ARLEN ACCESSORIES
HOLDINGS, L.L.C. PROMISSORY NOTE


EXHIBIT B FORM OF GENERAL RELEASE FROM ARLEN TO MATAPONI


EXHIBIT C FORM OF GENERAL RELEASE FROM ARLEN TO RUCON AND
RUCON'S SUBSIDIARIES


(ii) 5 EXHIBIT D FORM OF GENERAL RELEASE FROM RUCON AND RUCON'S
SUBSIDIARIES TO ARLEN


(iii) 6
FORBEARANCE AGREEMENT


FORBEARANCE AGREEMENT dated as of the 5th day of January, 1996 (this "Agreement") by and among THE ARLEN CORPORATION, a New York corporation ("Arlen"), RUCON SERVICES CORP., a Delaware corporation and a wholly-owned subsidiary of Arlen ("Rucon"), MATAPONI, L.L.C., a New York limited liability company ("Mataponi"), and the holders of certain of the 5-1/4% Subordinated Notes of Arlen listed on Schedules A and B annexed hereto and made a part hereof (the "Note Holders") by their agent ARTHUR G. COHEN ("AGC") pursuant to the terms and conditions of the Intercreditor Agreement (as defined below) and/or by Mataponi as substitute agent to AGC under the Intercreditor Agreement and as attorney-in-fact for AGC pursuant to the terms and conditions of the Bank Leumi Documents (as defined below).


W I T N E S E T H:


WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen referred to in Schedule A attached hereto (collectively, the "AGC Notes") which were issued to AGC in the aggregate original principal amount of $30,115,333.33 (which amount includes only the amount of AGC's beneficial interest in the case of the note issued to ANDLAN REALTY CORP. ("Andlan"));


WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen referred to in Schedule B attached hereto (collectively, the "Levien Notes" and together with the AGC Notes collectively referred to as the "Notes") which were issued to Arthur N. Levien (now deceased) ("ANL"), his children and entities affiliated with some of them (collectively, the "Leviens") in the aggregate original principal amount of $15,364,333.34 (which amount includes only the amount of the Leviens' beneficial interest in the case of the note issued to Andlan);


WHEREAS, reference is made to the 5-1/4% Subordinated Notes of Arlen referred to in Schedule C attached hereto (collectively, the "Lezam Notes") which were issued to AGC and to certain of the Leviens in the aggregate original principal amount of $7,593,000.00 (of which Lezam Notes in the aggregate principal amount of $5,062,000 were issued to AGC and are included in the AGC Notes, and Lezam Notes in the aggregate principal amount of $2,531,000 were issued to certain of the Leviens and are included in the Levien Notes), and which Lezam Notes were pledged to Arlen as collateral security for certain obligations owed to Arlen by an entity which was affiliated with AGC and ANL (the "Lezam Obligations"); 7
WHEREAS, interest has been accruing on the Notes since their issuance and as of November 30, 1995 the total of all accrued interest and principal due in respect of the Notes was approximately $125,000,000.00 exclusive of the interest and principal due under the Lezam Notes;


WHEREAS, reference is made to the various agreements by which the Note Holders have from time to time heretofore extended the maturity date of the Notes, the most recent of which was the letter agreement dated March 29, 1993 (the "1993 Extension Agreement") among Arlen, certain of Arlen's subsidiaries, AGC, the Agent (as defined below) and the holders of the Levien Notes;


WHEREAS, pursuant to the terms and conditions of that certain Agency and Intercreditor Agreement dated March 29, 1993 (the "Intercreditor Agreement") by and among AGC, AGC as agent (the "Agent"), and Barry J. Levien or Philip J. Levien, as representatives, the Agent was duly appointed as the agent for the Note Holders;


WHEREAS, upon consummation of the Leumi Assignment (as defined below), Mataponi, as successor in interest to Bank Leumi (as defined below) and as the holder of all of the collateral security in respect of the Leumi Indebtedness (as defined below), is entitled, as substitute agent under the Intercreditor Agreement and, in addition, as attorney-in-fact under the Bank Leumi Documents (as defined below), to consent and agree to the extension of the due date for all principal and interest due or to become due under the Notes and in accordance with the terms and conditions of the Bank Leumi Documents, and Mataponi, in addition to executing and delivering this Agreement in its individual capacity, is also executing and delivering this Agreement as AGC's attorney-in-fact and in AGC's capacity as agent under the Intercreditor Agreement;


WHEREAS, as part of the 1993 Extension Agreement and as consideration for the agreement by the Note Holders to extend the maturity date of the Notes, Arlen collateralized the Notes by granting to the Agent, inter alia, pledges of the outstanding capital stock of Rucon, ARLEN AUTOMOTIVE, INC., a Delaware corporation and a wholly-owned subsidiary of Rucon ("New Automotive"), and GRANT PRODUCTS, INC., a Delaware corporation and a wholly-owned subsidiary of New Automotive ("Grant"), as well as the collateral assignment of the right to all or a portion of the proceeds from certain corporate transactions which may involve Arlen, Rucon, New Automotive, Grant or G.T. STYLING, INC., a California corporation and a wholly-owned subsidiary of New Automotive ("GTS"), (collectively, the "Note Collateral");


WHEREAS, pursuant to the 1993 Extension Agreement: (i) Arlen, the Agent and the Note Holders entered into that certain


- 2 - 8 Stock Pledge Agreement (Automotive) dated March 29, 1993 (the "Stock Pledge Agreement"); and (ii) AGC and Rucon entered into that certain Current Obligations Agreement dated March 29, 1993 (the "Current Obligations Agreement") pursuant to which, inter alia, Rucon and AGC agreed upon the installment payment terms on which Rucon would pay certain obligations of Arlen to AGC which had been assumed by Rucon pursuant to that certain Stock Transfer and Assumption Agreement dated February 26, 1993 (the "Rucon Assumption Agreement") between Arlen and Rucon;


WHEREAS, pursuant to the terms and conditions of the Current Obligations Agreement, Rucon was required to pay to AGC $175,000.00 on or before November 30, 1995 (the "November 1995 Payment");


WHEREAS, Rucon failed to make the November 1995 Payment to AGC;


WHEREAS, Rucon acknowledges and agrees that it has failed to make the November 1995 Payment when due and as a result of such failure Rucon is in default under the Current Obligations Agreement (the "Current Obligations Default");


WHEREAS, by virtue of the Current Obligations Default, the Agent has determined that an Event of Default (as defined in the 1993 Extension Agreement) under the 1993 Extension Agreement has occurred (the "Extension Agreement Default") and, accordingly, the Agent is permitted under the terms and conditions of the 1993 Extension Agreement and Stock Pledge Agreement, inter alia: (i) to foreclose on all of the shares of capital stock of Rucon consisting of one hundred (100) shares of Common Stock, without par value (the "Rucon Shares"), which were pledged to the Agent pursuant to the Stock Pledge Agreement; and (ii) to accelerate the due date for the payment of all principal and interest due under the AGC Notes and the Levien Notes;


WHEREAS, the Agent has determined that the applicable period during which the Extension Agreement Default could, in accordance with the terms and conditions of the 1993 Extension Agreement and the Stock Pledge Agreement, be cured has expired, the Agent has duly caused to be delivered to each of Arlen and Rucon a notice of acceleration relating to the acceleration of all principal and interest due under the AGC Notes and the Levien Notes and asserts that, unless extensions and forbearances in respect of the Notes are granted by the Note Holders pursuant to the terms and conditions of this Agreement, Arlen will be compelled to immediately pay to the Note Holders all accrued interest and principal due under the Notes;


- 3 - 9
WHEREAS, Arlen acknowledges and agrees that the Current Obligations Default has occurred and is continuing but has asserted that the cure period may not have expired, though given Arlen's financial condition, Arlen is unable to cure the Current Obligations Default in the foreseeable future or to pay to the Note Holders all of the outstanding principal and interest due under the Notes as accelerated;


WHEREAS, Rucon has frequently been late in fulfilling its obligations contained in the Current Obligations Agreement and the Agent has asserted that Arlen and Rucon have exhausted any and all cure periods that Arlen or Rucon may have possessed pursuant to the terms and conditions of the 1993 Extension Agreement or the Stock Pledge Agreement;


WHEREAS, although Arlen has not admitted that it has exhausted any and all cure periods that Arlen may possess pursuant to the terms and conditions of the 1993 Extension Agreement or the Stock Pledge Agreement, Arlen acknowledges and agrees that, in maintaining such view as a litigation position, Arlen might lose, and, in any event, Arlen is unable to timely cure the Current Obligations Default and the Extension Agreement Default;


WHEREAS, in consideration of the parties' obligations contained herein, Arlen and the Note Holders acknowledge and agree that any and all cure periods contained in the 1993 Extension Agreement and Stock Pledge Agreement have expired and been exhausted;


WHEREAS, pursuant to the terms and conditions of the 1993 Extension Agreement, all principal and accrued interest due in respect of the Notes would be payable in full on July 31, 1997 (if not accelerated sooner) and Arlen will be unable to satisfy its obligations with respect to the Notes on such date;


WHEREAS, Arlen believes that the forbearances and extensions in respect of the Notes to be granted to Arlen pursuant to the terms and conditions of this Agreement are absolutely necessary and essential to permit Arlen to continue as a viable business entity in that if such forbearances and extensions were not granted, Arlen could be compelled, in any event, to liquidate Rucon and its subsidiaries without realizing any value for Arlen therefrom and, in addition, Arlen would itself be forced to liquidate under extremely adverse circumstances;


WHEREAS, pursuant to certain promissory notes, guarantees and related agreements, instruments and documents (the "Bank Leumi Documents") executed and delivered by AGC and/or his affiliates to BANK LEUMI TRUST COMPANY OF NEW YORK ("Bank Leumi"), AGC and/or his affiliates are indebted to Bank Leumi in a principal amount in


- 4 - 10 excess of $12,000,000.00, plus accrued but unpaid interest thereon and fees and other charges due with respect thereto (collectively, the "Leumi Indebtedness");


WHEREAS, in accordance with the terms and conditions of the Bank Leumi Documents, AGC pledged to Bank Leumi all of the AGC Notes (secured by the Note Collateral) as collateral security for the Leumi Indebtedness and thereby Bank Leumi acquired, inter alia, a pledge of the Grant Stock (as defined below) included within the Note Collateral;


WHEREAS, it is contemplated that not later than January 16, 1996: (i) Rucon, acting for Mataponi, shall acquire from Bank Leumi (the "Leumi Acquisition") Bank Leumi's position (the "Leumi Position") with respect to certain of the Leumi Indebtedness in the amount of $12,000,000.00 for $5,500,000.00 (the "Leumi Cash Portion"), which amount will be loaned to Rucon by Mataponi; (ii) Bank Leumi will agree that it shall accept payment of $2,722,513.33 (the "Leumi Obligation") in satisfaction of the balance of the Leumi Indebtedness (which balance may be in excess of such amount) provided timely installment payments of the Leumi Obligation are made when due; and (iii) Rucon shall pledge to Bank Leumi fifty-five percent (55%) of the outstanding shares of Common Stock and Class B Stock of Rucon's wholly-owned subsidiary, CURTIS HOLDING CORPORATION, a Delaware corporation ("Curtis Holding"), and cause Curtis Holding to pledge to Bank Leumi fifty-five percent (55%) of the outstanding shares of Common Stock of CURTIS PARTITION CORPORATION, a New Jersey corporation and a wholly-owned subsidiary of Curtis Holding ("Curtis Partition"), as collateral security for the full payment of the Leumi Obligation;


WHEREAS, in order to facilitate Mataponi's acquiring the Leumi Position, which is in Rucon's and Arlen's best interests for the reasons described herein, and the transactions contemplated pursuant to this Agreement, including, without limitation, the forbearances and extensions with respect to the Notes, and in consideration of the parties' obligations contained herein, Rucon is willing: (i) to act for Mataponi to purchase the Leumi Position, (ii) to enter into the Pledge Agreement (as defined below) and perform its obligations thereunder, and (iii) immediately upon the consummation of the Leumi Acquisition, to assign to Mataponi (the "Leumi Assignment"), without recourse to Rucon, all of Rucon's right, title and interest in and to the Leumi Position together with all collateral security related thereto in full and final satisfaction of the Rucon Loan (as defined below);


WHEREAS, Rucon is willing to act on Mataponi's behalf in respect of the Leumi Acquisition because it is in Rucon's and Arlen's best interests for Mataponi to obtain the Leumi Position inasmuch as Mataponi, as successor-in-interest to Bank Leumi with


- 5 - 11 respect to the Leumi Position and the collateral in respect thereof, is willing, inter alia: (i) to consent to certain forbearances and extensions with respect to the Notes; and (ii) to release the existing lien on all of the outstanding shares of capital stock of Grant (the "Grant Stock"), which the Agent, in turn, in consideration for Rucon's aforesaid proposed pledge of certain outstanding shares of capital stock of Curtis Holding as collateral for the Leumi Obligation, is willing to release completely from the Note Collateral and deliver to Rucon and, in connection therewith, to permit New Automotive to pledge the Grant Stock to SUMITOMO BANK OF CALIFORNIA ("Sumitomo") in order to induce Sumitomo to make the Sumitomo Advance (as defined below);


WHEREAS, in order to consummate the Leumi Acquisition, Mataponi has agreed to loan to Rucon the Leumi Cash Portion (the "Rucon Loan") and Rucon has agreed, as collateral security for Rucon's non-recourse demand note which will evidence such loan and its obligation to make the Leumi Assignment to Mataponi, to execute and deliver a pledge agreement (the "Pledge Agreement") in favor of Mataponi, pursuant to which Rucon shall pledge to Mataponi all of Rucon's right, title and interest in and to the Leumi Position;


WHEREAS, immediately upon the consummation of the Leumi Acquisition, Rucon is to make the Leumi Assignment to Mataponi and thereby be relieved of the indebtedness evidenced by the Rucon Loan;


WHEREAS, as a result of the Current Obligations Default and the Extension Agreement Default, it is contemplated that subsequent to the consummation of the Leumi Acquisition, the Agent, on behalf of the Note Holders, will foreclose on the Rucon Shares in accordance with the terms and conditions of the Stock Pledge Agreement and this Agreement;


WHEREAS, pursuant to the terms and conditions of this Agreement, it is contemplated that the Agent will conduct a duly advertised public sale of the Rucon Shares in accordance with the New York Uniform Commercial Code (the "Rucon UCC Sale");


WHEREAS, Mataponi intends to bid, and may be the successful bidder at the Rucon UCC Sale, in which case it will obtain the Rucon Shares;


WHEREAS, pursuant to the terms and conditions of the Stock Pledge Agreement, seventy five percent (75%) of the net purchase price to be paid by the successful bidder at the Rucon UCC Sale will be paid to the Agent, on behalf of the Note Holders, in payment on account of the Notes, and the remaining twenty five percent (25%) of such net purchase price will be paid to Arlen or for Arlen's account (the "Arlen Portion");


- 6 - 12
WHEREAS, the Arlen Portion is pledged to secure the repayment of certain obligations (the "Secured Obligations") including certain obligations payable to entities which may be deemed to be affiliates of Arlen, and the Secured Obligations are to be repaid or otherwise satisfied or forgiven in connection with the consummation of the transactions contemplated hereby;


WHEREAS, Arlen acknowledges and agrees that, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then, except for the Arlen Portion, Arlen is not entitled to any other interests (residual or otherwise) in Rucon or Rucon's subsidiaries;


WHEREAS, in consideration of Arlen's obligations contained herein, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then on the Rucon Consummation Date (as defined below), Mataponi has agreed to cause Rucon to assign to Arlen on a non-recourse basis (the "Note Assignment") all of Rucon's right, title and interest in and to that certain $2,000,000.00 principal amount promissory note issued by AUTOMOTIVE ACCESSORIES HOLDINGS, L.L.C., a New York limited liability company ("Automotive Accessories Holdings, L.L.C."), which promissory note shall be payable over two (2) years in equal quarterly installments, the first such installment being due and payable on the date the Note Assignment is effected (the "Automotive Accessories Holdings Promissory Note");


WHEREAS, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then Mataponi, as the owner of the Rucon Shares, will own Rucon and its subsidiaries, including, without limitation, New Automotive, Grant and GTS, and each of New Automotive, Grant and GTS will remain liable to Sumitomo for the Sumitomo Advance;


WHEREAS, SACKBAR HOLDING CORP., a New York corporation ("Sackbar"), is now the owner and holder of:


(A) those certain consolidated, modified and restated mortgage notes
as listed on Schedule D annexed hereto (collectively, the
"$100,000,000 Note"), which mortgage notes are secured by those
certain mortgages that are consolidated and modified pursuant to that
certain Mortgage Consolidation, Modification and Spreader Agreement
between 17 Battery Place North Associates ("17 BPNA") and Kawasaki
Leasing International, Inc., as agent, dated September 8, 1989 and
recorded on October 10, 1989 in Reel 1626, Page 1483 in the New York
City Register's office for New York County, New York and which
mortgage notes are the subject of that certain Loan Agreement, dated
as of September 1, 1989 (the "$100,000,000 Loan Agreement") by and
among 17 BPNA, as borrower, and Kawasaki Leasing International, Inc.,
Sefco


- 7 - 13
(U.S.A.) Inc., Hokkaido Leasing (U.S.A.) Inc., Kajima Leasing America
Inc., K.L. America Inc., CTB Leasing (U.S.A.) Inc., KLC Leasing
(U.S.A.) Corp., Marubeni Finance and Lease Corp., Nichiboshin (UK)
Ltd. and YTB Leasing (America) Inc., as lenders; and


(B) that certain mortgage note dated May 31, 1991, in the original
principal amount of $25,000,000, made by 17 BPNA in favor of Kawasaki
Leasing International, Inc. (the "$25,000,000 Note"), which mortgage
note is secured by that certain Mortgage made by 17 BPNA to Kawasaki
Leasing International, Inc. in the original principal amount of
$25,000,000.00, dated May 31, 1991 and recorded on June 7, 1991 in
Reel 1788 Page 1613 in the City Register's office for New York County
and which mortgage note is the subject of that certain Building Loan
Agreement of even date therewith (the "$25,000,000 Loan Agreement")
by and between 17 BPNA, as borrower, and Kawasaki Leasing
International Inc., as lender;


WHEREAS, the term of the $100,000,000 Note and the $25,000,000 Note have been extended to December 28, 2034 and the lien of the mortgages securing said notes as referred to above (the "Mortgages") has been spread to cover the premises commonly known as 1076 White Plains Road, Bronx, New York (Section 14, Block 3733, Lot 9);


WHEREAS, pursuant to an Agreement of Reduction of Mortgage Indebtedness dated December 28, 1995 between Downtown Acquisition Partners, L.P. ("DAP") and 17 BPNA, DAP granted 17 BPNA (i) a reduction in the indebtedness evidenced by the $100,000,000 Note, so that the total principal and interest outstanding thereunder as of such date was $68,787,793.00 of principal and $50,473,000.00 of interest and (ii) a reduction in the indebtedness evidenced by the $25,000,000 Note, so that the total principal and interest outstanding thereunder as of such date was $17,884,207.00 of principal and $9,305,000.00 of interest;


WHEREAS, following such reductions in the indebtedness evidenced by the $100,000,000 Note and the $25,000,000 Note, various individuals having a direct or indirect interest in 17 BPNA executed Assumption Agreements whereby they agreed to assume the obligation to pay portions of the indebtedness evidenced by the $100,000,000 Note and the $25,000,000 Note;


WHEREAS, following the spreading of the lien of the Mortgages and the assumption of portions of the indebtedness evidenced by the $100,000,000 Note and the $25,000,000 Note as described above, the lien of the Mortgages was released from the premises, 17 Battery Place, New York, New York and from the Ground


- 8 - 14 Lease encumbering such premises (collectively, the "17 Battery Place Premises");


WHEREAS, in consideration of, and as a condition to, Arlen's obligations contained in this Agreement, if Mataponi obtains the Rucon Shares at the Rucon UCC Sale, then following the Rucon Consummation Date, Mataponi has agreed to use its commercially reasonable efforts to cause Sackbar to sell to Arlen on the most favorable terms obtainable by Mataponi for Arlen the $100,000,000 Note, the $25,000,000 Note, the Mortgages, the $100,000,000 Loan Agreement, the $25,000,000 Loan Agreement and all other loan documents pertaining to either of the loans evidenced by the $100,000,000 Note or the $25,000,000 Note (such notes and all of such documents referred to in this recital, hereinafter, collectively referred to as the "17 Battery Notes");


WHEREAS, as of the date hereof Arlen is indebted to: MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") in the approximate amount of $4,000,000.00 (the "Morgan Indebtedness");


WHEREAS, Arlen is in default of its obligations in respect of the Morgan Indebtedness and Arlen is subject to various judgments, lawsuits and other actions taken in enforcement of the Morgan Indebtedness, and given Arlen's current financial situation, Arlen is currently unable to,
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