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Forbearance Agreement And Release

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Sectors: Chemicals
Effective Date: May 12, 2008
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FORBEARANCE AGREEMENT AND RELEASE



This FORBEARANCE AGREEMENT AND RELEASE (this " Agreement ") is hereby entered into as of May 12, 2008 (the " Effective Date ") by and among KINERGY MARKETING, LLC , an Oregon limited liability company (" Borrower "), with its principal place of business at 5711 N. West Avenue, Fresno, California 93711; COMERICA BANK , a Texas banking association (" Bank "), with its office at 333 W. Santa Clara Street, San Jose, California 95113; and PACIFIC ETHANOL, INC. , a Delaware corporation " Guarantor ") with an address at 5711 N. West Avenue, Fresno, California 93711.



RECITALS



A. Borrower and Bank are parties to that certain Loan and Security Agreement (Accounts and Inventory) dated August 17, 2007 (as amended, the " Loan Agreement ") pursuant to which Bank made available to Borrower a Twenty Five Million and 00/100 Dollars ($25,000,000.00) revolving line of credit (the " Revolving Facility ").



B. In order to induce Bank to enter into the Loan Agreement and other Loan Documents (as defined in the Loan Agreement) Guarantor executed that certain Guaranty dated August 17, 2007 (as amended, the " Guaranty ") in favor of Bank whereby Guarantor guaranteed Borrower's obligations under the Loan Documents.



C. Without giving effect to the forbearance contemplated by this Agreement, there is presently due and owing under the Revolving Facility to Bank, as of May 12, 2008, the principal amount of Fifteen Million Four Hundred Sixty Three Thousand Two Hundred Eleven and 72/100 Dollars ($15,463,211.72); plus accrued but unpaid interest, as of May 12, 2008; plus certain costs and expenses of Bank, including attorneys' fees. Interest and such costs and expenses continue to accrue.



D. Borrower has acknowledged and hereby further acknowledges that the following Events of Default (the " Existing Defaults ") exist under the Loan Agreement with respect to the financial statements for the fiscal year of Borrower ended on December 31, 2007, and for the fiscal quarter of Borrower ending March 31, 2008 which were delivered to Bank in accordance with Section 7.4.3 of the Loan Agreement: (i) Borrower did not deliver a Compliance Certificate in accordance with Section 7.4.6 of the Loan Agreement; (ii) Borrower has failed to maintain its Tangible Effective Net Worth in an amount equal to at least Twelve Million and 00/100 Dollars ($12,000,000.00) in accordance with Section 9.3 of the Loan Agreement; and (iii) Borrower has failed to maintain its Debt to Tangible Effective Net Worth in an amount less than 3.50 to 1.00 in accordance with Section 9.4 of the Loan Agreement.





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E. Because of the Existing Defaults, without giving effect to the forbearance contemplated by this Agreement, all sums outstanding under the Loan Agreement are due and payable, and Bank has full legal right to exercise its default rights and remedies under the Loan Agreement. Such remedies include, but are not limited to, foreclosure on Bank's collateral.



F. Borrower has requested that Bank forbear for a period of time from exercising its rights and remedies under the Loan Documents.



G. Bank will forbear from exercising its rights and remedies under the Loan Documents, on the terms and conditions set forth herein.



AGREEMENT



NOW, THEREFORE , for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as set forth below.



1. Incorporation of Recitals . Each of the above Recitals is hereby incorporated herein by this reference.



2. Incorporation of the Loan Documents; Definitions . The Loan Agreement and other Loan Documents, together with the other documents and instruments executed pursuant to this Agreement, are incorporated herein by this reference. Capitalized terms not otherwise defined herein shall have the meanings given such terms in the Loan Agreement, as applicable.



3. Ratification of Indebtedness . Borrower ratifies and reaffirms the Indebtedness, which Indebtedness under the Loan Agreement is currently outstanding in the amount set forth in Recital C , without setoff, defense, or counterclaim.



4. Conditions Precedent to Bank's Indebtedness . This Agreement shall not be effective as against Bank unless and until each of the following conditions (each a " Condition Precedent " and collectively the " Conditions Precedent ") shall have been satisfied in Bank's sole discretion or waived by Bank, for whose sole benefit such Conditions Precedent exist:



4.1 Execution and Delivery of this Agreement . Borrower shall have duly executed and delivered this Agreement and any other documents required hereby, all in form and content satisfactory to Bank.



4.2 Guarantor's Consent . Guarantor shall have executed the consent at the end of this Agreement.



4.3 Payment of Bank's Attorneys' Fees and Costs . Borrower shall have paid the Bank all of Bank's costs and expenses (including appraisal fees and attorneys' fees) incurred in connection with the negotiation, preparation and execution of this Agreement, the review by its counsel of the Loan Documents, and satisfaction of the Conditions Precedent.





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4.4 Payment of Accrued Interest . Borrower shall have paid to Bank all accrued and unpaid interest through May 1, 2008 on the Indebtedness.



4.5 Further Assurances . Bank shall have received such other documents and instruments as Bank may reasonably require in order to put into effect the terms of this Agreement.



5. Terms and Conditions of Forbearance . Subject to the satisfaction of the Conditions Precedent, and subject to the additional terms and conditions herein, during the period (the " Forbearance Period ") commencing on the Effective Date and ending on the earlier to occur of (a) August 15, 2008; or (b) the date that any Forbearance Default (defined below) occurs, Bank will forbear in the exercise of its rights and remedies under the Loan Documents and applicable law with respect to the Existing Defaults. As of the Effective Date, so long as a Forbearance Default has not occurred and is continuing, the outstanding principal amount under the Revolving Facility shall not be due and payable during the Forbearance Period.



5.1 Forbearance . Without limiting the generality of the foregoing, during the Forbearance Period, Bank will not (a) accelerate the maturity of the Indebtedness or initiate proceedings to collect the Indebtedness; (b) file or join filing any involuntary petition in bankruptcy with respect to Borrower or Guarantor, or otherwise initiate or participate in similar insolvency reorganization, or moratorium proceeding for the benefit of creditors of Borrower or Guarantor; (c) repossess or sell, through judicial proceedings or otherwise, any of the Collateral; provided that Bank shall continue to collect the Accounts of Borrower and apply the proceeds thereof to the Indebtedness as provided in the Loan Agreement; or (d) initiate proceedings to enforce the Guaranty.



5.2 Reservation of Rights . Bank reserves its rights to declare a default and/or an Event of Default and/or to enforce its rights and remedies with respect to defaults other than the Existing Defaults, without notice to Borrower or Guarantor under the Loan Documents during the Forbearance Period.



5.3 Interest . During the Forbearance Period, interest shall accrue on the Indebtedness at a rate per annum equal to the Base Rate; plus two and one-half percent (2.50%). Borrower shall not be entitled to LIBOR Advances during the Forbearance Period or at any time thereafter. Borrower shall continue to make payments of interest in accordance with the terms of the Loan Agreement. Payment of interest shall be by automatic debit to Borrower's deposit accounts. Upon a Forbearance Default, the Indebtedness will accrue interest at a rate per annum equal to the Base Rate; plus seven percent (7.00%).



5.4 Advances . During the Forbearance Period, so long as a Forbearance Default has not occurred and is continuing, Bank agrees to make Base Rate Advances to Borrower in amounts requested by Borrower up to an aggregate outstanding principal amount equal to the Revolving Facility Commitment Limit. Each Advance shall be based on the submission by Borrower of a Borrowing Base Certificate. Borrower shall not be entitled to LIBOR Advances during the Forbearance Period or at any time thereafter.





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6. Amendments to the Loan Agreement . In order to induce Bank to enter into this Agreement, and as separate bargained-for consideration, Borrower agrees to the following amendments to the Loan Agreement:



6.1 Amendment to Section 1.10 of the Loan Agreement . Section 1.10 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:



1.10 " Borrowing Base " means an amount equal to the sum of: (a) eighty percent (80%) of the Net Amount of Eligible Accounts; plus (b) seventy percent (70%) of the Value of Eligible In Storage Inventory; provided that the aggregate amount of Advances made under this Subsection 1.10(b) shall not exceed Four Million and 00/100 Dollars ($4,000,000.00); plus (c) seventy percent (70%) of the Value of Eligible In Transit Inventory; provided that the aggregate amount of Advances made under this Subsection 1.10(c) shall not exceed Three Million Six Hundred Thousand and 00/100 Dollars ($3,600,000.00)."



6.2 Amendment to Section 1.17 of the Loan Agreement . Section 1.17 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:



"1.17 " Credit Limit " shall mean Seventeen Million Five Hundred Thousand and 00/100 Dollars ($17,500,000.00)."



6.3 Amendment to Section 1.20 of the Loan Agreement . Section 1.20 of the Loan Agreement is hereby amended by deleting the term " ninety (90)" throughout this Section and replacing it with the term "forty-five (45)".



6.4 Amendment to Section 2.4 of the Loan Agreement . Section 2.4 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:



"2.4 Interest . Borrower shall pay interest to Bank on the outstanding and unpaid principal amount of the Revolving Facility at a floating rate per annum equal to the Base Rate; plus two and one-half percent (2.50%). Borrower shall not be entitled to any LIBOR Advances.





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2.4.1 Adjusted Rate . Any change in the interest rate resulting from a change in the Base Rate shall be effective as of the opening of business on the day on which such change in the Base Rate becomes effective.



2.4.2 Default Rate . From and after an Event of Default, Advances under the Revolving Facility shall bear interest at a rate equal to three percentage points (3%) more than the interest rate that would have been applicable hereunder. Anything herein to the contrary notwithstanding, interest at the default rate shall be due and payable on demand but shall accrue from the Event of Default until all Indebtedness is paid in full.



2.4.4 Calculation of Interest . All interest calculations shall be on a basis of a three hundred and sixty (360)-day year for the actual days elapsed. Interest paid for any partial month shall be prorated based on a thirty (30)-day month and the actual number of day elapsed."



6.5 Amendment to Section 6.8.1 of the Loan Agreement . Section 6.8.1 of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it with the following:



"6.8.1 Locations . Schedule 6.8.1 is a true and correct listing showing all places where Eligible Inventory is located (except for Eligible Inventory in transit), including, without limitation, facilities leased and operated by Borrower and locations neither owned nor leased by Borrower. Such list indicates whether the premises are those of warehouseman or other party. Borrower shall provide Bank, on a weekly basis, any change in the locations set forth in Schedule 6.8.1 (and Borrower shall have the right to update such Schedule in connection with the provision of such notice)."



6.6 Amendment to Section 7.4 of the Loan Agreement . Section 7.4 of the Loan Agreement is hereby amended by adding new Section 7.4.7 as follows:



"7.4.7 Borrower's Monthly Financial Statements . As soon as practicable, but in any event within twenty (20) days after the end of each month in each fiscal year of Borrower, unaudited monthly financial statements of Borrower for such month prepared in accordance with GAAP, together with a certification by the principal financial or accounting officer of Borrower that the information contained in such financial statements fairly presents, in all material respects, the financial position of Borrower for the period then ending, subject to changes resulting from audit and normal year end adjustments. ?





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6.7 Amendment to Section 10 of the Loan Agreement . Section 10 of the Loan Agreement is hereby amended by adding new Section 10.13 as follows:



"10.7 Guarantor and Affiliate Other Agreements . Guarantor or any Affiliate shall fail to make any payment when due under the terms of any bond, debenture, note or other evidence of Debt to be paid by such Person and such failure shall continue beyond any period of grace provided with respect thereto, or shall default in the observance or performance of any other agreement, term or condition contained in any such bond, debenture, note or other evidence of Debt, and the effect of such failure or default is to cause, or permit the holder or holders thereof to cause Debt in an aggregate amount of One Million and 00/100 Dollars ($1,000,000.00) or more to become due prior to its stated date of matu
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