Item 1.01.
Entry into a Material Definitive Agreement.
As previously reported in a Current Report on Form 8-K dated December 6, 2016, Quadrant 4 System Corporation (the “Company”) received a formal notice of default from BMO Harris Bank N.A. (“BMO”) with respect to the Credit Agreement, dated as of July 1, 2016 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), between the Company, as borrower, and BMO, as lender. The notice of default cited (i) the pending charges described in Item 8.01 of that Current Report on Form 8-K, (ii) the failure of the Company to timely deliver evidence of having closed a deposit account with another lender, and (iii) the failure of the Company to deliver evidence that the policies of insurance of the Company and its subsidiaries contain a lender’s loss payable endorsement for BMO’s benefit and an endorsement showing BMO as additional insured, as required by the Credit Agreement. Since that time, the Company has been engaged in discussions with BMO regarding these matters.
Effective March 17, 2016, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) by and among the Company, its subsidiary guarantor Stratitude, Inc. (“Guarantor,” and together with the Company, the “Forbearance Parties”), and BMO.
Pursuant to the terms of the Forbearance Agreement, BMO has agreed to forbear in the exercise and enforcement of its rights, powers and remedies under: (i) the Credit Agreement; (ii) the First Amendment to Credit Agreement, dated as of November 3, 2016 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement Amendment”) by and among Borrower, Guarantor and BMO; (iii) the General Security Agreement, dated as of July 1, 2016 (as amended, supplemented or otherwise modified from time to time, the “Security Agreement”) by and between the Company and BMO; (iv) the Amendment No. 1 to General Security Agreement, dated as of November 3, 2016 (as amended, supplemented or otherwise modified from time to time, the “Security Agreement Amendment”) by and among the Company, Guarantor and BMO; (v) the General Security Agreement, dated as of November 3, 2016 (as amended, supplemented or otherwise modified from time to time, the “Guarantor Security Agreement”) by and between Guarantor and BMO; (vi) the Revolving Note, dated as of July 1, 2016 (as amended, supplemented or otherwise modified from time to time, the “Revolving Note”) by the Company in favor of BMO in the original principal amount of $7,000,000.00; (vii) the Term Note, dated as of July 1, 2016 (as amended, supplemented or otherwise modified from time to time, the “Term Note”) by the Company in favor of BMO in the original principal amount of $13,000,000.00; (viii) the CapEx Software Note, dated as of July 1, 2016 (as amended, supplemented or otherwise modified from time to time, the “CapEx Note,” and collectively with the Revolving Note and Term Note, the “Notes”) by the Company in favor of BMO in the original principal amount of $5,000,000.00; (ix) the Guaranty Agreement (as amended, supplemented or otherwise modified from time to time, the “Guaranty”) by Guarantor in favor of BMO; (x) the Intercreditor and Subordination Agreement, dated as of November 3, 2016 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”) by and between BMO and BIP Lender, LLC; (xi) the Subordination Agreement, dated as of November 3, 2016 (as amended, supplemented or otherwise modified from time to time, the “Intercreditor Agreement”) by and among the Company, BMO, Pankaj Kalra, Ashish Sanan and Khannan Sankaran; and (xii) all other related documents (collectively, as amended, modified, supplemented, renewed, extended and/or restated from time to time, the “Other Documents,” and collectively with the Credit Agreement, the Credit Agreement Amendment, the Security Agreement, the Security Agreement Amendment, the Guarantor Security Agreement, the Notes, the Guaranty, the Intercreditor Agreement, and the Subordination Agreement, the “Loan Documents”).
The forbearance period (the “Forbearance Period”) under the Forbearance Agreement will expire on the earliest to occur of: (a) the date of the termination of the Forbearance Agreement by BMO pursuant to Section 8 thereof, or (b) May 15, 2017.
Under the terms of the Forbearance Agreement, the Forbearance Parties have agreed to, among other things, (i) pay to BMO a non-refundable forbearance fee in the amount of $10,000, and (ii) appoint three new members to the Company’s Board of Directors, as further described in Item 5.02.
The foregoing summary of the Forbearance Agreement is qualified in its entirety by the text of the Forbearance Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and hereby incorporated herein by reference.