AVERN COHN, District Judge.
This is a commercial finance dispute. Plaintiff, JP Morgan Chase Bank, N.A. (Chase, hereafter Agent)
As to Count I, the Agent takes the position that while the Guaranty is limited to $50 million dollars as to Winget, it is unlimited as to the Winget Trust. Winget has filed a counterclaim seeking reformation of the Guaranty as to the Winget Trust to limit its obligations to the same as that of Winget.
As will be explained below, the reformation issue relates to Section 3 of the Guaranty, which reads in relevant part:
The Agent says that the Guaranty is only limited as to Winget, not the Winget Trust because Section 3 states only "Larry Winget" and not "Larry Winget and the Winget Trust." Winget disagrees, contending that the failure to state "and the Winget Trust" in Section 3 was a mistake.
The Court bifurcated the counterclaim and set it down for separate trial. For eight (8) days in August, 2012, the issue of reformation was tried to the Court. For the reasons which follow, see Parts IV. and VI., which constitute the findings of fact and the conclusions of law required by
The following decisions describe the background of the reformation issue:
Witnesses called by Winget and the Winget Trust in person or by deposition at trial were:
Witnesses called by the Agent in person or by deposition at trial were:
Several comments are in order regarding the testimony of the witnesses:
Numerous exhibits were admitted in evidence at the trial. Post-trial, the parties filed lists of the exhibits as follows:
The significant exhibits are:
Description Exhibit • Larry J. Winget Living Trust (July 01, 1999) C 1 • Venture Holdings Trust Credit Agreement (May 27, 1999) C 10 • Venture Holdings Company, LLC Proposed Forbearance Agreement Summary Term Sheet (October 09, 2002) C 2 • Draft of Pledge Agreement (October 20, 2002) W 19 • Draft of Pledge Agreement (October 21, 2002) C 5 • Draft of Guaranty (October 18, 2002) C 3 • Draft of Guaranty (October 22, 2002) C 6 • Eighth Amendment and related documents (October 21, 2002)3 C 11 • Guaranty (October 21 2002) C 11 Tab 5 • Pledge Agreements (October 21, 2002) C 11 PIM Management Company Tab 11 Venco # 1, LLC Tab 12 • E-mail to lenders (October 21, 2002) W 21 • Apollo Management, LP Memorandum re:Venture (October 21, 2002) W 26 • Credit Approval Summary (April 4, 2004) W 54 • Winget's Personal Financial Statement (October 21, 2002) W 20 • Schedule of Liens W 58 • E-mail-posting of Term Sheet on Intralink (October 9, 2002) W 15 • Court of Appeals for the Sixth Circuit Brief (excerpt) (May 7, 2007) W 84 • EYCF Summary of Papers W 6, W 14 • Eighth Amendment Summary of Correspondence(October 18, 2002 — October 28, 2002) W 78 • The Complaint For Specific Performance And Declaratory Judgment filed by the Agent in the 2005 case W 92 • The Agent's Reply Brief in the 2005 case (Doc. 29) W 82 • Credit File W 80 • Complaint Doc. 1
Like the witnesses, some commentary is called for with respect to the exhibits.
The following are the factual findings required by Fed.R.Civ.P. 52. The findings are based on an assessment of the credibility of the witnesses, weighing the testimony of the witnesses and the exhibits, and drawing such inferences from the evidence as is appropriate, all with due consideration of the pretrial findings of fact proffered by the parties.
Regarding the credibility of the witnesses, given that the Winget Trust was added as a party to the Guaranty shortly before the Eighth Amendment and related documents were signed, and there is no suggestion in the evidence that the Agent looked to this inclusion as enhancing the lenders' collateral position, substantially more weight has been given to the testimony of witnesses called by Winget, particularly Winget and Terpsma, than the testimony of witnesses called by the Agent.
1. Between 1999 and 2002, the Agent acted on behalf of a group of lenders, including the Agent, that advanced credit to Venture. Venture was owned by Winget.
2. Winget created a living trust in 1987. The Winget Trust held most, if not all, of Winget's assets. The instrument in evidence appears to be a restatement. See C 1.
3. There was no mention ever made of a distinction between Winget personally and the Winget Trust in the course of dealings between the Agent, Venture and Winget at any relevant time.
4. In October of 2002, the Agent and Winget entered into the Eighth Amendment To Credit Agreement. In October, 2002, Venture was in severe financial condition as a consequence of the bankruptcy of some of its European subsidiaries. The purpose of the Eighth Amendment was to extend forbearance for a time by the Agent in exercising its rights as a creditor of Venture under the Credit Agreement for the default of Venture.
5. Aside from the forbearance by the Agent for a time, a primary purpose of the Eighth Amendment was to enhance the Agent's collateral position to the extent it had deteriorated since the Seventh Amendment To Credit Agreement.
6. From the onset of the negotiations for the Eighth Amendment, Winget insisted that any additional support by him would be limited to the pledge of certain identified assets, and among those assets was his ownership of certain assets he
8. Winget explained his position regarding his guaranty as follows:
9. The business terms of the Eighth Amendment were reflected in a document labeled Term Sheet. It was negotiated primarily between Babcock and Thompson on behalf of the Agent and Winget on his own behalf. Shield drafted the Term Sheet. C 2.
10. Various drafts of the Term Sheet were circulated in early October. None of the drafts mentioned the unlimited liability of the Winget Trust.
11. Winget had a personal meeting with Babcock and Thompson before agreeing to the Term Sheet. There was no discussion among them as to the Winget Trust being a party to the Guaranty or the Pledges. Babcock and Thompson have no recollection of ever discussing the Winget Trust during the course of negotiating the Eighth Amendment. When asked why the Winget Trust was added as a party to the Guaranty and Pledges, both Babcock and Thompson said they could not remember a reason.
12. Babcock testified as follows:
13. Thompson similarly testified:
14. Gallagher likewise testified that he had no recollection of an unlimited Guaranty but rather only a 50 million Guaranty.
15. Relevant portions of the Term Sheet, C 2, read as follows:
C 2.
16. A multitude of related documents constituted the Eighth Amendment. Negotiating the language of the Eighth Amendment and the related documents were handled by the lawyers for the parties. C 11. Burgess acted on behalf of the Agent; Lieberman and McKee acted on behalf of Venture and Winget. Faxon-Singer did the actual drafting. At no time during the course of the drafting was the unlimited liability of the Winget Trust discussed, much less mentioned.
17. Prior to October 22, 2002, the Agent counsel generated "versions" 1, 2, 3, 4, and 5 of the Guaranty. C 3, 4, 5. All of these versions defined "Guarantor" to include only Winget.
18. On October 22, 2002, the Agent's counsel, Faxon-Singer, circulated to Bradley and McKee "version 6" of the Guaranty, which shows changes made from "version 4" to "version 6." C 6.
19. The "version 6" black line shows, in bold, underlined text that the definition of `Guarantor'" was changed to, "collectively," "Larry Winget and the Larry J. Winget Living Trust." C 6.
20. The "version 6" black line shows no changes to Section 3. C 6
21. From October 24 through October 28, the Agent's counsel circulated "versions" 7, 8, 9, 10, 11, 14, and 15 of the Guaranty. See W 78.
22. Faxon-Singer's testimony and McKee's testimony is consistent as to the reason for the addition of the Winget Trust to the Guaranty. McKee explained it best in stating "[the Agent] wanted the Trust added to these [Eighth Amendment and related] documents in order to make sure the pledges were being provided by the actual technical owner of the stock because [the Agent's] counsel had expressed uncertainty as to whether Mr. Winget or his revocable Living Trust owned particular assets."
23. Prior to the signing of the Eighth Amendment, the Agent never expressed or manifested the intention that the Winget Trust, or Winget, would have unlimited liability to the Agent as a guarantor of Venture's indebtedness under the Credit Agreement in contrast to Winget's limited liability.
24. As noted above, the first draft of the Guaranty was circulated on October 18, 2002. The operative language of Recital B in the draft reads as follows:
The operative language of the second paragraph of Section 3 reads in part as follows:
This language carried through to the final draft of the Guaranty.
25. Also as noted above, the Winget Trust was added as a party to the Guaranty on October 22, 2002. This was done by including "The Larry J. Winget Living Trust" in the preamble as follows:
and adding the Winget Trust as a signatory. Larry Winget signed the Guaranty on behalf of himself and on behalf of the Winget Trust. C 11, Tab. 5.
26. The Winget Trust was added as a party to drafts of the PIM Pledge and Venco Pledge, on October 20, 2002. C 11, Tabs 11 and 12.
27. Each Pledge Agreement includes the following language:
C 11, Tabs 11 and 12.
28. There was no consciousness on the part of anyone involved in negotiating the language of Eighth Amendment and related documents existence of the Winget Trust until around October 20, 2002, when the role of the Winget Trust and Winget's financial life became a topic of discussion. This discussion was prompted by a question as to the exact ownership of Winget's assets being pledged to support the lender's
29. At no time before the signing of the Eighth Amendment and related documents did the Agent require or obtain a copy of the Winget Trust instrument or a balance sheet of the Winget Trust. At no time after the signing of the Eighth Amendment and related documents did the Agent ask for or obtain a copy of the Winget Trust instrument or a balance sheet of the Winget Trust.
30. Babcock testified that federal bank regulations require that a bank secure financial statements from a guarantor.
31. The documents related to the Eighth Amendment include a financial statement from Winget. The facing page of the Eighth Amendment, closing list and list of related documents are attached as Exhibit A.
32. There is no limitation in the Guaranty or the Pledge Agreements relating to Winget's right to amend or terminate the Winget Trust, transfer of assets into or out of the Winget Trust, or to the management of the Winget Trust.
33. The reason that the Winget Trust was made a party to the Guaranty and the Pledge Agreements is simple, and stated in part above. During the course of the drafting process there was an uncertainty as to the exact ownership of the newly pledged assets, including the stock of PIM and an interest in Venco. No one involved in the drafting process of the Eighth Amendment and related documents has any recollection of any discussion regarding enhancing the lenders' collateral position by having the unlimited guaranty of the Winget Trust.
34. Bradley, one of the lawyers representing Winget in the drafting of the Guaranty testified as follows:
35. The text of a draft of the Eighth Amendment not including the related documents was circulated by the Agent via Intralink, the method the Agent used in communicating with the lenders, on October 21, 2002, for approval and sign off. This was prior to the Winget Trust being added as a party to the Guaranty, and prior to the finalization of the text of the Pledge Agreements. No mention was made in any transmission to the lenders of an unlimited guaranty by the Winget Trust.
36. Neither Winget nor anyone representing him in the negotiation of the language of the Eighth Amendment and related documents ever expressed an intention of providing an unlimited guaranty of the Winget Trust of the Venture debt.
37. Likewise, no one representing the Agent in the negotiation of the terms of the documents comprising the Eighth Amendment ever expressed the intention of obtaining an unlimited guaranty from the Winget Trust, or that the addition of
38. Following the signing of the Eighth Amendment and related documents on October 28, 2002, as of October 21, 2002:
39. Every analysis by EYCF which referenced the Guaranty, describes it as having a value limited to $50 Million Dollars. See W 6, W 14
40. An unlimited guarantee of the Winget Trust would have added at least $100 Million Dollars as a source of repayment for the Venture debt. This would have been a material source of repayment, and would have been disclosed by the Agent to the lenders.
41. At various times after October 28, 2002, the Agent described the Guaranty to third parties. In each instance, the Guaranty was described as limited to $50 Million. These statements included:
42. As expressed by Terpsma in his testimony:
43. Exemplary of the manner in which the Agent viewed the singular obligation of Winget and the Winget Trust are:
COLLATERAL PLEDGED BY WINGET TO EXISTING BANK FACILITY PURSUANT TO EIGHTH AMENDMENT
NAME Sub-ordination Guaranty Security DESCRIPTION Mortgage DESCRIPTION Pledge DESCRIPTION Transferred
Agreement Agreement Winget
Equity
Larry Yes Yes Yes All stock 1-9
Winget Limited to Capital stock
& Larry pledged 10
Winget stock unless Membership
Living he violated Interests. 11
Trust guaranty
44. As further support that the Agent viewed Winget and the Winget's Trust's liability as the same is the following allegation in the Agent's Complaint For Specific Performance And Declaratory Judgment (W 92) in the 2005 case, which describes the Guaranty as follows:
45. The Agent's reply brief in support of its motion for judgment on the pleadings in the 2005 case (W 82) similarly described the Guaranty at p. 2, as follows:
46. The first mention in the record by the Agent of an unlimited Guaranty against the Winget Trust appears in a brief filed in the Sixth Circuit on May 7, 2007 in Winget's appeal in the 2005 case. The body of the brief states in part "the Agent's recourse against Larry Winget for payment on the Winget Guaranty is limited to foreclosure on certain pledged stock — including the stock of PIM and Venco. Any such foreclosure must occur pursuant to the terms of the Pledge Agreement." After this statement there is a footnote which reads "[n]o such limitations apply to the Agent's right to recover on the Guaranty from the Trust." W 84 (emphasis added).
47. What is not explained in the record is the lapse of time from October 2002, when the Eighth Amendment and related documents were executed, to May 2007, when the Agent's position with respect to the unlimited liability of the Winget Trust is first disclosed.
48. Recital O of the Eighth Amendment describes the obligation of "The Principal" ("Larry J. Winget and the Larry J. Winget Trust") as follows:
49. The Winget Trust's obligation is co-extensive with that of Winget as expressed in Recital O.
The Agent's position that the Winget Trust and Winget the individual are not one in the same for purposes of the Eighth Amendment and related documents does not hold water. The factual findings detailed above make clear that the Winget Trust was added to the Guaranty solely for the purpose of capturing the ownership of the collateral in the PIM and Venco Pledges, which was held in the name of the Winget Trust. It was not added to enhance the lenders' collateral position, much less an unlimited obligation, on the part of the Winget Trust.
The only support for the Agent's position is found in the strained testimony from the lawyers for the Agent. All of them essentially said that because there
Burgess was not a credible witness. In explaining the apparent inconsistent statements as to the liability of the Winget Trust, Burgess testified as follows.
This statement is fatuous. At no point in his testimony did Burgess provide support for the Agent's position that the parties knew and intended that the Winget Trust's liability was unlimited.
Shield likewise was not a credible witness. In being questioned about the nature of a living trust, he testified.
The absence of any credible testimonial evidence from those who negotiated the language of the Eighth Amendment as to the liability of the Winget Trust and the absence of any documentary evidence which would support treating the obligations of the Winget Trust different from Winget cuts against the Agent. The Agent cannot simply point to the plain language of Section 3 in order to prevail against Winget. The issue for trial was not whether Section 3 was ambiguous or unambiguous, the issue was whether Section 3 should be reformed to reflect the parties' true and intended agreement. The Agent has failed to persuade the Court that Section 3 should not be reformed.
Under Michigan law, a court of equity has the authority to reform a contract to make the contract conform to the agreement actually made by the contracting parties. Casey v. Auto-Owners Ins. Co., 273 Mich.App. 388, 398, 729 N.W.2d 277 (2006). If a written instrument fails to express the intention of the parties because of a mutual mistake, the court may enforce the equitable remedy of reformation. Scott v. Grow, 301 Mich. 226, 237, 3 N.W.2d 254 (1942).
To obtain reformation, a party must establish by clear and satisfactory evidence of a mutual mistake. Lee State Bank v. McElheny, 227 Mich. 322, 327, 198 N.W. 928 (1924). One Michigan court stated that the mistake must be proven "beyond cavil." Emery v. Clark, 303 Mich. 461, 470, 6 N.W.2d 746 (1942). A "mutual mistake of fact" is "`an erroneous belief, which is shared and relied on by both parties, about a material fact that affects the substance of the transaction.'" Briggs Tax Service, LLC v. Detroit Pub. Schools, 485 Mich. 69, 77, 780 N.W.2d 753 (2010), quoting Ford Motor Co. v. City of Woodhaven, 475 Mich. 425, 442, 716 N.W.2d 247 (2006). A mutual mistake must relate to a fact in existence when the contract was executed. Lenawee Co. Bd. of Health v. Messerly, 417 Mich. 17, 24, 331 N.W.2d 203 (1982). Parol evidence can be used to determine whether reformation is warranted on the basis of mistake. Scott, 301 Mich. at 239, 3 N.W.2d 254.
Moreover, Michigan courts have said that while generally the mistake must be mutual, reformation may also be had where one party is aware that the other party has made a mistake and conceals it, thereby producing an inequitable result. As explained in Retan v. Clark, 220 Mich. 493, 496, 190 N.W. 244 (1922):
But here there was mistake on the part of the plaintiffs and knowledge of the mistake and concealment thereof on the part of the defendants, both producing the inequitable result. Of a case of
Finally, in Citibank, N.A. v. Morgan Stanley & Co., 797 F.Supp.2d 254 (S.D.N.Y.2011), the district court, in considering a claim for reformation on the grounds of mutual mistake regarding a complex commercial transaction, noted the relevance of a parties' course of performance in determining whether a mutual mistake has been made. The district court stated in relevant part:
Id. at 265 (footnotes omitted).
Winget has established grounds for reformation under the standard set forth above. While the plain language of Section 3 of the Guaranty references only Larry Winget as having limited liability, this section does not reflect the parties' intent. Rather, Winget has proven "beyond cavil" that the Winget Trust was added solely to ensure that the pledged collateral was owned by Winget. It was not added to expand upon or create any additional liability on the part of the Winget Trust.
The Winget Trust for purposes of this case is no different than Larry Winget individually. A living, or inter vivos trust, is a common estate planning tool which is often used to control the distribution of assets. See Restatement (Third) of Trusts § 25 Validity And Effect Of Revocable Inter Vivos Trust (2003). Here, Winget was the settlor, trustee, and beneficiary of the Winget Trust. As settlor, Winget owned the assets in the Winget Trust. See M.C.L. § 556.128. The Winget Trust was essentially Winget's alter ego. Winget used the Winget Trust to hold ownership of many of his assets, including the pledged stock. It had no special significance for purposes of this case.
The Winget Trust was purposely added to the Eighth Amendment and related documents to secure ownership of the pledged stock. It was not added to secure any additional liability. As such, the failure to include the Winget Trust under Section 3 was a mistake. It was a mistake that was overlooked by both parties. It is a mistake that the Court has the power to correct. As Justice Joseph Story put it:.
Joseph Story, Commentaries on Equity Jurisprudence, Chapter V. Mistake, § 155 (7th ed. 1857) (emphasis added).
When all is said and done, the evidence at trial confirmed what the Court said of the case in denying the Agent's motion for summary judgment:
An appropriate judgment will be entered in favor of Winget on its counterclaim for reformation.
Administrative Agent
Bank One, NA
Borrower
Venture Holdings Company LLC
Principal
Larry J. Winget and the Larry J. Winget Living Trust
Guarantors
Vemco, Inc.
Vemco Leasing, Inc.
Venture Industries Corporation
Venture Holdings Corporation
Venture Leasing Company
Venture Mold & Engineering Company
Venture Service Company
Venture Europe, Inc.
Venture EU Corporation
Experience Management LLC
Affiliate Guarantors
Venture Heavy Machinery Limited Liability Company
Venture Real Estate Acquisition Company
Venture Equipment Acquisition Company
Realven Corporation
Deluxe Pattern Corporation
Venture Real Estate, Inc.
Venture Automotive Corp.
Farm & Country Real Estate Company
Patent Holding Company
P.I.M. Management Company
Venco # 1, L.L.C.
Pledgors
Larry Winget and the Larry J. Winget Living Trust
Venco # 1, L.L.C.
Deluxe Pattern Corporation
P.I.M. Management Company
1. Eighth Amendment.
2. Secretary Certificate and Resolutions of the Borrower, each Guarantor, each Affiliate Guarantor and each Pledgor.
3. Opinions of counsel
5. Guaranty of Larry Winget and the Larry J. Winget Living Trust.
6. Guaranty of Venture Sales & Engineering Corp.
7. Guaranty of P.I.M. Management Company.
8. Guaranty of Venco # 1, L.L.C.
9. Security Agreement of Affiliate Guarantors except P.I.M. Management Company and Venco # 1, L.L.C.
10. Pledge Agreement of Larry Winget and his Living Trust relating to:
11. Pledge Agreement of P.I.M. Management Company.
12. Pledge Agreement of Venco, # 1, L.L.C.
13. Pledge Agreement of Deluxe Pattern Corporation.
14. Pledge Agreement of P.I.M. Management Company relating to a pledge of shares in Venture Holdings B.V.
15. Australian Pledge Documents relating to a pledge of shares in Venture Asia Pacific Pty Ltd.:
16. Subordination Agreement of the Affiliate Guarantors except P.I.M. Management Company and Venco # 1, L.L.C.
17. Original stock powers and stock certificates.
18. UCC Searches of Affiliate Guarantors and Pledgors.
19. UCC Financing Statements of Affiliate Guarantors and Pledgors.
20. Intellectual Property Searches.
21. Litigation Searches
22. Mortgagee Title Policies.
23. Mortgages from:
24. Landlord Waivers.
25. Environmental Certificate.
26. Financial Statements.
27. Accommodation Agreements of General Motors and Daimler Chrysler.
29. Signed commitment letter and term sheet for the DIP facility.
30. Post Closing Letter Agreement.
31. Stock Ownership Certificate of Larry Winget.
32. Additional Letter Agreement
33. Insurance Certificate.
34. Acknowledgement of Venture Mold & Engineering Corporation, Venture Heavy Machinery Limited Liability Company, Venture Automotive Corp., Venco # 1, L.L.C. and P.I.M. Management Company.
35. Good Standing Certificates of Affiliate Guarantors.
THIS EIGHTH AMENDMENT TO CREDIT AGREEMENT, dated as of October 21, 2002 (this "Amendment"), is among Venture Holdings Company LLC, a Michigan limited liability company, as successor Borrower to Venture Holdings Trust under the Credit Agreement (the "Borrower"), the lenders set forth on the signature pages hereof (collectively, the "Lenders"), and Bank One, NA, as administrative agent for the Lenders (in such capacity, the "Administrative Agent").
A. The Borrower, the Administrative Agent and the Lenders are parties to a Credit Agreement dated as of May 27, 1999 (as now and hereafter amended, the "Credit Agreement"), pursuant to which the Lenders agreed, subject to the terms and conditions thereof, to extend credit to the Borrower. Terms used but not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement.
B. The Credit Agreement was amended by a First Amendment to Credit Agreement dated June 4, 1999 (the "First Amendment"), a Second Amendment to Credit Agreement dated June 29, 2000 (the "Second Amendment"), a Third Amendment to Credit Agreement dated March 29, 2002 (the "Third Amendment") and a Fourth Amendment to Credit Agreement dated May 20, 2002 (the "Fourth Amendment"), pursuant to which the parties agreed to modify certain terms and conditions of the extension of credit to the Borrower.
C. On or about May 28, 2002, the Borrower informed the Administrative Agent and the Lenders that the Borrower potentially was in violation of certain covenants set forth in the Credit Agreement, caused by the filing of a preliminary insolvency petition against Venture Germany GmbH, Venture Verwaltungs GmbH and Peguform GmbH & Co. KG (collectively the "German Insolvency Proceeding Subsidiaries"). On or about June 3, 2002, the Borrower informed the Administrative Agent and the Lenders that the Borrower potentially was in violation of certain covenants set forth in the Credit Agreement caused by the failure of the Borrower to pay interest on the 1999 Senior Unsecured Notes and the 1999 Senior Notes on the due date thereof. The Administrative Agent and the Lenders, at the request of the Borrower, waived such potential defaults on a temporary basis under the terms and conditions set forth in a Fifth Amendment to Credit Agreement dated as of June 3, 2002 (the "Fifth Amendment").
D. Prior to the execution of the Fifth Amendment, the Borrower engaged Conway MacKenzie & Dunleavy ("CMD") as business and financial consultants to the Borrower.
F. The temporary waiver set forth in the Sixth Amendment was due to expire on September 1, 2002. On August 28, 2002, the Borrower informed the Administrative Agent and the Lenders that the preliminary insolvency petition against the German Insolvency Proceeding Subsidiaries had been extended and that the corresponding potential defaults under the Credit Agreement were continuing. The Administrative Agent and the Lenders, at the request of the Borrower, waived such potential defaults on a temporary basis under the terms and conditions set forth in a Seventh Amendment to Credit Agreement dated as of August 28, 2002 (the "Seventh Amendment").
G. The Credit Agreement (as modified by the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment and the Seventh Amendment), all promissory notes executed by any Borrower in favor of the Administrative Agent and/or the Lenders, and any and all of the Collateral Documents (including without limitation all security agreements, mortgages, guaranties, pledges and other instruments, documents or agreements of any kind evidencing, securing or relating to the indebtedness of the Borrower in favor of the Lenders) are sometimes referred to collectively as the "Loan Documents."
H. On October 1, 2002, the preliminary insolvency petition against the German Insolvency Proceeding Subsidiaries was converted to a formal insolvency proceeding (the "German Formal Insolvency Proceeding"). As a result of such conversion, certain Defaults have occurred under the Credit Agreement as described in Exhibit A annexed hereto (collectively the "Existing Defaults"). The Existing Defaults are continuing as of the date hereof.
I. As a consequence of the Existing Defaults, among other things, (i) all indebtedness owed to the Lenders by the Borrower and all other obligations owed to the Lenders or the Administrative Agent under the Loan Documents are subject to acceleration pursuant to Section 8.1(a) of the Credit Agreement, and (ii) the Lenders have no obligation to advance further loans or credit to the Borrower, pursuant to Section 4.2(i) of the Credit Agreement.
J. Notwithstanding the continuation of the Existing Defaults, the Borrower has requested that the Administrative Agent and the Lenders (a) modify certain terms and conditions set forth in the Credit Agreement, (b) waive the Existing Defaults on a temporary basis, (c) forbear temporarily from exercising remedies available under the Loan Documents or at law or in equity and (d) consent to a priming lien on the assets of the Borrower and its Subsidiaries and Deluxe Pattern Corporation in connection with certain potential future financing arranged by the Administrative Agent, all in order to (i)
K. As of October 21, 2002, the Borrower is indebted to the Lenders on account of Revolving Credit Loans, Swing Loans and the outstanding face amount of Facility Letters of Credit under the Credit Agreement in the aggregate principal amount of $174,113,840.22 plus accrued interest.
L. As of October 21, 2002, the Borrower is indebted to the Lenders on account of Term Loans under the Credit Agreement (consisting of Term Loan A, Term Loan B and Term Loan C) in the aggregate principal amount of $259,275,988.60 plus accrued interest.
M. In addition to the indebtedness described in the foregoing recitals, the Borrower is indebted to the Administrative Agent and the Lenders for certain fees, expenses and costs incurred by or on behalf of the Administrative Agent and the Lenders as provided in the Credit Agreement. In addition to other obligations, all the indebtedness, obligations and liabilities described in this Recital M, in the foregoing Recitals K and L and/or otherwise owing under the Loan Documents, are Secured Obligations.
N. The Secured Obligations are unconditionally guaranteed by the Guarantors, subject to any limitations set forth in the applicable Guaranties.
O. The Principal has agreed (i) that each of Venture Heavy Machinery Limited Liability Company, a Michigan limited liability company, Venture Real Estate Acquisition Company, a Michigan corporation, Venture Equipment Acquisition Company, a Michigan corporation, Realven Corporation, a Michigan corporation, Deluxe Pattern Corporation, a Michigan corporation, Venture Real Estate, Inc., a Michigan corporation, Venture Automotive Corp., a Michigan corporation, Farm & Country Real Estate Company, a Michigan corporation, Patent Holding Company, a Michigan corporation, P.I.M. Management Company, a Michigan corporation and Venco # 1 LLC, a Michigan limited liability company (collectively the "Affiliate Guarantors") will execute and deliver to the Administrative Agent, for the benefit of itself and the Lenders, unlimited secured guaranties of the Secured Obligations (provided that the guaranties of P.I.M. Management Company and Venco # 1 LLC, indirect owners of a majority of the stock of Venture Asia Pacific (Pry) Ltd. ("Venture Australia") and Venture Otto South Africa (Pty) Ltd. ("Venture South Africa"), shall be guaranties of collection only, including following collection efforts with respect to the Guarantors and the other Affiliate Guarantors, and provided, further, that the guaranty of P.I.M. Management Company shall be limited to assets related to Venture Australia, Venture Holdings B.V. and Venture South Africa (collectively the "Foreign Issuers")) and grant liens and security interests in all of their respective assets (and with respect to P.I.M. Management Company and Venco # 1 LLC, a pledge their stock and of 65% of the ownership interests in the Foreign Issuers, enforceable only following collection efforts against the Borrower, the Guarantors and the other Affiliate Guarantors and, as to P.I.M. Management Company, limited to the assets related to the Foreign Issuers), each to the maximum extent permitted by applicable law and to the extent not prohibited by existing contractual restrictions; (ii) that the Principal will pledge to the Administrative Agent, for the benefit of itself
P. To secure payment of the Secured Obligations, including, without limitation, the indebtedness described in the foregoing recitals, the Borrower and each Guarantor have granted to the Administrative Agent, for the benefit of itself and the Lenders, a security interest in, without limitation, all of the Borrower's and such Guarantor's present and future accounts, documents, instruments, general intangibles, investment property, chattel paper, furniture, fixtures, machinery, equipment, inventory and all other property and assets of the Borrower and the Guarantors, including books and records relating thereto and all substitutions, replacements, additions, accessories, products and proceeds thereof, and including a pledge of corporate stock to the extent required under the Credit Agreement and a mortgage of real property, which security interests are duly perfected security interests to the extent that perfection may be obtained by filing under the Uniform Commercial Code.
Q. As a consequence of the Existing Defaults, the Borrower is precluded from making any payments to the holders of Subordinated Indebtedness (if any), and the Borrower has agreed that it shall not make any payments to the holders of any Subordinated Indebtedness.
R. Based upon the foregoing recitals, and without waiving any existing or future rights or remedies which the Administrative Agent and/or the Lenders may have against the Borrower or any Guarantor, the Administrative Agent and the Lenders are willing to amend the terms of the Credit Agreement and to forbear from exercising remedies available to them at the present time, for a limited period of time, all under the terms and conditions expressly set forth herein.
In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows:
1.1 Affirmation of Recitals. The Borrower and the Guarantors hereby acknowledge and affirm the accuracy of the foregoing recitals.
1.2 Existing Defaults. The Borrower acknowledges the occurrence of the Existing Defaults and the continuation of such Existing Defaults through the date of this Amendment. As a result of the Existing Defaults, the Borrower acknowledges (i) that all Secured Obligations owed by the Borrower to the Lenders are subject to acceleration, (ii) that the Required Lenders have the right at any time to exercise one or more available remedies and (iii) that the Lenders have no obligation to advance further loans or credit to the Borrower. Also as a result of the Existing Defaults, the Borrower acknowledges that it is precluded from making any payments to the holders of any Subordinated Indebtedness (if any) and the Borrower has agreed not to make any payment related to any Subordinated Indebtedness absent the prior written consent of the Required Lenders (or the Administrative Agent acting
1.3 Conditions for Forbearance. Subject to strict compliance with the terms and conditions set forth herein, the Lenders agree to forbear from enforcing their rights and remedies based on the Existing Defaults while the Borrower and its consultants implement the Borrower's plan for improvement of the Borrower's financial condition, provided that (i) except to the extent and on the terms set forth expressly herein, the Administrative Agent and the Lenders do not waive the Existing Defaults and (ii) such agreement to forbear shall not create a waiver of the right of the Administrative Agent or the Lenders, upon the occurrence of an Event of Default hereunder or a new Default or Unmatured Default under the Loan Documents, to enforce available rights and remedies at any time, in their sole discretion, in accordance with the Credit Agreement (as modified herein) and the other Loan Documents. Absent an earlier Event of Default, the period during which the Lenders shall forbear is from the Eighth Amendment Effective Date through April 15, 2003 (the "Restructuring Period"). The Lenders' forbearance shall be governed by and subject to the following terms and conditions, and the Borrower and the Guarantors, as applicable, agree to take all actions to cause each of the following to be satisfied:
