Document:

fonix10k123107ex10-1.htm

    
      

      

    

     

    
      Exhibit
10.1

      

      SEPARATION
AND RELEASE OF CLAIMS AGREEMENT

      

      This Separation and Release of Claims
Agreement (the “Agreement”) is
entered into by Fonix Corporation, a Delaware corporation (“Fonix”), and Thomas
A. Murdock (“Murdock”).

      

      RECITALS

      

      A. 
         Murdock was a founder of
Fonix and has been a director and executive officer of Fonix since its
inception.  Presently, Murdock is the Chief Executive Officer,
President and a member of the Board of Directors of Fonix.

       

      B            Fonix
and Murdock entered into an Employment Agreement on November 1, 1996, which was
subsequently modified on January 31, 2000 and January 31, 2005 (the Employment
Agreement and each modification are hereinafter referred to as the “Employment
Agreement”).

       

      C.           Murdock’
employment with Fonix will terminate on March 5, 2008.

       

      D.          Fonix
and Murdock desire to resolve all matters regarding Murdock’s separation from
Fonix and, to that end, agree as set forth below.

      

      AGREEMENT

      

      1.           Murdock
acknowledges that he received a copy of this Agreement on February 26, 2008, and
that he was given twenty-one days from that date to determine whether to execute
this Agreement.

      

      2.           In
consideration of Murdock entering into this Agreement, Fonix agrees as
follows:

      

      a.         Murdock
has previously deferred, and Fonix has accrued on its books and records,
$319,035.41 of unpaid salary (the “Deferred Salary”)
under the terms of the Employment Agreement for the period from October 6, 2006
to February 29, 2008 (the “Deferred Salary
Period”).  Murdock agrees that Fonix is under no obligation to
pay the Deferred Salary or any portion thereof to Murdock, except as expressly
set forth below:

      

      i.         Upon
(i) the occurrence of a Liquidity Event (as defined below), and then in
proportion to the amount that Roger Dudley (“Dudley”) is paid for
salary that he also deferred during the Deferred Salary Period or (ii) Fonix
begins to make payments to Dudley for salary which he has deferred for the
Deferred Salary Period, and then in proportion to the amount that Dudley is paid
for salary that he deferred during the Deferred Salary Period.  All
payments to Murdock under this section 2(a) shall be made concurrent with
payments from Fonix to Dudley, shall be paid in the same form of consideration
and shall be reduced by withholding and other charges consistent with Fonix’s
payroll policies.  Dudley agrees to discuss with Murdock the
circumstances under which he would agree to accept less than the full amount due
him for the Deferred Salary Period in connection with any potential Liquidity
Event.  Should Dudley agree to accept less than the full amount due
him for the Deferred Salary Period in connection with any potential Liquidity
Event, Dudley will advise Murdock thereof and seek Murdock’s consent as to the
reduced amount of Deferred Salary to be paid to him, such consent not to be
unreasonably withheld, conditioned or delayed.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ii.         Upon
conversion by Murdock into shares of the Company's Common Stock at any time or
times on or after the date hereof, at the Murdock’s sole option, any portion of
the outstanding and unpaid Deferred Salary (the “Conversion Amount”)
into fully paid and nonassessable shares of Common Stock, at the Conversion Rate
(as defined below).  The Company shall not issue any fraction of a
share of Common Stock upon any conversion.  If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up to the nearest whole
share.  Murdock shall pay any and all income taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.

       

      The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount shall be determined by dividing (x) such Conversion Amount by (y) the
then applicable Conversion Price (the "Conversion
Rate").  "Conversion Price"
means, as of any Conversion Date (as defined below) or other date of
determination, the average of the closing bid prices over the ten (10) trading
days prior to the Conversion Date.

       

      To
convert any Conversion Amount into shares of Common Stock on any date (a "Conversion Date"),
the Murdock shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 5:00 p.m., Salt lake City Time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company.  On or before the second (2nd)
trading day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Company's transfer agent.

       

      b.         In
connection with his separation from Fonix, Murdock agrees that Fonix shall not
pay Murdock any severance under the Employment Agreement.  However,
upon the occurrence of a Liquidity Event, then Fonix will pay to Murdock an
amount which is equal to the lower of (i) the Annual Base Salary (as defined in
the Employment Agreement) or (ii) the severance paid to Dudley under his
existing employment agreement in connection with the Liquidity
Event.  Concurrent with Dudley’s separation from Fonix , Fonix will
pay to Murdock an amount which is equal to the severance paid to Dudley under
his existing employment agreement.  All payments to Murdock under this
section 2(b) shall be make concurrent with payments from Fonix to Dudley or the
Liquidity Event, as applicable, and shall be reduced by withholding and other
charges consistent with Fonix’s payroll policies.  For purposes of
this Agreement, a “Liquidity Event”
shall be deemed to have occurred if (x) individuals who are directors of Fonix
immediately prior to a Control Transaction (as defined below) shall cease,
within one (1) year after such Control Transaction, to constitute a majority of
the Board of Directors of Fonix (or of the Board of Directors of any successor
to Fonix, or of any company to which all or substantially all of Fonix's assets
may have been sold or transferred), or (y) any entity, person or Group (as
defined below)(other than Fonix or a subsidiary corporation of Fonix and any
company directly or indirectly controlled by Steven Hicks, Southridge Capital or
their affiliates) acquires shares of Fonix that result in such entity, person or
Group directly or indirectly owning beneficially over forty percent (40%) of the
outstanding shares of Fonix.  As used herein, "Control Transaction"
shall mean (1) any tender offer for or acquisition of capital stock of Fonix,
(2) any merger, consolidation, reorganization or sale of all or substantially
all of the assets of Fonix which has been approved by the shareholders,
(3) any contested election of directors of Fonix or threat of such a
contested election, or (4) any combination of the foregoing.  As
used herein, "Group" shall mean
persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of
the Securities Exchange Act of 1934, as amended.

      

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      c.         Fonix
agrees to provide, at its expense, continuation medical coverage for Murdock and
his wife under the federal law known as COBRA through such period as permitted
under applicable law or by Fonix’s insurance carrier.  Should Fonix
cancel its group insurance plan as to all employees, then Fonix will pay to
Murdock every month through December 31, 2009 the amount that Fonix was paying
at the time that the group insurance policy was cancelled for coverage for
Murdock and his wife.

       

      d.        All
of the stock options, warrants and other similar rights granted by Fonix to
Murdock, shall immediately and entirely be vested and shall be immediately
delivered to Murdock without restriction or limitation of any kind (except for
normal transfer restrictions).

       

      e.         Fonix
shall maintain in full force and effect until December 31, 2009, Murdock’s life
insurance, disability insurance and 401(k) plan, in which Murdock, his wife, or
both, were participants immediately prior to termination; provided that such
continued participation is possible under the general terms and provisions of
such plans and programs.  Should Fonix cancel its life insurance,
disability insurance and 401(k) plans as to all employees, then Fonix will pay
to Murdock every month through December 31, 2009 the amount that Fonix was
paying for the benefit of Murdock and his wife under the life insurance,
disability insurance and 401(k) plans at the time that such policies and plans
were cancelled.

       

      f.         Murdock
shall retain as his personal property his computer, computer software and
peripherals, printer, cell phones and current office furniture and fixtures and
his personal copy of records and documents of Fonix.

       

      
        

        
          
             

          

          
            3

            
              

            

          

          
             

          

        

      

       

      g.         Fonix
hereby agrees to defend, indemnify and hold harmless, Murdock, his heirs and
successors, against and in respect of: (i) any and all losses, damages,
deficiencies or liabilities resulting from any claims against Murdock relating
to his service to Fonix, its present and past affiliates and subsidiaries, as an
officer, employee, agent or director (whether based on statute, negligence,
breach of warranty, strict liability or any other theory); (ii) any and all
losses, damages, deficiencies or liabilities resulting from any claims against
Fonix, its officers, directors, agents, attorneys and successors with respect to
a lawsuit filed in the United States District Court for the District of Utah,
entitled “The
Breckenridge Fund LLC, a New York limited liability company, plaintiff, vs.
Fonix Corporation, a Delaware corporation; Fonix Speech, Inc., a Delaware
corporation; Thomas A. Murdock, an individual; Roger D. Dudley, an individual;
defendants,” Case No. 2:07CV00279 (the “Breckenridge
Lawsuit”); and (iii) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, costs and expenses, including
reasonable attorneys' fees, incident to any of the foregoing; (the items
referred to in clauses (i) - (iii) collectively being referred to in this
Section 2(g) as the “Indemnified
Claims").  If any claim, liability, demand, assessment, action,
suit or proceeding (herein­af­ter referred to as a "Proceeding") shall be
asserted against Murdock, his heirs or successors in respect of which he
proposes to demand indemnification, Murdock shall promptly notify the Fonix
thereof.  Subject to rights of or duties to any insurer or other third
person having liability therefor, Fonix shall, while cooperating
appropri­ately with Murdock, have the right promptly upon receipt of such
notice to assume the control of the defense, compromise or settlement of any
such Proceeding, includ­ing, at its own expense, employment of counsel
reasonably satisfac­tory to Murdock; provided, however, that if Fonix shall
have exercised its right to assume such control, Murdock may, in his sole
discre­tion, employ counsel to represent him (in addition to counsel
employed by Fonix, and in the latter case, at his sole expense) in any such
matter, and in such event counsel selected by Fonix shall be required to
cooperate with such counsel of Murdock in such defense, compromise or
settlement, but Fonix shall have the final right to determine the manner of
defense and to compromise any such claims.  If Fonix elects not to
exercise its right to assume such control, Murdock may take whatever action he
deems appropriate, and any final action with respect to such claim shall be
binding on Fonix as to the amount of such Indemnified Claim.

       

      h.         Murdock’s
personnel file shall be delivered to and be retained by counsel for Fonix,
Durham Jones & Pinegar, provided that executive officers of Fonix shall have
access to the contents of such file.

       

      i.
         Fonix presently owes
Murdock $24,643.23 in unpaid expenses incurred by Murdock on behalf of
Fonix.  Fonix shall pay those expenses in full to Murdock at the time
of a Liquidity Event; provided, that at Murdock’s request at any time Fonix
agrees that the unpaid balance of the expenses shall be added to the unpaid
balance due and owing under the Amended and Restated Revolving Line of Credit
Agreement between Murdock, as trustee, and Fonix dated October 7,
2002.

       

      g.         Fonix
will pay as and when due in regular monthly installments the balance of
$23,922.75 under the terms a loan from the Company’s 401(k) plan, as lender, to
Murdock, as borrower.

      

      3.           In
consideration of Fonix entering into this Agreement, Murdock agrees as
follows:

      

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      a.         Murdock
releases Fonix and each of its subsidiaries, affiliates, successors, assigns,
agents, directors, officers, employees, shareholders and representatives
(collectively the “Releasees”), from all
Claims.  The term “Claims” includes
(without limitation) all liabilities, obligations, duties, agreements, demands,
charges of discrimination, costs, attorney’s fees, expenses, and claims for
relief of every kind.  The claims released by Murdock include (without
limitation): (a) breach of contract, libel, slander, wrongful discharge or
termination; (b) discrimination claims arising under Title VII of the Civil
Rights Act of 1964 (as amended), the Americans with Disabilities Act of 1990 (as
amended), the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§
2101-2109 (as amended), the Age Discrimination in Employment Act of 1967 (as
amended) (“ADEA”), the Utah
Anti-Discrimination Act (as amended), any other federal, state or local laws
prohibiting age, race, religion, sex, national origin, disability and other
forms of discrimination, or any other federal or state laws that may be
applicable; (c) claims arising out of any legal restrictions on Fonix’s right to
terminate its employees; and (d) any tort claim or other claim arising out of
the employment relationship between Murdock and Fonix or the termination of that
relationship.

      

      Murdock
specifically waives all claims for back pay, front pay, or any other form of
compensation for services, whether arising under the Employment Agreement or
otherwise, except as set forth in this Agreement.

       

      Murdock
waives any right to recover damages, costs, attorneys’ fees, and any other
relief in any proceeding or action brought against Fonix by any other party,
including (without limitation) the Equal Employment Opportunity Commission and
the Utah Labor Commission, Anti-Discrimination and Labor Division, on Murdock’s
behalf asserting any claim, charge, demand, grievance, or cause of action
released by Murdock above.

       

      With
regard to claims under the ADEA, Murdock agrees to sign the attached Statement
of Rights Under the Older Workers Benefit Protection Act (the “OWBPA Statement”),
the terms of which are incorporated into this Agreement.

       

      Murdock
expressly acknowledges that this Agreement in intended to include in its effect
(without limitation) all claims referenced above that he did not know of or
suspect to exist in his favor at the time of the execution of this Agreement,
regardless of whether the knowledge of such claims, or the facts upon which they
might be based, would have materially affected the settlement of this matter,
and that the consideration received from Fonix was also for, and contemplates
the extinguishment of, any such claims.

       

      b.         Murdock
agrees that he will not at any time, directly or indirectly, without written
authorization from Fonix, make use of or disclose to any person or entity any
business-related, proprietary, secret and/or confidential information,
knowledge, trade secrets, or other confidential data relative to the business,
products, services, practices or customers of Fonix coming within his possession
during his employment with Fonix.  Such information includes, but is
not limited to, trade secrets, salaries, financial information, customer lists,
marketing information, pricing, leads, reports of all kinds, customer profiles,
all documents relating to the rates charged by Fonix, memoranda, notes,
software, computers, computer disks, manuals, computerized information and
reports, products, product lists, sales information, personal employee
information, or any other information of a similar confidential, sensitive or
competitive nature.

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      c.         Murdock
acknowledges that nothing in this Agreement shall alter or affect his continuing
obligations under any confidentiality, non-competition or non-solicitation
agreement he signed with Fonix during his employment, including under the
Employment Agreement.

       

      d.         Murdock:
(i) warrants that he has not filed any complaints, charges, or claims for relief
against Fonix or any other Releasee with any local, state or federal court or
administrative agency which currently are outstanding; and/or (ii) agrees that
if he has done so, he will dismiss all such complaints, charges and/or claims
for relief with prejudice.  Murdock furthers agrees and covenants not
to bring any complaints, charges or claims against  Fonix or any other
Releasee with respect to any matters arising out of his employment with Fonix or
the termination of that employment.

       

      e.         Murdock
agrees that if he breaches any provision of this Agreement, Fonix shall give
Murdock written notice of the breach and Murdock shall have sixty (60) days to
cure the default.  If Murdock fails to cure the default within the
grace period, then Fonix may cancel this Agreement and be relieved of all future
obligations under this Agreement.

       

      f.         Murdock
represents and warrants that as of the date he signs this Agreement, he has not
been involved in any on-the-job accidents, or sustained any on-the-job injuries,
compensable by Fonix’s worker’s compensation insurance that have not previously
been reported to Fonix.

       

      4.           Murdock
and Fonix acknowledge that this Agreement does not constitute an admission of
any fault, liability or wrongdoing by Fonix or any other Releasee, nor an
admission that Murdock has any claim whatsoever against Fonix or any other
Releasee.  Fonix and all other Releasees specifically deny any
liability to, or wrongful acts against, Murdock.

       

      5.           Murdock
warrants that he has not previously assigned, conveyed or pledged to any third
person any claims released by this Agreement, and that he has full right and
authorization to release those claims as set forth above.

       

      6.           Murdock
and Fonix agree that this Agreement contains the entire agreement and
understanding between them concerning the subject matter addressed in this
Agreement, and that this Agreement supersedes and replaces all prior
negotiations, proposed agreements, agreements or representations, whether
written or oral.  Fonix and Murdock agree that neither Fonix, Murdock,
nor any agent or attorney of either, has made any representation, warranty,
promise or covenant whatsoever, express or implied, not contained in this
Agreement, to induce the other to execute this Agreement.

       

      7.           Murdock
and Fonix agree that each party shall bear its own attorneys’ fees and costs
incurred in connection with this Agreement.

       

      

        
          
             

          

          
            6

            
              

            

          

          
             

          

        

      

       

      8.           Murdock
and Fonix agree that this Agreement, and any claims related to this Agreement,
and/or Murdock’ employment with Fonix, whether such claims are in the nature of
tort, contract, or otherwise, shall be construed in accordance with the laws of
the State of Utah.

       

      9.           Murdock
and Fonix consent and submit to the jurisdiction of any state or federal court
of the State of Utah in any action or proceeding arising out of, or related in
any way to, this Agreement.  Both Murdock and Fonix waive any right
they may have to contest the personal jurisdiction of the courts of the State of
Utah.

       

      10.         Murdock
and Fonix agree that all claims of whatever type arising out of, or related in
any way to, this Agreement, the employment relationship between them, or the
termination of that relationship, shall be brought exclusively in a state or
federal court in Salt Lake County, Utah.  Murdock and Fonix waive any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought, and waive any bond, surety, or other security that might be required of
any party.  Murdock and Fonix each agree that if any action or
proceeding arising out of, or related in any way to, this Agreement is brought
in any other court or forum other than a state or federal court in Salt Lake
County, Utah, the action or proceeding shall be dismissed with prejudice and the
party bringing the action or proceeding shall pay the other party’s legal fees
and costs.

       

      11.          Murdock
and Fonix agree that in the event that a dispute shall arise concerning this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party all attorneys’ fees and costs incurred by the prevailing
party in connection with such dispute, regardless of whether such dispute
results in the filing of a lawsuit.

       

      12.          Murdock
acknowledges that he has read this Agreement carefully and that he fully
understands this Agreement.  Murdock acknowledges that he has executed
this Agreement voluntarily and of his own free will, and that he is knowingly
and voluntarily releasing and waiving all Claims he may have against Fonix and
any other Releasee.

       

      13.          This
Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors, and assigns of each of the
parties.

      

      
        FONIX
CORPORATION

      

      

      

      
        	By: 	
                /s/

              	 
      	
                /s/

              
	 	
                Roger
      D. Dudley

              	 
      	
                Thomas
      A. Murdock

              
	 	 
      	 
      	 
      
	Its: 	 
      	 
      	 
      

      

       

      
        	
                          March
      5, 2008

              	 
      	
                March 5, 2008

              
	
                Date

              	 
      	
                Date

              

      

      

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      STATEMENT
OF RIGHTS UNDER

      THE
OLDER WORKERS BENEFIT PROTECTION ACT

      

      This Statement is part of an Agreement
containing a waiver of rights and claims under the federal Age Discrimination in
Employment Act of 1967 (“ADEA”).  Waiver
of these rights must be knowing and voluntary, which means, as a minimum, that
you understand that:

      

      1.           The
waiver is part of an agreement between you and Fonix Inc. which is written so
that you understand it;

      

      2.           The
waiver specifically refers to rights or claims under ADEA;

      

      3.           You
do not waive any rights or claims that may arise after the Agreement is executed
by you;

      

      4.           Your
waiver is in exchange for consideration that is more valuable than what you are
already entitled to;

      

      5.           You
are advised to consult with an attorney prior to executing this Statement or the
Agreement;

      

      6.           You
have at least 21 days after receipt of this Statement and the Agreement to
decide whether to execute it; and

      

      7.           You
have 7 days after you execute the Agreement to revoke it, and the Agreement will
not be enforceable until this 7-day period has expired.

      

      Your signature below acknowledges that
(a) you understand the above points, and, therefore, your waiver of your rights
and claims under ADEA is knowing and voluntary; and (b) if you receive any sum
under the Agreement and you later revoke it, that you must repay Fonix
Corporation all sums received by you under the Agreement as to which you are not
otherwise entitled.

      

      March 5, 2007.

      

      

      

      
        	 
      	
                  /s/

              
	 
      	
                Thomas
      A. Murdock

              

      

       

       

       

      
 

      

8Exhibit 10.1

 

EXECUTION
VERSION

 

FORBEARANCE
AGREEMENT

 

This FORBEARANCE AGREEMENT,
is made and entered into as of April 15, 2008 (this “Forbearance
Agreement”), by and among (a) the lenders identified on the signature pages hereof
(such lenders, such lenders together with the other financial institutions
party to the Credit Agreement referred to below and each of their respective
successors and permitted assigns, are referred to hereinafter each individually
as, a “Lender” and collectively as, the “Lenders”), (b) General Electric Capital Corporation (“GE
Capital”), as US administrative agent for the Lenders and Issuing Banks (as
defined in the Credit Agreement (as defined below)) (“US Administrative
Agent”) and GE Canada Finance Holding Company (“GE Canada”), as
Canadian Administrative Agent for the Lenders and Issuing Banks (“Canadian
Administrative Agent”, and, together with the US Administrative Agent, the “Administrative
Agents”), and (c) Linens ‘n Things, Inc. (“LNT”) and
Linens ‘N Things, Center, Inc. (“LNT Center” and, together with
LNT, the “US Borrowers”, and each individually, a “US Borrower”),
Linens ‘N Things Canada Corp. (the “Canadian Borrower”, and, together
with the US Borrowers, the “Borrowers”), Linens Holding Co. (“Holdings”),
and the Subsidiary Guarantors (as defined in the Credit Agreement (as defined
below)).  All capitalized terms used
herein without definition shall have the same meanings herein as in the Credit
Agreement (as defined below).

 

WHEREAS, the
Borrowers, Holdings, the Subsidiary Guarantors, the Lenders, the Issuing Banks
and the Administrative Agents are party to that certain Credit Agreement, dated
as of October 24, 2007 (as amended, restated, amended and restated,
supplemented, modified and otherwise in effect from time to time, the “Credit
Agreement”), pursuant to which the Lenders, upon the terms and conditions
set forth therein, agreed to make certain financial accommodations for the
benefit of the Borrowers;

 

WHEREAS, the Borrowers have informed the
Administrative Agents and the Lenders that on April 15, 2008, the
Borrowers failed to make the interest payment due on such date under the Senior
Notes (such circumstances, excluding any further events or actions, the “Missed
Payment”);

 

WHEREAS, each of the Borrowers acknowledges that the
Missed Payment constitutes a Default (the “Specified Default”) under the
Credit Agreement;

 

WHEREAS, each of the Borrowers acknowledges and
agrees that the Specified Default has occurred and is continuing as of the date
hereof, and has not been cured or waived;

 

WHEREAS, the Administrative Agents and Lenders have not expressly or impliedly waived the Specified
Default, and as a result of the occurrence of the Specified Default, in the
absence of an agreement to the contrary, the Administrative Agents and Lenders
have the right, among other things, to determine not to make any Credit
Extensions under Section 2.02 or issue Letters of Credit under Section 2.18
of the Credit Agreement;

 

WHEREAS, at
the request of the Borrowers, the Administrative Agents and the undersigned
Lenders have agreed to forbear, for a limited period, (a) from exercising
their rights and remedies under the Credit Agreement and the Loan Documents
relating to the Specified Default and (b) continue to make Credit
Extensions, but only on the terms and conditions set forth herein; and

 

WHEREAS, this
Forbearance Agreement constitutes a Loan Document and these Recitals shall be
construed as a part of this Forbearance Agreement.

 

 

NOW, THEREFORE, in consideration of the premises and the
mutual agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

 

1.                                      Forbearance  Agreement. 
Subject to the terms, and in consideration of and reliance upon, the
agreements of the Borrowers and the Guarantors contained herein, the
Administrative Agents and the undersigned Lenders hereby agree to forbear from (i) exercising
their rights and remedies relating to the Specified Default and (ii) exercising
their right to determine not to make any Credit Extension based on the
existence of the Specified Default, in each case, during (but only during) the
period (the “Forbearance Period”) commencing as of the date hereof and
until that date (the “Forbearance Termination Date”) which is the
earliest to occur of (a) May 13, 2008, (b) the occurrence of any
other Default or Event of Default, other than the Specified Default, (c) the
failure after the date hereof of the Borrowers, any Guarantor or any of their
respective Subsidiaries, to comply with any of the terms of this Forbearance
Agreement, (d) the date that the Borrowers, any Guarantor or any of their
respective Subsidiaries, or any affiliate of the Borrowers, any Guarantor or
any of their respective Subsidiaries, or any person or entity claiming by or
through either the Borrowers, any Guarantor or any of their respective
Subsidiaries joins in, assists, cooperates or participates as an adverse party
or adverse witness in any suit or other proceeding against any Lender, the
Administrative Agents or any affiliate of any of them, relating to the
Obligations or any of the transactions contemplated by the Credit Agreement,
the other Loan Documents, this Forbearance Agreement or any other documents, agreements
or instruments executed in connection with this Forbearance Agreement and (e) the
date on which Excess Availability is less than $50,000,000.  Such forbearance shall automatically, and
without action, notice, demand or any other occurrence, expire on and as of the
Forbearance Termination Date.  Except as
expressly provided above in this Section 1, each of the Lenders and
the Administrative Agents reserves the right to exercise all of its rights and
remedies under the Credit Agreement and the other Loan Documents.  Upon the Forbearance Termination Date, the
Lenders and the Administrative Agents shall be free in their sole and absolute
discretion to proceed to enforce any or all of their rights and remedies under
or in respect of the Credit Agreement and the other Loan Documents and
applicable law, including without limitation, those credit termination,
acceleration, enforcement and other rights and remedies arising by virtue of
the occurrence of the Specified Default and each of the Borrowers and Guarantors
hereby waives notice thereof.

 

2.                                      Other Defaults.  The
forbearance set forth in Section 1 shall apply only to the
Specified Default.  No forbearance with
respect to any other Default or Event of Default, whether presently existing or
hereafter arising, is granted hereby.

 

3.                                      Ratification of Existing
Agreements.  Each Loan Party, individually and on behalf
of its respective Subsidiaries, hereby adopts again, ratifies and confirms in
all respects all of the Obligations, all of its respective obligations to the
Lenders and the Administrative Agents arising under the Credit Agreement, the
Guarantees, the Security Documents, the other Loan Documents and all of its
respective obligations to the Lenders and the Administrative Agents arising
under any other instrument or agreement creating, evidencing or securing any of
the Obligations.  Each Loan Party,
individually and on behalf of its respective Subsidiaries, acknowledges the
validity of the liens granted in favor of the Administrative Agents, for the
benefit of the Secured Parties, pursuant to the Security Documents and the
other Loan Documents.

 

4.                                      Representations and Warranties.  Each
Loan Party, individually and on behalf of its respective Subsidiaries, hereby
represents and warrants to the Lenders and the Administrative Agents as
follows:

 

2

 

(a)                                  The execution and delivery by such Person of
this Forbearance Agreement and the performance by such Person of its respective
obligations and agreements under this Forbearance Agreement are within the
corporate authority of such Person, have been duly authorized by all necessary
corporate proceedings on behalf of such Person, and do not and will not
contravene any provision of law, statute, rule or regulation to which such
Person is subject or its respective charter, other incorporation papers,
by-laws or any stock provision or any amendment thereof or of any agreement or
other instrument binding upon such Person.

 

(b)                                 Each of this Forbearance Agreement, the
Credit Agreement and the other Loan Documents to which such Person is a party
constitutes the legal, valid and binding obligation of such Person, enforceable
in accordance with their respective terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors’ rights.

 

(c)                                  No approval or consent of, or filing with,
any governmental agency or authority is required to make valid and legally
binding the execution, delivery or performance by such Person of this
Forbearance Agreement.

 

(d)                                 The representations and warranties contained
in Article III of the Credit Agreement, the representations and warranties
contained in the other Loan Documents or in any other document or instrument
delivered pursuant to or in connection with the Credit Agreement are true and
correct at and as of the date made and as of the date hereof, except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement, the other Loan Documents, this Forbearance Agreement and
changes occurring in the ordinary course of business that singly or in the
aggregate are not materially adverse to the Borrowers, the Guarantors or their
respective Subsidiaries, and to the extent that such representations and
warranties relate expressly to an earlier date.

 

(e)                                  Each such Person has performed and complied
in all material respects with all terms and conditions herein and in the Credit
Agreement and the other Loan Documents required to be performed or complied
with by it prior to or at the time hereof, and as of the date hereof, after
giving effect to the provisions hereof, there exists no Default or Event of
Default (other than the Specified Default).

 

5.                                      Conditions to Effectiveness.  Each
Loan Party, individually and on behalf of its respective Subsidiaries, hereby
agrees that the provisions of this Forbearance Agreement and the agreement of
the Lenders and the Administrative Agents to forbear from exercising its rights
and remedies under the Credit Agreement and the other Loan Documents as set
forth in Section 1 hereof shall become effective (the “Forbearance
Effective Date”) upon the satisfaction of each of the following conditions
precedent:

 

(a)                                  The Borrowers, each Guarantor and the Required
Lenders shall have executed and delivered to the Administrative Agents this
Forbearance Agreement.

 

(b)                                 There shall not exist any Default or Event of
Default (other than the Specified Default).

 

(c)                                  The Borrowers shall have paid the fees set
forth in the fee letter, dated as of the date hereof, between the Borrowers and
the Administrative Agents.

 

3

 

(d)                                 The Borrowers shall have paid all other fees
and expenses of the Administrative Agents in connection with the preparation of
this Forbearance Agreement and the transactions contemplated hereby, including,
without limitation, the fees and expenses of counsel to the Administrative
Agents to the extent invoices have been delivered to the Borrowers.

 

6.                                      Release.  Each
Loan Party, individually and on behalf of its respective Subsidiaries, hereby
remises, releases, acquits, satisfies and forever discharges the Lenders, the
Administrative Agents, and their respective agents, employees, officers,
directors, predecessors, attorneys and all others acting or purporting to act
on behalf of or at the direction of the Lenders or the Administrative Agents,
of and from any and all manner of actions, causes of action, suit, debts,
accounts, covenants, contracts, controversies, agreements, variances, damages,
judgments, claims and demands whatsoever, in law or in equity, which any of
such parties ever had, now has or, to the extent arising from or in connection
with any act, omission or state of facts taken or existing on or prior to the
date hereof, may have after the date hereof against the Lenders, the
Administrative Agents, their respective agents, employees, officers, directors,
attorneys and all persons acting or purporting to act on behalf of or at the
direction of the Lenders or the Administrative Agents (“Releasees”), for, upon or by
reason of any matter, cause or thing whatsoever arising from, in connection
with or in relation to the Credit Agreement or any of the other Loan Documents
(including this Forbearance Agreement) through the date hereof.  Without limiting the generality of the
foregoing, each Loan Party waives and affirmatively agrees not to allege or
otherwise pursue any defenses, affirmative defenses, counterclaims, claims,
causes of action, setoffs or other rights such Person does, shall or may have
as of the date hereof, including, but not limited to, the rights to contest any
conduct of the Lenders, Administrative Agents or other Releasees on or prior to
the date hereof.

 

7.                                      No Waiver. 
Except as otherwise expressly provided for in this Forbearance
Agreement, nothing contained in this Forbearance Agreement shall extend to or
affect in any way any of the rights or obligations of the Borrowers, the
Guarantors and their respective Subsidiaries or the Lenders and Administrative
Agents’ obligations, rights and remedies arising under the Loan Documents.  Except as expressly set forth herein, all of
the terms and provisions of the Credit Agreement and the other Loan Documents
shall remain in full force and effect. 
Each of the Loan Parties, individually and on behalf of its respective
Subsidiaries, hereby agrees that the Lenders and the Administrative Agents
shall not be deemed to have waived any or all of its remedies with respect to
any Specified Default or any other Default or Event of Default existing on the
date hereof or arising hereafter.

 

8.                                      Miscellaneous.

 

(a)                                  This Forbearance Agreement shall be governed
by and construed in accordance with the internal laws of the State of New York.

 

(b)                                 This Forbearance Agreement shall constitute a
Loan Document under the Credit Agreement, and all obligations included in this
Forbearance Agreement (including, without limitation, all obligations for the
payment of principal, interest, fees, and other amounts and expenses) shall
constitute obligations under the Loan Documents and secured by the collateral
security for the Obligations.

 

(c)                                  Failure to comply with any of the covenants
and agreements contained in this Forbearance Agreement shall constitute an
immediate Event of Default under the Credit Agreement.

 

4

 

(d)                                 Wherever possible, each provision of this
Forbearance Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Forbearance
Agreement shall be prohibited by or rendered invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the remaining
provisions of this Forbearance Agreement.

 

(e)                                  This Forbearance Agreement may be executed in
any number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. 
Delivery of an executed counterpart of a signature page of this
Forbearance Agreement by facsimile or electronic communication shall be
effective as delivery of a manually executed counterpart of this Forbearance
Agreement.  In proving this Forbearance Agreement,
it shall not be necessary to produce or account for more than one such
counterpart signed by the party against whom enforcement is sought.

 

[Remainder of page intentionally left blank.]

 

5

 

IN WITNESS WHEREOF, the parties have executed this Forbearance
Agreement as of the date first above written.

 

	
   

  	
  US BORROWERS:

  
	
   

  	
  LINENS ‘N THINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LINENS ‘N THINGS CENTER, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CANADIAN BORROWER:

  
	
   

  	
  LINENS ‘N THINGS CANADA CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
									

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  GENERAL ELECTRIC CAPITAL CORPORATION,

  
	
   

  	
  as US Administrative Agent and Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK J. FORTI

  
	
   

  	
  Name:

  	
   Mark J. Forti

  
	
   

  	
  Title:

  	
     Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GE CANADA FINANCE HOLDING COMPANY,

  
	
   

  	
  as Canadian Administrative Agent and Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ COLIN WOODYARD

  
	
   

  	
  Name:

  	
  Colin Woodyard

  
	
   

  	
  Its: 

  	
  Duly Authorized Signatory

  
							

 

Signature Page to
Forbearance Agreement

 

 

	
   

  	
  Wells Fargo Foothill Canada ULC, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MATTHEW N. WILLIAMS

  
	
   

  	
   

  	
  Name: Matthew N. Williams

  
	
   

  	
   

  	
  Title:   Vice President

  
				

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Wells Fargo Retail Finance, LLC, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MATTHEW N. WILLIAMS

  
	
   

  	
   

  	
  Name: Matthew N. Williams

  
	
   

  	
   

  	
  Title:   Vice President

  
				

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Bank of America, NA, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ANDREW CERUSSI

  
	
   

  	
   

  	
  Name:  Andrew Cerussi

  
	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:  

  
	
   

  	
   

  	
  Title:  

  
					

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Bank of America, N.A.,

  
	
   

  	
  (Canada branch)

  
	
   

  	
  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MEDINA SALES DE ANDRADE

  
	
   

  	
   

  	
  Name:  Medina Sales de Andrade

  
	
   

  	
   

  	
  Title:     Vice President

  
				

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  THE CIT GROUP/BUSINESS CREDIT, INC., as a 

  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DEBRA PUTZER

  
	
   

  	
  Name:
  Debra Putzer

  
	
   

  	
  Title:
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

Signature Page to
Forbearance Agreement

 

 

	
   

  	
  CIT FINANCIAL LTD., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ EVAN BENNITT

  
	
   

  	
  Name:  Evan Bennitt

  
	
   

  	
  Title:     Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RICHARD KINLOUGH

  
	
   

  	
  Name:  Richard Kinlough

  
	
   

  	
  Title:    Managing Director

  

 

Signature Page to
Forbearance Agreement

 

 

	
   

  	
  UBS LOAN FINANCE LLC, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RICHARD L. TAVROW

  
	
   

  	
  Name:  Richard L. Tavrow

  
	
   

  	
  Title:  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ DAVID B. JULIE

  
	
   

  	
  Name:  David B. Julie

  
	
   

  	
  Title:  Associate Director

  

 

 

	
   

  	
  UBS AG CANADA BRANCH, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ RICHARD L. TAVROW

  
	
   

  	
  Name:  Richard L. Tavrow

  
	
   

  	
  Title:  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARY E. EVANS

  
	
   

  	
  Name:  Mary E. Evans

  
	
   

  	
  Title:  Associate Director

  

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Wachovia Bank, National Association,  as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ SANG KIM

  
	
   

  	
  Name:  Sang Kim

  
	
   

  	
  Title:  Vice President

  

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  UPS CAPITAL CORPORATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ JOHN P. HOLLOWAY

  
	
   

  	
  Name:  John P. Holloway

  
	
   

  	
  Title:  Director of Portfolio Management

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Webster Business Credit Corp., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ CYNTHIA J. TONUCCI

  
	
   

  	
  Name:  Cynthia J. Tonucci

  
	
   

  	
  Title:  Vice President

  

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  GE Business Financial Services Inc.

  
	
   

  	
  (formerly known as Merrill Lynch Business

  
	
   

  	
  Financial Services Inc.)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ MARK J. FORTI

  
	
   

  	
  Name:  Mark J. Forti

  
	
   

  	
  Title:  Duly Authorized Signatory

  

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  Bear Stearns Corporate Lending., as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ LINDA A. CARPER

  
	
   

  	
  Name:  Linda A. Carper

  
	
   

  	
  Title:  Vice President

  

 

Signature Page to Forbearance Agreement

 

 

Each of the undersigned Guarantors hereby consent to the foregoing
Forbearance Agreement, joins the above Forbearance Agreement for the sole
purpose of consenting to and being bound by the provisions of Sections 3 and 6
hereof, and ratifies and confirms its obligations under that certain Guarantee
pursuant to Article VII of the Credit Agreement to the Administrative
Agents, for the benefit of the Administrative Agents and the Secured Parties.

 

	
   

  	
  HOLDINGS:

  
	
   

  	
  LINENS HOLDING CO.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SUBSIDIARY GUARANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BLOOMINGTON MN., L.T., INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LNT, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LNT SERVICES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LNT WEST, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
														

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  VENDOR FINANCE, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LNT LEASING II, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LNT VIRGINIA LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LNT MERCHANDISING COMPANY LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LNT LEASING III, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CITADEL LNT, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
											

 

Signature Page to Forbearance Agreement

 

 

	
   

  	
  LINENS ‘N THINGS INVESTMENT

  CANADA I COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LINENS ‘N THINGS INVESTMENT

  CANADA II COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LINENS ‘N THINGS CANADA LIMITED

  PARTNERSHIP

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Linens ‘N Things
  Investment Canada II 

  
	
   

  	
  Company, its general
  partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ROBERT J. DINICOLA

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

Signature Page to Forbearance Agreement

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