Opinion ID: 612629
Heading Depth: 3
Heading Rank: 2

Heading: The First Default and the October Forbearance Agreement

Text: In the third calendar quarter of 2007, a decline in Interpharm's revenue put it in default of the Credit Agreement. Rather than exercise its default remedies, however, Wells Fargo entered into a new agreement with Interpharm on October 26, 2007 (October Forbearance Agreement), that partially amended the Credit Agreement, increasing Interpharm's revolving line of credit by $2 million in exchange for additional fees and higher interest rates. As part of the October Forbearance Agreement, Interpharm admitted that it was in default of the Credit Agreement and that it owed Wells Fargo $30,032,630.29, plus interest and costs. Wells Fargo agreed to forbear from invoking its default remedies provided that Interpharm raised additional capital and complied with certain financial requirements, including a covenant that it have a positive net pre-tax income and cash flow for both the month of November 2007 and the quarter ending December 2007. Interpharm alleges that, at the time the October Forbearance Agreement was negotiated, it thought these targets highly uncertain and unreasonable and communicated its concerns to Wells Fargo. Compl. ¶¶ 30-31. Wells Fargo purportedly responded by vaguely propos[ing] to negotiate new financial covenants for the first half of 2008 that would provide Interpharm with the relief it needed to succeed. Id. ¶ 32. Thinking it had little choice but to agree to Wells Fargo's terms, Interpharm signed the October Forbearance Agreement. Id. Therein, it agreed to release all claims against Wells Fargo arising prior thereto. The October Forbearance Agreement also contained a merger clause stating that [t]his Agreement represents the entire agreement between the parties. Oct. Forbearance Agreement ¶ 24.