EXHIBIT 10.1
FORBEARANCE AGREEMENT
THIS AGREEMENT
made as of the 29th day of May, 2008.
A M O N G:
ROYAL BANK
OF CANADA
(hereinafter referred
to as the "BANK")
- and -
SENTRY TECHNOLOGY
CANADA INC.
(hereinafter referred
to as the "BORROWER")
- and -
SENTRY TECHNOLOGY
CORPORATION
(hereinafter referred
to as the "SENTRY")
- and -
CUSTOM SECURITY
INDUSTRIES
INC.
(hereinafter referred
to as "CSI")
WHEREAS:
1. the
Bank has made
available certain Credit Facilities to the Borrower on
the
terms and conditions established under the Loan Agreement;
2. the
Guarantors have executed and delivered the Guarantees to the Bank
for
the
purpose of guaranteeing the payment and performance of some or all
of
the
debts, liabilities and obligations of the Borrower to the Bank;
3. the Borrower
is currently in default of its obligations to the Bank under
the
Loan Agreement;
4. the Borrower
is in breach of certain covenants contained in the Loan
Agreement, including borrowing in excess of the allowable margin
deficit as
provided for in the Loan Agreement;
5. the Borrower
is in the process of seeking financing to facilitate an equity
injection and/or negotiating with various third parties to
obtain
refinancing in order to repay the Indebtedness;
6. the Bank has
had, and continues to have, serious concerns with respect to
the
financial viability of the Borrower;
<PAGE>
7. the Borrower
and each of the Guarantors have requested that the Bank
forbear from making demand for the repayment of the Indebtedness
and
enforcing its rights and remedies under the Security so as to
permit the
Borrower the opportunity to secure the financing and/or equity
injection
referred to above; and
8. as an
inducement to the Bank agreeing to so forbear, the Borrower and
the
Guarantors have agreed to enter into this Agreement and to comply
with the
terms and provisions contained herein, including, without
limitation, the
terms and provisions of the Repayment Plan.
NOW THEREFORE in consideration of the acknowledgements,
confirmations, covenants
and agreements
contained herein, and other good and valuable consideration
(the
receipt and
sufficiency of which are hereby acknowledged by each of the
Parties
hereto), each
of the Parties hereto hereby agree with
each other as follows:
ARTICLE1
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INTERPRETATION
--------------
1.01
DEFINITIONS: Unless
otherwise specifically defined in this
------------
Agreement, all
capitalized terms used in this Agreement shall have the
meanings
ascribed to
them in the Loan Agreement. The following terms shall have
the
following
meanings:
(a)
"ASSETS" means all of
the personal property, tangible or intangible and
undertakings of
the Borrower in respect of which the Bank holds Security;
(b)
"BIA" means the Bankruptcy and Insolvency Act (Canada);
(c)
"BUSINESS DAY" means a day other than a Saturday, Sunday,
statutory
holiday in the Province of Ontario, or any other day on which the
Schedule 1
Canadian Chartered Banks located in the City of Toronto are not
open for
business during normal banking hours;
(d)
"CREDIT FACILITIES" means the credit facilities established by the
Bank
in favour of the Borrower pursuant to the Loan Agreement;
(e)
"CSI GUARANTEE" means a guarantee and postponement of claim limited
to
the sum of $1,000,000 dated May 3, 2005 executed and delivered by
CSI to the
Bank in connection with the Indebtedness;
(f)
"EVENT OF DEFAULT" means the occurrence of any one or more of the
events
set forth in Article 10 of this Agreement;
(g)
"GUARANTEES" means collectively the Sentry Guarantee and CSI
Guarantee
and "GUARANTEE" means any one thereof;
(h)
"GUARANTORS" means collectively Sentry and CSI and "GUARANTOR"
means any
one of them;
<PAGE>
(i)
"INDEBTEDNESS" means the amounts set forth in sections 2.01 and
2.02
hereof;
(j)
"LOAN AGREEMENT" means the Confirmation of Credit Facilities
Letter
dated May 15, 2006, accepted by the Borrower and Guarantors on May
15, 2006, as
amended, revised, restated, replaced and supplemented from time to
time;
(k)
"PARTIES" means any one or more of the parties referred to in
this
Agreement, as the context may require;
(l)
"PRIME RATE" means the annual rate of interest announced by the
Bank
from time to time as being a reference rate then in effect for
determining
interest rates on Canadian Dollar commercial loans in Canada;
(m)
"PRIORITY PAYABLES" shall have the meaning ascribed thereto in
subsection 6.01(f);
(n)
"PRIORITY PAYABLE AUTHORIZATIONS" shall have the meaning
ascribed
thereto in subsection 6.01(f)
(o)
"REPAYMENT PLAN" means the Repayment Plan set forth in Article 5 of
this
Agreement;
(p)
"SECURITY" means collectively all of the security delivered by
the
Borrower to the Bank as security for the Indebtedness and
obligations of the
Borrower to the Bank pursuant to the Loan Agreement, or otherwise,
or that may
be delivered by the Borrower to the Bank to secure the Indebtedness
and
obligations of the Borrower to the Bank;
(q)
"SENTRY ASSETS" means all of the personal property, tangible
and
intangible, and undertakings of Sentry in respect of which the Bank
holds
security;
(r)
"SENTRY GUARANTEE" means a guarantee and postponement of claim
limited
to the sum of $5,000,000 dated May 9, 2005 executed and delivered
by Sentry
Technology Corporation to the Bank in connection with the
Indebtedness;
(s)
"SENTRY SECURITY" means the General Security Agreement dated May 9,
2005
delivered by Sentry to the Bank;
(t)
"US PRIORITY PAYABLES" shall have the meaning ascribed thereto
in
subsection 6.01(g); and
(u)
"US PRIORITY PAYABLE AUTHORIZATIONS" shall have the meaning
ascribed
thereto in subsection 6.01(g).
ARTICLE 2
---------
CREDIT FACILITIES
-----------------
2.01
ACKNOWLEDGEMENT OF INDEBTEDNESS: The Borrower acknowledges that, as
at
--------------------------------
May 29, 2008, the Borrower is indebted to the Bank:
<PAGE>
(a)
in respect
of a demand operating
loan, in the amount of $3,072,864.32,
comprising principal
in the amount of $3,071,000 and accrued
interest to and
including May 29, 2008, in the amount of $1,864.32. Interest
continues to accrue
on the aforesaid principal amount at the Bank's prime rate plus
2.75% per annum.
The per diem amount on
the aforesaid principal amount, given the Bank's current
prime rate
is $631.03.
2.02
INTEREST, ETC.:
The Borrower and each of the Guarantors
acknowledge
----------------
that interest
on the amounts set forth in section 2.01
above, as well as all
costs, fees,
expenses and other
monies incurred by the Bank in connection with
the Security
and the Indebtedness, including, without limitation, the
Forbearance Fee
referred to in section 5.04 hereof, further
advances, if any,
made by the Bank under the Loan Agreement or
hereunder, the collection of the
Indebtedness, any
appraisals and
investigation of the Assets and the Security,
enforcement of
the Security, the negotiation, preparation and
enforcement of
this Agreement
and any amendments
hereto, and the disbursements and legal fees
incurred by
the Bank on a
solicitor and client basis in connection with all of
the same shall be added to and are deemed to form part of
the Indebtedness.
ARTICLE 3
---------
ACKNOWLEDGEMENTS
----------------
3.01
ACKNOWLEDGEMENTS BY
THE BORROWER: The Borrower hereby confirms and
------------------------------------
acknowledges to
the Bank that:
(a)
each of the foregoing recitals are true
and accurate both in substance
and in fact;
(b)
it is in default of certain covenants and obligations under the
Loan
Agreement;
(c)
the Indebtedness is due and owing to the Bank and the Borrower has
no
right or claim of set-off or any similar right or claim against the
Bank in
connection with the Indebtedness;
(d)
the Bank has the right to demand repayment of the Indebtedness and
to
enforce the Security;
(e)
the Security is, and any other security delivered by the Borrower
to the
Bank to secure the Indebtedness after the date hereof will be, in
full force and
effect, constitute legal, valid and binding obligations of the
Borrower,
enforceable against the Borrower, and the Borrower hereby waives
and agrees not
to assert or cause to be asserted on its behalf, and is hereby
estopped from
asserting or causing to be asserted on its behalf, any defences or
rights with
respect to the legal effect of the Security or the legality,
validity or binding
effect of the obligations of the Borrower thereunder and the
enforceability of
same;
<PAGE>
(f)
except as provided in this Agreement, the Bank (either by itself
or
through its employees or agents) has made no promises, nor has it
taken any
action or omitted to take any action which would constitute a
waiver of its
right to make demand for the repayment of the Indebtedness and to
take any
enforcement action in connection with the enforcement of the
Security, or which
would estop it from so doing and that no statement, representation,
promise, act
or omission by the Bank or its employees or agents shall create
such a waiver or
estoppel unless the Bank executes and delivers to the Borrower a
written waiver
of any such rights; and
(g)
the Borrower has been provided with a reasonable opportunity to
seek
legal advice with respect to the execution and delivery of this
Agreement.
3.02
ACKNOWLEDGEMENTS BY
THE GUARANTORS: Each of the Guarantors hereby
--------------------------------------
acknowledges and
confirms that each of the foregoing recitals are true
and
accurate both
in substance and in fact;
(a)
each of the foregoing recitals are true
and accurate both in substance
and in fact;
(b)
the Indebtedness is due and owing to the Bank and the Borrower has
no
right or claim of set-off or any similar right or claim against the
Bank in
connection with the Indebtedness;
(c)
the Bank has the right to demand repayment of the Indebtedness and
to
enforce the Security;
(d)
the Security is, and any other security delivered by the Borrower
to the
Bank to secure the Indebtedness after the date hereof will be, in
full force and
effect, constitute legal, valid and binding obligations of the
Borrower,
enforceable against the Borrower, and the Guarantors hereby waive
and agree not
to assert or cause to be asserted on behalf of any or all of them,
and are
hereby estopped from asserting or causing to be asserted on behalf
of any or all
of them, any defences or rights in relation to any matter, cause or
thing
whatsoever existing to the date hereof with respect to the legal
effect of the
Security or the legality, validity or binding effect of the
obligations of the
Borrower thereunder and the enforceability of same;
(e)
there is no dispute respecting the liability of the Guarantors
in
connection with the Indebtedness and the obligations of the
Guarantors to repay
the Indebtedness according to the provisions of the Guarantees;
(f)
the Guarantees are in full force and effect, constitute legal,
valid and
binding obligations of each of the Guarantors, are enforceable
against the
Guarantors and the Guarantors hereby waive and agree not to assert
or cause to
be asserted on behalf of any or all of them, and are hereby
estopped from
asserting or causing to be asserted on behalf of any or all of
them, any
defences or rights with respect to the legal effect of the
Guarantees or the
legality, validity or binding effect of the obligations of the
Guarantors
thereunder and the enforceability of same;
(g)
they each consent to the Borrower entering into this Agreement;
<PAGE>
(h)
notwithstanding the terms of the Guarantees, the Loan Agreement,
this
Agreement, or of any other agreement, whether written or oral,
between the Bank
and the Guarantors or any one of them, the Bank shall be entitled
to reply upon
the Guarantees in respect of any amounts comprising the
Indebtedness;
(i)
except as provided in this Agreement, the Bank (either by itself
or
through its employees or agents) has made no promises, nor has it
taken any
action or omitted to take any action which would constitute a
waiver of its
right to take any enforcement action in connection with the
enforcement of its
Security, or which would estop it from so doing and that no
statement,
representation, promise, act or omission by the Bank or its
employees or agents
shall create such a waiver or estoppel unless the Bank executes and
delivers to
the Borrower a written waiver of any such rights; and
(j)
the Guarantors have been provided with a reasonable opportunity to
seek
legal advice with respect to the execution and delivery of this
Agreement.
3.03
ACKNOWLEDGMENTS
BYSENTRY: Sentry
acknowledges
that: (i) the Sentry
--------------------------
Security constitutes
legal, valid and binding obligations of Sentry, is
enforceable against Sentry, and Sentry hereby waives and agrees not
to assert or
cause to be asserted on its behalf, and is hereby
estopped from asserting or
causing to be asserted
on its behalf, any defences or rights in relation to any
matter, cause
or thing whatsoever existing to the
date hereof with respect to
the legal effect of such Security or the legality, validity or
binding effect of
the obligations
of Sentry thereunder
and the enforceability of same; (ii) that
the Credit
Facilities
have been, are, and will continue to be, utilized
to
finance its
business operations; and (iii) that the Credit Facilities
were
utilized to repay the sum of $1,189,535.31 owing by Sentry to CIT,
in May, 2005.
ARTICLE 4
---------
WAIVER AND RELEASE
------------------
4.01
WAIVER AND
RELEASE: The Borrower and each of the Guarantors
---------------------
acknowledge and agree that, to the date hereof, the Bank's
administration of the
Credit Facilities,
and its actions in entering into this
Agreement, have been
fair and reasonable and hereby waive and agree not to assert or
cause to be
asserted on its
behalf, and are hereby estopped from asserting or causing to be
asserted on
its behalf, any defences, rights or claims with respect to
the
foregoing, and
hereby release and remise the Bank (including any
director,
officer, employee
or legal agent
thereof) from any and all claims with respect
thereto. Further,
in executing and
delivering this Agreement, the Borrower and
each of the Guarantors acknowledge and agree that they
are acting freely and
without duress.
<PAGE>
ARTICLE 5
---------
FORBEARANCE AND REPAYMENT PLAN
------------------------------
5.01
IMPLEMENTATION: The
Borrower and each of the Guarantors hereby
---------------
covenant and
agree to and with the
Bank that they shall, and each shall ensure
that the other, honours and fulfils the terms and
provisions of the Repayment
Plan set forth in this Article 5.
5.02
FORBEARANCE PERIOD:
Subject to the terms and conditions of this
-------------------
Agreement, the Bank agrees that it will forbear from the exercise
of its rights
and remedies under the Security and Sentry Security in respect of
the
Indebtedness for the period of time ("FORBEARANCE PERIOD")
commencing with the
execution and delivery of this Agreement until the earlier of:
(a)
October 31,
2008; and
(b)
the occurrence of an Event of Default;
and reserves all of
its rights and remedies against the Borrower under the Loan
Agreement and
the Security with respect to any Event of Default
thereunder
arising after
the date of this Agreement, or any Event of Default.
The Borrower and each
of the Guarantors acknowledge that the Bank shall have no
obligation to
continue to forbear after the expiration of the Forbearance
Period.
5.03
REPAYMENT OF THE INDEBTEDNESS: Notwithstanding any other
provisions of
------------------------------
this Agreement,
the Borrower shall cause the Indebtedness to be
permanently
reduced as
follows:
(a)
the proceeds
from all sales, transfers or other disposition of the
Assets, or any portion thereof, outside of the ordinary course of
the Borrower's
business, shall
be paid directly to the Bank to permanently reduce the
Indebtedness; and
(b)
the Indebtedness shall be repaid in full on or before October 31,
2008.
5.04
FORBEARANCE FEE:
A forbearance fee in the sum of $10,000 (the
-----------------
"FORBEARANCE FEE")
shall be paid to the Bank in consideration
for the Bank's
agreement to
forbear as set out
herein and to compensate the Bank for the time
and expense
incurred, and to be incurred, by it in connection with the
administration of
the Credit Facilities
during the Forbearance Period and such
Forbearance Fee is deemed to have been earned by the Bank upon the
execution and
delivery of
this Agreement.
The Forbearance Fee
shall be and is hereby deemed
to form part of the Indebtedness and secured by the Security and Sentry
Security. The
Borrower and each of the Guarantors
authorize the Bank to debit
the accounts
of the Borrower maintained at the Bank in payment of the
Forbearance Fee
immediately
upon the execution of this Agreement.
<PAGE>
5.05
CONDITIONS TO FORBEARANCE: The agreement of the Bank to
forbear from
--------------------------
the exercise of its rights and remedies against the Borrower
pursuant to this
Article 5 is conditional upon: (i) Brascan Technology Fund
("BRASCAN") providing
to the Bank, by no later than June 4, 2008, with written
confirmation that it
has agreed to extend the due date for the repayment of the
indebtedness owing to
it by the Borrower to December 31, 2008, in form and content
satisfactory to the
Bank; and (ii) the Borrower providing to the Bank, by no later than
June 4,
2008, with written confirmation, in form and content satisfactory
to the Bank,
from Tradition Capital Bank ("TRADITION") that the revolving credit
agreement
made as of September 26, 2007 between Sentry and Tradition has been
extended to
at least October 31, 2008.
5.06
AMENDMENTS TO LOAN AGREEMENT: The Borrower and each of the
Guarantors
-----------------------------
acknowledge that, effective as at and from the execution of this
Agreement by
the Borrower, the Loan Agreement is deemed to have been amended as
follows:
(a)
the applicable
rate of interest on the Credit Facilities shall be
increased to
the Bank's Prime Rate plus 3 % per annum.
ARTICLE 6
---------
COVENANTS
---------
6.01
The Borrower
and each of the Guarantors hereby
jointly and severally
covenant and
agree with the Bank as follows:
(a)
MAINTAIN CORPORATE
STATUS: Each of the Borrower and Sentry shall
---------------------------
maintain, and the Guarantors shall ensure that the Borrower and
Sentry maintain,
their corporate
existence as valid and subsisting corporate entities;
(b)
NO CORPORATE CHANGES:
Neither the Borrower nor Sentry shall merge,
---------------------
amalgamate or consolidate, and the Guarantors shall ensure that
neither the
Borrower nor Sentry merges, amalgamates or consolidates, with any
other
corporation except with the prior written consent of the Bank;
(c)
NO FURTHER OBLIGATIONS: Neither the Borrower nor Sentry
shall incur or
-----------------------
become liable for, and the Guarantors shall ensure that neither the
Borrower nor
Sentry incurs or becomes liable for, any borrowed money, or for the
purchase
price of assets, obligations and leases, obligations under letters
of credit or
guarantees or indemnities, obligations given pursuant to bankers'
acceptances or
indemnities in connection therewith, or any contingent obligation,
including,
without limitation, guarantees, endorsements or bills of exchange,
obligations
to purchase assets and obligations to make advances or otherwise
provide
financial assistance to any other entity without the prior written
consent of
the Bank, except any of the same which is in the ordinary course of
the business
of the Borrower, provided, however, that nothing herein shall
preclude the
Borrower or Sentry from incurring and becoming liable for borrowed
money
provided the same is used by the Borrower or Sentry to repay the
Indebtedness in
accordance with and pursuant to this Agreement;
(d)
NOTICE OF PROCEEDINGS:
The Borrower shall give to the Bank prompt
----------------------
notice, and the Guarantors shall ensure that the Borrower gives to
the Bank
prompt notice of any litigation, arbitration or administrative
proceedings
before or of any court, arbitration, tribunal or governmental
authority or
dispute affecting any of the Assets and Sentry Assets;
(e)
PRIORITY OF SECURITY:
The Borrower shall not do anything to affect, and
---------------------
the Guarantors shall ensure that the Borrower does not do anything
to affect the
ranking of the Security or Sentry Secu
