Exhibit 10.2
FORBEARANCE AGREEMENT AND
AMENDMENT NUMBER 3 TO LOAN DOCUMENTS
THIS FORBEARANCE AGREEMENT AND
AMENDMENT NUMBER 3 TO LOAN DOCUMENTS (this “ Third Amendment ”),
is entered into as of March 20, 2009 (the “ Third
Amendment Effective Date ”), by and among GVEC
RESOURCE IV INC. (“ Agent ”), as Agent and
as a Lender, EMRISE CORPORATION , a Delaware corporation
(“ Parent ”), and Parent’s Subsidiaries
that are signatories hereto (collectively with Parent, “
Borrowers ”).
W I T N E S S E T
H
WHEREAS, Borrowers, Agent and the
Lenders named therein are parties to that certain Credit Agreement,
dated as of November 30, 2007, as amended by that certain
Amendment Number 1 to Loan Documents, dated August 20, 2008
(the “ First Amendment ”), and that certain
Amendment Number 2 to Loan Documents, dated February 12, 2009
(the “ Second Amendment ”) (as further amended,
restated, supplemented, or modified from time to time, the “
Credit Agreement ”);
WHEREAS, pursuant to
Section 5.21 of the Credit Agreement, on or prior to
March 20, 2009, Borrowers are obligated to provide evidence to
Agent that Borrowers shall have received no less than $5,000,000 in
net proceeds (after the payment of all underwriting commissions,
investment banking fees and other fees and expenses associated
therewith) from either (i) the sale of the Stock or assets of
a significant subsidiary or division of Borrowers or (ii) the
sale of Borrowers’ Stock on terms acceptable to Agent in its
reasonable discretion;
WHEREAS, concurrent with the
execution of this Third Amendment by the parties hereto, Parent and
EEC are entering into that certain Asset and Stock Purchase
Agreement by and among Electro Switch Corp., ESC
Worldwide, Inc., Parent and EEC (the “ Purchase
Agreement ”), a copy of which is attached hereto as
Exhibit A , pursuant to which EEC and Parent, as
applicable, are selling to (i) to Electro Switch Corp.,
substantially all of the assets of EEC’s Digitran division
(collectively, the “ Digitran Assets ”) and
(ii) to ESC Worldwide, Inc., an affiliate of Electro
Switch Corp., all of the capital equity of XCEL Japan Ltd., a
wholly-owned Subsidiary of EEC (the “ XCEL Japan
Shares ”), (collectively, the “ Asset and Stock
Sale ”);
WHEREAS, pursuant to
Section 2.4(c)(i) of the Credit Agreement, upon any sale
by Borrowers of property or assets, Borrowers are obligated to
utilize the net proceeds from such sale to prepay the outstanding
Obligations, and, pursuant to Section 2.4(d)(i) of the
Credit Agreement, such prepayment must be applied first against the
outstanding balance of principal and interest of Term Loan C and
second against the remaining installments of principal of the Term
Loans (other than Term Loan C) in the inverse order of
maturity;
WHEREAS, in connection with the
Asset and Stock Sale, Agent and Lenders desire that the Borrowers
prepay a portion of the outstanding Obligations in the aggregate
amount of $10,000,000, which amount consists of the net proceeds
derived from the Asset and Stock Sale together with additional
proceeds of $750,000 (collectively, the “ Sales
Proceeds ”);
1
WHEREAS, Borrowers desire to apply
the Sales Proceeds first against the outstanding balance of
principal and interest of Term Loan C and second against the
aggregate principal balance of the Term Loan B;
WHEREAS, pursuant to
Section 6.3 of the Credit Agreement, without the prior written
consent of Agent, each Borrower is prohibited from (i) selling
or otherwise disposing of all or a substantial portion of its
assets or (ii) suspending or going out of a substantial
portion of its business.
WHEREAS, pursuant to
Section 6.4 of the Credit Agreement, without the prior written
consent of the Agent, each Borrower is prohibited from selling or
otherwise disposing of any of the assets of any Borrower or
Subsidiary of Borrower;
WHEREAS, pursuant to
Section 6.6 of the Credit Agreement, without the prior written
consent of the Agent, each Borrower is prohibited from changing the
principal nature of its business;
WHEREAS, Borrowers have requested
that Agent and the Lender Group each (i) consent to the
consummation of the Asset and Stock Sale and the application of the
Sales Proceeds as described above, and (ii) waive the
requirements and prohibitions itemized in the recitals above with
respect to the Asset and Stock Sale and the application of the
Sales Proceeds as described above, and Agent and the Lender Group
consent and agree to such request;
WHEREAS, as of the date hereof,
certain Events of Default identified on
Exhibit B hereto, have occurred and are
continuing (collectively, the “ Specified Defaults
”);
WHEREAS, Borrowers have requested
that Agent and Lenders waive any claims of breach or default
arising out of or relating to the occurrence of the Specified
Defaults and their continuation through the date hereof.
WHEREAS, Borrowers have requested
that during the Forbearance Period (as hereinafter defined), Agent
and Lenders agree to forbear from exercising certain of their
default-related rights and remedies against Borrowers with respect
to the Specified Defaults, notwithstanding the existence or
continuation of the Specified Defaults and subject to the terms and
conditions set forth herein; and
WHEREAS, subject to the terms and
conditions set forth herein, the Lenders and Agent have agreed to
(a) waive any claims of breach or default arising out of or
relating to the occurrence of the Specified Defaults and their
continuation through the date hereof, (b) forbear from
exercising certain of their default-related rights and remedies
against Borrowers with respect to the Specified Defaults during the
Forbearance Period and (c) amend the Credit Agreement in
certain respects as set forth below.
NOW, THEREFORE, in consideration of
the foregoing, the terms, covenants and conditions contained herein
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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1.
DEFINITIONS
. Capitalized terms
used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Credit Agreement, as amended
hereby. As used herein, the following terms shall have the
respective meanings set forth below:
“
Forbearance Period ” shall mean the period beginning
on the Third Amendment Effective Date and ending on the effective
date of the Fourth Amendment (as defined below).
2.
CONSENT TO ASSET AND STOCK SALE;
RELEASE OF LIEN AND SECURITY INTERESTS .
(a)
Agent hereby
approves and grants its consent to the approval, authorization,
execution, adoption and implementation of, and the consummation of
transactions contemplated by the Purchase Agreement, and
acknowledges that such consent satisfies the requirements of
Sections 6.3, 6.4 and 6.6 of the Credit Agreement.
(b)
Pursuant to
Section 14.2 of the Credit Agreement, Agent and the Required
Lenders hereby waive any claims of breach or default arising out of
or relating to the approval, authorization, adoption or
implementation of, or the consummation of transactions contemplated
by, the Purchase Agreement under Sections 6.3, 6.4 and 6.6 of the
Credit Agreement. Agent and the Required Lenders further
acknowledge that no acceleration of any Obligations or termination
of any Commitments under the Credit Agreement shall be triggered by
the approval, authorization, adoption or implementation of, or the
consummation of transactions contemplated by, the Purchase
Agreement by Parent or EEC.
(c)
Agent hereby
(i) releases its Lien and Security Interests (as that term is
defined in the Security Agreement) in and to the Digitran Assets
and the XCEL Japan Shares such that the Digitran Assets and the
XCEL Japan Shares may be transferred to Electro Switch Corp. and
ESC Worldwide, Inc., respectively, in the manner contemplated
by the Purchase Agreement, (ii) authorizes Borrowers, Electro
Switch Corp., ESC Worldwide, Inc. and their respective
attorneys to file termination statements and releases, including,
without limitation UCC-3 termination statements in appropriate
Uniform Commercial Code filing jurisdictions and amendments to
filings made with the United States Patent and Trademark Office, to
evidence such release of Agent’s Lien and Security Interests,
(iii) delivers to Borrowers an Affidavit of Lost Certificate
and Indemnity with respect to the XCEL Japan Shares held by Agent
pursuant to the terms of the Security Agreement, in form and
substance acceptable to Borrowers, and (iv) terminates the
Guaranty dated November 30, 2007 by XCEL Japan Ltd. for the
benefit of Agent and the Lenders.
(d)
Agent hereby
acknowledges that Borrowers have complied
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