Exhibit 10.1
FORBEARANCE AGREEMENT AND
AMENDMENT TO LOAN AGREEMENT
This FORBEARANCE AGREEMENT AND
AMENDMENT TO LOAN AGREEMENT (this “ Agreement ”)
is entered into as of April 27, 2009, by and among AMERICAN
DEFENSE SYSTEMS, INC., a Delaware corporation (the “
Company ”), A. J. PISCITELLI & ASSOCIATES,
INC., a New York corporation (“ AJP ”, and
together with the Company, the “ Original Borrowers
”), AMERICAN PHYSICAL SECURITY GROUP, LLC, a Delaware limited
liability company (“APS’, and together with the
Original Borrowers, the “ Borrowers ”) and TD
BANK, N.A., a national banking association, and successor by merger
to COMMERCE BANK, N.A (the “ Lender
”).
RECITALS
A.
The Original
Borrowers and the Lender are parties to that certain Loan
Agreement, dated as of May 2, 2007, as amended by the First
Amendment to Loan Agreement, dated as of July 12, 2007 (as
further amended, modified or supplemented from time to time, the
“ Loan Agreement ”), and assumed pursuant to the
Assumption Agreement, dated as of January 28, 2008, by APS,
pursuant to which, among other things, the Lender agreed, subject
to the terms and conditions set forth in the Loan Agreement, to
make certain loans and other financial accommodations to
Borrowers.
B.
As of the date
hereof, the Events of Default specified in the April 1, 2009
letter from the Lender to the Borrowers have occurred and are
continuing (collectively, the “ Specified Defaults
”).
C.
The Borrowers
have requested that during the Forbearance Period (as defined in
Section 1 below), the Lender agree (i) to forbear
from exercising certain of its default-related rights and remedies
against the Borrowers with respect to the Specified Defaults, and
(ii) that the Lender will continue to make Advances and other
financial accommodations to the Borrower during the Forbearance
Period, as set forth in the Loan Documents, each notwithstanding
the existence of the Specified Defaults and subject to the terms
and conditions set forth herein. During the Forbearance
Period, the Borrowers (with the assistance of its advisors) will
propose and work towards effectuating a refinancing of the
Obligations (the “ Refinancing ”).
D.
Subject to the
terms and conditions set forth herein, (i) the Lender has
agreed to (a) forbear from exercising certain of its
default-related rights and remedies against the Borrowers with
respect to the Specified Defaults during the Forbearance Period,
and (b) amend the Loan Agreement as set forth in
Section 3 below and (ii) the Lender has agreed to
continue making Advances during the Forbearance Period.
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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SECTION 1.
Additional
Definitions . As used herein, the
following terms shall have the respective meanings set forth
below:
“ Claims ” shall
mean claims, actions, causes of action, suits, debts, accounts,
interests, liens, promises, warranties, damages and consequential
damages, demands, agreements, bonds, bills, specialties, covenants,
controversies, variances, trespasses, judgments, executions, costs,
expenses or any other claims whatsoever (including, without
limitation, crossclaims, counterclaims, rights of set-off and
recoupment).
“ Forbearance Default
” shall mean (i) the occurrence of any Event of Default
other than the Specified Defaults; (ii) the failure of any
Borrower to timely comply with any term, condition, or covenant set
forth in this Agreement; (iii) the failure of any
representation or warranty made by any Borrower under or in
connection with this Agreement to be true and complete as of the
date when made, or any other breach of any such representation or
warranty; or (iv) any occurrence, event or change in facts or
circumstances occurring on or after the Forbearance Effective Date
that would have a material adverse effect on any Borrower, or its
financial condition, business, prospects or assets.
“ Forbearance Effective
Date ” shall mean the date on which all of the conditions
precedent set forth in Section 20 hereof have been met
(or waived) as determined by the Lender in its sole
discretion.
“ Forbearance Period
” shall mean the period beginning on the Forbearance
Effective Date and ending on the earlier to occur of: (i) the
termination of the Forbearance Period as a result of any
Forbearance Default, and (ii) June 15, 2009.
“ Releases ”
shall mean the Lender and its affiliates, subsidiaries,
shareholders and “controlling persons” (within the
meaning of the federal securities laws), and their respective
successors and assigns and each and all of the officers, directors,
employees, agents, attorneys and other representatives of each of
the foregoing in their capacities as such.
“ Releasors ”
shall mean each Borrower, its agents, representatives, officers,
directors, advisors, employees, subsidiaries, affiliates,
successors and assigns.
“ Revolving Credit Cap
” shall mean at any time during the Forbearance Period,
(a) from the Forbearance Effective Date until May 15,
2009, $2,000,000, and (b) as of May 15, 2009, and at all
times thereafter, $1,000,000.
Unless otherwise defined above or
elsewhere in this Agreement, capitalized terms used herein shall
have the meanings ascribed to them in the Loan
Agreement.
SECTION 2.
Confirmation by Borrower of
Obligations and Specified Defaults .
(a)
The Borrowers
acknowledge and agree that as of the date of this Agreement, the
aggregate principal balance of the outstanding Obligations under
the Loan Documents is not less than $1,497,460 and that the
respective principal balances of the various Loans as of such date
were not less than the following:
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Term Loan:
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$
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64,027
|
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Revolving Credit (including the
Letter of Credit Amount):
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$
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1,433,433
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TOTAL:
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$
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1,497,460
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The foregoing amounts do not include interest,
fees, expenses and other amounts that are chargeable or otherwise
reimbursable under the Loan Documents. All of the
obligations, including those set forth above, are valid and
outstanding, and the Borrowers have no rights of offset, defenses,
claims or counterclaims with respect to any of the obligations
under the Loan Documents.
(b)
Each Borrower
acknowledges and agrees that (i) each of the Specified
Defaults constitutes an Event of Default that has occurred and is
continuing, and (ii) except for the Specified Defaults, no
other Events of Default have occurred and are continuing as of the
date hereof, or are expected to occur during the Forbearance
Period.
SECTION 3.
Amendments to Loan
Agreement Effective as of the
Forbearance Effective Date, the following terms of the Loan
Agreement shall be amended as follows.
(a)
Amendments to
Section 1.1 .
(i)
The definition of
“ Applicable Margin ” is hereby deleted in its
entirety and replaced with the following:
“ Applicable Margin
means 6.00%.”
(ii)
The definition of
“ Borrowing Base ” in Section 1.1 is hereby
deleted in its entirety and replaced with the
following:
“Borrowing Base” means,
at the time in question, (a) the sum of the following, without
duplication (1) 50% of amounts due with respect to Eligible
Government Receivables, plus (2) 50% of amounts due with
respect to Eligible Commercial Receivables, minus (b) any
applicable Borrowing Base Reductions. The Borrowing Base
shall be adjusted on a weekly basis to reflect all billings and
collections.”
SECTION 4.
Forbearance; Forbearance
Default Rights and Remedies .
(a)
Effective on the
Forbearance Effective Date, the Lender agrees that until the
expiration or termination of the Forbearance Period, it will
forbear from exercising its default-related rights and remedies
against any Borrower or the Collateral solely with respect to the
Specified Defaults, including acceleration and foreclosure;
provided , however , that (i) the Lender shall
have no obligation to make any Advance if, after giving effect
thereto, the aggregate principal amount of the Advances plus
outstanding letters of credit issued by the Lender for the account
of any Borrower would exceed the Revolving Credit Cap, and the
Borrowers shall pay any such excess on demand of the Lender;
(ii) each Borrower shall comply with all limitations,
restrictions or prohibitions that would otherwise be effective or
applicable
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under the Loan Documents
during the continuance of any Event of Default, including, without
limitation, any limitations, restrictions or prohibitions against
payments by any Borrower; (iii) nothing herein shall restrict,
impair or otherwise affect the Lender’s rights and remedies
under any agreements containing subordination provisions in favor
of any or all of the Lender (including, without limitation, any
rights or remedies available to the Lender as a result of the
occurrence or continuation of any Specified Default) or amend or
modify any provision thereof, except to the extent that the
exercise of any such rights or remedies is inconsistent with the
terms and conditions of the forbearance granted herein; and
(iv) nothing herein shall restrict, impair or otherwise affect
the Lender’s right to file, record, publish or deliver a
notice of default or document of similar effect under any state
foreclosure law upon the expiration or termination of the
Forbearance Period. Any Forbearance Default shall constitute
an immediate Event of Default under this Agreement and the Loan
Documents without the requirement of any demand, presentment,
protest, or notice of any kind to any Borrower (all of which each
Borrower waives).
(b)
Upon the
occurrence of a Forbearance Default or the expiration of the
Forbearance Period, the agreement of the Lender hereunder to
forbear from exercising its default-related rights and remedies
shall immediately terminate without the requirement of any demand,
presentment, protest, or notice of any kind to any Borrower (all of
which each Borrower waives). Each of the Borrowers agrees
that the Lender may at any time thereafter proceed to exercise any
and all of its rights and remedies under the Loan Documents or
applicable law, including, without limitation, its rights and
remedies with respect to the Specified Defaults. Without
limiting the generality of the foregoing, upon the occurrence of a
Forbearance Default or the expiration of the Forbearance Period,
the Lender may, in its sole discretion and without the requirement
of any demand, presentment, protest, or notice of any kind to any
Borrower (all of which each Borrower waives):
(i) suspend or terminate any commitment to provide Advances,
Letters of Credit or other extensions of credit under any Loan
Document; (ii) commence any legal or other action to collect
any or all of the obligations under the Loan Documents from any
Borrower; (iii) foreclose or otherwise realize on any or all
of the Collateral; (iv) set off or apply to the payment of any
or all of the obligations under the Loan Documents any property
belonging to any Borrower that is held by the Lender; and
(v) take any other enforcement action or otherwise exercise
any or all rights and remedies provided for by any Loan Document or
applicable law, all of which rights and remedies are fully reserved
by the Lender.
(c)
Any agreement by
the Lender to extend the Forbearance Period or to waive a
Forbearance Default must be set forth in writing and signed by a
duly authorized signatory of the Lender. The Lender is not
obligated to extend the Forbearance Period or waive a Forbearance
Default, and may decide to do so (or not do so) in its sole
discretion. Each of the Borrowers acknowledges that the
Lender has not made any assurances concerning any extension of the
Forbearance Period or waiver of any Forbearance
Defaults.
(d)
The parties
hereto agree that the running of all statutes of limitation or
doctrine of laches applicable to all claims or causes of action
that the Lender may be entitled to take or bring in order to
enforce its rights and remedies against any Borrower is, to the
fullest extent permitted by law, tolled and suspended during the
Forbearance Period.
(e)
Each of the
Borrowers acknowledges and agrees that any Advance or other
financial accommodation which the Lender makes on or after the
Forbearance Effective
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Date has been made by such
party in reliance upon, and is consideration for, among other
things, the general releases and indemnities contained in
Section 6 hereof and the other covenants, agreements,
representations and warranties of the Borrowers
hereunder.
SECTION 5.
Supplemental Terms, Conditions
and Covenants During the Forbearance Period
.
The parties hereto hereby agree to
comply with the following terms, conditions and covenants during
the Forbearance Period, in each case notwithstanding any provision
to the contrary set forth in any Loan Document:
(a)
Restricted
Payments . During the
Forbearance Period, no Borrower shall make any Restricted Payment,
other than a stock dividend payable in common stock of the Company
and approved by the Lender in its sole discretion.
(b)
Refinancing
.
During the Forbearance Period, the Borrowers shall use their best
efforts to obtain a Refinancing. The senior management of the
Borrower shall actively participate in such meeting or conference
calls with the Lender as the Lender shall require for the purpose
of providing updates with respect to the operations, business
affairs and financial condition of Borrower and progress reports
with respect to the Refinancing.
(c)
Delivery of
Information. The Borrowers agree
that:
(i)
within 20 days
after the end of each calendar month, the Borrowers deliver to the
Lender unaudited consolidated and consolidating financial
statements of the Company and its Subsidiaries, comprised of
consolidated and consolidating balance sheets and income
statements, for the period then ended, prepared in accordance with
GAAP, except that the Company shall not be required to re-value the
Company’s Series A Convertible Preferred Stock and
related warrants; and
(ii)
not later than
Wednesday of each calendar week, the Borrowers shall deliver to the
Lender a Borrowing Base Certificate setting forth the Borrowing
Base as of the last Business Day of the immediately preceding
calendar week, an statement of actual cash flow for the week then
ended and a cash flow forecast, in form and detail acceptable to
the Lender, for the next succeeding period of 13 weeks, and
accounts receivable and accounts payable listing and agings of the
Borrowers as of the last Business Day of the immediately preceding
calendar week.
(d)
Cash
Collateral Account. All payments on
Accounts and other Collateral, all proceeds of Collateral, and all
other cash derived from any source by Borrower shall be deposited
in the Cash Collateral Account in accordance with the provisions of
Section 8(k) of the Loan Agreement.
(e)
Payment in
Full . The Borrowers shall
pay the Advances, the Term Loan and all other Obligations in full
not later than June 15, 2009.
(f)
Forbearance
Fee . The Borrowers shall
pay to the Lender, on the date of this Agreement, a forbearance fee
of $10,000.
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The failure by the Borrower to comply with any
of the above covenants shall constitute a Forbearance Default, and
Sections 4(b) - (d) of this Agreement shall
immediately apply without the requirement of any demand,
presentment, protest, or notice of any kind to any Borrower (all of
which each Borrower waives).
SECTION 6.
General Release;
Indemnity .
(a)
IN CONSIDERATION
OF, AMONG OTHER THINGS, LENDER’S EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH OF THE RELEASORS HEREBY FOREVER AGREES AND
COVENANTS NOT TO SUE OR PROSECUTE AGAINST ANY RELEASEE AND HEREBY
FOREVER WAIVES, RELEASES AND DISCHARGES, TO THE FULLEST EXTENT
PERMITTED BY LAW, EACH RELEASEE FROM ANY AND ALL CLAIMS THAT SUCH
RELEASOR NOW HAS OR HEREAFTER MAY HAVE, OF WHATSOEVER NATURE
AND KIND, WHETHER KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR
HEREAFTER ARISING, WHETHER ARISING AT LAW OR IN EQUITY, AGAINST THE
RELEASEES, BASED IN WHOLE OR IN PART ON FACTS, WHETHER OR NOT
NOW KNOWN, EXISTING ON OR BEFORE THE FORBEARANCE EFFECTIVE DATE,
THAT RELATE TO, ARISE OUT OF OR OTHERWISE ARE IN CONNECTION
WITH: (I) ANY OR ALL OF THE LOAN DOCUMENTS OR
TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTIONS OR OMISSIONS IN
CONNECTION THEREWITH; OR (II) ANY ASPECT OF THE DEALINGS OR
RELATIONSHIPS BETWEEN OR AMONG THE BORROWERS, ON THE ONE HAND, AND
ANY OR ALL OF LENDER, ON THE OTHER HAND, RELATING TO ANY OR ALL OF
THE DOCUMENTS, TRANSACTIONS, ACTIONS OR OMISSIONS REFERENCED IN
CLAUSE (I) HEREOF. THE RECEIPT BY ANY BORROWER OF
ANY LOANS OR OTHER FINANCIAL ACCOMMODATIONS MADE BY LENDER AFTER
THE DATE HEREOF SHALL CONSTITUTE A RATIFICATION, ADOPTION, AND
CONFIRMATION BY SUCH BORROWER OF THE FOREGOING GENERAL RELEASE OF
ALL CLAIMS AGAINST THE RELEASEES WHICH ARE BASED IN WHOLE OR IN
PART ON FACTS, WHETHER OR
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