FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this "Agreement") is made as of this 13th
day of December, 2002, by and among LASALLE BUSINESS CREDIT, INC., a Delaware
corporation, as agent for Standard Federal Bank National Association (the
"Lender"), AM COMMUNICATIONS, INC., a Delaware corporation ("AM
Communications"), AM BROADBAND SERVICES, INC., a Delaware corporation ("AM
Broadband"), SRS COMMUNICATIONS CORPORATION, a Connecticut corporation ("SRS
Communications"), AMC SERVICES, INC., a Delaware corporation ("AMC Services"),
AM NEX-LINK COMMUNICATIONS, INC., a Delaware corporation ("AM Nex-Link"), and AM
TRAINING SERVICES, INC., a Delaware corporation ("AM Training"). AM
Communications, AM Broadband, SRS Communications, AMC Services, AM Nex-Link and
AM Training are referred to herein individually each as a "Borrower" and
collectively as the "Borrowers".
RECITALS
WHEREAS, the Borrowers and the Lender are parties to a certain Loan and
Security Agreement, dated as of August 14, 2002 (as amended, modified or
supplemented from time to time, the "Loan Agreement") pursuant to which the
Lender agreed to extend credit to the Borrowers subject to the terms and
conditions contained therein;
WHEREAS, the Borrowers have breached various obligations and continue
to be in default under the Loan Agreement, as a result of which the Lender is
entitled to exercise its rights and remedies under and in accordance with the
Loan Agreement and the Other Documents (defined in the Loan Agreement)
(including, without limitation, the right to accelerate the Loans under the Loan
Agreement, and the right to foreclose on the Collateral (defined in the Loan
Agreement));
WHEREAS, the Borrowers have requested that the Lender agree to forbear
from exercising its rights and remedies against the Borrowers for a certain
period of time under certain terms and conditions;
WHEREAS, the Lender is willing to agree to forbear from exercising its
rights and remedies against the Borrowers for a certain period of time, but only
on the terms and subject to the conditions set forth herein;
WHEREAS, the Borrowers and the Lender have agreed to amend the Loan
Agreement pursuant to the terms and subject to the conditions set forth herein.
NOW, THEREFORE, based on these premises, and in consideration of the
mutual promises, representations and warranties, covenants and conditions
contained herein and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and intending to be legally bound, the
parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein, and not otherwise
defined herein, shall have the meanings assigned to them in the Loan Agreement.
2. Acknowledgment of Obligations.
(a) Each Borrower acknowledges and agrees that, (i) as of the
Effective Date, such Borrower is unconditionally liable to the Lender on a joint
and several basis under the Loan Agreement and each of the Other Documents, for
the payment of the principal amount of the Loans (as described in clause (ii)
hereof), plus all accrued and unpaid interest through the Effective Date, plus
all expenses incurred by the Lender through the Effective Date, including,
without limitation reasonable attorneys' fees and expenses, and that, as of the
Effective Date, such Borrower has no defenses, counterclaims, deductions,
credits, claims or rights of setoff or recoupment with respect to the such
obligations, and (ii) as of December 12, 2002, the aggregate outstanding
principal balance of (A) the Revolving Credit Loans is $7,500,000, (B) the
Equipment Loans is $96,666.66, (C) Term Loan A is $2,151,111.12 and (D) Term
Loan B is $416,666.68.
(b) Each Borrower hereby ratifies and confirms its obligations
under the Loan Agreement and the Other Documents and hereby acknowledges and
agrees that the Loan Agreement and the Other Documents remain in full force and
effect.
3. Acknowledgment of Occurrence of Events of Default; Forbearance.
(a) The Borrowers acknowledge and agree that certain Events of
Default have occurred and are continuing under the Loan Agreement and that, as a
consequence, the Lender has the right to immediately exercise its rights and
remedies under and in accordance with the Loan Agreement and the Other
Documents. Each Borrower acknowledges and agrees that the agreement to forbear
by the Lender hereunder shall not be construed as a waiver or release of any of
the Specified Events of Default (as defined below) or any other Events of
Default under the Loan Agreement or the Other Documents which may exist on the
date hereof or arise hereafter, and all rights and remedies available to the
Lender under the Loan Agreement and the Other Documents, at law or in equity,
are hereby preserved. The term "Specified Events of Default" means,
collectively, the Events of Default which have occurred prior to the Effective
Date as specified on Schedule A attached hereto and made a part hereof.
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(b) Subject to the terms and conditions hereof, on the Effective
Date and continuing to, but not including, the Termination Date (as defined
below) (the "Forbearance Period"), the Lender shall forbear from exercising its
rights and remedies with respect to the Specified Events of Default. The
Termination Date shall mean the earlier of (a) the date that is sixty (60) days
after the Effective Date, and (b) the date of the occurrence of any Event of
Default (other than the Specified Events of Default) including without
limitation any violation of or noncompliance with the terms and conditions of
this Agreement.
4. Release. Each Borrower hereby releases, waives and forever
relinquishes all claims, demands, obligations, liabilities and causes of action
of whatever kind or nature, whether known or unknown, including, without
limitation, any so-called "lender liability" claims or defenses which it has,
may have, or might assert now or in the future against the Lender and/or its
participants, officers, directors, employees, agents, attorneys, accountants,
consultants, successors and assigns (individually, a "Releasee" and
collectively, the "Releasees"), directly or indirectly, arising out of, based
upon, or in any manner connected with (i) any transaction, event, circumstance,
action, failure to act or occurrence of any sort or type, whether known or
unknown, which occurred, existed, or was taken or permitted prior to the
execution of this Agreement with respect the Liabilities, the Loan Agreement,
the Other Documents or the administration thereof or the obligations created
thereby; (ii) any discussions, commitments, negotiations, conversations or
communications prior to the execution of this Agreement with respect to the
refinancing, restructuring or collection of any of the Liabilities; or (iii) any
thing or matter related to any of the foregoing prior to the execution of this
Agreement. The inclusion of this paragraph in this Agreement, and the execution
of this Agreement by the Lender, does not constitute an acknowledgment or
admission by the Lender of liability for any matter, or a precedent upon which
any liability may be asserted. If any Borrower asserts or commences any claim,
counter-claim, demand, obligation, liability or cause of action in derogation of
the foregoing release or challenges the enforceability of the foregoing release
(in each case, a "Violation"), then the Borrowers jointly and severally agree to
pay, in addition to such other damages as any Releasee may sustain as a result
of such Violation, all attorneys' fees and costs incurred by such Releasee as a
result of such Violation.
5. Amendments and Modifications.
(a) The following are effective as of the Effective Date and shall
remain in effect so long as the Specified Events of Default are outstanding:
(i) The definition of "Applicable Margin" in Section 1 of the
Loan Agreement is amended and restated in its entirety as follows:
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"'Applicable Margin' shall mean, for (a) Revolving Credit
Loans, a percentage equal to 1.00%, (b) the Equipment Loans and Term
Loan A, a percentage equal to 1.25% and (c) Term Loan B, a percentage
equal to 2.50%."
(ii) The Borrower confirms that pursuant to the Loan
Agreement, as a result of the existence of the Specified Events of Default and
notwithstanding any forbearance provided under this Agreement, (i) the LIBOR
Rate option and the Lender's commitment with respect to Equipment Loans are
suspended, and (ii) no Permitted Advances or payments on the Subordinated Debt
shall be made.
(b) The following are effective as of the Effective Date and shall
remain in effect during the Forbearance Period.
(i) The definition of "Maximum Revolving Loan Limit" in
Section 1 of the Loan Agreement is amended and restated in its entirety as
follows:
"'Maximum Revolving Loan Limit' shall mean, at any time, an
amount equal to Eight Million Five Hundred Thousand Dollars
($8,500,000)."
(ii) Notwithstanding anything to the contrary contained in the
Loan Agreement, during the Forbearance Period, the default rate of interest
contained in Section 4(a)(iii) of the Loan Agreement shall not apply to the
Loans.
(iii) Notwithstanding anything to the contrary contained in clause (iv) of the
definition of "Eligible Accounts" contained in Section 1 of the Loan Agreement,
(i) the Lender agrees that Accounts arising from services rendered by the
Borrowers to Account Debtors which are unpaid no more than the lesser of (A) 120
days past the original invoice date or (B) 90 days past the
original due date,
may constitute Eligible Accounts if such Accounts otherwise satisfy the criteria
for Eligible Accounts contained in the Loan Agreement, and (ii) the Borrowers
and Lender agree that, for purposes of the 25% test for cross-aging Accounts
contained in the proviso of clause (iv), Accounts will be cross-aged on a
consolidated basis rather than on an individual Borrower basis (and such
cross-aging shall be based on Accounts aged past the lesser of (A) 120 days from
the original invoice date or (B) 90 days from the original due date).
(c) Section 12 of the Loan Agreement is amended by adding a new
Section subsection (k) which shall read as follows:
"(k) Additional Subordinated Debt. On or before January 31, 2003,
Borrowers shall receive the proceeds of additional Subordinated Debt,
to be advanced under terms and subject to agreements acceptable to
Lender, in an aggregate principal amount of not less than Three Million
Five Hundred Thousand Dollars ($3,500,000) and not more than Four
Million Five Hundred Thousand Dollars ($4,500,000), which shall
utilized by Borrowers to repay in full Term Loan B (together with
accrued and unpaid interest) and thereafter in a manner consistent with
Sections 12(g)(ii) and (iv) hereof."
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(d) Section 13 of the Loan Agreement is amended by adding a new
clause (vi) at the end of paragraph (b) which shall read as follows:
"(b) Indebtedness of AM Communications representing a contingent
reimbursement obligation owing with respect to a letter of credit
issued or which may be issued in favor of Xxx Communications, Inc. to
support a contract with such entity, which reimbursement obligation (i)
shall not be secured by any property of any Borrower, (ii) shall not
exceed $500,000 in the aggregate, and (iii) shall be subordinated,
under agreements acceptable to Lender, to the Obligations and shall not
be paid without Lender's prior written consent."
6. Representations and Warranties; Additional Covenants.
(a) In order to induce the Lender to enter into this Agreement,
each Borrower represents and warrants to the Lender that (i) the execution,
delivery and performance by the Borrowers of this Agreement and the transactions
contemplated hereby (A) are and will be within the corporate powers of the
Borrowers, (B) have been authorized by all necessary corporate action on behalf
of the Borrowers, (C) are not in contravention of any order or decree of any
court or governmental unit, or of any law, rule or regulation to which any
Borrowers or any of their property is bound, (D) are not and will not be in
conflict with, or result in a breach of or constitute (with due notice and/or
lapse of time) a default under (x) any Borrower's articles of incorporation or
bylaws or (y) any indenture, agreement, contract or undertaking to which any
Borrower is a party or by which any of them or any of their property is bound,
and (E) will not result in the imposition of any lien, security interest or
other encumbrance on any of the properties of any Borrower; (ii) this Agreement
shall be valid, binding and enforceable against the Borrowers in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting creditors' rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding
in equity or at law; and (iii) other than the Specified Events of Default, no
Event of Default (or event which, with the passage of time or giving of notice
or both, will become an Event of Default) has occurred and is continuing and no
Event of Default (or event which, with the passage of time or giving of notice
or both, will become an Event of Default) would result from the execution,
delivery or consummation of the transactions contemplated by this Agreement.
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(b) On and as of Effective Date, each Borrower confirms, reaffirms
and restates to the Lender Parties the representations and warranties set forth
in the Loan Agreement and the Other Documents, except to the extent that such
representations and warranties solely relate to a specific earlier date in which
case such Borrower confirms, reaffirms and restates such representations and
warranties as of such earlier date.
(c) In order to induce the Lender to enter into this Agreement,
each Borrower represents and warrants to the Lender that (i) on or about
November 1, 2002, AM Communications received the proceeds of additional
Subordinated Debt in the amount of Two Hundred and Fifty Thousand Dollars
($250,000) from Xx. Xxxxx X. Xxxxxx, and (ii) as of the Effective Date, the
aggregate gross amount of all obligations currently due and owing by Borrowers
under the Designated Contracts (without netting or taking into effect any
obligations owing to Borrowers) is One Million Seven Hundred Forty-Eight
Thousand Nine Hundred Twenty-One and 00/100 Dollars ($1,748,921) (the "Required
Minimum Payables"). As an independent covenant of the Borrowers, each Borrower
agrees that, so long as the Specified Events of Default are outstanding, no
Borrower shall make any payment on account of its obligations under the
Designated Contracts if as a result of such payment the aggregate amount of all
obligations incurred by the Borrowers would be less than the Required Minimum
Payables.
7. Effectiveness; Conditions Precedent.
(a) The effectiveness of the amendments and other provisions
hereof are subject to the following conditions precedent, including, where
applicable, that the Lender shall have received the following documents and
other items (all such documents and other items must be in form and substance
satisfactory to the Lender):
(i) This Agreement duly executed by the Borrowers and the
Lender;
(ii) A letter agreement among the Lender, the Borrowers and
the non-Borrower parties to the Designated Contracts pursuant to which such
non-Borrower parties acknowledge and agree that so long as the Specified Events
of Default are outstanding (A) the Borrowers shall not pay, and such
non-Borrower parties shall not accept, any payment on account of the Borrowers'
obligations under the Designated Contracts if as a result of such payment the
aggregate amount of all obligations incurred by the Borrowers would be less than
the Required Minimum Payables, and (B) the Lender shall be entitled to enforce
such terms directly against such non-Borrower parties.
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(iii) Any and all agreements, instruments and documents
required by the Lender to effectuate and implement the terms hereof, the Loan
Agreement and the Other Documents (duly executed, where appropriate, by the
Borrowers and such other parties, as applicable);
(iv) Evidence that the execution, delivery and performance of
this Agreement by each Borrower has been duly authorized by all necessary
action, and that no amendment or other modification to the articles or
certificate of incorporation or bylaws of any Borrower has been made since
August 14, 2002 and that such documents (in the form previously delivered to the
Lender) remain in full force and effect;
(v) Payment to the Lender a forbearance and amendment fee in
an amount equal to Twenty-Five Thousand and 00/100 Dollars ($25,000); and
(vi) Payment of all fees and expenses of Blank Rome Xxxxxxx &
XxXxxxxx LLP, counsel to the Lender, incurred by the Lender that are outstanding
as of the date hereof.
(b) The date on which all of the conditions precedent set forth in
Section 7(a) hereof shall have been satisfied or waived is referred to herein as
the "Effective Date."
8. Additional Conditions.
(a) Borrowers shall deliver to Lender, on or before December 31,
2002, all original vehicle titles (with all necessary signatures to have such
titles encumbered in Lender's favor) for unencumbered vehicles and copies of all
vehicle titles for vehicles encumbered in favor of another Person. Borrowers use
their best efforts to obtain the approval of such other Persons to permit Lender
to have a second encumbrance on financed vehicles.
(b) Borrowers shall cause to be delivered to Lender on or before
January 15, 2003 written responses to all verification letters recently sent to
Borrowers' customers, with results to be satisfactory to Lender.
(c) Borrowers shall deliver to Lender on or before December 18,
2002 a detailed inventory listing, in a form satisfactory to Lender, for all
inventory in the United States, with Lender then having the option to require an
independent appraisal acceptable to Lender of such inventory at Borrowers'
expense.
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9. Miscellaneous.
(a) Except as expressly modified or provided herein or in any
other instruments or documents executed in connection herewith, (a) all terms
and conditions of the Loan Agreement and the Other Documents shall remain in
effect in accordance with their original tenor; and (b) nothing contained herein
shall constitute a waiver by the Lender of any of its rights and remedies
(including, without limitation, any of its rights or remedies as to, or any
obligations owing to the Lender of, any person who may be liable to the Lender
on account of any of the Liabilities, whether or not such person is a party
hereto), all of which rights and remedies are expressly reserved and not waived.
Except as otherwise provided herein, each agreement, covenant, representation
and warranty of the Borrowers hereunder shall be deemed to be in addition to,
and not in substitution for, the agreements, covenants, representations and
warranties previously made by the Borrowers.
(b) Each Borrower hereby agrees to take all such actions and to
execute and/or deliver to the Lender all such documents, assignments, financing
statements and other documents, as the Lender may require from time to time, to
effectuate and implement the purposes of this Agreement, the Loan Agreement and
the Other Documents, and to pay or reimburse the Lender for all reasonable
attorneys' fees and expenses incurred in connection herewith and therewith.
(c) Each Borrower covenants, confirms and agrees that as security
for the repayment of the Liabilities, the Lender has, and shall continue to
have, a continuing first priority, perfected lien on and security interest in
the Collateral, all whether now owned or hereafter acquired, created or arising,
together with all proceeds, including insurance proceeds thereof, as set forth
in the Loan Agreement and the Other Documents, as applicable, subject to no
liens, security interests or other encumbrances other than Permitted Liens. Each
Borrower acknowledges and agrees that nothing herein contained in any way
impairs the Lender's existing rights and priority in the Collateral.
(d) This Agreement, the Loan Agreement (as modified by this
Agreement) and the Other Documents contain the entire agreement among the
parties with respect to the transactions contemplated hereby, and supersedes all
negotiations, presentations, warranties, commitments, offers, contracts and
writings prior to the date hereof relating to the subject matters hereof. This
Agreement, the Loan Agreement (as modified by this Agreement) and the Other
Documents may be amended, modified, waived, discharged or terminated only in
accordance with the terms of the Loan Agreement and the Other Documents.
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(e) No failure to exercise nor any delay in exercising, on the
part of the Lender, of any right, remedy, power or privilege under this
Agreement, the Loan Agreement or the Other Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power,
or privilege operate as a waiver of any further or complete exercise thereof. No
waiver shall be effective unless in writing. No waiver or condonation of any
breach on one occasion shall be deemed a waiver or condonation on any other
occasion. In addition, the Borrowers and the Lender hereby agree that, during
the pendency of this Agreement, all statutes of limitation and similar laws,
rules and equitable theories with respect to the time in which the Lender may
bring any claim or action against any of the Borrowers shall be tolled and that
the passage of such time shall not otherwise operate to the detriment of the
Lender with respect to such rights.
(f) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.
(g) This Agreement may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which counterparts together shall constitute but one and the same
instrument. Execution and delivery by facsimile shall bind each of the parties.
(h) This Agreement shall be binding upon and inure to the benefit
of the Borrowers and the Lender and their respective successors and assigns,
except that no Borrower may assign or transfer its rights or obligations
hereunder without the prior written consent of the Lender.
(i) Any provision hereof that is prohibited or unenforceable in
any jurisdiction shall be, as to such jurisdiction, ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(j) No rights are intended to be created hereunder for the benefit
of any third party donee, creditor or incidental beneficiary.
(k) The headings of any section or paragraph of this Agreement are
for convenience only and shall not be used to interpret any provision of this
Agreement.
(l) EACH PARTY TO THIS AGREEMENT KNOWINGLY AND INTENTIONALLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF THIS AGREEMENT.
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
AM COMMUNICATIONS, INC.,
as a Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
AM BROADBAND SERVICES, INC.,
as a Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
SRS COMMUNICATIONS
CORPORATION, as a Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
AMC SERVICES, INC., as a Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
AM NEX-LINK COMMUNICATIONS,
INC., as a Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
AM TRAINING SERVICES, INC., as a
Borrower
By: /s/ H. Xxxxxxx Xxxxxx, III
----------------------------
Name: H. Xxxxxxx Xxxxxx, III
Title: Corporate Controller
LASALLE BUSINESS CREDIT, INC.,
as the Lender
By: /s/ Xxxxxxx X. Xxxx, Xx.
---------------------------
Name: /s/ Xxxxxxx X. Xxxx, Xx.
Title: Assistant Vice President
SCHEDULE A
SPECIFIED EVENTS OF DEFAULT
1. Borrowers' failure to comply with Section 14(b) of the Loan Agreement for
the 3 month period ended September 28, 2002.
2. Borrowers' failure to comply with Section 14(d) of the Loan Agreement for
the current fiscal year.
