SECOND AMENDED FORBEARANCE AGREEMENT
THIS SECOND AMENDED FORBEARANCE AGREEMENT (the "Agreement") is made
effective as of September 28, 2010 by and among BANK OF AMERICA, N.A.,
a national banking association, as successor by merger to LaSalle Bank
National Association (the "Lender"), ZANETT, INC., a Delaware
corporation ("Zanett") and ZANETT COMMERCIAL SOLUTIONS, INC., a
Delaware corporation ("ZCS"; Zanett and ZCS are each individually, a
"Borrower" and collectively, the "Borrowers").
BACKGROUND
A. Borrowers and Lender have previously entered into a certain Loan
and Security Agreement dated December 21, 2006, as amended by (i) that
certain First Amendment and Modification to Loan and Security Agreement
and Other Loan Documents dated May 31, 2007, (ii) that certain Second
Amendment and Modification to Loan and Security Agreement dated
November 14, 2007, (iii) that certain Third Amendment and Modification
to Loan and Security Agreement dated March 17, 2008, (iv) that certain
Fourth Amendment and Modification to Loan and Security Agreement dated
September 17, 2008, (v) that certain Fifth Amendment and Modification
to Loan and Security Agreement dated January 22, 2009 and (vi) that
certain Sixth Amendment and Modification to Loan and Security Agreement
dated December 21, 2009 (as amended, the "Loan Agreement"), pursuant to
which, inter alia, Lender agreed to extend to Borrowers a certain
revolving credit facility subject to the terms and conditions set forth
therein.
X. Xxxxx Guazzoni and Lender have previously entered into a certain
Subordination Agreement dated December 21, 2006 (the "Subordination
Agreement"), pursuant to which, inter alia, Xxxxx Xxxxxxxx subordinated
the Junior Debt to the Senior Debt (as both such terms are defined in
the Subordination Agreement).
C. Pursuant to that certain letter from Lender to Borrowers dated
June 8, 2010 (the "Default Letter"), Lender notified Borrowers in
writing of the existence of certain events of default under the Loan
Agreement (the "Existing Defaults").
D. In addition to the Existing Defaults, the following additional
Events of Default exist under the Loan Agreement:
(a) The Contract Term under the Loan Agreement expired on June
21, 2010 and the Borrowers have failed to repay the Liabilities in full
on such date; and
(b) Failure of the Borrowers to maintain a Fixed Charge
Coverage Ratio of not less than 1.25 to 1 as of March 31, 2010,
collectively, the "New Defaults" and together with the Existing Defaults,
the "Defaults".
E. As a result of the existence of the Defaults, the Borrowers and
Lender entered into a Forbearance Agreement dated on or about June 21,
2010 (the "Forbearance Agreement"). Under the terms of the Forbearance
Agreement, the Lender agreed to forbear from taking action against the
Borrowers through July 21, 2010 provided no events of default other
than the Defaults existed and provided no event of default under the
Forbearance Agreement occurred. The term of the Forbearance Agreement
expired and the parties hereto entered into a First Amended Forbearance
Agreement dated July 21, 2010 which expired on August 21, 2010. The
parties hereto wish to enter into this Second Amended Forbearance
Agreement which will expire on October 31, 2010.
F. At Borrowers' request, Lender has agreed to enter into this
Agreement, inter alia, to (i) ratify and confirm the respective
obligations and liabilities of Borrowers to Lender under the Loan
Documents, (ii) reaffirm, ratify and continue Lender's liens on, and
security interests in, the assets of Borrowers, and (iii) set forth the
terms and conditions under which Lender will forbear from exercising
and enforcing the rights available to Lender under the Loan Documents
as a result of the Defaults.
NOW, THEREFORE, in consideration of foregoing premises and intending to
be legally bound hereby, the parties hereto agree as follows:
TERMS
1. CAPITALIZED TERMS. For purposes of this Agreement:
(a) "Code" means the Uniform Commercial Code as adopted in the
Commonwealth of Pennsylvania and any other applicable
jurisdiction, as the same may be amended from time to time.
(b) "Collateral" means all real, personal, tangible and
intangible property of any Borrower pledged and/or granted to
Lender as security for the Liabilities.
(c) "Documents" means the Loan Documents, the Other Agreements
and the Forbearance Documents.
(d) "Forbearance Documents" means the Forbearance Agreement,
the First Amended Forbearance Agreement and this Agreement and
all other documents executed and delivered in connection with
this Agreement.
All other capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth for such terms in the Loan
Agreement.
2. CONFIRMATION OF BACKGROUND. Borrowers hereby ratify, confirm and
acknowledge that the statements contained in the foregoing Background
are true and complete and that the Documents are valid, binding and in
full force and effect as of the date hereof and fully enforceable
against Borrowers in accordance with the terms thereof. Borrowers
further acknowledge and agree that nothing contained in this Agreement
shall be deemed to impair, reduce or release in any manner whatsoever
any of the obligations or liabilities of Borrowers under the Documents.
3. GENERAL ACKNOWLEDGMENTS. Borrowers hereby acknowledge and agree
as follows:
(a) They are currently in default of their obligations under
the Loan Documents as a result of the occurrence of the Defaults,
and hereby waive any requirement for any further notice or demand
from Lender in connection therewith;
(b) As a result of the Defaults, the Lender has the right to
declare the entire principal balance of the Loans and all other
Liabilities due and payable and exercise all of its rights and
remedies under the Loan Documents;
(c) Neither this Agreement nor any other agreement entered into
in connection herewith or pursuant to the terms hereof shall be
deemed or construed to be a compromise, satisfaction,
reinstatement, accord and satisfaction, novation or release of
any of the Documents or any rights or obligations thereunder, or
a waiver by Lender of any of its rights under the Documents or
at law or in equity;
(d) As a result of the Defaults, Lender has no further
obligation to advance any additional monies under the Loan
Agreement;
(e) Neither this Agreement nor any other agreement executed in
connection herewith or pursuant to the terms hereof, nor any
actions taken pursuant to this Agreement or such other agreement
shall be deemed to cure any of the Defaults or any other events
of default which may exist under the Documents or to be a waiver
by the Lender of the Defaults or any other existing defaults or
events of default under the Documents or of any rights or
remedies in connection therewith or with respect thereto, it
being the intention of the parties hereto that the obligations of
Borrowers with respect to the Documents are and shall remain in
full force and effect;
(f) All liens, security interests, rights and remedies granted
to the Lender in and under the Documents are hereby renewed,
confirmed and continued, and shall also secure the performance by
Borrowers of their respective obligations hereunder; and
(g) If at any time a payment or payments made by any Borrower
on any part of the Liabilities are subsequently invalidated,
declared to be fraudulent or preferential, and are set aside or
are required to be repaid to a trustee, receiver or any other
person or entity under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment
or payments, the Liabilities intended to be satisfied shall be
revived and continued in full force and effect as if such payment
or payments had not been made.
4. CHALLENGE TO ENFORCEMENT. Borrowers acknowledge and agree that
none of them have any defense, set-off, counterclaim or challenge
against the payment of any sums owing under the Documents or any other
Liabilities, or the enforcement of any of the terms or conditions
thereof.
5. CONFIRMATION OF EXISTING INDEBTEDNESS. Borrowers hereby
acknowledge and agree that as of the close of business as of September
27, 2010 the principal balance outstanding under the Loans was
$4,420,866.20. Borrowers hereby acknowledge and agree that all sums
described in this Section 5 are validly and duly owing to Lender.
6. FORBEARANCE. Lender hereby agrees to forbear from exercising the
rights and remedies available to it as a result of the Defaults, during
the forbearance term (the "Forbearance Term") which shall expire on the
earlier of (a) the occurrence of any Event of Default (other than the
Defaults) under any of the Documents, or (b) October 31, 2010. The
occurrence of any of the foregoing shall immediately operate to
terminate the Lender's agreement to forbear hereunder. Upon such
termination, Lender shall have no further obligations to forbear under
the Documents, and may exercise any and all rights and remedies
available to it under the Documents, at law or in equity.
7. MODIFICATION TO CERTAIN TERMS OF THE LOAN AGREEMENT.
(a) Change in Advance Rate. Section 2(a)(i) of the Loan
Agreement is modified to read in its entirety as follows:
(i) Sixty-two and one-half percent (62.5%) of the face
amount of Borrowers' then Existing Eligible Accounts;
(b) The definition of "Maximum Revolving Loan Limit" shall mean
$5,000,000;
(c) Section 2(e) captioned "Increase of the Maximum Revolving
Loan Limit" is hereby deleted in its entirety.
8. FEE. As a condition for Lender entering into this Agreement,
Borrowers agree to pay to Lender a fee of $30,000 which shall be deemed
fully earned upon Lender's execution of this Agreement and shall be due
and payable on the date hereof. Lender is hereby irrevocably
authorized to deduct such payments from any account of any Borrower
maintained with Lender or to advance sums under Loan Agreement the
without further notice to Borrowers to pay such fee.
9. COVENANTS AND CONDITIONS. Except with the written consent of
Lender, Borrowers will comply and Lender's agreement to forbear
contained herein is expressly contingent upon the following:
(a) Forbearance Documents. Borrowers and all other required
persons and entities will have executed and delivered to Lender
the Forbearance Documents.
(b) Representations and Warranties. All representations and
warranties of Borrowers set forth in the Documents will be true
at and as of the date hereof, except as such representations and
warranties may have been affected by the Defaults.
(c) No Default. No condition or event shall exist or have
occurred which would constitute a default hereunder (or would,
upon the giving of notice or the passage of time or both,
constitute such a default) other than the Defaults.
(d) Other Information. With reasonable promptness, Borrowers
shall deliver or cause to be delivered to Lender, all such other
data and information in respect of the condition, operation and
affairs of Borrowers as Lender may request from time to time.
10. REPRESENTATIONS AND WARRANTIES. In consideration of the
forbearance extended herein by Lender, Borrowers hereby, jointly and
severally, represent and warrant, which representations and warranties
that shall survive until all Liabilities and all other obligations of
the Borrowers to Lender are paid and satisfied in full, as follows:
(a) All representations and warranties of Borrowers set forth
in the Loan Documents and the Other Agreements are true and
complete as of the date hereof, except as such representations
and warranties may have been affected by the Defaults.
(b) No condition or event exists or has occurred which would
constitute an Event of Default under the Documents or the Other
Agreements (or would, upon the giving of notice or the passage of
time, or both constitute an Event of Default) other than the
Defaults.
(c) The execution and delivery of this Agreement by Borrowers
and all documents and agreements to be executed and delivered
pursuant to the terms hereof:
(i) has been duly authorized by all requisite corporate
action by Borrowers;
(ii) will not conflict with or result in the breach of or
constitute a default (upon the passage of time, delivery of
notice or both) under any Borrower's Articles of
Incorporation, By-Laws (if applicable), or any applicable
statute, law, rule, regulation or ordinance or any
indenture, mortgage, loan or other document or agreement to
which any Borrower is a party or by which any of them is
bound or affected; and
(iii) will not result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon
any of the property or assets of any Borrower, except liens
in favor of the Lender or as permitted hereunder or under
the Loan Documents.
11. CERTAIN FEES, COSTS, EXPENSES AND EXPENDITURES. Borrowers will
pay all of the Lender's expenses in connection with the review,
preparation, negotiation, documentation and closing of this Agreement
and the consummation of the transactions contemplated hereunder,
including without limitation, costs and fees and expenses of counsel
retained by Lender and all fees related to filings, recording of
documents and searches, whether or not the transactions contemplated
hereunder are consummated. Nothing contained herein shall limit in any
manner whatsoever Lender's right to reimbursement under any of the
Documents or Other Agreements.
12. DEFAULTS. Occurrence of any one or more of the following shall
constitute a default hereunder and under each of the Forbearance
Documents:
(a) Any default or event of default or failure of the Borrower
to comply with any of the terms of the Documents, or any event
which, with the giving of notice or passage of time or both,
would constitute a default or event of default thereunder, other
than the Defaults;
(b) Any representation or warranty of any Borrower in any of
the Documents is discovered to be untrue in any material respect
or any statement, certificate or data furnished by any Borrower
pursuant hereto is discovered to be untrue in any material
respect as of the date as of which the facts therein set forth
are stated or certified.
13. RELEASE AND INDEMNIFICATION. In order to induce Lender to enter
into this Agreement, Borrowers do hereby agree as follows:
(a) Release. Each Borrower hereby fully, finally and forever
acquits, quitclaims, releases and discharges Lender and its
officers, directors, employees, agents, successors and assigns of
and from any and all obligations, claims, liabilities, damages,
demands, debts, liens, deficiencies or cause or causes of action
to, of or for the benefit (whether directly or indirectly) of any
Borrower, at law or in equity, known or unknown, contingent or
otherwise, whether asserted or unasserted, whether now known or
hereafter discovered, whether statutory, in contract or in tort,
as well as any other kind or character of action now held, owned
or possessed (whether directly or indirectly) by any Borrower on
account of, arising out of, related to or concerning, whether
directly or indirectly, proximately or remotely (i) the
negotiation, review, preparation or documentation of the
Documents or any other documents or agreements executed in
connection therewith, (ii) the administration of the Documents,
(iii) the enforcement, protection or preservation of Lender's
rights under the Documents, or any other documents or agreements
executed in connection therewith, (iv) any action or inaction by
Lender in connection with any such documents, instruments and
agreements, and (v) any of the transactions contemplated under
the Documents (the "Released Claims").
(b) Covenant Not to Litigate. In addition to the release
contained above, and not in limitation thereof, each Borrower
does hereby agree that it will never prosecute, nor voluntarily
aid in the prosecution of, any action or proceeding relating to
the Released Claims, whether by claim, counterclaim or otherwise.
(c) Transfer of Claims. If, and to the extent that, any of the
Released Claims are, for any reason whatsoever, not fully,
finally and forever released and discharged pursuant to the terms
above, each Borrower does hereby absolutely and unconditionally
grant, sell, bargain, transfer, assign and convey to Lender all
of the Released Claims and any proceeds, settlements and
distributions relating thereto.
(d) Indemnification. Each Borrower expressly agrees to
indemnify and hold harmless Lender and its officers, directors,
employees, agents, successors and assigns, of and from any and
all obligations, losses, claims, damages, liabilities, demands,
debts, liens, costs and expenses of Lender and its officers,
directors, employees, agents, successors and assigns that may be
asserted by, or may arise out of, whether directly or indirectly,
proximately or remotely, any investigation, litigation, or other
proceedings initiated, undertaken or joined in by any Borrower or
any other third party (including, without limitation, any
employee, agent, personal representative, heir, executor,
successor or assign of any Borrower) in connection with (i) the
negotiation, review, preparation or documentation of the
Documents or any other documents or agreements executed in
connection with the Liabilities, or any of them, (ii) the
administration of the Documents; (iii) the enforcement,
protection or preservation of Lender's rights under the Documents
or any ocuments or agreements executed in connection with
the Liabilities, or any of them, (iv) the validity, perfection or
enforceability of the Documents, (v) any action or inaction by
Lender in connection with any of the foregoing, and (vi) the
transactions contemplated under the Documents.
Each Borrower acknowledges that the foregoing is intended to be a
general release with respect to the matters described therein. Each
Borrower expressly acknowledges and agrees that the waivers and
releases contained in this Agreement shall not be considered as an
admission of and/or the existence of any claims of any Borrower
against Lender. Each Borrower further acknowledges that, to the
extent that any such claims may exist, they are of a speculative
nature so as to be incapable of objective valuation and that, to
the extent that any such claims may exist and may have value, such
value would constitute primarily "nuisance" value or "leverage" value
in adversarial proceedings between any Borrower and Lender. In any
event, each Borrower hereby acknowledges and agrees that the value to
any Borrower of this Agreement and of the covenants and agreements on
the part of Lender contained in this Agreement substantially and
materially exceeds any and all value of any kind or nature whatsoever
of any claims or iabilities waived or released by Borrowers hereunder.
14. NO COURSE OF DEALING.
(a) Termination of Waivers. Borrowers hereby acknowledge and
agree that effective as of the date hereof any waiver or implied
waiver by Lender of any obligation or covenant of any Borrower
under the Forbearance Documents is expressly terminated and
rescinded (except as expressly provided herein to the contrary)
and that Borrowers are obligated to, and are expected by Lender
to, strictly perform and comply with all of such obligations and
covenants as provided in the Forbearance Documents.
(b) Future Forbearance. Nothing contained herein shall be
deemed to obligate Lender to enter into any other forbearance
agreements, to extend to Forbearance Term or to waive any Events
of Default.
15. WAIVERS. In connection with any proceedings hereunder or in
connection with any of the Liabilities, including without limitation
any action by Lender in replevin, foreclosure or other court process or
in connection with any other action related to the Liabilities or the
transactions contemplated hereunder, each Borrower waives:
(a) all errors, defects and imperfections in such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof
from attachment, levy or sale under execution, or providing for
any stay of execution to be issued on any judgment recovered in
connection with the Liabilities or in any replevin or foreclosure
proceeding, or otherwise providing for any valuation, appraisal
or exemption;
(c) all rights to inquisition on any real estate, which real
estate may be levied upon pursuant to a judgment obtained in
connection with any of the Liabilities and sold upon any writ of
execution issued thereon in whole or in part, in any order
desired by Lender;
(d) presentment for payment, demand, notice of demand, notice
of nonpayment, protest and notice of protest of any of the
Liabilities;
(e) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(f) any demand for possession of any collateral prior to
commencement of any suit;
(g) any right to require or participate in the marshaling of
any Borrower's assets;
(h) any notice or demand from Lender with respect to any
Borrower's obligations under the Loan Documents;
(i) all benefits under present and future laws permitting
termination of any Borrower's obligations by delivery of notice
or otherwise, other than by performance of all of such Borrower's
obligations owed to Lender; and
(j) all rights to claim or recover attorney's fees and costs in
the event that any Borrower is successful in any action to
remove, suspend or prevent the enforcement of a judgment entered
by confession.
16. WAIVER OF RIGHTS UNDER THE CODE. Each Borrower hereby waives and
renounces such Borrower's:
(a) rights under Section 9-611 of the Code to notification of
time and place of any public sale or the time after which any
private sale or other disposition of any collateral is to be
made;
(b) rights under Sections 9-620 and 9-621 of the Code to
notification of Lender's proposal to retain any collateral in
satisfaction of the Liabilities; and
(c) rights under Section 9-623 of the Code to redeem any
collateral by tendering fulfillment of all obligations secured by
such collateral.
Borrowers further agree that disposition of any collateral by Lender at
any auction performed by a duly licensed auctioneer regularly engaged in
the sale by auction is a sale in conformity with reasonably commercial
practices and disposition at such auction is a commercially reasonable
disposition in accordance with Section 9-610 of the Code.
17. CONFESSION OF JUDGMENT. EACH BORROWER HEREBY AUTHORIZES AND
EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE
COMMONWEALTH OF PENNSYLVANIA, OR IN ANY OTHER JURISDICTION WHICH
PERMITS THE ENTRY OF JUDGMENT BY CONFESSION, TO APPEAR FOR SUCH
BORROWER AT ANY TIME IN ANY ACTION BROUGHT AGAINST SUCH BORROWER
HEREUNDER OR UNDER THE FORBEARANCE DOCUMENTS AT THE SUIT OF LENDER,
WITH OR WITHOUT COMPLAINT OR DECLARATION FILED, WITHOUT STAY OF
EXECUTION, AS OF ANY TERM OR TIME, AND THEREIN TO CONFESS OR ENTER
JUDGMENT AGAINST SUCH BORROWER FOR THE ENTIRE AMOUNT OF THE LIABILITIES
TOGETHER WITH AN ATTORNEY'S COLLECTION COMMISSION OF FIFTEEN PERCENT
(15%) OF THE AGGREGATE AMOUNT OF THE FOREGOING SUMS, BUT IN NO EVENT
LESS THAN $5,000.00; AND FOR SO DOING THIS AGREEMENT OR A COPY HEREOF
VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. THE AUTHORITY
GRANTED HEREIN TO CONFESS JUDGMENT SHALL NOT BE EXHAUSTED BY ANY
EXERCISE THEREOF BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES
UNTIL PAYMENT IN FULL OF ALL THE LIABILITIES.
18. TIME OF ESSENCE. Time is of the essence of this Agreement.
19. INCONSISTENCIES. To the extent of any inconsistencies between
the terms and conditions of this Agreement and the terms and conditions
of the other Documents or Other Agreements, the terms and conditions of
this Agreement shall prevail. Specifically, all terms and conditions
of the Loan Documents or Other Agreements, including the Forbearance
Documents, not inconsistent herewith shall remain in full force and
effect and are hereby ratified and confirmed by Borrowers.
20. BINDING EFFECT. This Agreement and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and
their respective permitted successors and assigns. All obligations of
the Borrowers under this Agreement and the other Forbearance Documents
are the joint and several obligations of each Borrower.
21. SEVERABILITY. The provisions of this Agreement and all other
Forbearance Documents are deemed to be severable, and the invalidity or
unenforceability of any provision shall not affect or impair the
remaining provisions which shall continue in full force and effect.
22. NO THIRD PARTY BENEFICIARIES. The rights and benefits of this
Agreement and the Forbearance Documents shall not inure to the benefit
of any third party.
23. HEADINGS. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall
not be deemed to constitute a part of this Agreement.
24. COUNTERPARTS FACSIMILE SIGNATURES. This Agreement may be
executed in any number of counterparts, all of which taken together
constitute one and the same instrument, and any of the parties hereto
may execute this Agreement by signing any such counterpart. Any
signature delivered via facsimile shall be deemed an original signature
hereto..
25. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto concerning the subject matter set
forth herein and supersedes all prior or contemporaneous oral and/or
written agreements and representations not contained herein concerning
the subject matter of this Agreement.
26. RESULTS OF NEGOTIATION. Borrowers acknowledge that they have
been represented by counsel in connection with the execution and
delivery of this Agreement and that the terms and conditions of this
Agreement are the result of negotiation between the parties hereto.
Borrowers further acknowledge that they have knowingly (a) waived their
right to (i) be heard prior to the entry of a judgment by confession
and understand that, upon such entry, such judgment shall become a lien
on all real property of Borrowers in the county where such judgment is
entered; (ii) trial by jury; and (iii) certain other rights as set
forth in detail above, and (b) consented to relief from the automatic
stay. Borrowers acknowledge that such waivers and consents constitute a
material inducement for Lender to enter into this Agreement and they
have been fully advised of the consequences of such provisions by their
counsel.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed effective as of the day and year first above written.
BORROWERS:
ZANETT, INC.
By: Xxxxxx Xxxxxxx
Name: /s/Xxxxxx Xxxxxxx
Title: CFO
ZANETT COMMERCIAL SOLUTIONS, INC.
By: Xxxxxx Xxxxxxx
Name: /s/Xxxxxx Xxxxxxx
Title: Officer
LENDER:
BANK OF AMERICA, N.A., a national banking association, as successor
by merger to LaSalle Bank National Association
By: Xxxxxxx X. Xxxxxxxxx
Name: /s/Xxxxxxx X. Xxxxxxxxx
Title: Vice President
