FORBEARANCE AGREEMENT
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THIS FORBEARANCE AGREEMENT (the "Agreement") is made effective as of July 21,
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
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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 wish to enter
into a further forbearance period which will expire on August 21, 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
will forbear from exercising and enforcing the rights available to Lender
under the Loan Documents as a result of the Defaults.
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NOW, THEREFORE, in consideration of foregoing premises and intending to be
legally bound hereby, the parties hereto agree as follows:
TERMS
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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 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 o f 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
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Loan Documents or any rights or obligations thereunder, or a waiver by Lender of
any of its rights under the Loan 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 Loan
Documents or to be a waiver by the Lender of the Defaults or any other existing
defaults or events of default under the Loan 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
Loan 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 Loan 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 Loan 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 July 20, 2010 the principal
balance outstanding under the Loans was $4,145,458.77. 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
the Loan Documents, (b) a breach of any of Borrowers' obligations or covenants
under the Forbearance Documents, or (c) August 21, 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.
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(a) Change in Advance Rate. Section 2(a)(i) of the Loan Agreement is
modified to read in its entirety as follows:
(i) Eighty percent (80%) of the face amount of Borrowers'
then Existing Eligible Accounts, such 80% figure to be reduced by 2.5% per week
commencing on Tuesday, July 6, 2010 and reducing by 2.5% per week for each
Tuesday thereafter through the end of the Forbearance Term.
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.
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(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) Delivery of Other Documents. The following documents shall have
been delivered to Lender by or on behalf of Borrowers and must be in form and
content satisfactory to Lender:
(e) 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 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 Loan 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:
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(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 o f this Amendment 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
Loan 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 under any of the Loan 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) The failure of any Borrower to comply with the terms of the
Forbearance Documents; or
(c) 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:
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(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 other documents 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
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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 liabilities 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;
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(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.
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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 Loan
Documents or Other Agreements, the terms and conditions of this Agreement shall
prevail. Specifically, all terms and conditions of the Loan Documents of Other
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Agreements, including the Forbearance Agreement, 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.
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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 provisio ns by their counsel.
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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: /s/ Xxxxxx Xxxxxxx
Name: Xxxxxx Xxxxxxx
Title: President and Chief Financial Officer
ZANETT COMMERCIAL SOLUTIONS, INC.
By: /s/ Xxxxxx Xxxxxxx
Name: Xxxxxx Xxxxxxx
Title: President and Chief Financial Officer
LENDER:
BANK OF AMERICA, N.A., a national banking association,
as successor by merger to LaSalle Bank National Association
By: /s/ Xxxxxxx Xxxxxxxxx
Name: Xxxxxxx Xxxxxxxxx
Title: Vice President
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