EXHIBIT 99.1
FORBEARANCE AGREEMENT AND THIRD AMENDMENT
TO CREDIT AND SECURITY AGREEMENT
This Agreement, dated as of September 26, 2002, is made by and between
VARI-L COMPANY, INC., a Colorado corporation (the "Borrower"), and XXXXX FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender are parties to a Credit and Security
Agreement dated as of June 28, 2001 (the "Original Credit Agreement"), as
amended by the First Amendment to Credit and Security Agreement dated as of
September 17, 2001 and by the Second Amendment to Credit and Security Agreement
dated as of February 8, 2002 (as so amended, the "Credit Agreement"), whereby
the Lender has agreed to provide loans and other financial accommodations to the
Borrower. Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.
The Borrower is in default (i) under Section 6.12 of the Credit
Agreement as of April 30, 2002, May 31, 2002, June 30, 2002, July 31, 2002 and
August 31, 2002 and (ii) under Section 6.13 of the Credit Agreement as of June
30, 2002 (the "Existing Defaults"), and the Lender, by letter to the Borrower
dated June 28, 2002, has implemented the Default Rate effective May 1, 2002.
As a result of the Existing Defaults, the Lender has the right to
exercise any or all of its rights and remedies under Section 8.2 of the Credit
Agreement, including, but not limited to, declaring the Obligations to be
forthwith due and payable and terminating the Commitment. The Borrower has
requested that the Lender enter into this Agreement, which the Lender is willing
to do pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Agreement which are
defined in the Credit Agreement shall have the same meanings as defined therein,
unless otherwise defined herein.
2. Agreement to Forbear. Notwithstanding such Existing Defaults, the
Lender agrees that, provided that the Borrower fully complies with the terms of
this Agreement, the Lender will not demand payment of, accelerate the maturity
of or otherwise initiate collection action with respect to the Obligations or
terminate the Commitment during the period from the date hereof to and including
the earlier of (i) November 15, 2002 or (ii) the date on which a Forbearance
Default occurs.
3. Forbearance Default. "Forbearance Default" means a Default or Event
of Default other than the Existing Defaults.
4. Section 1.1 of the Credit Agreement is amended by adding or
amending, as the case may be, the following definitions:
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, upon three (3) business days notice to the Borrower, the
sum of:
(i) 75% of Eligible Accounts, plus
(ii) the lesser of (A) 0.00% (zero percent) of
Eligible Inventory or (B) $0.00 (zero dollars), less
(iii) the Term Loan Payment Reserve, less
(iv) the FCIA Foreign Credit Insurance Deductible.
"FCIA Foreign Credit Insurance Deductible" means the FCIA
Foreign Credit Insurance Deductible of $100,000, which amount may
change from time to time as determined by the Lender in its sole
discretion.
"Maximum Line" means $2,500,000, unless said amount is reduced
pursuant to Section 2.10, in which event it means the amount to which
said amount is reduced.
"Term Loan Payment Reserve" means the Term Loan Payment
Reserve of $250,000, which amount may change from time to time as
determined by the Lender in its sole discretion.
5. Section 1.1 of the Credit Agreement is further amended by amending
clause (v) of the definition of "Eligible Accounts" to read as follows:
"(v) Accounts owed by an account debtor located outside the
United States which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the
Lender's possession or control, and with respect to which a control
agreement concerning the letter-of-credit rights is in effect, and
acceptable to the Lender in all respects, in its sole discretion, or
(B) covered by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion and that portion of such Accounts that
exceeds $5,000,000;"
6. Section 3.1 of the Credit Agreement is hereby amended by adding the
following new sentence at the end thereof:
"Upon request by the Lender, the Borrower will grant the
Lender a security interest in all commercial tort claims it may have
against any Person."
7. Section 3.6 of the Credit Agreement is hereby amended by amending
and restating the first sentence of that Section to read as follows:
"The Borrower authorizes the Lender to file from time to time
where permitted by law, such financing statements against collateral
described as "all personal property" or describing specific items of
collateral including commercial tort claims as the Lender deems
necessary or useful to perfect the Security Interest."
8. Section 6.1 of the Credit Agreement is hereby amended by adding a
new Section 6.1(r) to read as follows:
"(r) Promptly upon knowledge thereof, the Borrower will
deliver to the Lender notice of any commercial tort claims it may bring
against any person, including the name and address of each defendant, a
summary of the facts, an estimate of the Borrower's damages, copies of
any complaint or demand letter submitted by the Borrower, and such
other information as the Lender may request."
9. Section 6.1 of the Credit Agreement is hereby amended by adding a
new Section 6.1(s) to read as follows:
"(s) beginning immediately after the first Revolving Advance,
the Borrower will deliver to the Lender daily collateral reports and
weekly, or more frequently if the Lender so requires, cash flow
reporting for at least one month into the future, both in form and
substance satisfactory to the Lender in its sole discretion."
10. Section 6.1 of the Credit Agreement is hereby amended by adding a
new Section 6.1(t) to read as follows:
"(t) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower is required to
submit under any foreign receivables insurance policy."
11. Section 6.2 of the Credit Agreement is hereby amended by adding the
following new sentence at the end thereof:
"The Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to the Lender, at the
Borrower's expense, all financial information, books and records, work
papers, management reports and other information in their possession
regarding the Borrower."
12. Section 6.12 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
"Section 6.12 Minimum Book Net Worth. The Borrower will
maintain, during each period described below, its Book Net Worth
(excluding any impact of accrued and unissued shares of the Borrower
for the settlement of the private shareholder class actions to be
settled by payment by the Borrower of shares of the Borrower and up to
$250,000 in cash payments that will not be paid until the Lender has
been paid in full, and up to $200,000 of non-cash severance and other
related post employment obligations), determined as at the end of each
month, at an amount not less than the amount set forth opposite such
period:
PERIOD MINIMUM BOOK
NET WORTH
The month ending August 31, 2002 $7,895,000
The month ending September 30, 2002 $7,200,000
The month ending October 31, 2002 $6,705,000"
13. Section 6.13 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
"Section 6.13 Minimum Net Income. The Borrower will achieve
during each period described below, Net Income of not less than, or a
Net Loss not greater than (excluding any impact of the settlement of
the private shareholder class actions settled by payment by the
Borrower of shares of the Borrower and up to $250,000 in cash payments
that will not be paid until the Lender has been paid in full, and up to
$200,000 of non-cash severance and other related post employment
obligations), the amount set forth opposite such period (number
appearing between "()" are negative):
PERIOD MINIMUM NET INCOME
The two months ending August 31, 2002 ($1,400,000)
The three months ending September 30, 2002 ($2,100,000)
The four months ending October 31, 2002 ($2,600,000)"
14. Section 6.15 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
"Section 6.15 "Intentionally Omitted.""
15. Section 7.1 of the Credit Agreement is hereby amended by adding the
following new sentences at the end thereof:
"The Borrower will not amend any financing statements in favor
of the Lender except as permitted by law. Any authorization by the
Lender to any Person to amend financing statements in favor of the
Lender shall be in writing."
16. Section 7.10 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
"Section 7.10 Capital Expenditures. The Borrower will not
incur or contract to incur Unfinanced Capital Expenditures of more than
(i) $150,000 during the period from July 1, 2002 through August 31,
2002; (ii) $150,000 during the period from July 1, 2002 through
September 30, 2002; and (iii) $250,000 during the period from July 1,
2002 through October 31, 2002."
17. Section 7.17 of the Credit Agreement is hereby amended by adding
the following new sentence at the end thereof:
"The Borrower will not pay any severance or other post employment
obligations (other than the existing obligations to Xx. Xxx Xxxxx)."
18. Section 7.19 of the Credit Agreement is hereby amended and restated
in its entirety to read as follows:
"The Borrower will not enter into any settlement agreement or other
accommodation of threatened or pending litigation for the payment of money,
except where such settlement agreement or other accommodation allows for such
payment of money to be paid only after the Lender has been paid in full."
19. Section 9.3 of the Credit Agreement is hereby amended by changing
the address of the Lender:
"If to the Lender:
Xxxxx Fargo Business Credit, Inc.
MAC C7300-210
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx"
and by adding the following sentences at the end thereof:
"All requests under Section 9-210 of the UCC (i) shall be made
in a writing signed by a person authorized under Section 2.1(a), (ii)
shall be personally delivered, sent by registered or certified mail,
return receipt requested, or by overnight courier of national
reputation (iii) shall be deemed to be sent when received by the Lender
and (iv) shall otherwise comply with the requirements of Section 9-210.
The Borrower requests that the Lender respond to all such requests
which on their face appear to come from an authorized individual and
releases the Lender from any liability for so responding. The Borrower
shall pay Lender the maximum amount allowed by law for responding to
such requests."
20. Section 9.10 of the Credit Agreement is hereby amended by adding
the following sentence at the end thereof:
"To the extent permitted by law, each Borrower waives and will
not assert against any assignee any claims, defenses or set-offs which
such Borrower could assert against the Lender."
21. The Credit Agreement is hereby amended by adding a new Section 9.14
to read as follows:
"Section 9.14 Retention of Borrower's Records. The Lender
shall have no obligation to maintain any electronic records or any
documents, schedules, invoices, agings, or other papers delivered to
the Lender by the Borrower or in connection with the Loan Documents for
more than four months after receipt by the Lender."
22. Exhibit D of the Credit Agreement is hereby amended and restated in
its entirety and replaced with Exhibit D attached hereto.
23. No Other Changes. Except as explicitly amended by this Agreement,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
24. Borrower Acknowledgments. By signing this Agreement, the Borrower
acknowledges and agrees that the Existing Defaults currently exist on the part
of the Borrower under the Credit Agreement and that as a result of such Existing
Defaults, the Lender could, in the absence of the Lender's agreement to forbear
as set forth in this Agreement, in its sole discretion, demand immediate payment
or otherwise take collection action with respect to the Obligations of the
Borrower to the Lender under the Credit Agreement and terminate the Commitment.
The Borrower further acknowledges and agrees that the Obligations are the valid
and enforceable obligation of the Borrower and are not subject to any defenses
or rights of set off of any kind or nature and that all of the Obligations are
secured by a valid and perfected lien in the Collateral.
25. Default Rate. The Default Rate under the Credit Agreement shall be
effective at all times from May 1, 2002 and thereafter.
26. Forbearance Fee. The Borrower shall pay the Lender as of the date
hereof a fully earned, non-refundable fee in the amount of $20,000 in
consideration of the Lender's execution and delivery of this Agreement, and in
full satisfaction of any fees which may have otherwise been due and owing to the
date hereof.
27. Conditions Precedent. This Agreement shall be effective when the
Lender shall have received an executed original hereof, together with (i)
payment of the fee described in Paragraph 26 and (ii) such other matters as the
Lender may require, each in substance and form acceptable to the Lender in its
sole discretion.
28. Representations and Warranties. The Borrower hereby represents and
warrants to the Lender as follows:
(a) The Borrower has all requisite power and authority to
execute this Agreement and to perform all of its obligations hereunder,
and this Agreement has been duly executed and delivered by the Borrower
and constitutes the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(b) The execution, delivery and performance by the Borrower of
this Agreement have been duly authorized by all necessary corporate
action and do not (i) require any authorization, consent or approval by
any governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or
of any order, writ, injunction or decree presently in effect, having
applicability to the Borrower, or the articles of incorporation or
by-laws of the Borrower, or (iii) result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other
agreement, lease or instrument to which the Borrower is a party or by
which it or its properties may be bound or affected.
(c) All of the representations and warranties contained in
Article V of the Credit Agreement are correct on and as of the date
hereof as though made on and as of such date, except to the extent that
such representations and warranties relate solely to an earlier date.
29. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Security Documents to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
30. No Waiver. The execution of this Agreement and acceptance of any
documents related hereto shall not be deemed to be a waiver of any Default or
Event of Default under the Credit Agreement or breach, default or event of
default under any Security Document or other document held by the Lender,
whether or not known to the Lender and whether or not existing on the date of
this Agreement.
31. Release. The Borrower hereby absolutely and unconditionally
releases and forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which the Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Agreement, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.
32. Costs and Expenses. The Borrower hereby reaffirms its agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Loan Documents,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Agreement and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses and the fee
required under paragraph 26 hereof.
33. Miscellaneous. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
XXXXX FARGO BUSINESS CREDIT, INC. VARI-L COMPANY, INC.
By /s/ Xxxxxxx X. Xxxxxx By /s/ Xxxxxxx X. Xxxxxxxxxx
------------------------ -------------------------
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxxxxxx
Vice President Vice President of Finance
and Chief Financial Officer
EXHIBIT D TO CREDIT AND SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
To: Xxxxxxx X. Xxxxxx
Xxxxx Fargo Business Credit, Inc.
Date: __________________, 200__
Subject: Vari-L Company, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of June
28, 2001, as amended by (i) the First Amendment to Credit and Security Agreement
dated as of September 17, 2001, (ii) the Second Amendment to Credit and Security
Agreement dated as of February 8, 2002, and (iii) the Forbearance Agreement and
Third Amendment to Credit and Security Agreement dated as of September 26, 2002
(as so amended, the "Credit Agreement"), attached are the financial statements
of Vari-L Company, Inc. (the "Borrower") as of and for ________________, 20__
(the "Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
Events of Default. (Check one):
[ ] The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached hereto is a
statement of the facts with respect to thereto.
I hereby certify to the Lender as follows:
[ ] The Reporting Date does not xxxx the end of one of the
Borrower's fiscal quarters, hence I am completing only paragraph __ below.
[ ] The Reporting Date marks the end of one of the Borrower's
fiscal quarters, hence I am completing all paragraphs below except paragraph __.
[ ] The Reporting Date marks the end of the Borrower's fiscal
year, hence I am completing all paragraphs below.
1. Minimum Book Net Worth. Pursuant to Section 6.12 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net
Worth (excluding any impact of accrued and unissued shares of
the Borrower for the settlement of the private shareholder
class actions to be settled by payment by the Borrower of
shares of the Borrower and up to $250,000 in cash payments
that will not be paid until the Lender has been paid in full,
and up to $200,000 of non-cash severance and other related
post employment obligations) was $____________ which [ ]
satisfies [ ] does not satisfy the requirement that such
amount be not less than as set forth in table below:
PERIOD MINIMUM BOOK
NET WORTH
The month ending August 31, 2002 $7,895,000
The month ending September 30, 2002 $7,200,000
The month ending October 31, 2002 $6,705,000
2. Minimum Net Income. Pursuant to Section 6.13 of the Credit
Agreement, the Borrower's Net Income (excluding any impact of
the settlement of the private shareholder class actions
settled by payment by the Borrower of shares of the Borrower
and up to $250,000 in cash payments that will not be paid
until the Lender has been paid in full, and up to $200,000 of
non-cash severance and other related post employment
obligations) for the ________ period ending on the Reporting
Date, was $____________, which [ ] satisfies [ ] does not
satisfy the requirement that such amount be not less than, or
such loss shall not be greater than, $_____________ during
such period as set forth in table below:
PERIOD MINIMUM NET INCOME
The two months ending August 31, 2002 ($1,400,000)
The three months ending September 30, 2002 ($2,100,000)
The four months ending October 31, 2002 ($2,600,000)
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during
the _____ month period ending _________________, for Capital
Expenditures, $__________________ in the aggregate, which [ ]
satisfies [ ] does not satisfy the requirement that such
expenditures not exceed $____________ in the aggregate during
such period.
4. Salaries. As of the Reporting Date, the Borrower [ ] is [ ]
is not in compliance with Section 7.17 of the Credit Agreement
concerning salaries and severance payments.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
VARI-L COMPANY, INC.
By:
---------------------------
Its: Chief Financial Officer
