Exhibit 10.1


 


FORBEARANCE
AGREEMENT AND

AMENDMENT TO
LOAN AGREEMENT


 


This FORBEARANCE AGREEMENT
AND AMENDMENT TO LOAN AGREEMENT (this “Agreement”) is entered into as of
April 27, 2009, by and among AMERICAN
DEFENSE SYSTEMS, INC., a Delaware corporation (the “Company”), A. J.
PISCITELLI & ASSOCIATES, INC., a New York corporation (“AJP”,
and together with the Company, the “Original Borrowers”), AMERICAN
PHYSICAL SECURITY GROUP, LLC, a Delaware limited liability company (“APS’, and
together with the Original Borrowers, the “Borrowers”) and TD BANK,
N.A., a national banking association, and successor by merger to COMMERCE BANK,
N.A (the “Lender”).


 


RECITALS


 


A.            The Original Borrowers and
the Lender are parties to that certain Loan Agreement, dated as of May 2,
2007, as amended by the First Amendment to Loan Agreement, dated as of July 12,
2007 (as further amended, modified or supplemented from time to time, the “Loan
Agreement”), and assumed pursuant to the Assumption Agreement, dated as of January 28,
2008, by APS, pursuant to which, among other things, the Lender agreed, subject
to the terms and conditions set forth in the Loan Agreement, to make certain
loans and other financial accommodations to Borrowers.


 


B.            As of the date hereof, the
Events of Default specified in the April 1, 2009 letter from the Lender to
the Borrowers have occurred and are continuing (collectively, the “Specified
Defaults”).


 


C.            The Borrowers have requested
that during the Forbearance Period (as defined in Section 1 below),
the Lender agree (i) to forbear from exercising certain of its
default-related rights and remedies against the Borrowers with respect to the
Specified Defaults, and (ii) that the Lender will continue to make
Advances and other financial accommodations to the Borrower during the
Forbearance Period, as set forth in the Loan Documents, each notwithstanding
the existence of the Specified Defaults and subject to the terms and conditions
set forth herein.  During the Forbearance
Period, the Borrowers (with the assistance of its advisors) will propose and
work towards effectuating a refinancing of the Obligations (the “Refinancing”).


 


D.            Subject to the terms and
conditions set forth herein, (i) the Lender has agreed to (a) forbear
from exercising certain of its default-related rights and remedies against the
Borrowers with respect to the Specified Defaults during the Forbearance Period,
and (b) amend the Loan Agreement as set forth in Section 3
below and (ii) the Lender has agreed to continue making Advances during
the Forbearance Period.


 


NOW, THEREFORE, in
consideration of the foregoing, the terms, covenants and conditions contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:


 


1

















 


SECTION 1.                                           Additional Definitions.  As used herein, the following terms shall
have the respective meanings set forth below:


 


“Claims” shall mean
claims, actions, causes of action, suits, debts, accounts, interests, liens,
promises, warranties, damages and consequential damages, demands, agreements,
bonds, bills, specialties, covenants, controversies, variances, trespasses,
judgments, executions, costs, expenses or any other claims whatsoever
(including, without limitation, crossclaims, counterclaims, rights of set-off
and recoupment).


 


“Forbearance Default”
shall mean (i) the occurrence of any Event of Default other than the
Specified Defaults; (ii) the failure of any Borrower to timely comply with
any term, condition, or covenant set forth in this Agreement; (iii) the
failure of any representation or warranty made by any Borrower under or in
connection with this Agreement to be true and complete as of the date when
made, or any other breach of any such representation or warranty; or (iv) any
occurrence, event or change in facts or circumstances occurring on or after the
Forbearance Effective Date that would have a material adverse effect on any
Borrower, or its financial condition, business, prospects or assets.


 


“Forbearance Effective
Date” shall mean the date on which all of the conditions precedent set
forth in Section 20 hereof have been met (or waived) as determined
by the Lender in its sole discretion.


 


“Forbearance Period”
shall mean the period beginning on the Forbearance Effective Date and ending on
the earlier to occur of: (i) the termination of the Forbearance Period as
a result of any Forbearance Default, and (ii) June 15, 2009.


 


“Releases” shall mean
the Lender and its affiliates, subsidiaries, shareholders and “controlling
persons” (within the meaning of the federal securities laws), and their
respective successors and assigns and each and all of the officers, directors,
employees, agents, attorneys and other representatives of each of the foregoing
in their capacities as such.


 


“Releasors” shall
mean each Borrower, its agents, representatives, officers, directors, advisors,
employees, subsidiaries, affiliates, successors and assigns.


 


“Revolving Credit Cap”
shall mean at any time during the Forbearance Period, (a) from the
Forbearance Effective Date until May 15, 2009, $2,000,000, and (b) as
of May 15, 2009, and at all times thereafter, $1,000,000.


 


Unless otherwise defined
above or elsewhere in this Agreement, capitalized terms used herein shall have
the meanings ascribed to them in the Loan Agreement.


 


SECTION 2.                                           Confirmation by Borrower of Obligations and Specified
Defaults.


 


(a)           The Borrowers acknowledge
and agree that as of the date of this Agreement, the aggregate principal
balance of the outstanding Obligations under the Loan Documents is not less
than $1,497,460 and that the respective principal balances of the various Loans
as of such date were not less than the following:


 


2

















 


	
  Term Loan:

  	
   

  	
  $

  	
  64,027

  	
   

  
	
  Revolving Credit (including the Letter of Credit Amount):

  	
   

  	
  $

  	
  1,433,433

  	
   

  
	
  TOTAL:

  	
   

  	
  $

  	
  1,497,460

  	
   

  



 


The foregoing amounts do not
include interest, fees, expenses and other amounts that are chargeable or
otherwise reimbursable under the Loan Documents.  All of the obligations, including those set
forth above, are valid and outstanding, and the Borrowers have no rights of
offset, defenses, claims or counterclaims with respect to any of the
obligations under the Loan Documents.


 


(b)           Each Borrower acknowledges
and agrees that (i) each of the Specified Defaults constitutes an Event of
Default that has occurred and is continuing, and (ii) except for the
Specified Defaults, no other Events of Default have occurred and are continuing
as of the date hereof, or are expected to occur during the Forbearance Period.


 


SECTION 3.                                           Amendments to Loan Agreement  Effective as of
the Forbearance Effective Date, the following terms of the Loan Agreement shall
be amended as follows.


 


(a)           Amendments
to Section 1.1.


 


(i)            The definition of “Applicable
Margin” is hereby deleted in its entirety and replaced with the following:


 


“Applicable Margin
means 6.00%.”


 


(ii)           The definition of “Borrowing
Base” in Section 1.1 is hereby deleted in its entirety and replaced
with the following:


 


“Borrowing Base” means, at
the time in question, (a) the sum of the following, without duplication (1) 50%
of amounts due with respect to Eligible Government Receivables, plus (2) 50%
of amounts due with respect to Eligible Commercial Receivables, minus (b) any
applicable Borrowing Base Reductions. 
The Borrowing Base shall be adjusted on a weekly basis to reflect all
billings and collections.”


 


SECTION 4.                                           Forbearance; Forbearance Default Rights and Remedies.


 


(a)           Effective on the Forbearance
Effective Date, the Lender agrees that until the expiration or termination of
the Forbearance Period, it will forbear from exercising its default-related
rights and remedies against any Borrower or the Collateral solely with respect
to the Specified Defaults, including acceleration and foreclosure; provided,
however, that (i) the Lender shall have no obligation to make any
Advance if, after giving effect thereto, the aggregate principal amount of the
Advances plus outstanding letters of credit issued by the Lender for the
account of any Borrower would exceed the Revolving Credit Cap, and the
Borrowers shall pay any such excess on demand of the Lender; (ii) each
Borrower shall comply with all limitations, restrictions or prohibitions that
would otherwise be effective or applicable 


 


3

















 


under the Loan Documents during the continuance of any Event of
Default, including, without limitation, any limitations, restrictions or
prohibitions against payments by any Borrower; (iii) nothing herein shall
restrict, impair or otherwise affect the Lender’s rights and remedies under any
agreements containing subordination provisions in favor of any or all of the
Lender (including, without limitation, any rights or remedies available to the
Lender as a result of the occurrence or continuation of any Specified Default)
or amend or modify any provision thereof, except to the extent that the
exercise of any such rights or remedies is inconsistent with the terms and
conditions of the forbearance granted herein; and (iv) nothing herein
shall restrict, impair or otherwise affect the Lender’s right to file, record,
publish or deliver a notice of default or document of similar effect under any
state foreclosure law upon the expiration or termination of the Forbearance
Period.  Any Forbearance Default shall
constitute an immediate Event of Default under this Agreement and the Loan
Documents without the requirement of any demand, presentment, protest, or
notice of any kind to any Borrower (all of which each Borrower waives).


 


(b)           Upon the occurrence of a
Forbearance Default or the expiration of the Forbearance Period, the agreement
of the Lender hereunder to forbear from exercising its default-related rights
and remedies shall immediately terminate without the requirement of any demand,
presentment, protest, or notice of any kind to any Borrower (all of which each
Borrower waives).  Each of the Borrowers
agrees that the Lender may at any time thereafter proceed to exercise any and
all of its rights and remedies under the Loan Documents or applicable law,
including, without limitation, its rights and remedies with respect to the
Specified Defaults.  Without limiting the
generality of the foregoing, upon the occurrence of a Forbearance Default or
the expiration of the Forbearance Period, the Lender may, in its sole
discretion and without the requirement of any demand, presentment, protest, or
notice of any kind to any Borrower (all of which each Borrower waives):  (i) suspend or terminate any commitment
to provide Advances, Letters of Credit or other extensions of credit under any
Loan Document; (ii) commence any legal or other action to collect any or
all of the obligations under the Loan Documents from any Borrower; (iii) foreclose
or otherwise realize on any or all of the Collateral; (iv) set off or
apply to the payment of any or all of the obligations under the Loan Documents
any property belonging to any Borrower that is held by the Lender; and (v) take
any other enforcement action or otherwise exercise any or all rights and
remedies provided for by any Loan Document or applicable law, all of which
rights and remedies are fully reserved by the Lender.


 


(c)           Any agreement by the Lender
to extend the Forbearance Period or to waive a Forbearance Default must be set
forth in writing and signed by a duly authorized signatory of the Lender.  The Lender is not obligated to extend the
Forbearance Period or waive a Forbearance Default, and may decide to do so (or
not do so) in its sole discretion.  Each
of the Borrowers acknowledges that the Lender has not made any assurances
concerning any extension of the Forbearance Period or waiver of any Forbearance
Defaults.


 


(d)           The parties hereto agree
that the running of all statutes of limitation or doctrine of laches applicable
to all claims or causes of action that the Lender may be entitled to take or
bring in order to enforce its rights and remedies against any Borrower is, to
the fullest extent permitted by law, tolled and suspended during the
Forbearance Period.


 


(e)           Each of the Borrowers
acknowledges and agrees that any Advance or other financial accommodation which
the Lender makes on or after the Forbearance Effective 


 


4

















 


Date has been made by such party in reliance upon, and is consideration
for, among other things, the general releases and indemnities contained in Section 6
hereof and the other covenants, agreements, representations and warranties of
the Borrowers hereunder.


 


SECTION 5.                                           Supplemental Terms, Conditions and Covenants During the
Forbearance Period.


 


The parties hereto hereby
agree to comply with the following terms, conditions and covenants during the
Forbearance Period, in each case notwithstanding any provision to the contrary
set forth in any Loan Document:


 


(a)           Restricted Payments.  During the Forbearance Period, no Borrower
shall make any Restricted Payment, other than a stock dividend payable in
common stock of the Company and approved by the Lender in its sole discretion.


 


(b)           Refinancing.   During the Forbearance Period, the Borrowers
shall use their best efforts to obtain a Refinancing.  The senior management of the Borrower shall
actively participate in such meeting or conference calls with the Lender as the
Lender shall require for the purpose of providing updates with respect to the
operations, business affairs and financial condition of Borrower and progress
reports with respect to the Refinancing.


 


(c)           Delivery of Information.  The Borrowers agree that:


 


(i)            within 20 days after the end
of each calendar month, the Borrowers deliver to the Lender unaudited
consolidated and consolidating financial statements of the Company and its
Subsidiaries, comprised of consolidated and consolidating balance sheets and
income statements, for the period then ended, prepared in accordance with GAAP,
except that the Company shall not be required to re-value the Company’s Series A
Convertible Preferred Stock and related warrants; and


 


(ii)           not later than Wednesday of
each calendar week, the Borrowers shall deliver to the Lender a Borrowing Base
Certificate setting forth the Borrowing Base as of the last Business Day of the
immediately preceding calendar week, an statement of actual cash flow for the
week then ended and a cash flow forecast, in form and detail acceptable to the
Lender, for the next succeeding period of 13 weeks, and accounts receivable and
accounts payable listing and agings of the Borrowers as of the last Business
Day of the immediately preceding calendar week.


 


(d)           Cash Collateral Account.  All payments on Accounts and other
Collateral, all proceeds of Collateral, and all other cash derived from any
source by Borrower shall be deposited in the Cash Collateral Account in
accordance with the provisions of Section 8(k) of the Loan Agreement.


 


(e)           Payment in Full.  The Borrowers shall pay the Advances, the
Term Loan and all other Obligations in full not later than June 15, 2009.


 


(f)            Forbearance Fee.  The Borrowers shall pay to the Lender, on the
date of this Agreement, a forbearance fee of $10,000.


 


5

















 


The failure by the Borrower
to comply with any of the above covenants shall constitute a Forbearance
Default, and Sections 4(b) - (d) of this Agreement shall
immediately apply without the requirement of any demand, presentment, protest,
or notice of any kind to any Borrower (all of which each Borrower waives).


 


SECTION 6.                                           General Release; Indemnity.


 


(a)           IN CONSIDERATION OF, AMONG
OTHER THINGS, LENDER’S EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
RELEASORS HEREBY FOREVER AGREES AND COVENANTS NOT TO SUE OR PROSECUTE AGAINST
ANY RELEASEE AND HEREBY FOREVER WAIVES, RELEASES AND DISCHARGES, TO THE FULLEST
EXTENT PERMITTED BY LAW, EACH RELEASEE FROM ANY AND ALL CLAIMS THAT SUCH
RELEASOR NOW HAS OR HEREAFTER MAY HAVE, OF WHATSOEVER NATURE AND KIND,
WHETHER KNOWN OR UNKNOWN, WHETHER NOW EXISTING OR HEREAFTER ARISING, WHETHER
ARISING AT LAW OR IN EQUITY, AGAINST THE RELEASEES, BASED IN WHOLE OR IN PART ON
FACTS, WHETHER OR NOT NOW KNOWN, EXISTING ON OR BEFORE THE FORBEARANCE
EFFECTIVE DATE, THAT RELATE TO, ARISE OUT OF OR OTHERWISE ARE IN CONNECTION
WITH:  (I) ANY OR ALL OF THE LOAN
DOCUMENTS OR TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTIONS OR OMISSIONS IN
CONNECTION THEREWITH; OR (II) ANY ASPECT OF THE DEALINGS OR RELATIONSHIPS
BETWEEN OR AMONG THE BORROWERS, ON THE ONE HAND, AND ANY OR ALL OF LENDER, ON
THE OTHER HAND, RELATING TO ANY OR ALL OF THE DOCUMENTS, TRANSACTIONS, ACTIONS
OR OMISSIONS REFERENCED IN CLAUSE (I) HEREOF.  THE RECEIPT BY ANY BORROWER OF ANY LOANS OR
OTHER FINANCIAL ACCOMMODATIONS MADE BY LENDER AFTER THE DATE HEREOF SHALL
CONSTITUTE A RATIFICATION, ADOPTION, AND CONFIRMATION BY SUCH BORROWER OF THE
FOREGOING GENERAL RELEASE OF ALL CLAIMS AGAINST THE RELEASEES WHICH ARE BASED
IN WHOLE OR IN PART ON FACTS, WHETHER OR NOT NOW KNOWN OR UNKNOWN,
EXISTING ON OR PRIOR TO THE DATE OF RECEIPT OF ANY SUCH LOANS OR OTHER
FINANCIAL ACCOMMODATIONS.  IN ENTERING
INTO THIS AGREEMENT, EACH BORROWER CONSULTED WITH, AND HAS BEEN REPRESENTED BY,
LEGAL COUNSEL AND EXPRESSLY DISCLAIMS ANY RELIANCE ON ANY REPRESENTATIONS, ACTS
OR OMISSIONS BY ANY OF THE RELEASEES AND HEREBY AGREES AND ACKNOWLEDGES THAT
THE VALIDITY AND EFFECTIVENESS OF THE RELEASES SET FORTH ABOVE DO NOT DEPEND IN
ANY WAY ON ANY SUCH REPRESENTATIONS, ACTS OR OMISSIONS OR THE ACCURACY,
COMPLETENESS OR VALIDITY HEREOF.  THE
PROVISIONS OF THIS SECTION SHALL SURVIVE THE TERMINATION OF THIS
AGREEMENT, ANY LOAN DOCUMENT, AND PAYMENT IN FULL OF THE OBLIGATIONS UNDER THE
LOAN DOCUMENTS.


 


(b)           EACH BORROWER HEREBY AGREES
THAT IT SHALL BE JOINTLY AND SEVERALLY OBLIGATED TO INDEMNIFY AND HOLD THE
RELEASEES HARMLESS WITH RESPECT TO ANY AND ALL LIABILITIES, OBLIGATIONS,
LOSSES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS
OF ANY KIND OR NATURE WHATSOEVER 


 


6

















 


INCURRED BY THE RELEASEES, OR ANY OF THEM, WHETHER DIRECT, INDIRECT OR
CONSEQUENTIAL, AS A RESULT OF OR ARISING FROM OR RELATING TO ANY PROCEEDING BY,
OR ON BEHALF OF ANY PERSON, INCLUDING, WITHOUT LIMITATION, THE RESPECTIVE
OFFICERS, DIRECTORS, AGENTS, TRUSTEES, CREDITORS, PARTNERS OR SHAREHOLDERS OF
ANY BORROWER, OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, WHETHER THREATENED OR
INITIATED, IN RESPECT OF ANY CLAIM FOR LEGAL OR EQUITABLE REMEDY UNDER ANY
STATUTE, REGULATION OR COMMON LAW PRINCIPLE ARISING FROM OR IN CONNECTION WITH
THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION
AND ENFORCEMENT OF THE LOAN DOCUMENTS, THIS AGREEMENT OR ANY OTHER DOCUMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH; PROVIDED, THAT NO BORROWER SHALL
HAVE ANY OBLIGATION TO INDEMNIFY OR HOLD HARMLESS ANY RELEASEE HEREUNDER WITH
RESPECT TO LIABILITIES TO THE EXTENT THEY RESULT FROM THE WILLFUL MISCONDUCT OR
GROSS NEGLIGENCE OF THAT RELEASEE AS FINALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION.  IF AND TO THE EXTENT THAT
THE FOREGOING UNDERTAKING MAY BE UNENFORCEABLE FOR ANY REASON, EACH
BORROWER AGREES TO MAKE THE MAXIMUM CONTRIBUTION TO THE PAYMENT AND
SATISFACTION THEREOF WHICH IS PERMISSIBLE UNDER APPLICABLE LAW.  THE FOREGOING INDEMNITY SHALL SURVIVE THE
TERMINATION OF THIS AGREEMENT, ANY LOAN DOCUMENT, AND THE PAYMENT IN FULL OF
THE OBLIGATIONS UNDER THE LOAN DOCUMENTS.


 


(c)           EACH BORROWER, ON BEHALF OF
ITSELF AND ITS SUCCESSORS, ASSIGNS, AND OTHER LEGAL REPRESENTATIVES, HEREBY
ABSOLUTELY, UNCONDITIONALLY AND IRREVOCABLY, COVENANTS AND AGREES WITH AND IN
FAVOR OF EACH RELEASEE THAT IT WILL NOT SUE (AT LAW, IN EQUITY, IN ANY
REGULATORY PROCEEDING OR OTHERWISE) ANY RELEASEE ON THE BASIS OF ANY CLAIM
RELEASED, REMISED AND DISCHARGED BY ANY BORROWER PURSUANT TO SECTION 6
HEREOF.  IF ANY BORROWER OR ANY OF ITS
SUCCESSORS, ASSIGNS OR OTHER LEGAL REPRESENTATIVES VIOLATES THE FOREGOING
COVENANT, EACH BORROWER, FOR ITSELF AND ITS SUCCESSORS, ASSIGNS AND LEGAL
REPRESENTATIVES, AGREES 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 ANY RELEASEE AS A RESULT OF SUCH VIOLATION.


 


SECTION 7.                                           Representations, Warranties and Covenants of the
Borrowers.  To induce the Lender to execute and deliver
this Agreement, each Borrower represents, warrants and covenants that:


 


(a)           The execution, delivery and
performance by each of the Borrowers of this Agreement and all documents and
instruments delivered in connection herewith and all Loan Documents have been
duly authorized by Borrower’s Boards of Directors, managers or members, as
applicable, and this Agreement and all documents and instruments delivered in
connection herewith and all Loan Documents are legal, valid and binding
obligations of such Borrowers enforceable against such parties in accordance
with their respective terms, except as 


 


7

















 


the enforcement thereof may be subject to (i) the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar law
affecting creditors’ rights generally and (ii) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law);


 


(b)           Except with respect to the
Specified Defaults, each of the representations and warranties set forth in the
Loan Documents  is true and correct on
and as of the date hereof as if made on the date hereof, except to the extent that
such representations and warranties expressly relate to an earlier date, in
which case such representations and warranties shall be true and correct as of
such earlier date, and each of the agreements and covenants in the Loan
Documents is hereby reaffirmed with the same force and effect as if each were
separately stated herein and made as of the date hereof;


 


(c)           Neither the execution,
delivery and performance of this Agreement and all documents and instruments
delivered in connection herewith nor the consummation of the transactions
contemplated hereby or thereby does or shall contravene, result in a breach of,
or violate (i) any provision of Borrower’s corporate charter, bylaws,
operating agreement, or other governing documents, (ii) any law or regulation,
or any order or decree of any court or government instrumentality, or (iii) any
mortgage, deed of trust, lease, agreement or other instrument to which any
Borrower is a party, or by which any Borrower or its property is bound;


 


(d)           As of the date hereof,
except for the Specified Defaults, no Event of Default has occurred or is
continuing under this Agreement or any Loan Document.


 


(e)           The Lender’ security
interests in the Collateral continue to be valid, binding, and enforceable
first-priority security interests which secure the obligations under the Loan
Documents and no tax or judgment liens are currently on record against any
Borrower;


 


(f)            Except with respect to the
Specified Defaults, any misrepresentation of a Borrower, or any failure of a
Borrower to comply with the covenants, conditions and agreements contained in
any agreement, document or instrument executed or delivered by any Borrower
with, to or in favor of the Lender shall constitute a Forbearance Default
hereunder and an immediate Event of Default under the Loan Agreement; and


 


(g)           The recitals to this
Agreement are true and correct.


 


SECTION 8.                                           Ratification of Liability.  Each Borrower, as debtor, grantor, pledgor,
guarantor, assignor, or in other similar capacity in which such party grants
liens or security interests in its properties or otherwise acts as an
accommodation party or guarantor, as the case may be, under the Loan Documents,
hereby ratifies and reaffirms all of its payment and performance obligations
and obligations to indemnify, contingent or otherwise, under each Loan Document
to which such party is a party, and each such party hereby ratifies and
reaffirms its grant of liens on or security interests in its properties
pursuant to such Loan Documents to which it is a party as security for the
obligations under or with respect to the Loan Agreement, and confirms and
agrees that such liens and security interests hereafter secure all of the
obligations under the Loan Documents, including, without limitation, all
additional obligations hereafter arising or incurred pursuant to or in
connection with this Agreement or any Loan Document.


 


8
















 


Each Borrower further agrees
and reaffirms that the Loan Documents to which it is a party now apply to all
obligations as modified hereby (including, without limitation, all additional
obligations hereafter arising or incurred pursuant to or in connection with
this Agreement or any Loan Document). 
Each such party (i) further acknowledges receipt of a copy of this
Agreement and all other agreements, documents, and instruments executed or
delivered in connection herewith, (ii) consents to the terms and conditions
of same, and (iii) agrees and acknowledges that each of the Loan
Documents, as modified hereby, remains in full force and effect and is hereby
ratified and confirmed.  Except as
expressly provided herein, the execution of this Agreement shall not operate as
a waiver of any right, power or remedy of the Lender, nor constitute a waiver
of any provision of any of the Loan Documents nor constitute a novation of any
of the obligations under the Loan Documents.


 


SECTION 9.                                           Reference to and Effect Upon the Loan Agreement


 


(a)           Except as specifically
amended hereby, all terms, conditions, covenants, representations and
warranties contained in the Loan Documents, and all rights of the Lender and
all of the obligations under the Loan Documents, shall remain in full force and
effect.  Each of the Borrowers hereby
confirms that the Loan Documents are in full force and effect, and that no
Borrower has any right of setoff, recoupment or other offset or any defense,
claim or counterclaim with respect to any Loan Document or the Borrowers’
obligations thereunder.


 


(b)           Except as expressly set
forth herein, the execution, delivery and effectiveness of this Agreement and
any consents or waivers set forth herein shall not directly or indirectly:  (i) create any obligation to make any
further Loans or to continue to defer any enforcement action after the
occurrence of any Default or Event of Default (including, without limitation,
any Forbearance Default); (ii) constitute a consent or waiver of any past,
present or future violations of any provisions of this Agreement and the Loan
Documents; (iii) amend, modify or operate as a waiver of any provision of
any Loan Document or any right, power or remedy of the Lender; (iv) constitute
a consent to any merger or other transaction or to any sale, restructuring or
refinancing transaction; or (v) constitute a course of dealing or other
basis for altering any obligations under the Loan Documents or any other
contract or instrument.  Except as
expressly set forth herein, the Lender reserves all of its rights, powers, and
remedies under the Loan Documents and applicable law.  All of the provisions of the Loan Documents,
including, without limitation, the time of the essence provisions, are hereby
reiterated, and if ever waived previously, are hereby reinstated.


 


(c)           From and after the
Forbearance Effective Date, (i) the term “Agreement” in the Loan
Agreement, and all references to the Loan Agreement in any Loan Document shall
mean the Loan Agreement, as amended by this Agreement, and (ii) the term “Loan
Documents” defined in the Loan Agreement shall include, without limitation,
this Agreement and any agreements, instruments and other documents executed or
delivered in connection herewith.


 


(d)           Except as expressly set
forth herein with respect to the Specified Defaults, the Lender has not waived,
nor is by this Agreement waiving, or has any intention of waiving (regardless
of any delay in exercising such rights and remedies), any Default, Event of
Default or Forbearance Default which may be continuing on the date hereof or
any Default, Event of Default or Forbearance Default which may occur after the
date hereof (whether the same or 


 


9

















 


similar to the Specified Defaults or
otherwise).  the Lender has not agreed to
forbear with respect to any of its rights or remedies concerning any Default,
Event of Default or Forbearance Default (other than, during the Forbearance
Period, the Specified Defaults solely to the extent expressly set forth herein),
which may have occurred or are continuing as of the date hereof, or which may
occur after the date hereof.


 


(e)           Each Borrower agrees and
acknowledges that the Lender’ agreement to forbear from exercising certain of
its default-related rights and remedies with respect to the Specified Defaults
during the Forbearance Period does not in any manner whatsoever limit the
Lender’s right to insist upon strict compliance by the Borrowers with this
Agreement or any Loan Document during the Forbearance Period, except as
expressly set forth herein.


 


(f)            This Agreement shall not be
deemed or construed to be a satisfaction, reinstatement, novation or release of
the Loan Documents.


 


SECTION 10.                                    Costs and Expenses.  In addition to, and not in lieu of, the terms
of the Loan Documents relating to the reimbursement of the Lender fees and
expenses, the Borrowers shall reimburse the Lender promptly on demand for all
fees, costs, charges and expenses, including the fees, costs and expenses of
counsel and other expenses (including all fees and expenses of Hunton &
Williams LLP), incurred in connection with this Agreement, the Refinancing, and
any other agreements and documents executed or delivered in connection with
this Agreement or the Refinancing.


 


SECTION 11.                                    Governing Law; Consent to Jurisdiction and Venue.  THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF VIRGINIA
WITHOUT REGARD TO SUCH JURISDICTION’S CONFLICTS OF LAWS PRINCIPLES.  EACH BORROWER CONSENTS AND AGREES THAT THE
FEDERAL COURTS LOCATED IN THE CITY OF ALEXANDRIA, VIRGINIA AND THE STATE COURTS
LOCATED IN FAIRFAX COUNTY, VIRGINIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR
AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY OR ALL OF THE BORROWERS AND
LENDER PERTAINING TO THE LOAN DOCUMENTS OR THIS AGREEMENT OR ANY MATTER
RELATING TO, IN CONNECTION WITH, OR ARISING OUT OF THE LOAN DOCUMENTS OR THIS
AGREEMENT; PROVIDED, THAT THE PARTIES HERETO ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE
OF SUCH JURISDICTIONS; AND PROVIDED  FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS
UNDER THE LOAN DOCUMENTS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF LENDER. 
FOR THE AVOIDANCE OF DOUBT, EACH BORROWER ACKNOWLEDGES AND AGREES THAT
IT SHALL NOT BRING ANY ACTION AGAINST LENDER RELATING TO, IN CONNECTION WITH,
OR ARISING OUT OF THE LOAN DOCUMENTS OR THIS AGREEMENT IN ANY FEDERAL COURT
LOCATED OUTSIDE THE CITY OF ALEXANDRIA VIRGINIA OR ANY STATE COURT LOCATED 


 


10

















 


OUTSIDE FAIRFAX COUNTY,
VIRGINIA.  EACH BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND WAIVES ANY OBJECTION WHICH IT MAY HAVE
BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM  NON
CONVENIENS, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.  EACH BORROWER WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OR SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE
MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS
SET FORTH IN SECTION 9.8 OF THE LOAN AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER’S ACTUAL RECEIPT
THEREOF OR THREE (3) BUSINESS DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER
POSTAGE PREPAID.


 


SECTION 12.                                    Construction.  This Agreement and all other agreements and
documents executed or delivered in connection herewith have been prepared
through the joint efforts of all of the parties hereto.  Neither the provisions of this Agreement or
any such other agreements and documents nor any alleged ambiguity therein shall
be interpreted or resolved against any party on the ground that such party or
its counsel drafted this Agreement or such other agreements and documents, or
based on any other rule of strict construction.  Each of the parties hereto represents and
declares that such party has carefully read this Agreement and all other
agreements and documents executed in connection therewith, and that such party
knows the contents thereof and signs the same freely and voluntarily.  The parties hereto acknowledge that they have
been represented by legal counsel of their own choosing in negotiations for and
preparation of this Agreement and all other agreements and documents executed
in connection herewith and that each of them has read the same and had their
contents fully explained by such counsel and is fully aware of their contents
and legal effect.  If any matter is left
to the decision, right, requirement, request, determination, judgment, opinion,
approval, consent, waiver, satisfaction, acceptance, agreement, option or
discretion of the Lender or its employees, counsel, or agents in the Loan
Documents, such action shall be deemed to be exercisable by the Lender or such
other Person in its sole and absolute discretion and according to standards
established in its sole and absolute discretion.  Without limiting the generality of the
foregoing, “option” and “discretion” shall be implied by the use of the words “if”
and “may.”


 


SECTION 13.                                    Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed an original,
but all such counterparts shall constitute one and the same instrument, and all
signatures need not appear on any one counterpart.  Any party hereto may execute and deliver a
counterpart of this Agreement by delivering by facsimile or other electronic
transmission a signature page of this Agreement signed by such party, and
any such facsimile or other electronic signature shall be treated in all
respects as having the same effect as an original signature.


 


SECTION 14.                                    Severability.  The invalidity, illegality, or
unenforceability of any provision in or obligation under this Agreement in any
jurisdiction shall not affect or impair the validity, legality, or
enforceability of the remaining provisions or obligations under this Agreement
or of such provision or obligation in any other jurisdiction.  If feasible, any such offending provision 


 


11

















 


shall be deemed modified to
be within the limits of enforceability or validity; provided, however,
if the offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain valid and
enforceable.


 


SECTION 15.                                    Time of Essence.  Time is of the essence in the performance of
each of the obligations of the Borrowers hereunder and with respect to all
conditions to be satisfied by such parties.


 


SECTION 16.                                    No Other Creditor Action.  The Lender’s agreement to forbear and to
continue to make Advances hereunder are expressly conditioned upon all other
creditors of the Borrowers having a valid claim in excess of $100,000
refraining from taking any action against any Borrower or the Collateral
(including, without limitation, acceleration of indebtedness) during the
Forbearance Period to collect its claim. 
In the event that any such creditor takes any such action, all of the
Lender’ obligations hereunder shall, at the option of the Lender, terminate
without further notice or demand, and Sections 4(b) - (d) of
this Agreement shall apply.


 


SECTION 17.                                    Further Assurances.  Each Borrower agrees to, and to cause any
other Borrower to, take all further actions and execute all further documents
as the Lender may from time to time reasonably request to carry out the
transactions contemplated by this Agreement and all other agreements executed
and delivered in connection herewith.


 


SECTION 18.                                    Section Headings.  Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute part
of this Agreement for any other purpose.


 


SECTION 19.                                    Notices.  All notices,
requests, and demands to or upon the respective parties hereto shall be given
in accordance with the Loan Agreement.


 


SECTION 20.                                    Effectiveness.  This Agreement shall become effective on the
Forbearance Effective Date, provided that all of the following conditions
precedent have been met (or waived) as determined by the Lender in its sole
discretion:


 


(a)           Agreement.  The Lender shall have received duly executed
signature pages for this Agreement signed by the Lender and all
Borrowers.  Each of the Borrowers hereby
represents that it has received all necessary internal consents to enter into
this Agreement.


 


(b)           Representations and
Warranties.  The
representations and warranties contained herein shall be true and correct, and
except as expressly set forth herein with respect to the Specified Defaults, no
Forbearance Default, Default, Event of Default or event which with notice, the
passage of time or both would constitute a Forbearance Default or an Event of
Default (other than the Specified Defaults) shall exist on the date hereof.


 


SECTION 21.                                    Waivers by the Borrowers.


 


(a)           Waiver of Jury Trial Right
And Other Matters.  EACH
BORROWER HEREBY WAIVES (I) THE RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AGREEMENT, ANY LOAN DOCUMENTS, THE OBLIGATIONS UNDER THE 


 


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LOAN DOCUMENTS, OR THE COLLATERAL; (II) PRESENTMENT,
DEMAND AND PROTEST, AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NONPAYMENT,
MATURITY, RELEASE WITH RESPECT TO ALL OR ANY PART OF THE OBLIGATIONS UNDER
THE LOAN DOCUMENTS OR ANY COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS,
DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER
ON WHICH ANY BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND
CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (III) NOTICE PRIOR TO
TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF ITS
RIGHTS AND REMEDIES, OTHER THAN NOTICES REQUIRED BY THE UNIFORM COMMERCIAL
CODE AND THE LOAN DOCUMENTS; (IV) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS AND ALL RIGHTS WAIVABLE UNDER ARTICLE 9 OF
THE UNIFORM COMMERCIAL CODE; (V) ANY RIGHT ANY BORROWER MAY HAVE
UPON PAYMENT IN FULL OF THE OBLIGATIONS UNDER THE LOAN DOCUMENTS TO REQUIRE
LENDER TO TERMINATE ITS SECURITY INTEREST IN THE COLLATERAL OR IN ANY OTHER
PROPERTY OF ANY BORROWER UNTIL TERMINATION OF THE LOAN AGREEMENT IN ACCORDANCE
WITH ITS TERMS AND THE EXECUTION BY BORROWER, AND BY ANY PERSON WHO PROVIDES
FUNDS TO BORROWER WHICH ARE USED IN WHOLE OR IN PART TO SATISFY THE
OBLIGATIONS UNDER THE LOAN DOCUMENTS, OF AN AGREEMENT INDEMNIFYING ANY OR ALL
OF LENDER FROM ANY LOSS OR DAMAGE ANY SUCH PARTY MAY INCUR AS THE RESULT
OF DISHONORED CHECKS OR OTHER ITEMS OF PAYMENT RECEIVED BY LENDER P ARTY FROM
BORROWER, OR ANY ACCOUNT DEBTOR AND APPLIED TO THE OBLIGATIONS AND RELEASING
AND INDEMNIFYING, IN THE SAME MANNER AS DESCRIBED IN SECTION 6 OF THIS
AGREEMENT, THE RELEASEES FROM ALL CLAIMS ARISING ON OR BEFORE THE DATE OF SUCH
TERMINATION STATEMENT; AND (VI) NOTICE OF ACCEPTANCE HEREOF, AND THE
BORROWERS EACH ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL
INDUCEMENT TO LENDER ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING
UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH THE BORROWERS.  EACH OF THE BORROWERS WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS
KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.  IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE COURT.


 


SECTION 22.                                    Assignments; No Third Party Beneficiaries.  This Agreement shall be binding upon and
inure to the benefit of each of the Borrowers, the Lender and their respective
successors and assigns; provided, that no Borrower shall be entitled to
delegate any of its duties hereunder and shall not assign any of its rights or
remedies set forth in this Agreement without the prior written consent of the
Lender in its sole discretion.  No Person
other than the parties hereto (and in the case of Section 6 hereof,
the Releasees) shall have any rights hereunder or be entitled to rely on this
Agreement and all third-party beneficiary rights (other than the rights of the
Releasees under Section 6 hereof) are hereby expressly disclaimed.


 


13

















 


SECTION 23.                                    Final Agreement.  This Agreement sets forth in full the terms
of agreement between the parties hereto with respect to the forbearance and the
second amendment to the Loan Agreement specified herein, and is intended to be
the full, complete, and exclusive contract governing those matters, superseding
all other discussions, promises, representations, warranties, agreements, and
understandings between the parties with respect thereto.  No term of this Agreement may be modified or
amended, nor may any rights thereunder be waived, except in a writing signed by
the party against whom enforcement of the modification, amendment, or waiver is
sought.  Any waiver of any condition in,
or breach of, any of the foregoing in a particular instance shall not operate
as a waiver of other or subsequent conditions or breaches of the same or a
different kind.  the Lender’s exercise or
failure to exercise any rights or remedies under any of the foregoing in a
particular instance shall not operate as a waiver of its right to exercise the
same or different rights and remedies in any other instances.  There are no oral agreements among the
parties hereto that are inconsistent with the terms of this Agreement.


 


(Remainder of the page intentionally left blank)


 


14

















 


IN WITNESS
WHEREOF,  this
Forbearance Agreement and Amendment to Loan Agreement has been executed by the
parties hereto as of the date first written above.


 


 


	
   

  	
  BORROWERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERICAN DEFENSE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  A. J. PISCITELLI &
  ASSOCIATES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERICAN PHYSICAL SECURITY GROUP, LLC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TD BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Vice President

  



 


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