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Merrill Lynch
FORBEARANCE AGREEMENT
This FORBEARANCE
AGREEMENT (the "Forbearance Agreement") is
entered into as of July 17, 2006 and will serve to confirm certain
agreements of MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC. ("MLBFS"), Aspect Systems,
Inc, ("Customer"), DND Technologies, Inc. ("DND"), and Douglas N.
Dixon ("Dixon") with respect to the following:
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i)
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A certain Term LOAN AND SECURITY
AGREEMENT No. 912852522 dated as of May 14,
2004 between MLBFS and Customer, as thereafter supplemented,
renewed, extended and/or amended including but not limited to that
certain Letter Agreement dated as of May 17,
2006 (the "Loan Agreement");
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ii)
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A certain UNCONDITIONAL
GUARANTY dated as of May 14, 2004
respectively, and given to MLBFS by Dixon (the "Personal
Guaranty");
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iii)
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A certain UNCONDITIONAL
GUARANTY dated as of November 4, 2005
respectively, and given to MLBFS by DND respectively (the "Business
Guaranty);
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iv)
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All other agreements between MLBFS and Customer,
Dixon, and DND or any other party who at any time has guaranteed or
provided collateral, or will hereinafter guarantee or provide
collateral (a "Guarantor", or, if plural, "Guarantors"), for
Customer’s obligations to MLBFS in connection therewith (the
"Additional Agreements").
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For purposes of this Forbearance Agreement, (i)
Customer, Dixon, DND, and Guarantor(s) are collectively referred to
as the "Obligors", and (ii) the Loan Agreement, the Letter
Agreement, the Personal Guaranty, the Business Guaranty and
Additional Agreements are collectively referred to as the "Loan
Documents." Capitalized terms used herein and not defined herein
shall have the meaning set forth in the Loan Documents.
RECITALS
1. On June 15, 2006 the Letter Agreement
extending the termination date expired on its own terms and
conditions. Upon maturity of the Loan Agreement the entire
indebtedness became immediately due and payable in full.
2. Obligors and MLBFS have had ongoing
negotiations regarding the repayment of the Obligations, and such
negotiations have not, prior to the date hereof, resulted in any
written or executed agreements.
3. Obligors represented to MLBFS that they are
unable to fully repay the Obligations at this time and have
thereupon requested (i) that MLBFS forbear from exercising its
rights and remedies under the Loan Documents, and (ii) that MLBFS
defer the full collection of the Obligations while Obligors seek
alternative financing to fully repay the Obligations owed to
MLBFS.
4. As a result of their inability to fully repay
the Obligations at this time, and to allow Obligors time to seek
alternative financing, MLBFS has agreed (i) to forbear from
exercising its rights and remedies under the Loan Documents
pursuant to the terms and conditions hereof, and (ii) to defer the
full collection of the Obligations until the Termination Date (as
hereinafter defined), subject to Obligors’ full and complete
compliance with all of the terms set forth in this Forbearance
Agreement.
AGREEMENT
Accordingly, in consideration of the premises and
of the mutual covenants herein, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as
follows:
1. Recitals. The Recitals are true, accurate and complete, are not
misleading in any material respect, constitute a material part of
this Forbearance Agreement, and are incorporated by reference as if
fully set forth herein.
2. Acknowledgment of Defaults and
Events of Default. Obligors acknowledge and
agree: (i) that one ore more Events of Default have occurred and
are continuing under the Loan Documents; (ii) that Obligors have
waived (and hereby waive) any requirement that MLBFS provide
further written notice that any Default or Event of Default has
occurred under the Loan Documents; (iii) that the Events of Default
are continuing without timely cure; (iv) that all amounts
outstanding under the Loan Documents have been accelerated and are
immediately due and payable in full, and (v) that MLBFS has not
waived any of the Events of Default, or any of MLBFS’ rights
and remedies with respect to the Events of Default, in any
respect.
3. Exercise of Remedies.
Obligors acknowledge that (i) since the occurrence
of the Events of Default, MLBFS has had and continues to have the
right to exercise any remedies it may have under the Loan
Documents, including, without limitation, the right to declare the
principal of and interest on the WCMA Loan Balance and all
Obligations and all other amounts owed to MLBFS to be forthwith due
and payable; and (ii) MLBFS’ exercise of any remedies under
the Loan Documents or applicable law, should they be pursued by
MLBFS, would be in all respects adequate and proper.
4. Indebtedness.
Obligors acknowledge that the total sum owed to
MLBFS, as of the open of business on July 16, 2006, is as to the
Loan Agreement; (a) $689,602.03 , consisting of $582,162.31 in principal, $19,157.65 in accrued and unpaid interest with respect to the Term
Loan, $9,349.53 in accrued
and unpaid late fees, $70,626.84
in accrued and unpaid legal expenses,
$8,117.68 in accrued and unpaid
Appraisal Expenses, $188.02 in other fees; plus (b)
additional interest that has accrued or will accrue after July 16,
2006, and (c) all costs and attorneys’ fees incurred by MLBFS
in connection with its efforts to collect the amounts owed by
Obligors under the Loan Documents and (d) all costs and
attorneys’ fees incurred by MLBFS in connection with its
efforts to collect the amounts owed by Obligors under the Loan
Documents (collectively referred to the "Term Obligations" or the
"Debt"). Obligors further acknowledge and agree that the Debt
remains outstanding and unpaid, is due and payable in full without
offset, deduction or counterclaim of any kind, and is subject to
increase or adjustment as a result of any interest, fees and other
charges of any kind, including, without limitation,
attorneys’ fees and costs of collection. Obligors further
agree that the Debt and all interest imposed under the Loan
Documents through the date of this Forbearance Agreement, and all
fees and other charges that have been collected from or imposed
with respect to the Loan Documents, including, without limitation,
attorney’s fees and costs of collection, were and are agreed
to, and have been properly computed.
4. Loan Documents.
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(a) Obligors acknowledge and agree (i) that the
Loan Documents are legal, valid and binding obligations of Obligors
and are enforceable in accordance with their terms by MLBFS, and
(ii) that Obligors have no defenses, counterclaims or rights of
set-off which would affect MLBFS’ ability to enforce the Loan
Documents. If Obligors have any such defenses, counterclaims or
rights of setoff, Obligors, through their execution of this
Forbearance Agreement, hereby waive such defenses, counterclaims or
rights of setoff. Furthermore, Obligors acknowledge and agree that
Obligors were notified that the Term Loan was with all respects
terminated and all amounts outstanding thereon were duly
accelerated and were then immediately due and payable; and the
Obligors affirm and agree that such Debt remains and continues to
be due and payable. Except as expressly amended hereby, the Loan
Documents shall continue in full force and effect upon all of their
terms and conditions.
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(b) No offsets. Obligors acknowledge and agree
(i) that the Debt has been accelerated and is just, true and
unpaid; (ii) that Obligors are jointly and severally obligated to
pay the Debt in full; (iii) that all payments, credits and set offs
have been applied against the Debt; (iv) that there are no offsets,
defenses or counterclaims with respect to the Debt; (v) that there
are no claims or defenses in the abatement or reduction of the
Debt; (vi) that Obligors have no other claims whatsoever against
MLBFS; (vii) that MLBFS has performed fully all obligations that it
had, may have had, or now has under the Loan Documents, and (viii)
that MLBFS has no obligation to make any additional loans or
extensions of credit to or for the benefit of any of the Obligors,
except as expressly set forth in this Letter Agreement.
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6. Representations of
Obligors. In addition to any
representations set forth in the Loan Documents, all of which are
hereby ratified and confirmed in all respects, each of the Obligors
represent that: (i) Customer is a Limited Liability Company that is
organized, validly existing, and in good standing under the laws of
the State of Arizona; (ii) MLBFS has a first lien and security
interest in the Collateral, (iii) none of the Collateral is subject
to any lien, encumbrance or security interest other than the liens
and security interests of MLBFS; (iv) no litigation, arbitration,
administrative or governmental proceedings are pending or, to the
knowledge of Obligors, threatened against any Obligor, which would,
if adversely determined, materially and adversely affect the liens
and security interests of MLBFS hereunder or under any of the Loan
Documents, the financial condition of any Obligor or the continued
operations of any Obligor; and (v) Customer’s principal place
of business is 375 East Elliot Road, Suite 6, Chandler, AZ
85225.
7. Obligations of
Obligors. In exchange for MLBFS’
agreement to forbear from exercising its rights and remedies under
the Loan Documents and applicable law until the Termination Date,
the Obligors hereby represent, warrant and agree as
follows:
7.1 Payments. In exchange for MLBFS’ agreement to forbear, Obligors
hereby promise and agree to pay to the order of MLBFS, at the times
and in the manner set forth below, the following
payments:
(i) On or before August 1,
2006 , and on or before the First (1
st ) calendar day
of each calendar month thereafter through and including
until March 1 st ,
2007 , a payment in amount equal to the sum
of; (i) accrued interest at the Interest Rate, and (ii)
$24,957.95.
(ii) On or before March 31,
2007 , the Obligors will be required to
make a final payment in an amount equal to the then outstanding
Debt, plus any of MLBFS’ out of pocket fees, interest and
costs, including but not limited to attorneys’
fees.
All of the payments set forth in Paragraph 7.1
are due on the date specified with a five-day (5)
grace period , and shall be sent to either:
(i) Merrill Lynch Business Financial Services, Inc., 222 North
LaSalle Street, 17th Floor, Chicago, IL 60601 Attention: Martin
Aguilera, or (ii) 2356 Collections Center Drive, Chicago IL 60693.
Each payment received hereunder shall be applied
first to any fees and expenses of MLBFS
payable by Customer under the terms of the Loan Agreement
(including, without limitation, late charges), next
to accrued interest at the Interest Rate,
with the balance applied on account of the
unpaid principal hereof, or in such other manner as the holder
hereof may hereinafter determine from time to time for the
allocation of such payments thereof.
7.2 Interest Rate.
Obligors acknowledge, understand and agree that the
Interest Rate on the Debt shall mean a variable per annum rate
equal to the sum of (i) 4% plus (ii) the rate from time to time
published in the "Money Rates" section of The Wall
Street Journal as being the "Prime Rate" (or,
if more than one rate is published as the Prime Rate, then the
highest of the such rates). The Interest Rate will change as of the
date of publication in The Wall Street Journal
of a Prime Rate that is different from that
published on the preceding Business Day. In the event that
The Wall Street Journal shall, for any
reason, fail or cease to publish the Prime Rate, MLBFS will choose
a reasonably comparable index or source to use as the basis for the
Interest Rate.
7.3 Default Interest
Rate. Obligors acknowledge, understand and
agree that the term "Default Interest Rate" shall mean a rate equal
to the sum of (a) Eight percent (8%) per annum, and (b) the
Interest Rate. Upon the occurrence and during the continuance of a
Default Event, Default or Event of Default, the Interest Rate may
be increased to the "Default Interest Rate", as herein
provided.
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7.4 Additional Financial
Requirements. Pursuant to the terms of the
Loan Documents regarding the financial statements and information
and other general or business information and statements to be
furnished to MLBFS in accordance with Loan Documents, Obligors
shall provide or cause to be provided upon execution of this
Forbearance Agreement to MLBFS, with the following financial
information at the following dates and time, all of which shall be
in reasonable detail and certified by Customer’s chief
financial officer or chief executive:
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A.
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Monthly A/P Aging. Within fifteen (15) days after
the close of each fiscal quarter of Customer, a copy of the
Accounts Payable Aging of Customer.
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B.
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Deposit Reports: Within fifteen (15) days after
the close of each fiscal month of Customer a copy of the
Customer’s deposit report. Said report will indicate any and
all deposits which have been made by the Customer’s clients
for purchase orders.
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7.5 Collateral Appraisal and
Inspection. Obligors shall agree that MLBFS
shall retain the right, but not the obligation, to inspect the
Collateral and/or retain the services of a third party firm (said
third party firm(s) shall be selected by MLBFS in its sole and
absolute discretion) for the purpose of conducting a field
examination/asset based audit and/or an appraisal of the
Collateral. Obligors understand and unconditionally agree that any
such inspection, field examination, or appraisal of the Collateral
shall be for the sole benefit of MLBFS, and MLBFS shall not be
obligated to provide the Obligors with any information regarding
said inspections, field examinations, or appraisals. Furthermore,
the Obligors agree and understand that the Obligors shall be solely
responsible for the cost of conducting said field examination/asset
based audit and/or appraisal of the Collateral (the "Appraisal
Expense"). The Obligors agree to immediately reimburse MLBFS for
the Appraisal Expense. The Obligors shall agree that MLBFS (and/or
its authorized representatives) shall be given full access to the
Customer’s properties (both real and personal), operations,
Location(s) of Tangible Collateral.
7.6 Subordination of Notes Payable
to Douglas N. Dixon. Any notes payable (or
amounts, or accrued salary) to Douglas N. Dixon ("Dixon") shall be
subordinated to MLBFS, until such time that MLBFS is paid in full.
Provided that the Customer (or the Obligors) is not in default
under the terms of this Forbearance Agreement, MLBFS will allow
monthly principal payments in the amount of $6,250.00. Additional
payments for interest will not be allowed. Payments shall be made
on the 30 th of each calendar month. In the event of default, the Customer
and Douglas N. Dixon agree that upon notice by MLBFS the Customer
shall cease making any payments on account of the note payable to
Douglas N. Dixon. As of the Customer’s March 31, 2006 Interim
Financials the aggregate amount due to Douglas N. Dixon is
$490,936.00.
7.7 Subordination of Notes Payable
to Lynn Brewer. Any notes payable (or
earnouts, or accrued salary) to Lynn Brewer ("Brewer") shall be
subordinated to MLBFS, until such time that MLBFS is paid in full.
MLBFS will allow interest payments, provided that any such
payments, shall not in the aggregate, exceed payments to MLBFS. In
the event of default, all payments to Lynn Brewer shall cease. As
of the Customer’s March 31, 2006 Interim Financials, the
principal amount due to Lynn Brewer is $225,000.00.
7.8 Minimum Collateral
Floor. So long as there are Obligations
outstanding under the Loan Documents, then the sum of: (a) 80% of
Customer’s Eligible Accounts Receivable, and (b) 100% of
Customer’s Eligible Cash Balances, shall not at any time be
less than $650,000.00. For purposes of this covenant, the term
"Eligible Cash Balances" shall mean any financial
assets/ins
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