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.
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.
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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.
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
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