EXHIBIT 10.11
FORBEARANCE AGREEMENT
This Forbearance Agreement this ("Agreement") is made and executed by
and among SSP SOLUTIONS INC. ("Borrower") and the persons and entities executing
this Agreement as "Lender" parties on the signature page hereto (the "Lenders").
RECITALS
WHEREAS, Borrower has issued those Promissory Notes described on
SCHEDULE 1 hereto payable to the order of the various Lenders (the "Existing
Notes");
WHEREAS, in contemplation of the initial closing of the sale by
Borrower of shares of its Series A Preferred Stock to the various Lenders and
certain other persons (the "Series A Closing"), certain of the parties hereto
have entered into that certain Bridge Loan Agreement dated as of the date hereof
(the "Bridge Loan Agreement"), pursuant to which Borrower has incurred
indebtedness to the Lenders and certain other persons, which indebtedness is
evidenced by the Bridge Notes described on SCHEDULE 2 hereto (the "Bridge
Notes"); and
WHEREAS, pursuant to the Bridge Loan Agreement, the Lenders have agreed
to forbear as to the Existing Notes and each purchase agreement, warrant or
other agreement or instrument executed or issued in connection with the Existing
Notes (collectively with the Existing Notes, but not including the Bridge Notes,
the "Note Documents"), subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the covenants herein contained and
for other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties agree as follows:
1. RECITALS. The Recitals stated above are incorporated herein and made
a part of this Agreement.
2. ACKNOWLEDGMENT OF EXISTING NOTES. Borrower hereby acknowledges that
the Existing Notes are valid and enforceable and that it does not have any
defenses, counterclaims or set-offs to the Existing Notes, or any of the Note
Documents, and that to the extent that it may have any defenses, counterclaims
or set-offs, they are hereby waived.
3. ACKNOWLEDGMENT OF DEFAULT. Borrower hereby acknowledges that it is
in default under the Note Documents for non-payment of amounts due and owing to
the Lenders pursuant to the Existing Notes.
4. ACKNOWLEDGMENT OF DEBT. Borrower hereby acknowledges that the amount
due to the Lenders on the Existing Notes as of the date hereof is an aggregate
$9,036,690.50 ("Balance Owed"), comprised of: principal equal to $8,666,111.00,
interest accrued through August 31, 2003 equal to $370,579.50 (the "Interest
Amount") and penalties, attorneys' fees and costs equal to $760,000.00 (the
"Penalty Amount"). Borrower and the Lenders hereby acknowledge and agree that
$750,000 principal amount of the Existing Notes shown in Schedule 1C is being
used to pay the exercise price of certain Warrants held by the Lenders as
described in Section 2.6 of the Bridge Loan Agreement such that, after the
exercise and issuance of the Warrant Shares, and the exchange of $500,000 shown
in Schedule 1B for a Bridge Note, the remaining principal balance of the
Existing Notes will be $7,416,111.
5. TERM OF FORBEARANCE BY LENDERS; LIMITED WAIVER. The Lenders shall
forbear in enforcing their rights under the Note Documents, including as to all
amounts of principal, interest (except as to the Bridge Notes), penalties and
costs, until the earlier of: (i) Forbearance Termination Date (as hereinafter
defined); (ii) an Event of Default (as defined in Section 8); or (iii) the
Series A Closing. The Lenders' agreement to forbear does not extend to any
person not a party to this Agreement, nor to any party who fails to execute this
Agreement. Interest shall accrue on the Balance Owed after November 30, 2003
(the "Forbearance Termination Date") at an annual rate of 18% or the highest
rate permitted under applicable law, whichever is lower.
6. BORROWER'S OBLIGATIONS TO THE LENDER; TREATMENT OF INTEREST AND
PENALTY AMOUNTS. In exchange for, among other things, the Lenders' agreement to
forbear as provided in Section 5 hereof, Borrower, not later than three (3)
business days after the execution of this Agreement, shall issue or cause to be
issued to the Lenders an aggregate 200,000 shares of Borrower's common stock
(the "Common Shares"), among them in the amounts set forth opposite each
Lender's name on SCHEDULE 3 attached hereto. Upon issuance and delivery to the
Lenders of the Common Shares, the Interest Amount and the Penalty Amount shall
be deemed paid in full (it being understood and agreed that the Existing Notes
will be tendered for the purchase of Series A Preferred Stock in accordance with
the face value of such notes). The Borrower hereby represents and warrants to
each Lender that the Common Shares, when issued against its obligation under
this Agreement, shall be duly and validly issued, and all requisite corporate
action required to execute deliver and perform this Agreement, including,
without limitation, the issuance of the Common Shares, has been taken. The
Borrower shall register with the Securities and Exchange Commission the Common
Shares together with all shares of Borrower common stock to be registered after
the Series A Closing as contemplated by the Confidential Term Sheet, dated
August 20, 2003 relating to the offering by Borrower of its shares of Series A
Preferred Stock (the "Term Sheet").
7. RELEASE OF LENDER. In consideration of the Lenders' execution of
this Agreement as provided below, Borrower does, on its behalf and on behalf of
any successors and assigns, hereby fully and forever release, remise and forever
discharge the Lenders and their respective past and present officers, directors,
employees, agents, attorneys, predecessors-in-interest, parents, subsidiaries,
affiliates and assigns of and from any and all actions, claims, and causes of
action, suits, debts, liabilities, dues, accounts, demands, obligations, costs,
expenses, losses, damage and indemnities of every kind or nature whatsoever,
whether known or unknown, suspected or unsuspected, contingent or fixed, which
Borrower had, ever may have, own or hold, or at any time heretofore had, may
have had, owned or held, whether based on contract, tort, statute, or other
legal or equitable theory of recovery, including, but not limited to the Note
Documents.
8. EVENT OF DEFAULT. An Event of Default ("Event of Default") under
this Agreement shall exist if any of the following shall occur:
(a) If the Series A Closing fails to occur on or before the
90th day after the date of this Agreement, or Borrower otherwise shall have
failed to pay any amount owed pursuant to this Agreement when due (subject to
the forbearance terms contained herein);
(b) Default shall be made in the performance or observation by
the Borrower of any term or provision of this Agreement or any other agreement
entered into by the parties;
(c) Institution of any proceeding by or against Borrower under
any bankruptcy or insolvency statute; or
(d) Assignment by the Borrower for the benefit of creditors or
appointment of a receiver for the Borrower which shall not be dismissed within
sixty (60) days of its filing;
9. REMEDIES. From and after the occurrence of an Event of Default, each
Lender shall have the immediate right to:
(a) Conduct a private or public sale, as such Lender may
elect, of all of the collateral securing the obligations under the Note
Documents pursuant to the Uniform Commercial Code ("Sale"). Borrower waives any
and all rights and defenses to the Sale against the Lenders and the purchaser
under such Sale (the "Purchaser"), including without limitation, objections as
to price, notice, method of sale or the right of Lender to credit bid to the
extent of the Balance Owed.
(b) Execute all of the Lenders' other rights and remedies,
without limitation, under the Note Documents, which rights are cumulative under
this Agreement.
10. EXECUTION OF DOCUMENTS. The Borrower and the Lenders agree to
execute all documents necessary to effectuate the terms and conditions of this
Agreement.
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11. COURSE OF DEALING. No course of dealing on the part of any Lender
or any delay or failure on the part of any Lender to exercise any right shall
operate as a waiver of such rights or otherwise prejudice the Lenders' rights,
powers or remedies.
12. NOTICES. All notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be in writing personally delivered or sent by overnight courier or
by facsimile machine, and shall be deemed to be given for purposes of this
Agreement on the day that such writing is delivered or sent by facsimile machine
or one (1) days after such notice is sent by overnight courier to the intended
recipient thereof in accordance with the provisions of this Section 12. Unless
otherwise specified in a notice sent or delivered in accordance with the
foregoing provisions of this Section 12 of this Agreement, notices, demands,
instructions and other communications in writing shall be given to or made upon
the respective parties hereto at their respective addresses indicated for such
party below:
If to the Borrower: SSP Solutions, Inc.
00000 Xxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxxxxx 00000
Attention: President
Telecopy: (000) 000-0000
With copies to: Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx, Esq.
Telecopy: (000) 000-0000
If to a Lender: To the address set forth underneath such
Lender's name on EXHIBIT A to the Bridge Loan
Agreement, with copies to the persons
identified on such EXHIBIT A
13. ATTORNEY FEES. Subject to the limits set forth in the Term Sheet,
Borrower agrees to pay all fees and out-of-pocket expenses of the Lenders
(including, but not limited to, outside counsel to Lender and paralegals) in
connection with the Existing Notes, and in preparation of this Agreement and all
documents relating to this Agreement. In the event of a Default, Lenders shall
have available to them all rights and remedies allowable by law and as provided
in the Note Documents.
14. MODIFICATION. This Agreement represents and contains the entire
agreement and understanding between the Lenders, and Borrower and all previous
statements or understandings, whether express or implied, oral or written shall
be superseded by this Agreement. Any modifications to this Agreement must be in
writing and signed by all of the parties.
15. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which counterpart, once they are executed and
delivered shall be deemed to be an original and all of which counterparts taken
together shall constitute but one in the same agreement.
16. BENEFIT. This Agreement shall inure to the benefit of and be
binding upon the predecessors, successors, assigns, heirs, executors and
administrators of the parties hereto.
17. FAX SIGNATURE. This Agreement may be signed by facsimile signatures
with such signatures having the force and effect of the original.
18. CHOICE OF LAWS. This Agreement shall be construed in accordance
with the laws of the State of Illinois. Any suit or other action instituted by
any party for the enforcement or breach of this Agreement shall be filed in Xxxx
County, Illinois or the Northern District of Illinois.
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19. MUTUAL CONSENT. The parties each acknowledge that this Agreement
has been negotiated at arm's length, that each has had the opportunity to
consult with legal counsel if so desired and that the parties have entered into
this Agreement of their own free will.
20. REVIEW BY LEGAL COUNSEL. THE BORROWER ACKNOWLEDGES THAT IT HAS BEEN
REPRESENTED BY INDEPENDENT LEGAL COUNSEL IN CONNECTION WITH THIS AGREEMENT TO
THE EXTENT IT DEEMS NECESSARY OR DESIRABLE, OR THAT IT WAS GIVEN THE OPPORTUNITY
TO DO SO AND THAT IT FREELY AND VOLUNTARILY CHOSE NOT TO; THAT TO THE EXTENT IT
HAS RETAINED LEGAL COUNSEL, IT HAS RELIED UPON THE ADVICE OF ITS INDEPENDENT
LEGAL COUNSEL IN AGREEING TO THE TERMS AND CONDITIONS SET FORTH HEREIN AND IN
EXECUTING THIS AGREEMENT; THAT IT HAS FREELY AND VOLUNTARILY ENTERED INTO AND
EXECUTED THIS AGREEMENT; AND THAT THE SIGNATORIES HERETO HAVE BEEN FULLY
AUTHORIZED TO EXECUTE THIS AGREEMENT AND TO TAKE ALL NECESSARY ACTIONS REQUIRED
HEREUNDER.
IN WITNESS WHEREOF, the parties hereto voluntarily and intending to be
bound thereby, do execute these presents this 1st day of September, 2003.
BORROWER: SSP SOLUTIONS, INC.
a Delaware corporation
By: /s/ XXXXXX X. XXXXXX
-------------------------------
Name: Xxxxxx X. Xxxxxx
Title: CFO
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LENDERS: CRESTVIEW CAPITAL FUND, L.P.,
an Illinois limited partnership
By: /s/ XXXXXXX XXXX
-------------------------------
Title: Managing Partner
CRESTVIEW CAPITAL FUND II, L.P.,
an Illinois limited partnership
By: /s/ XXXXXXX XXXX
-------------------------------
Title: Managing Partner
CRESTVIEW OFFSHORE FUND, INC.,
an Illinois corporation
By: /s/ XXXXXXX XXXX
-------------------------------
Title: Managing Partner
NEFILIM ASSOCIATES, LLC,
a Massachusetts limited liability
company
By: /s/ XXXXXXXXX X. XXXXXXX
-------------------------------
Title: Managing Partner
/s/ XXXXXX XXXXX
-----------------------------------
XXXXXX XXXXX
/s/ XXXXXXX X. XXXXXXX
-----------------------------------
XXXXXXX X. XXXXXXX
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