Document:

Unassociated Document

    LOAN
      AGREEMENT

     

    THIS
      LOAN
      AGREEMENT (this "Agreement"),
      is
      executed as of July 21, 2006, by and between Itec Environmental Group, Inc.,
      a
      Delaware corporation (the "Company"),
      and
      Ji Y. Baek (the "Lender").

     

    WHEREAS,
      the Company wishes to borrow and the Lender wishes to lend $200,000 as a short
      term bridge loan; and

     

    WHEREAS,
      the Lender is willing to provide such financing on terms and conditions as
      set
      forth herein.

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements set forth
      herein, and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the Company and the Lender,
      intending to be legally bound, agree as follows:

     

    ARTICLE
      1

    DEFINITIONS

     

    1.1 Defined
      terms.
      Certain
      capitalized terms used in this Agreement shall have the specific meanings
      defined below:

     

    “Business
      Day”
shall
      mean a day other than a Saturday, Sunday, or other day on which commercial
      banks
      are authorized or required by law to close.

     

    “Closing
      Date”
shall
      mean the date upon which the Loan is received by the Company.

     

    "Encumbrance"
      means
      any lien, charge, security interest, mortgage, deed of trust, pledge or other
      encumbrance of any nature whatsoever.

     

    “Interest
      Rate”
shall
      mean twelve percent (12%) per annum.

     

    "Proprietary
      Rights"
      means
      all patents, trademarks, service marks, copyrights, trade names and all
      registrations and applications and renewals for any of the foregoing and all
      goodwill associated therewith.

     

    ARTICLE
      2

    THE
      LOAN

     

    2.1 Loan.
      According to the terms and subject to the conditions of this Agreement, the
      Lender shall loan to the Company on the Closing Date in the aggregate amount
      of
      Two Hundred Thousand Dollars ($200,000) (the "Loan").
      The
      Loan shall be evidenced by a promissory note in the form attached hereto as
      Exhibit
      A
      ("Note"),
      duly
      executed on behalf of the Company and dated as of the Closing Date.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.2 Interest.
      

     

    (a) Interest
      Rate.
      The
      Loan shall bear interest ("Interest")
      from
      the date of payment by the Lender until the Maturity Date at the Interest Rate
      (calculated on the basis of the actual number of days elapsed over a year of
      360
      days). Interest is payable by the Company on a monthly basis in arrears on
      the
      first Business Day of the month. 

     

    (b) Default
      Interest.
      Upon
      the occurrence of an Event of Default and for so long as such Event of Default
      continues, Interest shall accrue on the outstanding Loan amount at the rate
      per
      annum equal to the lower of eighteen percent (18%) or the maximum rate of
      interest permissible under applicable law at any time (the "Default
      Interest Rate").
      The
      term "Interest"
      shall
      include both the interest rate described in Section 2.3(a) and the Default
      Interest Rate.

     

    2.3 Maturity
      Date.
      Unless
      the Loan is earlier accelerated pursuant to the terms hereof or converted
      pursuant to the provisions of Section 4.1 hereof, the Loan and all accrued
      Interest thereon shall be due and payable in full on the date that is 30 days
      following the Closing Date (the “Maturity
      Date”).
      The
      Lender may, at the Lender's option, extend the Maturity Date on such terms
      and
      conditions as determined by the Lender in their sole discretion.

     

    ARTICLE
      3

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Organization,
      qualification and Authority.
      The
      Company is a corporation duly organized and validly existing under the laws
      of
      the State of Delaware, and is in good standing and duly qualified to do business
      as a foreign corporation in all jurisdictions where the operation of its
      business or the ownership of its properties make such qualification necessary.
      The Company has the requisite corporate power and authority to own, lease and
      operate its facilities and assets as presently owned, leased and operated,
      and
      to carry on its respective business as it is now being conducted. The Company
      has the requisite or individual right, power and authority to execute, deliver
      and carry out the terms of this Agreement and all documents and agreements
      necessary to give effect to the provisions of this Agreement and to consummate
      the transactions contemplated hereunder. The execution, delivery and
      consummation of this Agreement, and all other agreements and documents executed
      in connection herewith by the Company, have been duly authorized by all
      necessary action on the part of the Company. No other action, consent or
      approval on the part of the Company or any other person or entity, is necessary
      to authorize the Company's due and valid execution, delivery and consummation
      of
      this Agreement and all other agreements and documents executed in connection
      hereto. This Agreement and all other agreements and documents executed in
      connection herewith by the Company, upon due execution and delivery thereof,
      shall constitute the valid and binding obligations of the Company, enforceable
      in accordance with its terms, except as enforcement may be limited by
      bankruptcy, insolvency, reorganization or similar laws affecting creditors'
      rights generally and by general principles of equity.

     

    3.2 Compliance
      with Laws.
      The
      nature and transaction of the Company's business and operations and the use
      of
      its properties and assets do not, and during the term of this Agreement shall
      not, violate or conflict with in any material respect any applicable law,
      statute, ordinance, rule, regulation or order of any kind or
      nature.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    3.3 Absence
      of Conflicts.
      The
      execution, delivery and performance by the Company of this Agreement, and the
      transactions contemplated hereby, do not constitute a breach or default, or
      require consents under, any agreement, permit, contract or other instrument
      to
      which the Company is a party, or by which the Company is bound or to which
      any
      of the assets of the Company is subject, or any judgment, order, writ, decree,
      authorization, license, rule, regulation, or statute to which the Company is
      subject, and will not result in the creation of any lien upon any of the assets
      of the Company. 

     

    3.4 Litigation
      and Taxes.
      There
      is no
      litigation or governmental proceeding pending, or to the best knowledge of
      the
      Company after due inquiry, threatened, against the Company. The Company has
      duly
      filed all applicable income or other tax returns and has paid all material
      income or other taxes when due. There is no controversy or objection pending,
      or
      to the best knowledge of the Company after due inquiry, threatened in respect
      of
      any tax returns of the Company.

     

    3.5 Intellectual
      Property.
      No
      proceedings have been instituted or are pending or, to the Company’s knowledge,
      threatened which challenge the validity of the ownership by the Company of
      any
      such Proprietary Rights. The Company has not licensed anyone to use any such
      Proprietary Rights and, to the Company’s knowledge, there has been no use or
      infringement of any of such Proprietary Rights by any other person.

     

    3.6 Company's
      SEC Reports.
      The
      Company has timely filed with the Securities and Exchange Commission (the
“SEC”)
      all
      forms, reports, definitive proxy statements, schedules and registration
      statements (the “ Company
      SEC Reports”)
      required to be filed by it with the SEC pursuant to the Securities Act of 1933,
      as amended (the “Securities
      Act”),
      or
      the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”).
      As of
      their respective filing dates or, if amended, as of the date of the last
      amendment, none of the Company SEC Reports contained any untrue statement of
      a
      material fact or omitted to state any material fact required to be stated
      therein or necessary to make the statements made therein, in the light of the
      circumstances under which they were made, not misleading. The Company SEC
      Reports (including, without limitation, any financial statements and schedules
      included therein) when filed or, if amended, as of the date of the last
      amendment, complied in all material respects with the applicable requirements
      of
      the Securities Act and the Exchange Act.

     

    3.7 No
      Omissions or Misstatements.
      None of
      the information included in this Agreement, other documents or information
      furnished or to be furnished by the Company, or any of its representations,
      contains any untrue statement of a material fact or is misleading in any
      material respect or omits to state any material fact. Copies of all documents
      referred to in herein have been delivered or made available to the Lender and
      constitute true and complete copies thereof and include all amendments,
      schedules, appendices, supplements or modifications thereto or waivers
      thereunder.

     

    ARTICLE
      4

    CONVERSION

     

    4.1 Conversion
      Right.
      Lender
      in their sole discretion may convert, via written notice to the Company, the
      full amount, or some portion thereof, of the principal plus any interest payable
      under the Note and the Loan Agreement into a warrant and a convertible debenture
      pursuant to the terms of the 2006 Private Placement Memorandum (the “PPM”) of
      the Company.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    ARTICLE
      5

    DEFAULT

     

    5.1 Events
      of Default.
      The
      occurrence of any of the following events (each an “Event
      of Default”),
      not
      cured in the applicable cure period, if any, shall constitute and Event of
      Default of the Company:

     

    (a) a
      breach
      of any representation, warranty, covenant or other provision of this Agreement
      or the Note, which, if capable of being cured, is not cured within three days
      following notice thereof to the Company;

     

    (b) the
      failure to make when due any payment described in this Agreement or the Note,
      whether on or after the Maturity Date, by acceleration or otherwise;
      and

     

    (c) (i)
      the
      application for the appointment of a receiver or custodian for the Company
      or
      the property of the Company, (ii) the entry of an order for relief or the filing
      of a petition by or against the Company under the provisions of any bankruptcy
      or insolvency law, (iii) any assignment for the benefit of creditors by or
      against the Company, or (iv) the Company becomes insolvent.

     

    5.2 Effect
      of Default.
      Upon
      the occurrence of any Event of Default that is not cured within any applicable
      cure period, the Lender may elect, by written notice delivered to the Company,
      to take any or all of the following actions: (i) declare this Agreement
      terminated and the outstanding amounts under the Note to be forthwith due and
      payable, whereupon the entire unpaid Loan, together with accrued and unpaid
      Interest thereon (including the Default Interest Rate), and all other cash
      obligations hereunder, shall become forthwith due and payable, without
      presentment, demand, protest or any other notice of any kind, all of which
      are
      hereby expressly waived by the Company, anything contained herein or in any
      of
      the Note to the contrary notwithstanding, and (ii) exercise any and all other
      remedies provided hereunder or available at law or in equity upon the occurrence
      and continuation of an Event of Default. In addition, during the occurrence
      of
      any Event of Default, the Company shall not pay make any payment on any other
      outstanding indebtedness of the Company (other than indebtedness of the Company
      to which the Lender have agreed in writing to subordinate this Agreement and
      the
      Note hereunder). 

     

    ARTICLE
      6

    ISSUANCE
      OF STOCK

     

    6.1 Issuance
      of Warrants.
      The
      Company shall issue to the Lender two (2) warrants to purchase a combined total
      of six hundred thousand (600,000) shares of common stock of the Company in
      the
      forms attached hereto as Exhibit
      B and C
      (the
“Warrants”).
      The
      Warrants shall be immediately exercisable by the Lenders (or their assigns)
      on
      the Maturity Date and at an exercise price of Twelve Cents ($.12) per share.
      The
      Warrants shall be exercisable for a period of ten (10) years following the
      Maturity Date.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    6.2 Registration
      of Registrable Securities.
      The
      shares underlying the warrants shall be entitled to be registered pursuant
      to
      any registration statement filed by the Company, except for registrations filed
      on Form S-4 or Form S-8. Registration costs shall be borne by the Company.
      

     

    ARTICLE
      7

    COVENANTS

    

    7.1 Payment
      in Full upon Satisfaction of Certain Conditions.
      In the
      event that the Five Million Dollar ($5,000,000) financing contemplated in by
      the
      PPM is completed prior to the Maturity Date, the principle and 30 days accrued
      interest shall be repaid to Lender in full satisfaction of the Loan, subject
      to
      Lender’s right to conversion as described in Section 4.1.

    

    

    ARTICLE
      8

    MISCELLANEOUS

     

    8.1 Successors
      and Assigns; Third Party Beneficiary.
      Subject
      to the exceptions specifically set forth in this Agreement, the terms and
      conditions of this Agreement shall inure to the benefit of and be binding upon
      the respective executors, administrators, heirs, successors and permitted
      assigns of the parties. This Agreement may not be assigned (whether by operation
      of law or otherwise) by the Company without the prior written consent of the
      Lender. This Agreement may be assigned by the Lender without the consent of
      the
      Company.

     

    8.2 Titles
      and Subtitles.
      The
      titles and subtitles of the Sections of this Agreement are used for convenience
      only and shall not be considered in construing or interpreting this
      agreement.

     

    8.3 Notices.
      Any
      notice, request or other communication required or permitted hereunder shall
      be
      in writing and shall be delivered personally or by facsimile (receipt confirmed
      electronically) or shall be sent by a reputable express delivery service or
      by
      certified mail, postage prepaid with return receipt requested, addressed as
      follows:

     

    

    if
      to
      the Company, to:

    

    ITec
      Environmental Group, Inc.

    5300
      Claus Road, Box 760

    Riverbank,
      CA 95367

    Attn: Gary
      M.
      De Laurentiis

    Fax: (209)
      881-3529

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    with
      a
      copy to:

    

    The
      Otto
      Law Group, PLLC

    601
      Union
      Street, Suite 4500

    Seattle,
      WA 98101

    Attn:
       David
      M.
      Otto

    Fax: (206)
      262-9513

    

    if
      to
      the Lender, to:

    

    Ji
      Y.
      Baek

    13700
      Marina Pointe Drive, Suite 1001

    Marina
      Del Rey, CA 90292 

    

    Either
      party hereto may change the above specified recipient or mailing address by
      notice to the other party given in the manner herein prescribed. All notices
      shall be deemed given on the day when actually delivered as provided above
      (if
      delivered personally or by facsimile, provided that any such facsimile is
      received during regular business hours at the recipient's location) or on the
      day shown on the return receipt (if delivered by mail or delivery
      service).

     

    8.4 Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the domestic
      laws of the State of California without giving effect to any choice of law
      or
      conflict of law provision or rule (whether of the State of Colorado or any
      other
      jurisdiction) that would cause the application of the laws of any jurisdiction
      other than the State of California.

     

    8.5 Waiver
      and Amendment.
      Any
      term of this Agreement may be amended, waived or modified with the written
      consent of the Company and the Lender.

     

    8.6 Remedies.
      No
      delay or omission by the Lender in exercising any of its rights, remedies,
      powers or privileges hereunder or at law or in equity and no course of dealing
      between the Lender and the undersigned or any other person shall be deemed
      a
      waiver by the Lender of any such rights, remedies, powers or privileges, even
      if
      such delay or omission is continuous or repeated, nor shall any single or
      partial exercise of any right, remedy, power or privilege preclude any other
      or
      further exercise thereof by the Lender or the exercise of any other right,
      remedy, power or privilege by the Lender. The rights and remedies of the Lender
      described herein shall be cumulative and not restrictive of any other rights
      or
      remedies available under any other instrument, at law or in equity.

     

    

     

    [the
      remainder of this page intentionally left blank]

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Loan Agreement to be signed in
      its
      name on the date first set forth above.

     

    

    
      	 	 	 
	 	ITEC
              ENVIRONMENTAL
              GROUP, INC.
	 
 	 
 	 
 
	 	By:  	/s/ Gary
              M.
              De Laurentiis
	 	
              
Gary
              M. De Laurentiis
	 	Chief
              Executive Officer

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Lender has caused this Loan Agreement to be signed in
      its
      name on the date first set forth above.

    

    
      	 	 	 
	 	JI
              Y.
              BAEK
	 
 	 
 	 
 
	 	By:  	/s/ Ji
              Y.
              Baek
	 	
              
Name: Ji
              Y. Baek
	 	 

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    

    THE
      SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE UNITED
      STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR UNDER THE
      PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED
      BY
      THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON
      STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE
      SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
      ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER THE PROVISIONS OF THE
      1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
      REGISTRATION STATEMENT.

     

    

    

    PROMISSORY
      NOTE

    

    Riverbank,
      California

    July
      21,
      2006

    

    FOR
      VALUE
      RECEIVED, Itec Environmental Group, Inc., a Delaware corporation ("Borrower"),
      hereby promises to pay to the order of Ji Y. Baek (the "Lender")),
      in
      lawful money of the United States at the address of the Lender set forth herein,
      the principal amount of Two Hundred Thousand Dollars ($200,000) (the
“Loan”),
      together with Interest, as defined below. This Promissory Note ("Note")
      has
      been executed by Borrower on the date set forth above (the "Effective
      Date").
      Capitalized terms used but not defined herein shall have the meanings assigned
      to such terms in the Loan Agreement.

    

    1.  Interest.
      Interest shall accrue at twelve percent (12%) per annum on the outstanding
      principal amount of this Promissory Note. Upon the occurrence of an Event of
      Default and for so long as such Event of Default continues, Interest shall
      accrue on the outstanding Loan amount at the Default Interest Rate.

    

    2.  Maturity
      Date.
      All or
      any portion of the Loan, all accrued Interest thereon and all other sums due
      hereunder, shall be due and payable on demand by the Lender on the Maturity
      Date.

    

    3.      Payments.
      Borrower will repay the Loan amount on the Maturity Date.

    

    4.  Application
      of Payments.
      

    

    4.1.  Except
      as
      otherwise expressly provided herein, payments under this Note shall be applied
      (i) first to the repayment of any sums incurred by the Lender for the payment
      of
      any expenses in enforcing the terms of this Note, (ii) then to the payment
      of
      the Default Interest Rate, (iii) then to the payment of the Interest Rate,
      and
      (iv) then to the reduction of the Loan.

    

    4.2.      Borrower
      may prepay all or any part of the principal without penalty.

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    4.3.  Upon
      payment in full of the Loan and applicable accrued and unpaid Interest thereon,
      this Note shall be marked "Paid in Full" and returned to Borrower.

     

    5.  Waiver
      of Notice.
      Borrower hereby waives diligence, notice, presentment, protest and notice of
      dishonor.

    

    6.  Transfer.
      This
      Note may be transferred by the Lender at any time, provided that such transfer
      complies with applicable securities laws.

    

    7.  Events
      of Default.
      The
      occurrence of any of the following events (each an "Event
      of Default"),
      not
      cured in any applicable cure period, shall constitute an Event of Default of
      Borrower:

    

    7.1.  A
      breach
      of any representation, warranty, covenant or other provision of this Note or
      the
      Loan Agreement, which, if capable of being cured, is not cured within three
      days
      following notice thereof to the Company; and

     

    7.2.  (i)
      The
      application for the appointment of a receiver or custodian for Borrower or
      the
      property of Borrower, (ii) the entry of an order for relief or the filing of
      a
      petition by or against Borrower under the provisions of any bankruptcy or
      insolvency law, (iii) any assignment for the benefit of creditors by or against
      Borrower, or (iv) the insolvency of Borrower.

    

    Upon
      the
      occurrence of any Event of Default that is not cured within any applicable
      cure
      period, if any, the Lenders may elect, by written notice delivered to Borrower,
      to take at any time any or all of the following actions: (i) declare this Note
      to be forthwith due and payable, whereupon the entire unpaid Loan, together
      with
      all accrued and unpaid Interest thereon (including the Default Interest Rate),
      and all other cash obligations hereunder, shall become forthwith due and
      payable, without presentment, demand, protest or any other notice of any kind,
      all of which are hereby expressly waived by Borrower, anything contained herein
      to the contrary notwithstanding, and (ii) exercise any and all other remedies
      provided hereunder or available at law or in equity. 

    

    If
      an
      Event of Default occurs by Borrower, Borrower agrees to pay, in addition to
      the
      Loan and Interest payable thereon, reasonable attorneys' fees and any other
      reasonable costs incurred by the Lenders in connection with its pursuit of
      its
      remedies under this Note

    

    8.  Miscellaneous.

    

    8.1.  Successors
      and Assigns.
      Subject
      to the exceptions specifically set forth in this Note and the Loan Agreement,
      the terms and conditions of this Note shall inure to the benefit of and be
      binding upon the respective executors, administrators, heirs, successors and
      permitted assigns of the parties. This Note (or a portion hereof) may be
      assigned by the Lender without the consent of Borrower.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    8.2.  Loss
      or Mutilation of Note.
      Upon
      receipt by Borrower of evidence satisfactory to Borrower of the loss, theft,
      destruction or mutilation of this Note, together with indemnity reasonably
      satisfactory to Borrower, in the case of loss, theft or destruction, or the
      surrender and cancellation of this Note, in the case of mutilation, Borrower
      shall execute and deliver to the Lenders a new promissory note of like tenor
      and
      denomination as this Note.

     

    8.3.      Notices.
      Any
      notice, demand, offer, request or other communication required or permitted
      to
      be given pursuant to the terms of this Note shall be in writing and shall be
      deemed effectively given the earlier of (i) when received, (ii) when delivered
      personally, (iii) one business day after being delivered by facsimile (with
      receipt of appropriate confirmation), (iv) one (1) business day after being
      deposited with an overnight courier service, or (v) four (4) days after being
      deposited in the U.S. mail, First Class with postage prepaid, and addressed
      to
      the recipient at the addresses set forth below unless another address is
      provided to the other party in writing:

     

    If
      to
      Borrower, to:

    

    ITec
      Environmental Group, Inc.

    5300
      Claus Road, Box 760

    Riverbank,
      CA 95367

    Attn: Gary
      M.
      De Laurentiis

    Fax: (209)
      881-3529

    

    with
      a
      copy to:

    

    The
      Otto
      Law Group, PLLC

    601
      Union
      Street, Suite 4500

    Seattle,
      WA 98101

    Attn:
       David
      M.
      Otto

    Fax: (206)
      262-9513

    

    

    if
      to
      the Lender, to:

    

    Ji
      Y.
      Baek

    13700
      Marina Pointe Drive, Suite 1001

    Marina
      Del Rey, CA 90292 

    

    

    8.4 Governing
      Law.
      This
      Note shall be governed in all respects by the laws of the State of California
      as
      applied to agreements entered into and performed entirely within the State
      of
      California by residents thereof, without regard to any provisions thereof
      relating to conflicts of laws among different jurisdictions.

    

    8.5 Waiver
      and Amendment.
      Any
      term of this Note may be amended, waived or modified only with the written
      consent of Borrower and the Lender.

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    8.6 Remedies;
      Costs of Collection; Attorneys' Fees.
      No
      delay or omission by the Lender in exercising any of its rights, remedies,
      powers or privileges hereunder or at law or in equity and no course of dealing
      between the Lender and the undersigned or any other person shall be deemed
      a
      waiver by the Lender of any such rights, remedies, powers or privileges, even
      if
      such delay or omission is continuous or repeated, nor shall any single or
      partial exercise of any right, remedy, power or privilege preclude any other
      or
      further exercise thereof by the Lender or the exercise of any other right,
      remedy, power or privilege by the Lender. The rights and remedies of the Lender
      described herein shall be cumulative and not restrictive of any other rights
      or
      remedies available under any other instrument, at law or in equity. If an Event
      of Default occurs, Borrower agrees to pay, in addition to the Loan and Interest
      payable thereon, reasonable attorneys' fees and any other reasonable costs
      incurred by the Lenders in connection with its pursuit of its remedies under
      this Note.

    

    *
      * * *
      *

    

    [Signature
      Page to Follow] 

     

     

     

     

    

 

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, Borrower has caused this Note to be signed on the Effective
      Date.

    

    
      	 	 	 
	 	
              BORROWER:

               

              ITEC ENVIRONMENTAL GROUP, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ Gary
              De
              Laurentiis
	 	
              
Name:
              Gary De Laurentiis
	 	Title: 
               Chief Executive Officer

    

     

     

    
      	 	 	 
	 	LENDER:
	 
 	 
 	 
 
	 	By:  	/s/ Ji
              Y.
              Baek
	 	
              
Ji
              Y. Baek
	 	 

    

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    Exhibit
      B

    

    WARRANT

    

    THE
      SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
      ACT OF 1933 (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS, AND THE TRANSFER
      THEREOF IS PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION
      S
      UNDER THE ACT, PURSUANT TO REGISTRATION UNDER THE ACT AND APPLICABLE STATE
      SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
      HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
      IN
      COMPLIANCE WITH THE ACT

     

    

    

    Warrant
      To Purchase 300,000 Shares of Common Stock

    

    Itec
      Environmental Group, inc.

    

    Date
      of
      Issuance: July 21, 2006

    

    No.
      85

    

    THIS
      CERTIFIES that, for value received, Ji “Allison” Y. Baek, or her assigns (in
      either case, the “Holder”) is entitled to purchase, subject to the provisions of
      this Warrant, from Itec Environmental Group, Inc., a Delaware corporation (the
      “Company”), at the price per share set forth in Section 8 hereof, that number of
      shares of the Company’s common stock (the “Common Stock”) set forth in Section 7
      hereof. This Warrant is referred to herein as the “Warrant” and the shares of
      Common Stock issuable pursuant to the terms hereof are sometimes referred to
      herein as “Warrant Shares.”

    

    1. Holder
      Exercise of Warrant.
      This
      Warrant shall only be exercisable in whole. To exercise this Warrant in whole,
      the Holder shall deliver to the Company at its principal office, (a) a written
      notice, in substantially the form of the exercise notice attached hereto as
      Exhibit
      A
      (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant, which
      notice shall specify the number of shares of Common Stock to be purchased and
      (b) this Warrant. The Company shall as promptly as practicable, and in any
      event
      within twenty (20) days after delivery to the Company of (i) the Exercise
      Notice, (ii) and this Warrant, execute and deliver or cause to be executed
      and
      delivered, in accordance with such notice, a certificate or certificates
      representing the aggregate number of shares of Common Stock specified in such
      notice, provided this Warrant has vested on or prior to the date such notice
      is
      delivered. Each certificate representing Warrant Shares shall bear the legend
      or
      legends required by applicable securities laws as well as such other legend(s)
      the Company requires to be included on certificates for its Common Stock. The
      Company shall pay all expenses and other charges payable in connection with
      the
      preparation, issuance and delivery of such stock certificates except that,
      in
      case such stock certificates shall be registered in a name or names other than
      the name of the Holder, funds sufficient to pay all stock transfer taxes that
      are payable upon the issuance of such stock certificate or certificates shall
      be
      paid by the Holder at the time of delivering the Exercise Notice. All shares
      of
      Common Stock issued upon the exercise of this Warrant shall be validly issued,
      fully paid, and nonassessable. 

    

    The
      Warrant shall expire on April 15, 2015 (the “Expiration Date”). The Investor may
      exercise the warrant at any time prior to the Expiration Date. The Company
      has
      no restriction on the sale or transfer of the Warrant or Warrant Shares;
      however, the Investor is required to comply with all state and U.S. laws and
      regulations relating to security sales and transfers.

    

    2. Reservation
      of Shares.
      The
      Company hereby covenants that at all times during the term of this Warrant
      there
      shall be reserved for issuance such number of shares of its Common Stock as
      shall be required to be issued upon exercise of this Warrant. 

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    3.
       Fractional
      Shares.
      This
      Warrant may be exercised only for a whole number of shares of Common Stock,
      and
      no fractional shares or scrip representing fractional shares shall be issuable
      upon the exercise of this Warrant. 

    

    4.
       Transfer
      of Warrant and Warrant Shares.
      The
      Holder may sell, pledge, hypothecate, or otherwise transfer this Warrant, in
      whole, in accordance with and subject to the terms and conditions set forth
      in
      the Subscription Agreement and then only if such sale, pledge, hypothecation,
      or
      transfer is made in compliance with the Act or pursuant to an available
      exemption from registration under the Act relating to the disposition of
      securities.

    

    5.
       Loss
      of Warrant.
      Upon
      receipt by the Company of evidence satisfactory to it of the loss, theft, or
      destruction of this Warrant, and of indemnification satisfactory to it, or
      upon
      surrender and cancellation of this Warrant, if mutilated, the Company will
      execute and deliver a new warrant of like tenor. 

    

    6.
       Rights
      of the Holder.
      No
      provision of this Warrant shall be construed as conferring upon the Holder
      the
      right to vote, consent, receive dividends or receive notice other than as
      expressly provided herein. Prior to exercise, no provision hereof, in the
      absence of affirmative action by the Holder to exercise this Warrant, and no
      enumeration herein of the rights or privileges of the Holder, shall give rise
      to
      any liability of the holder for the purchase price of any warrant shares or
      as a
      stockholder of the Company, whether such liability is asserted by the Company
      or
      by creditors of the Company. 

    

    7.
       Number
      of Warrant Shares.
      This
      Warrant shall be exercisable for 300,000 shares of the Company’s Common Stock,
      as adjusted in accordance with this Agreement. 

    

    8.
       Exercise
      Price; Adjustment of Warrants.
      

    

    a.
       Determination
      of Exercise Price.
      The per
      share purchase price (the “Exercise Price”) for each of the Warrant Shares
      purchasable under this Warrant shall be equal to $0.12. 

     

    b. Adjustment
      for Mergers or Reorganization, etc.
      In case
      of any consolidation or merger of the Company with or into another corporation
      or the conveyance of all or substantially all of the assets of the Company
      to
      another corporation, this Warrant shall be exercisable into the number of shares
      of stock or other securities or property to which a holder of the number of
      shares of Common Stock of the Company deliverable upon exercise of this Warrant
      would have been entitled upon such consolidation, merger or conveyance; and,
      in
      any such case, appropriate adjustment (as determined by the Board of Directors
      of the Company) shall be made in the application of the provisions herein set
      forth with respect to the rights and interest thereafter of the holder of this
      Warrant, to the end that the provisions set forth herein shall thereafter be
      applicable, as nearly as reasonable may be, in relation to any shares of stock
      or other property thereafter deliverable upon the exercise of this Warrant.
      

    

    c.
       NO
      IMPAIRMENT.
      THE
      COMPANY WILL NOT, THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION,
      MERGER, DISSOLUTION, ISSUE OR SALE OF SECURITIES OR ANY OTHER VOLUNTARY ACTION,
      AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS TO
      BE
      OBSERVED OR PERFORMED HEREUNDER BY THE COMPANY, BUT WILL AT ALL TIMES IN GOOD
      FAITH ASSIST IN THE CARRYING OUT OF ALL THE PROVISIONS OF THIS SECTION AND
      IN
      THE TAKING OF ALL SUCH ACTION AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO
      PROTECT THE EXERCISE RIGHTS OF THE HOLDER OF THIS WARRANT AGAINST IMPAIRMENT.
      

    

    d. Issue
      Taxes.
      The
      Company shall pay issue taxes that may be payable in respect of any issue or
      delivery of shares of Common Stock on exercise of this Warrant, in whole;
      provided, however, that the Company shall not be obligated to pay any transfer
      taxes resulting from any transfer requested by any holder in connection with
      any
      such exercise. 

    

    e.
       Reservation
      of Stock Issuable Upon Conversion.
      The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of common stock, solely for the purpose of effecting the
      exercise of this Warrant, such number of its shares of common stock as shall
      from time to time be sufficient to effect the exercise of this Warrant; and
      if
      at any time the number of authorized but unissued shares of common stock shall
      not be sufficient to effect the exercise of this Warrant, the Company will
      take
      all appropriate corporate action as may, in the opinion of its counsel, be
      necessary to increase its authorized but unissued shares of common stock to
      such
      number of shares as shall be sufficient for such purpose. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    f.
       Adjustment.
      The
      Exercise Price shall be adjusted downward in the event the Company issues common
      stock (or securities exercisable for or convertible into or exchangeable for
      common stock) at a price below the Exercise Price, to a price equal to such
      issue price.

    

    9. Certain
      Distributions.
      In case
      the Company shall, at any time, prior to the Expiration Date, declare any
      distribution of its assets to holders of its common stock as a partial
      liquidation, distribution or by way of return of capital, other than as a
      dividend payable out of earnings or any surplus legally available for dividends,
      then the Holder shall be entitled, upon the proper exercise of this Warrant
      in
      whole prior to the effecting of such declaration, to receive, in addition to
      the
      shares of common stock issuable on such exercise, the amount of such assets
      (or
      at the option of the Company a sum equal to the value thereof at the time of
      such distribution to holders of common stock as such value is determined by
      the
      Board of Directors of the Company in good faith), which would have been payable
      to the Holder had it been a holder of record of such shares of common stock
      on
      the record date for the determination of those holders of Common Stock entitled
      to such distribution. 

    

    10. Dissolution
      or Liquidation.
      In case
      the Company shall, at any time prior to the Expiration Date, dissolve, liquidate
      or wind up its affairs, the Holder shall be entitled, upon the proper exercise
      of this Warrant in whole and prior to any distribution associated with such
      dissolution, liquidation, or winding up, to receive on such exercise, in lieu
      of
      the shares of Common Stock to which the Holder would have been entitled, the
      same kind and amount of assets as would have been distributed or paid to the
      Holder upon any such dissolution, liquidation or winding up, with respect to
      such shares of Common Stock had the Holder been a holder of record of such
      share
      of Common Stock on the record date for the determination of those holders of
      Common Stock entitled to receive any such dissolution, liquidation, or winding
      up distribution. 

    

    11.
       Reclassification
      or Reorganization.
      In case
      of any reclassification, capital reorganization or other change of outstanding
      shares of common stock of the Company (other than a change in par value, or
      from
      par value to no par value, or from no par value to par value, or as a result
      of
      an issuance of common stock by way of dividend or other distribution or of
      a
      subdivision or combination), the Company shall cause effective provision to
      be
      made so that the Holder shall have the right thereafter by exercising this
      Warrant, to purchase the kind and amount of shares of stock and other securities
      and PROPERTY RECEIVABLE UPON SUCH RECLASSIFICATION, CAPITAL REORGANIZATION
      OR
      OTHER CHANGE, BY A HOLDER OF THE NUMBER OF SHARES OF COMMON STOCK WHICH MIGHT
      HAVE BEEN PURCHASED UPON EXERCISE OF THIS WARRANT IMMEDIATELY PRIOR TO SUCH
      RECLASSIFICATION OR CHANGE. ANY SUCH PROVISION SHALL INCLUDE PROVISION FOR
      ADJUSTMENTS WHICH SHALL BE AS NEARLY EQUIVALENT AS MAY BE PRACTICABLE TO THE
      ADJUSTMENTS PROVIDED FOR IN THIS WARRANT. THE FOREGOING PROVISIONS OF THIS
      SECTION 12 SHALL SIMILARLY APPLY TO SUCCESSIVE RECLASSIFICATIONS, CAPITAL
      REORGANIZATIONS AND CHANGES OF SHARES OF COMMON STOCK. IN THE EVENT THAT IN
      ANY
      SUCH CAPITAL REORGANIZATION, RECLASSIFICATION, OR OTHER CHANGE, ADDITIONAL
      SHARES OF COMMON STOCK SHALL BE ISSUED IN EXCHANGE, CONVERSION, SUBSTITUTION
      OR
      PAYMENT, IN WHOLE, FOR OR OF A SECURITY OF THE COMPANY OTHER THAN COMMON STOCK,
      ANY AMOUNT OF THE CONSIDERATION RECEIVED UPON THE ISSUE THEREOF BEING DETERMINED
      BY THE BOARD OF DIRECTORS OF THE COMPANY SHALL BE FINAL AND BINDING ON THE
      HOLDER. 

    

    12.
       Miscellaneous.
      

    

    a.
       Successors
      and Assigns.
      The
      terms and conditions of this Agreement shall inure to the benefit of, and be
      binding upon, the respective successors and assigns of the parties, except
      to
      the extent otherwise provided herein. Nothing in this Agreement, express or
      implied, is intended to confer upon any party, other than the parties hereto
      or
      their respective successors and assigns, any rights, remedies, obligations
      or
      liabilities under or by reason of this Agreement, except as expressly provided
      in this Agreement. 

    

    b.
       Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California without regard to the principles of conflict of laws
      thereof. 

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    c. Counterparts;
      Delivery by Facsimile.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. Delivery of this Agreement may be effected by facsimile.

    

    d.
       Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this Agreement.

    

    e.
      Notices.
      Unless
      otherwise provided, any notice required or permitted hereunder shall be given
      by
      personal service upon the party to be notified by certified mail, return receipt
      requested and: (i) if to the Company, addressed to Itec Environmental Group,
      Inc., 5300 Claus Road, Riverbank, California 95367, or at such other address
      as
      the Company may designate by notice to each of the Investors in accordance
      with
      the provisions of this Section; and (ii) if to the Warrant holder, at the
      address indicated on the signature page hereof, or at such other addresses
      as
      such Holder may designate by notice to the Company in accordance with the
      provisions of this Section. 

    

    f.
       Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      prospectively or retroactively), only with the written consent of the Company
      and a majority in interest of the Holders. 

    

    g.
       Entire
      Agreement.
      This
      Agreement, the Memorandum (including the appendices and schedules thereto)
      by
      and between the Company and the Holder, constitute the entire agreement among
      the parties hereto with respect to the subject matter hereof and thereof and
      supersede all prior agreements, understandings, negotiations and discussions,
      whether oral or written, of the parties hereto. 

    

    IN
      WITNESS WHEREOF, the undersigned hereby sets is hand and seal this
      21st
      day of
      July, 2006. 

    

    

    Itec
      Environmental Group, Inc. 

    

    

    By:
      /s/
      Gary De Laurentiis

         
      Name: Gary De Laurentiis

         
      Title: President and Chief Executive Officer

    

    

    Investor
      Name: Ji “Allison” Y. Baek

    

    Investor
      Address: __________________________________

    

    _________________________________________________

    

    _________________________________________________

     

    
 

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

    

    NOTICE
      OF EXERCISE

    

    (To
      be
      signed only upon exercise of the Warrant)

    

    

    TO:
      Itec
      Environmental Group, Inc.

    

    

    The
      undersigned, hereby irrevocably elects to exercise the purchase rights
      represented by the Warrant granted to the undersigned on ______________ and
      to
      purchase thereunder __________* shares of Common Stock of Itec Environmental
      Group, Inc. (the “Company”).

    

    Dated:
      ________________

    

    

    

    _________________________________________

    (Signature
      must conform in all respects to name 

    of
      holder
      as specified on the face of the Warrant)

    

    

    

    _________________________________________

    (Please
      Print Name)

    

    

    _________________________________________

    (Address)

    

    

    *
      Insert
      here the number of shares being exercised, without making any adjustment for
      additional Common Stock of the Company, other securities or property which,
      pursuant to the adjustment provisions of the Warrant, may be deliverable upon
      exercise. 

    

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

    

    Exhibit
      C

            

    WARRANT

    

    THE
      SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
      ACT OF 1933 (THE “ACT”) OR APPLICABLE STATE SECURITIES LAWS, AND THE TRANSFER
      THEREOF IS PROHIBITED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION
      S
      UNDER THE ACT, PURSUANT TO REGISTRATION UNDER THE ACT AND APPLICABLE STATE
      SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
      HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
      IN
      COMPLIANCE WITH THE ACT

     

    

    

    Warrant
      To Purchase 300,000 Shares of Common Stock

    

    Itec
      Environmental Group, inc.

    

    Date
      of
      Issuance: July 21, 2006

    

    No.
      86

    

    THIS
      CERTIFIES that, for value received, Ji “Allison” Y. Baek, or her assigns (in
      either case, the “Holder”) is entitled to purchase, subject to the provisions of
      this Warrant, from Itec Environmental Group, Inc., a Delaware corporation (the
      “Company”), at the price per share set forth in Section 8 hereof, that number of
      shares of the Company’s common stock (the “Common Stock”) set forth in Section 7
      hereof. This Warrant is referred to herein as the “Warrant” and the shares of
      Common Stock issuable pursuant to the terms hereof are sometimes referred to
      herein as “Warrant Shares.”

    

    1. Holder
      Exercise of Warrant.
      This
      Warrant shall only be exercisable in whole. To exercise this Warrant in whole,
      the Holder shall deliver to the Company at its principal office, (a) a written
      notice, in substantially the form of the exercise notice attached hereto as
      Exhibit
      A
      (the
“Exercise Notice”), of the Holder’s election to exercise this Warrant, which
      notice shall specify the number of shares of Common Stock to be purchased and
      (b) this Warrant. The Company shall as promptly as practicable, and in any
      event
      within twenty (20) days after delivery to the Company of (i) the Exercise
      Notice, (ii) and this Warrant, execute and deliver or cause to be executed
      and
      delivered, in accordance with such notice, a certificate or certificates
      representing the aggregate number of shares of Common Stock specified in such
      notice, provided this Warrant has vested on or prior to the date such notice
      is
      delivered. Each certificate representing Warrant Shares shall bear the legend
      or
      legends required by applicable securities laws as well as such other legend(s)
      the Company requires to be included on certificates for its Common Stock. The
      Company shall pay all expenses and other charges payable in connection with
      the
      preparation, issuance and delivery of such stock certificates except that,
      in
      case such stock certificates shall be registered in a name or names other than
      the name of the Holder, funds sufficient to pay all stock transfer taxes that
      are payable upon the issuance of such stock certificate or certificates shall
      be
      paid by the Holder at the time of delivering the Exercise Notice. All shares
      of
      Common Stock issued upon the exercise of this Warrant shall be validly issued,
      fully paid, and nonassessable. 

    

    The
      Warrant shall expire on April 15, 2015 (the “Expiration Date”). The Investor may
      exercise the warrant at any time prior to the Expiration Date. The Company
      has
      no restriction on the sale or transfer of the Warrant or Warrant Shares;
      however, the Investor is required to comply with all state and U.S. laws and
      regulations relating to security sales and transfers.

    

    2. Reservation
      of Shares.
      The
      Company hereby covenants that at all times during the term of this Warrant
      there
      shall be reserved for issuance such number of shares of its Common Stock as
      shall be required to be issued upon exercise of this Warrant. 

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    3.
       Fractional
      Shares.
      This
      Warrant may be exercised only for a whole number of shares of Common Stock,
      and
      no fractional shares or scrip representing fractional shares shall be issuable
      upon the exercise of this Warrant. 

    

    4.
       Transfer
      of Warrant and Warrant Shares.
      The
      Holder may sell, pledge, hypothecate, or otherwise transfer this Warrant, in
      whole, in accordance with and subject to the terms and conditions set forth
      in
      the Subscription Agreement and then only if such sale, pledge, hypothecation,
      or
      transfer is made in compliance with the Act or pursuant to an available
      exemption from registration under the Act relating to the disposition of
      securities.

    

    5.
       Loss
      of Warrant.
      Upon
      receipt by the Company of evidence satisfactory to it of the loss, theft, or
      destruction of this Warrant, and of indemnification satisfactory to it, or
      upon
      surrender and cancellation of this Warrant, if mutilated, the Company will
      execute and deliver a new warrant of like tenor. 

    

    6.
       Rights
      of the Holder.
      No
      provision of this Warrant shall be construed as conferring upon the Holder
      the
      right to vote, consent, receive dividends or receive notice other than as
      expressly provided herein. Prior to exercise, no provision hereof, in the
      absence of affirmative action by the Holder to exercise this Warrant, and no
      enumeration herein of the rights or privileges of the Holder, shall give rise
      to
      any liability of the holder for the purchase price of any warrant shares or
      as a
      stockholder of the Company, whether such liability is asserted by the Company
      or
      by creditors of the Company. 

    

    7.
       Number
      of Warrant Shares.
      This
      Warrant shall be exercisable for 300,000 shares of the Company’s Common Stock,
      as adjusted in accordance with this Agreement. 

    

    8.
       Exercise
      Price; Adjustment of Warrants.
      

    

    a.
       Determination
      of Exercise Price.
      The per
      share purchase price (the “Exercise Price”) for each of the Warrant Shares
      purchasable under this Warrant shall be equal to $0.12. 

     

    b. Adjustment
      for Mergers or Reorganization, etc.
      In case
      of any consolidation or merger of the Company with or into another corporation
      or the conveyance of all or substantially all of the assets of the Company
      to
      another corporation, this Warrant shall be exercisable into the number of shares
      of stock or other securities or property to which a holder of the number of
      shares of Common Stock of the Company deliverable upon exercise of this Warrant
      would have been entitled upon such consolidation, merger or conveyance; and,
      in
      any such case, appropriate adjustment (as determined by the Board of Directors
      of the Company) shall be made in the application of the provisions herein set
      forth with respect to the rights and interest thereafter of the holder of this
      Warrant, to the end that the provisions set forth herein shall thereafter be
      applicable, as nearly as reasonable may be, in relation to any shares of stock
      or other property thereafter deliverable upon the exercise of this Warrant.
      

    

    c.
       NO
      IMPAIRMENT.
      THE
      COMPANY WILL NOT, THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION,
      MERGER, DISSOLUTION, ISSUE OR SALE OF SECURITIES OR ANY OTHER VOLUNTARY ACTION,
      AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS TO
      BE
      OBSERVED OR PERFORMED HEREUNDER BY THE COMPANY, BUT WILL AT ALL TIMES IN GOOD
      FAITH ASSIST IN THE CARRYING OUT OF ALL THE PROVISIONS OF THIS SECTION AND
      IN
      THE TAKING OF ALL SUCH ACTION AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO
      PROTECT THE EXERCISE RIGHTS OF THE HOLDER OF THIS WARRANT AGAINST IMPAIRMENT.
      

    

    d. Issue
      Taxes.
      The
      Company shall pay issue taxes that may be payable in respect of any issue or
      delivery of shares of Common Stock on exercise of this Warrant, in whole;
      provided, however, that the Company shall not be obligated to pay any transfer
      taxes resulting from any transfer requested by any holder in connection with
      any
      such exercise. 

    

    e.
       Reservation
      of Stock Issuable Upon Conversion.
      The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of common stock, solely for the purpose of effecting the
      exercise of this Warrant, such number of its shares of common stock as shall
      from time to time be sufficient to effect the exercise of this Warrant; and
      if
      at any time the number of authorized but unissued shares of common stock shall
      not be sufficient to effect the exercise of this Warrant, the Company will
      take
      all appropriate corporate action as may, in the opinion of its counsel, be
      necessary to increase its authorized but unissued shares of common stock to
      such
      number of shares as shall be sufficient for such purpose.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    f.
       Adjustment.
      The
      Exercise Price shall be adjusted downward in the event the Company issues common
      stock (or securities exercisable for or convertible into or exchangeable for
      common stock) at a price below the Exercise Price, to a price equal to such
      issue price.

    

    9. Certain
      Distributions.
      In case
      the Company shall, at any time, prior to the Expiration Date, declare any
      distribution of its assets to holders of its common stock as a partial
      liquidation, distribution or by way of return of capital, other than as a
      dividend payable out of earnings or any surplus legally available for dividends,
      then the Holder shall be entitled, upon the proper exercise of this Warrant
      in
      whole prior to the effecting of such declaration, to receive, in addition to
      the
      shares of common stock issuable on such exercise, the amount of such assets
      (or
      at the option of the Company a sum equal to the value thereof at the time of
      such distribution to holders of common stock as such value is determined by
      the
      Board of Directors of the Company in good faith), which would have been payable
      to the Holder had it been a holder of record of such shares of common stock
      on
      the record date for the determination of those holders of Common Stock entitled
      to such distribution. 

    

    10. Dissolution
      or Liquidation.
      In case
      the Company shall, at any time prior to the Expiration Date, dissolve, liquidate
      or wind up its affairs, the Holder shall be entitled, upon the proper exercise
      of this Warrant in whole and prior to any distribution associated with such
      dissolution, liquidation, or winding up, to receive on such exercise, in lieu
      of
      the shares of Common Stock to which the Holder would have been entitled, the
      same kind and amount of assets as would have been distributed or paid to the
      Holder upon any such dissolution, liquidation or winding up, with respect to
      such shares of Common Stock had the Holder been a holder of record of such
      share
      of Common Stock on the record date for the determination of those holders of
      Common Stock entitled to receive any such dissolution, liquidation, or winding
      up distribution. 

    

    11.
       Reclassification
      or Reorganization.
      In case
      of any reclassification, capital reorganization or other change of outstanding
      shares of common stock of the Company (other than a change in par value, or
      from
      par value to no par value, or from no par value to par value, or as a result
      of
      an issuance of common stock by way of dividend or other distribution or of
      a
      subdivision or combination), the Company shall cause effective provision to
      be
      made so that the Holder shall have the right thereafter by exercising this
      Warrant, to purchase the kind and amount of shares of stock and other securities
      and PROPERTY RECEIVABLE UPON SUCH RECLASSIFICATION, CAPITAL REORGANIZATION
      OR
      OTHER CHANGE, BY A HOLDER OF THE NUMBER OF SHARES OF COMMON STOCK WHICH MIGHT
      HAVE BEEN PURCHASED UPON EXERCISE OF THIS WARRANT IMMEDIATELY PRIOR TO SUCH
      RECLASSIFICATION OR CHANGE. ANY SUCH PROVISION SHALL INCLUDE PROVISION FOR
      ADJUSTMENTS WHICH SHALL BE AS NEARLY EQUIVALENT AS MAY BE PRACTICABLE TO THE
      ADJUSTMENTS PROVIDED FOR IN THIS WARRANT. THE FOREGOING PROVISIONS OF THIS
      SECTION 12 SHALL SIMILARLY APPLY TO SUCCESSIVE RECLASSIFICATIONS, CAPITAL
      REORGANIZATIONS AND CHANGES OF SHARES OF COMMON STOCK. IN THE EVENT THAT IN
      ANY
      SUCH CAPITAL REORGANIZATION, RECLASSIFICATION, OR OTHER CHANGE, ADDITIONAL
      SHARES OF COMMON STOCK SHALL BE ISSUED IN EXCHANGE, CONVERSION, SUBSTITUTION
      OR
      PAYMENT, IN WHOLE, FOR OR OF A SECURITY OF THE COMPANY OTHER THAN COMMON STOCK,
      ANY AMOUNT OF THE CONSIDERATION RECEIVED UPON THE ISSUE THEREOF BEING DETERMINED
      BY THE BOARD OF DIRECTORS OF THE COMPANY SHALL BE FINAL AND BINDING ON THE
      HOLDER. 

    

    12.
       Miscellaneous.
      

    

    a.
       Successors
      and Assigns.
      The
      terms and conditions of this Agreement shall inure to the benefit of, and be
      binding upon, the respective successors and assigns of the parties, except
      to
      the extent otherwise provided herein. Nothing in this Agreement, express or
      implied, is intended to confer upon any party, other than the parties hereto
      or
      their respective successors and assigns, any rights, remedies, obligations
      or
      liabilities under or by reason of this Agreement, except as expressly provided
      in this Agreement. 

    

    b.
       Governing
      Law.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of California without regard to the principles of conflict of laws
      thereof. 

    

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    c. Counterparts;
      Delivery by Facsimile.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument. Delivery of this Agreement may be effected by facsimile.

    

    d.
       Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this Agreement.

    

    e.
      Notices.
      Unless
      otherwise provided, any notice required or permitted hereunder shall be given
      by
      personal service upon the party to be notified by certified mail, return receipt
      requested and: (i) if to the Company, addressed to Itec Environmental Group,
      Inc., 5300 Claus Road, Riverbank, California 95367, or at such other address
      as
      the Company may designate by notice to each of the Investors in accordance
      with
      the provisions of this Section; and (ii) if to the Warrant holder, at the
      address indicated on the signature page hereof, or at such other addresses
      as
      such Holder may designate by notice to the Company in accordance with the
      provisions of this Section. 

    

    f.
       Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      prospectively or retroactively), only with the written consent of the Company
      and a majority in interest of the Holders. 

    

    g.
       Entire
      Agreement.
      This
      Agreement, the Memorandum (including the appendices and schedules thereto)
      by
      and between the Company and the Holder, constitute the entire agreement among
      the parties hereto with respect to the subject matter hereof and thereof and
      supersede all prior agreements, understandings, negotiations and discussions,
      whether oral or written, of the parties hereto. 

    

    IN
      WITNESS WHEREOF, the undersigned hereby sets is hand and seal this
      21st
      day of
      July, 2006. 

    

    

    Itec
      Environmental Group, Inc. 

    

    

    By:
      /s/
      Gary De Laurentiis

         
      Name: Gary De Laurentiis

         
      Title: President and Chief Executive Officer

    

    

    Investor
      Name: Ji “Allison” Y. Baek

    

    Investor
      Address: __________________________________

    

    _________________________________________________

    

    _________________________________________________

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

    

    NOTICE
      OF EXERCISE

    

    (To
      be
      signed only upon exercise of the Warrant)

    

    

    TO:
      Itec
      Environmental Group, Inc.

    

    

    The
      undersigned, hereby irrevocably elects to exercise the purchase rights
      represented by the Warrant granted to the undersigned on ______________ and
      to
      purchase thereunder __________* shares of Common Stock of Itec Environmental
      Group, Inc. (the “Company”).

    

    Dated:
      ________________

    

    

    

    _________________________________________

    (Signature
      must conform in all respects to name 

    of
      holder
      as specified on the face of the Warrant)

    

    

    

    _________________________________________

    (Please
      Print Name)

    

    

    _________________________________________

    (Address)

    

    

    *
      Insert
      here the number of shares being exercised, without making any adjustment for
      additional Common Stock of the Company, other securities or property which,
      pursuant to the adjustment provisions of the Warrant, may be deliverable upon
      exercise. 

    

    

    
      
        
        

      

      
        11Unassociated Document

    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:

    

    
      	i)  	
              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”);

            

    

    

    
      	ii)  	
              A
                certain UNCONDITIONAL
                GUARANTY
                dated as of May 14, 2004 respectively, and given to MLBFS by Dixon
                (the
                “Personal
                Guaranty”);

            

    

    

    
      	iii)  	
              A
                certain UNCONDITIONAL
                GUARANTY
                dated as of November 4, 2005 respectively, and given to MLBFS by
                DND
                respectively (the “Business
                Guaranty);

            

    

    

    
      	iv)  	
              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”).

            

    

    

    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.

    

    
      	 	
              (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.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    
 

    
      	 	
              (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.

            

    

    

    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 (1st)
      calendar day of each calendar month thereafter through and including until
      March
      1st,
      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. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    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:

    

    
      	A.  	
              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.

            

    

    

    
      	B.  	
              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.

            

    

    

    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 30th
      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/instruments held in the Customer’s
      name at
      MLPF&S, JP Morgan Chase Bank, N.A. (but specifically maintained in
      commercial checking account No. 000-000-023-956-267) and Bank of America, N.A.
      (but specifically maintained in commercial checking account No. 0047-7456-8780),
      but excluding the following: (a) any funds held as retirement assets or pension
      accounts, (b) any funds held in an annuity, (c) any funds subject to margin
      debt. The term “Eligible
      Accounts Receivables”
      shall
      have the meaning as set forth in the attached Exhibit “A”.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    7.9
      Perfection
      of Security Interest in Depository Accounts.
      Customer
      agrees and understands that it shall furnish or cause to be furnished to MLBFS
      within 30 days from the Effective Date (as hereinafter defined) all of the
      following items:

    
      	
            	(i)	
              A
                Financial Assets Security Agreement (the “FASA”)
                and

            

    

    
      	 	
              (ii)

            	
              A
                Deposit Account Control Agreement, giving MLBFS a first position
                security
                lien on any depository account(s) held in the name of the Customer
                that is
                held outside of MLPF&S, including but not limited to JP Morgan Chase
                Bank, N.A. (commercial checking account No. 000-000-023-956-267)
                and Bank
                of America, N.A. (checking account No. 0047-7456-8780). Both JP Morgan
                Chase Bank, N.A. and Bank of America, N.A. will be required to sign
                a
                Deposit Account Control Agreement that is in a form and substance
                acceptable to MLBFS in its sole and absolute discretion.
                

            

    

    

    7.10
      Line
      Fee.
      The
      Obligors agree, concurrent with their execution of this Forbearance to pay
      MLBFS
      a Line Fee in the amount of $4,104.58
      for the
      Forbearance Period beginning June 15, 2006 and ending March
      31, 2007
      (the
“Forbearance
      Period”).
      The
      Customer agrees that the Forbearance Fee will be fully non-refundable once
      it
      has been paid. Obligors further agree that additional forbearance fees will
      become due and owing to MLBFS for any extensions to this Forbearance
      Agreement.

    

    8.
      Obligations of MLBFS.
      If there
      are no Events of Default under this Forbearance Agreement, and no other Events
      of Default, other than the existing Events of Default referenced in this
      Forbearance Agreement, occurs under the Loan Documents between the date of
      this
      Forbearance Agreement MLBFS will agree to forbear from exercising its legal
      rights and remedies as a secured creditor under the Loan Documents or under
      common or statutory law until the Termination Date.

    

    9.
      Release
      of MLBFS.
      Obligor(s), for itself and by its employees, agents, servants and
      representatives, completely release and forever discharge MLBFS and its parents,
      affiliates, subsidiaries, and divisions, and each such entity’s
      officers, directors, shareholders, employees, owners, partners, agents,
      successors, and assigns, of and from any and all causes of action, claims,
      or
      demands whatsoever, in law or in equity, whether now known or hereafter
      discovered, including but not limited to those that in any way pertain to the
      Loan Documents or arise from the conduct of MLBFS, its parents, affiliates,
      subsidiaries, and divisions.

    

    10.
      No
      Distributions, Loans and Transfers.
      Except
      upon the prior written consent of MLBFS, neither Customer nor any other Obligor
      shall (a) directly or indirectly pay any dividends or make any other
      distributions on account of its stock to its shareholders, (b) directly or
      indirectly lend any money to, or guaranty the Obligations of, any shareholder
      or
      other affiliated person or entity, or (c) directly or indirectly lend any money,
      or transfer any assets or property, to any other person or entity other than
      arms length transfers for fair consideration in the ordinary course of
      business.

    

    11.
      Term
      of Agreement.
      This
      Forbearance Agreement shall terminate (the “Termination
      Date”)
      upon
      the earlier of (A) an Event of Default under this Forbearance Agreement or
      the
      Loan Documents or (B) March
      31, 2007.
      After
      the Termination Date, MLBFS shall have no further obligation to Obligors to
      forbear from exercising its legal rights and remedies under the Loan Documents
      or under applicable law, or to perform any other act hereunder.

    

    12.
      No
      Insolvency.
      None of
      the Obligors: (i) will be rendered Insolvent as a result of executing and
      performing under this Forbearance Agreement or any other document or agreement
      executed and/or delivered to MLBFS in connection with this Forbearance
      Agreement, and (ii) will be left with remaining property that constitutes
      unreasonably small capital or property the value of which was unreasonably
      small
      in relation to their businesses. For purposes of this Forbearance Agreement,
      the
      word “Insolvent”
      means
      that the present fair saleable value (i.e. the amount that would be arrived
      at
      by a willing seller and a willing buyer under no compulsion to make a sale)
      of
      Obligors’
      assets
      is less than the amount that will be required to pay the probable liability
      on
      existing debts (including, without limitation, any legal liability, whether
      matured or unmatured, liquidated or unliquidated, absolute, fixed or contingent)
      as they become absolute and matured.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    13.
      Event
      of Default.
      The
      occurrence of any of the following events shall constitute an “Event
      of
      Default”
      under
      this Forbearance Agreement: (i) Obligors shall fail to pay when any amounts
      owed
      under this Forbearance Agreement; (ii) Obligors shall default in the performance
      or observance of any covenant or provision to be performed or observed under
      this Forbearance Agreement, any other agreement entered into by the parties
      pursuant to this Forbearance Agreement, or any of the Loan Documents; (iii)
      any
      representation or warranty made by Obligors contained in this Forbearance
      Agreement, any other agreement entered into by the parties pursuant to this
      Forbearance Agreement, or any of the Loan Documents shall at any time prove
      to
      have been incorrect in any material respect when made; (iv) a proceeding under
      any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt
      or
      receivership law or statute shall be filed or consented to by any or all of
      the
      Obligors, or any such proceeding shall be filed against any or all of the
      Obligors, or any or all of the Obligors shall make a general assignment for
      the
      benefit of creditors, or any or all of the Obligors shall generally fail to
      pay
      or admit in writing its inability to pay their debts as they become due, or
      any
      or all of the Obligors shall be adjudicated as bankrupt or insolvent; (v) the
      cessation of Customer’s
      operations; (vi) the death of Guarantor; or (vii) any Event of Default shall
      occur under any of the Loan Documents or any event which, with the giving
      notice, passage of time, or both, would constitute an Event of Default, shall
      occur. 

    

    14.
      Remedies.
      Upon the
      occurrence of an Event of Default, MLBFS shall have all rights hereunder and
      under law and equity and all rights and remedies contained within the Loan
      Documents, including but not limited to the following rights:

    

    (i)
      MLBFS
      may obtain a replevin order by consent in a replevin action in favor of MLBFS
      and against any Obligors, jointly and severally, with respect to all Collateral.
      This replevin may be filed in Illinois. The Obligors agree to not contest the
      entry of a consent replevin order should it be pursued by MLBFS. 

    

    (ii)
      MLBFS may demand and obtain from Obligors any and all Collateral without the
      need for judicial process. MLBFS may, at any time, take possession of any
      portion or all of the Collateral and keep it on the premises of Customer or
      any
      Obligor, at no cost to MLBFS, or remove any part of it to such other location
      or
      place as MLBFS may desire; or Customer or any Obligor shall, upon demand of
      MLBFS, at the sole cost of Customer or such Obligor, assemble the Collateral
      and
      make it available to MLBFS at a place reasonably convenient to
      MLBFS.

    

    (iii)
      MLBFS may file a lawsuit against any or all of the Obligors, jointly and
      severally, for the sole purpose of having a trial court enter judgment in favor
      of MLBFS against Obligors for all amounts owed by them. Obligors agree to not
      contest the entry of said judgment.

    

    (iv)
      MLBFS shall have any and all default rights and remedies of a secured party
      under the Uniform Commercial Code.

    

    (v)
      Obligors hereby consent to the appointment of a receiver by MLBFS or any court
      of competent jurisdiction in any action initiated by MLBFS pursuant to this
      Forbearance Agreement or the Loan Documents, and each Obligor hereby waives
      notice and the posting of a bond in connection therewith. Such receiver so
      appointed may be MLBFS. Such appointment shall be without regard to the value
      of
      the Collateral at such time, and without bond being required of the applicant.
      Such appointment may be without notice and without regard to the solvency or
      insolvency at the time of application for such receiver of the person or
      persons, if any, liable for the payment of the Debt.

    

    (vi)
      MLBFS may sell and deliver any Collateral at public or private sales, for cash,
      upon credit or otherwise, at such prices and upon such terms as MLBFS deems
      advisable, at MLBFS’
      discretion. MLBFS may, if MLBFS deems it reasonable, postpone or adjourn any
      sale of the Collateral by an announcement at the time and place of sale or
      of
      such postponed or adjourned sale without giving a new notice of
      sale.

    

    (vii)
      Obligors agree that MLBFS has no obligation to preserve rights to the Collateral
      or marshal any assets, including the Collateral, for the benefit of any
      person.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    

    (viii)
      MLBFS is hereby granted a license or other right to use, without charge,
      Obligators’
      labels,
      patents, copyrights, name, trade secrets, trade names, trademarks, and
      advertising matter, or any similar property, in completing production,
      advertising or selling any Collateral and Obligors’
      rights
      under all licenses and all franchise agreements shall inure to MLBFS’s
      benefit. Any requirement of reasonable notice shall be met if such notice is
      mailed postage prepaid to Customer at its address set forth above in this
      Forbearance Agreement at least five (5) days before sale or other disposition.
      The proceeds of any sale shall be applied first to all attorney fees and other
      expenses of sale, and second on account of the Debt in such order as MLBFS
      shall
      elect, in its sole discretion. MLBFS shall return any excess proceeds to
      Customer, and Obligors shall remain jointly and severally liable for any
      deficiency to the fullest extent permitted by law.

    

    (ix)
      Except as otherwise provided herein, MLBFS shall have the continuing and
      exclusive right to apply or reverse and reapply any and all payments to any
      portion of the Debt in such order and in such manner as MLBFS shall determine
      in
      its sole discretion. To the extent that Obligors make a payment or MLBFS
      receives any payment or proceeds of the Collateral which is subsequently
      invalidated, declared to be fraudulent or preferential, set aside or required
      to
      be repaid to a trustee, debtor-in-possession, receiver or any other party under
      any bankruptcy law, common law or equitable cause, or otherwise, then to such
      extent, the Debt or the part of the Debt that was intended to be satisfied
      by
      such payment shall be revived and continue as if such payment or proceeds had
      not been received by MLBFS.

    

    (x)
      Obligors shall perform without objection any other act required or requested
      by
      MLBFS under any right or remedy given to it pursuant to the Loan Documents
      or
      under the law.

    

    (xi)
      Notification of Account Debtors. MLBFS may notify any Account Debtor that its
      Account or Chattel Paper has been assigned to MLBFS and direct such Account
      Debtor to make payment directly to MLBFS of all amounts due, or becoming due
      with respect to such Account or Chattel Paper; and MLBFS may enforce payment
      and
      collect, by legal proceedings or otherwise; such Account or Chattel
      Paper.

    

    15.
      Review
      of Books and Records.
      In
      further consideration of MLBFS’
      agreement to forbear from exercising its rights, Obligors will continue to
      allow
      MLBFS to have access to Obligors’
      offices
      so as to allow MLBFS to review and inspect each of such Obligor’s
      books,
      records and Collateral. 

    

    16.
      Insurance.
      Obligors
      agree that Obligors shall maintain insurance on all Collateral under a policy
      or
      policies of physical damage insurance for the full replacement value thereof,
      providing that losses will be payable to MLBFS as its interests appears pursuant
      to the lender’s
      or
      mortgagee’s
      long
      form loss payable endorsement. Obligors shall further maintain a policy or
      policies of commercial general liability. Obligors further agree that MLBFS
      may
      at its sole and absolute discretion, obtain, and maintain insurance on the
      Collateral under a policy or policies of physical damage insurance for the
      full
      replacement value thereof and providing that losses will be payable to MLBFS.
      Obligors agree to execute any and all documents necessary in order for MLBFS
      to
      obtain and maintain insurance on the Collateral.

    

    17.
      Sales
      of Assets.
      Without
      the prior written consent of MLBFS, none of the Obligors shall sell, transfer
      or
      otherwise dispose of any of their respective assets or Collateral other than
      in
      the ordinary course of dealing. Additionally, in the event that any Obligor
      should at any time find alternate financing (directly or indirectly) or raise
      directly or indirectly any additional equity during the Forbearance period, such
      Obligor shall remit said proceeds directly to MLBFS as a permanent pre-payment
      of the Debt.

    

    18.
      Execution
      of Documents.
      Obligors
      agree to execute all documents necessary to effectuate the terms and conditions
      of this Forbearance Agreement.

    

    19.
      Course
      of Dealing.
      No
      course of dealing on the part of Obligors or any delay or failure on the part
      of
      MLBFS to exercise any right shall operate as a waiver of such rights or
      otherwise prejudice MLBFS’
      rights,
      powers or remedies.

    

    20.
      No
      Further Advance.
      Obligors
      acknowledge and agree that, except as expressly provided for in this Forbearance
      Agreement, MLBFS has no obligation to advance, provide or loan any further
      or
      additional monies or credit to Obligors. Obligors further acknowledge and agree
      that, except as expressly provided for in this Forbearance Agreement, that
      MLBFS
      has no obligation to grant any further forbearance to Obligors or to extend
      the
      time for the repayment of the Debt beyond the Termination Date of this
      Forbearance Agreement.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    21.
      Notices.
      Any
      notices required under this Forbearance Agreement shall be given in writing
      and
      shall be mailed via first class mail to the party at the address noted, postage
      prepaid, or delivered personally:

    

    If
      to Merrill Lynch Business Financial Services Inc.

    

    Martin
      Aguilera

    Merrill
      Lynch Business Financial Services Inc.

    222
      N.
      LaSalle Street, 17th Floor

    Chicago,
      IL 60601

    

    If
      to Obligors

    

    Mr.
      Dennis Key

    Aspect
      Systems Inc.

    375
      East
      Elliot Road

    Suite
      6

    Chandler,
      AZ 85225

    

    22.
      Mutual
      Consent.
      The
      parties acknowledge that this Forbearance Agreement has been negotiated at
      arms
      length, that each has had the opportunity to consult with legal counsel if
      so
      desired, and that the parties have entered into this Forbearance Agreement
      of
      their own free will, without force, coercion or duress.

    

    23.
      Governing
      Law.
      This
      Forbearance Agreement shall be governed in all respects by the laws of the
      State
      of Illinois.

    

    24.
      Binding
      Agreement.
      This
      Forbearance Agreement shall be binding upon, and shall inure to the benefit
      of
      MLBFS, each of the Obligors and their respective successors and assigns. None
      of
      the Obligors shall assign any of their rights or delegate any of their
      obligations under this Forbearance Agreement without the prior written consent
      of MLBFS. Unless otherwise expressly agreed to in a writing signed by MLBFS,
      no
      such consent shall in any event relieve Obligors of any of their obligations
      under this Forbearance Agreement.

    

    25.
      No
      Release of Security.
      Nothing
      contained herein shall annul, release, vary, modify or affect the lien or
      priority of lien securing the Debt, or any guaranty, lien, priority assignment
      or security interest in favor of MLBFS, or any right, title, interest, claim,
      lien or priority which MLBFS now has or may hereafter have in or to any property
      securing the Debt, all of which shall continue in full force and effect. MLBFS
      specifically reserves and shall have all rights and remedies available to it
      under the provisions of the Loan Documents and in any agreement with respect
      to
      security for the repayment thereof. 

    

    26.
      Not
      a Novation.
      This
      Forbearance Agreement is not a novation, nor is it to be construed as a release
      or modification of any of the terms, conditions, warranties, waivers or rights
      set forth in the Loan Documents, except as expressly provided
      herein.

    

    27.
      Headings.
      Section
      headings used in this Forbearance Agreement are for convenience only and shall
      not affect the construction of this Forbearance Agreement.

    

    28.
      Neutral
      Interpretation.
      This
      Forbearance Agreement constitutes the product of negotiation of the parties
      hereto and in the enforcement hereof shall be interpreted in a neutral manner,
      and not more strongly for or against any party based upon the source of the
      draftsmanship hereof. Whenever the context so requires, the masculine gender
      shall include the feminine or neuter, the singular shall include the plural,
      and
      vice versa.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    29.
      Review
      by Legal Counsel.
      Obligors
      acknowledge that they have thoroughly read and reviewed the terms and provisions
      of this Forbearance Agreement and are familiar with the terms hereof. Such
      terms
      and provisions are clearly understood and fully and unconditionally consented
      to
      by them. Obligors have had the full benefit and advice of counsel of their
      own
      choosing, or the opportunity to obtain the benefit and advice of counsel of
      their own choosing to understand the terms, meanings and effect of this
      Forbearance Agreement. Obligors’
      execution of this Forbearance Agreement and the delivery of the documents is
      done freely, voluntarily, with full knowledge and without duress, force or
      coercion, and that in executing this Agreement none of Obligors have relied
      on
      any other representations, either written or oral, express or implied, made
      to
      them by MLBFS or any party.

    

    30.
      Authority
      to Execute.
      The
      parties to this Forbearance Agreement, and each of their representatives,
      represent and warrant to the other parties that they have the full power and
      authority to execute this Forbearance Agreement in the capacity in which they
      are signing, that they have the full power and authority to execute and deliver
      this Forbearance Agreement without the necessity or joinder of any other or
      third party, that each of the parties and its undersigned representative is
      legally competent to execute this Forbearance Agreement, and that each of the
      parties has not assigned, transferred, sold, pledged or in any other manner
      whatsoever conveyed any right, title, interest or claim of any portion of the
      Loan Documents to any other party.

    

    31.
      Severability.
      In the
      event that any provision of this Forbearance Agreement is held to be
      unenforceable or invalid, the remaining provisions hereof shall nevertheless
      be
      given full force and effect.

    

    32.
      Counterparts.
      This
      Forbearance Agreement may be executed in any number of counterparts, each of
      which when so executed shall be deemed an original document, and all of which
      counterparts, when taken together, shall constitute one and the same
      agreement.

    

    33.
      No
      Use of Merrill Lynch Name.
      No
      Obligor will directly or indirectly publish, disclose or otherwise use in any
      advertising or promotional material, or press release or interview, the name,
      logo or any trademark of MLBFS, Merrill Lynch Pierce Fenner & Smith
      Incorporated, Merrill Lynch and Co., Incorporated or any of their affiliates.
      

    

    34.
      Jurisdiction;
      Waiver. THE OBLIGORS ACKNOWLEDGE THAT THIS FORBEARANCE AGREEMENT IS BEING
      ACCEPTED BY MLBFS IN PARTIAL CONSIDERATION OF MLBFS’
      RIGHT AND OPTION, IN ITS SOLE DISCRETION, TO ENFORCE THIS FORBEARANCE AGREEMENT
      AND THE LOAN DOCUMENTS IN EITHER THE STATE OF ILLINOIS OR IN ANY OTHER
      JURISDICTION WHERE THE OBLIGORS OR ANY COLLATERAL FOR THE OBLIGATIONS MAY BE
      LOCATED. THE OBLIGORS CONSENT TO JURISDICTION IN THE STATE OF ILLINOIS AND
      VENUE
      IN ANY STATE OR FEDERAL COURT IN THE COOK COUNTY FOR SUCH PURPOSES, AND THE
      OBLIGORS WAIVE ANY AND ALL RIGHTS TO CONTEST SAID JURISDICTION AND VENUE. THE
      OBLIGORS FURTHER WAIVE ANY RIGHTS TO COMMENCE ANY ACTION AGAINST MLBFS IN ANY
      JURISDICTION EXCEPT IN COOK COUNTY AND THE STATE OF ILLINOIS. MLBFS AND THE
      OBLIGORS HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY
      IN
      ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST
      THE OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN
      ANY
      WAY CONNECTED WITH THE DEBT, THIS FORBEARANCE AGREEMENT, ANY ADDITIONAL
      AGREEMENTS RELATED HERETO, THE LOAN DOCUMENTS AND/OR ANY OF THE TRANSACTIONS
      WHICH ARE THE SUBJECT MATTER OF THIS FORBEARANCE AGREEMENT, ANY ADDITIONAL
      AGREEMENTS RELATED HERETO, OR THE LOAN DOCUMENTS.

    

    35.
      Integration.
      THIS FORBEARANCE AGREEMENT, TOGETHER WITH THE LOAN DOCUMENTS AND ANY ADDITIONAL
      AGREEMENTS RELATED HERETO, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS
      THE FULL AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT
      MATTER HEREOF, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN
      AGREEMENTS OR PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
      PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENT OF THE PARTIES. NO AMENDMENT
      OR
      MODIFICATION OF THIS FORBEARANCE AGREEMENT OR ANY OF THE ADDITIONAL AGREEMENTS
      TO WHICH ANY OF THE OBLIGORS ARE A PARTY SHALL BE EFFECTIVE UNLESS IN A WRITING
      SIGNED BY MLBFS AND EACH OBLIGOR.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    36.
      Return
      of Executed Documents.
      Notwithstanding anything to the contrary contained herein, Obligors agree to
      execute and return to MLBFS, in a form and manner acceptable to MLBFS, in its
      sole and absolute discretion, opinion and judgment, the following documents
      and
      payments on or before 5:00 P.M. Central Standard Time on July
      28, 2006.

    

    
      	(a)  	
              This
                Forbearance Agreement, fully
                executed.

            

    

    
      	(b)  	
              The
                Subordination Agreements fully executed by Dixon and
                Brewer.

            

    

    
      	(c)  	
              A
                check made payable to MLBFS in the amount of $4,104.58, covering
                the Line
                Fee.

            

    

    

    If
      no
      further Event of Default, or event which with the giving of notice, passage
      of
      time, or both, would constitute an Event of Default, shall then have occurred
      and be continuing under the terms of the Loan Documents, then the amendments
      and
      agreements in this Forbearance Agreement will become effective on the date
      (the
“Effective
      Date”)
      upon
      which: (i) Obligors shall have executed and returned the original copy of this
      Forbearance Agreement to MLBFS, along with any other documents reasonably
      required by MLBFS, in its sole discretion, to effectuate the terms and
      conditions of this Forbearance Agreement; and (ii) an officer of MLBFS shall
      have reviewed and approved this Forbearance Agreement and all of the other
      documents as being consistent in all respects with the original internal
      authorization hereof. If Obligors do not return to MLBFS (a) the fully executed
      original copy of this Forbearance Agreement; (and (b) any other documents
      reasonably required by MLBFS, in its sole discretion, to effectuate the terms
      of
      this Forbearance Agreement all by July
      28, 2006,
      or if
      for any other reason (other than the sole fault of MLBFS) the Effective Date
      shall not occur by July
      28, 2006,
      then
      this Forbearance Agreement and all of the terms contained herein may, at the
      sole option of MLBFS, be declared to be null and void and be of no force and
      effect.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      parties have signed and delivered this Forbearance Agreement, on or about the
      date stated above.

    

    MERRILL
      LYNCH BUSINESS FINANCIAL SERVICES INC.

    

    By:
      ___________________________

    

    Printed
      Name: ___________________

    

    Title:
      __________________________

    

    

    ASPECT
      SYSTEMS, INC.

    

    By:
      /s/
      G.
      Dennis Key

    

    Printed
      Name: G. Dennis Key

    

    Its:
      President

    

    

    DND
      TECHNOLOGIES, INC.

    

    By:
      /s/
      G.
      Dennis Key

    

    Printed
      Name: G. Dennis Key

    

    Its:
      Chief Technical Officer

    

    

    

    

    /s/
      Douglas N. Dixon

    DOUGLAS
      N. DIXON

     

    
      
        
        

      

      
        11

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