AMENDED FORBEARANCE AGREEMENT
This Agreement (the "AGREEMENT") is entered into and made this 18th
day of May, 2005, by and among VITROTECH CORPORATION, a Nevada corporation
("VitroTech"), VITROCO INCORPORATED, a Nevada corporation
("VitroCo")(collectively, VitroTech and VitroCo are referred to as the
"Borrowers"), and 1568931 ONTARIO LTD., an Ontario company partnership
("Lender"), and amends and supercedes a Forbearance Agreement, dated May 10,
2005, by and between the parties hereto.
WHEREAS, Lender and Borrowers entered into that certain agreement,
dated September 29, 2004 (the "September 2004 Agreement"), by which Lender
agreed to loan to VitroTech up to $3,000,000 and pursuant to which Borrowers
agreed to grant to Lender a security interest in substantially all of their
assets and funds have been loaned to date and Borrowers and Lender have agreed
to execute various documents further defining the rights of Lender and Borrowers
under the September 2004 Agreement (such documents being referred to,
collectively with the September 2004 Agreement, as the "Loan Documents"); this
Agreement does not, in any way, diminish or reduce any of the rights of Lender
under the September 2004 Agreement and, except as otherwise provided for herein,
the September 2004 Agreement shall remain in full force and affect and Lender
shall retain, unabated, all rights conferred by law as well as those rights
contained in (1) the September 2004 Agreement, and (2) all Loan Documents
contemplated to be executed pursuant to the September 2004 Agreement;
WHEREAS, pursuant to the terms of the September 2004 Agreement,
Enviro Investment Group LLC, Red Rock Canyon Mineral LLC and Valley Springs
Mineral LLC (the "Mines") pledged to Lender, as additional collateral to secure
Borrowers' obligations under the September 2004 Agreement, certain assets,
including but not limited to all then mined, processed and/or warehoused mineral
owned by the Mines (the "Inventory"), including Inventory in possession of
Borrowers and subject to Borrowers' rights to purchase such Inventory;
WHEREAS, Lender has entered in an Inter-Creditor Agreement, dated
April 18, 2005 (the "Inter-Creditor Agreement"), with Vitrobirth LLC pursuant to
which Lender and Vitrobirth agreed to share collateral pledged by Borrowers;
WHEREAS, Borrowers are presently out of compliance with various
provisions of the Loan Documents, such non-compliance being grounds for Lender
to declare Borrowers in default under the Loan Documents;
WHEREAS, Borrowers and Lender have negotiated and agreed in
principal that Lender will forbear from exercising any remedy available to
Lender upon the occurrence of an event of default, as defined under the Loan
Documents, until the earlier of (1) a Triggering Event, as defined herein, or
(2) May 23, 2005 (subject to the sole and absolute right of Lender to extend
said date); and Borrowers will facilitate the sale and transfer to Lender of all
of Borrowers' interest in the Inventories and receivables held by Borrowers, all
subject to the terms of the Inter-Creditor Agreement and/or any amendment
thereto or subsequent agreement entered into between Lender and Vitrobirth LLC
and the obligation to pay to the Mines and Hi-Tech Environmental Products LLC
("Hi-Tech") an aggregate of fifteen percent (15%) of the ultimate sales price of
Inventory; and
WHEREAS, Borrowers and Lender wish to evidence their agreement with
respect to the matters set forth above.
NOW, THEREFORE, for and in consideration of the mutual promises
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lender and Borrowers hereby agree
as follows:
1. At the specific request of Borrowers, Lender hereby agrees to
forbear from exercising any remedy available to Lender upon the occurrence of an
Event of Default or Default (as such terms are defined in the Loan Documents)
under the Loan Documents until the earlier of (a) a Triggering Event
(hereinafter defined) or (b) May 23, 2005 (subject to the sole and absolute
right of Lender to extend said date)(the earlier of such dates being referred to
herein as the "Termination Date").
2. In consideration of the forbearance agreed to in Paragraph 1
hereof, Borrowers hereby sell, assign, transfer, convey and deliver to Lender,
as an outright conveyance and not as a security interest, and subject to the
rights and obligations of Lender and Vitrobirth under the Inter-Creditor
Agreement and/or any amendment thereto, or subsequent agreement entered into
between Lender and Vitrobirth LLC, all right, title and interest of Borrowers
in:
a. the Inventory, as set forth on Schedule A attached
hereto; and with respect to the Inventory: (i) Borrowers represent and
warrant that (A) the Mines own all of the Inventory set forth on
Schedule A, subject only to the rights of Borrowers to purchase the
Inventory, (B) Borrowers own certain rights in the Inventory, free and
clear of liens, subject only to the rights of (1) Lender under the Loan
Documents, (2) Vitrobirth under an existing loan to the Borrowers, (3)
warehousemen in possession of the Inventory and owed money with respect
to the warehousing of Inventory, which amounts are, as of the date
hereof, not more than $15,000 in the aggregate, and (4) the Mines and
Hi-Tech to be paid an aggregate of fifteen percent (15%) of the
ultimate sales price of the inventory; and (C) the Inventory listed on
Schedule A constitutes all of the Inventory of mined and/or processed
material that the Borrowers own or have control over or an interest in,
whether directly or indirectly; (ii) Borrowers agree that Lender shall
have all of the rights Borrowers would otherwise have to deal with the
Inventory and control the same as fully as Borrowers; (iii) Borrowers
shall grant no rights in the inventory to any parties other than Lender
without the prior written consent of Lender; (iv) Borrowers shall
notify all persons in possession of the Inventory, including
warehousemen, of the rights granted to Lender hereunder; and (v)
Borrowers have included herewith as Schedule C, and will update as
appropriate Schedule C, listing all warehouse receipts, if any,
relating to the Inventory; and
b. all receivables and other forms of rights to payment
now existing, as reflected on Schedule B attached hereto, or arising in
the future, excluding those receivables specifically noted as excluded
on Schedule B; and with respect to the receivables: (i) Borrowers
represent and warrant that in the event invoices are attached to
Schedule B, such invoices represent true and correct copies of invoices
for the receivables; (ii) in the event Schedule B is not attached to
this Agreement at the time of its original execution, the parties agree
that actual purchases of receivables will be evidenced by the
completion and execution by both parties of Schedule B in the future,
which schedule must be delivered by Borrowers not later than 48 hours
after each such purchase; (iii) whether or not an initial Schedule B is
attached to this Agreement, it is anticipated that additional
receivables will be sold by Borrowers to Lender (although Lender is not
agreeing to purchase any particular receivable or any additional
receivables hereby), and such future purchases will be evidenced by the
completion and execution of additional schedules in form similar to
Schedule B; and (iv) upon execution by both Lender and Borrowers of
such a supplemental schedule, the accounts receivable described therein
shall become receivables subject in all respects to the terms of this
Agreement.
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Lender agrees that any proceeds received from the sale by Lender of any
inventory or collection of any receivables transferred to Lender hereunder by
Borrowers shall be applied to amounts owing under the Loan Documents or will be
re-lent to Borrowers, at Lender's option. Borrowers agree to execute, from time
to time, any and all documents as may be reasonably necessary to carry out the
provisions of this Agreement, including (x) any documents Lender may deem
appropriate to allow Lender to carry out the collection of receivables and sale
of any receivables or inventory and warehouse receipts, if any, relating to the
inventory, and (y) any Loan Documents not previously executed but contemplated
by the September 2004 Agreement or necessary to reflect and preserve Lender's
right under the law. Upon payment in full of all obligations owing under the
Vitrobirth Loan Documents as well as the Lender's Loan Documents, Lender shall,
within ten (10) business days following receipt of a Borrower Release Notice (as
defined below), release all claims to, and assign and transfer to Borrowers,
inventory and receivables held by Lender at that time ("Excess Collateral");
provided, however, that Lender shall only be obligated to assign and transfer
Excess Collateral to Borrower if, and when, (i) Borrower's common stock
satisfies the Transfer Criteria (as defined below) and (ii) the Borrower meets
the Financial Performance Criteria (as defined below).
For purposes hereof, the "Transfer Criteria" shall be satisfied if, as of the
date of a Borrower Release Notice (the "Measurement Date"), (A) the Borrower's
common stock is traded on the OTC Bulletin Board, Nasdaq or a registered
national stock exchange, and (B) the closing price of the Borrower's common
stock is not less than $2.00 per share, and (C) the volume weighted average
price of the Borrower's common stock over the 180 day period preceding the
Measurement Date is not less than $2.00 per share, and (D) the average daily
trading volume of the Borrower's common stock over the 180 day period preceding
the Measurement Date is not less than 500,000 shares. All share prices and
trading volumes for purposes of measuring the Transfer Criteria shall be
adjusted from time to time to reflect any stock splits, reverse splits, stock
dividends or similar transactions.
For purposes hereof, the "Financial Performance Criteria" shall be satisfied if,
as of the last day of the fiscal quarter ending immediately prior to the
Measurement Date, the Borrower's financial statements, as prepared in accordance
with generally accepted accounting principles, reflect total shareholders'
equity of not less than $3,000,000 and earnings per share over the preceding 12
months equal or exceed $0.10 per share.
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For purposes hereof, a "Borrower Release Notice" shall consist of a written
notice given by Borrower to Lender requesting that Excess Collateral be returned
and setting forth information, in reasonably sufficient detail, to evidence (A)
the repayment in full of the obligations owing under the Lender's Loan Documents
and the Vitrobirth Loan Documents, and (B) satisfaction of both the Transfer
Criteria and the Financial Performance Criteria.
Notwithstanding anything to the contrary herein, Lender's obligation to transfer
and convey Excess Collateral to the Borrower shall forever lapse and be of no
force or effect immediately upon the occurrence of any of the Triggering Events
listed in Paragraphs 4(b) or (c) hereof.
3. In order to more fully carry out the purposes of paragraph 2(a)
above, Borrowers and Lender agree to handle Inventory as follows:
a. Borrowers shall continue to have the right to operate
their business as presently conducted and to offer and sell Inventory;
provided, however, that (i) Borrowers shall notify Lender, in writing,
by fax or such other means as Lender shall agree to accept, of all
proposed sales and shipments of Inventory, and (ii) no Inventory may be
shipped or released unless and until Lender consents, either in
writing, by fax or such other means as Lender may elect, to said
shipment or release of Inventory, which consent Lender shall not
unreasonably withhold. Notwithstanding anything herein to the contrary,
the Lender shall have the right to arbitrarily withhold its consent
contained in this paragraph, if the effect of a sale of the Inventory
by the Borrower would nullify/take away the Lender's rights contained
in paragraph 2 herein.
b. Borrowers shall provide notice, substantially in the
form attached hereto as Exhibit 1, to each warehouse now, or in the
future, holding Inventory, such that no Inventory shall be authorized
to be shipped or released by a warehouse without the prior approval of
Lender.
4. For purposes hereof the term "TRIGGERING EVENT" shall mean the
occurrence of any one of the following:
a. A material judgment adverse to either Borrower shall
be entered in any legal proceeding and such judgment shall not be
stayed within five (5) days after the entry of such judgment;
b. Either Borrower shall (i) execute an assignment for
the benefit of creditors, or (ii) become or be adjudicated a bankrupt
or insolvent, or (iii) apply for or agree by consent to the appointment
of a supervisor, conservator, receiver, trustee, or liquidator of it or
of all or a substantial part of its assets, or (iv) file a voluntary
petition seeking reorganization or an arrangement with creditors, or to
take advantage of or seek any other relief under any debtor relief
laws, (v) be the subject of an involuntary bankruptcy case commenced
under 11 U.S.C. Section 303 (the United States Bankruptcy Code); or
(vi) file an answer admitting the material allegations of or consenting
to, or default in, a petition filed against it in any proceeding under
any debtor relief laws, or (vii) institute or voluntarily be or become
a party to any other judicial proceedings intended to effect a
discharge of its debts, in whole or in part, or a postponement of the
maturity or the collection thereof, or a suspension of any of the
rights of Lender granted in any of the Loan Documents;
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c. An order, judgment, or decree shall be entered by any
court of competent jurisdiction approving a petition seeking
reorganization of either Borrower or appointing a supervisor,
conservator, receiver, trustee, or liquidator of either Borrower or of
all or any substantial part of their assets, and such order, judgment,
or decree is not permanently stayed or reversed within thirty (30)
calendar days after the entry thereof, or (ii) a petition is filed
against either Borrower seeking reorganization, an arrangement with
creditors, or any other relief under any debtor relief laws, and such
petition is not discharged within thirty (30) calendar days after the
filing thereof;
d. Receipt by either Borrower, on or after the date
hereof, of any notice of material default (a "Third Party Default");
provided, however, that (i) Borrower shall provide written notice to
Lender of any such default within 24 hours of receipt of notice of the
subject default, and (ii) a Third Party Default shall only be deemed to
a Triggering Event if (A) the default involves claims of $5,000 or
more, and (B) Lender shall not have waived the treatment of the Third
Party Default as a Triggering Event within 24 hours after notice of a
default under this Paragraph 4(d) (the "Third Party Default Waiver
Period"); and provided, further, that a Third Party Default will be
deemed a Triggering Event only upon completion of the Third Party
Default Waiver Period; or
e. The breach by Borrowers of any covenant contained in
this Agreement, including, but not limited to, (i) the failure of
Borrowers to deliver a required Schedule B not later than 48 hours
following a purchase and sale of receivables, and (ii) failure of
Borrowers to deliver any notices required hereunder.
Borrowers shall promptly notify Lender in writing of the occurrence of any
Triggering Event.
5. This Agreement embodies the entire agreement of the parties only
with respect to the issuance of forbearance and there are no contemporaneous
oral agreements which in any way modify the same.
6. Each party hereto represents to each other party herein that:
a. Such party is a corporation, or partnership, as the
case may be, duly organized, legally existing, and in good standing
under the laws of the jurisdiction of its incorporation; and
b. This Agreement, and each of the documents deliverable
hereunder, will, when executed and delivered, constitute the legal,
valid, and binding obligation of such party.
7. Borrowers agree to cooperate with Lender and its representatives
and to allow same to be present on Borrowers' premises at all reasonable
business hours for the purpose of monitoring all aspects of Borrowers' business
and Borrowers, their officers and employees shall extend the reasonable
cooperation commensurate with sound management of Borrowers' business in
permitting Lender and its representatives to observe and gather information
about Borrowers' business, provided, however, Lender shall exercise no control
over Borrowers.
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8. Borrowers hereby affirm their obligations under the Loan
Documents and acknowledges that the obligations under the September 2004
Agreement are intended to be memorialized in definitive Loan Documents and that
this Agreement is subject to and will not in any way be altered as a result of
the executive of definitive Loan Documents.
9. Except as specifically provided in this Agreement, the terms of
the Loan Documents shall remain unchanged. Except as expressly set forth in this
Agreement, nothing herein shall be deemed to constitute a waiver by Lender of
any rights or remedies available under any of the Loan Documents or under
applicable law.
10. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of California and applicable laws of the United
States of America.
11. This Agreement may be executed in two or more counterparts, and
it shall not be necessary that any one counterparts be executed by all of the
parties hereto. Each fully or partially executed counterpart shall be deemed an
original, but all such counterparts taken together shall constitute but one and
the same instrument. The manual signature of any party hereto that is
transmitted to any other party by facsimile shall be deemed for all purposes to
be an original signature.
This Agreement is executed effective as of the date referenced above
by duly authorized representatives of each of the entities signatory hereto.
VITROTECH CORPORATION
By:_____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer
VITROCO INCORPORATED
By:_____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
Chief Executive Officer
1568931 ONTARIO LTD
By:_____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
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