September 29, 2004
VitroTech Corporation
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
ATTENTION: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇,
CHIEF EXECUTIVE OFFICER
Dear ▇▇. ▇▇▇▇▇▇▇▇▇▇▇
The following letter sets forth basic business terms and conditions under which
the Lender would make a Loan to the Borrower. This letter of intent is intended
to be binding, provided that advance of the Loan shall be subject to the
conditions precedent contained herein.
BORROWER: Vitrotech Corporation (the "Borrower" or the "Company"), a
publicly traded entity,
GUARANTOR: VitroCo Inc. (the "Guarantor")
LENDER: 1568931 Ontario Ltd. (the "Lender")
LOAN AMOUNT: Revolving line of credit in the principal amount $3,000,000
(the "Loan") net of the Commitment Fee, legal, consulting and
other closing costs. The Loan will be disbursed in tranches
with each disbursement obligation being subject to the
Borrower's meeting the terms and conditions applicable to each
separate tranch.
USE OF LOAN
PROCEEDS: To provide working capital needs of the Company for up to 12
months commencing on the date of the first distribution of
Loan proceeds subject to the conditions precedent contained
herein and the loan documentation.
TERM: The term of the Loan will be for a period of 12 months from
the date any proceeds (the "Maturity Date") are first advanced
by the Lender.
INTEREST RATE: 10% per annum, calculated and payable monthly in arrears. An
interest reserve (the "Interest Reserve") representing up to
twelve months of interest (depending upon the remaining term
of the Loan) will be held by the Lender. Interest for each
disbursement will only begin to accrue immediately upon each
disbursement of Loan proceeds.
CONVERSION: In lieu of repayment, at the sole discretion of the Lender,
the Lender may elect to convert all or part of the Loan into
common shares of the Borrower at a 30% discount to the
weighted average price at which the common shares were
publicly traded over a ten market day period ending on the
last trading day prior to the first disbursement of Loan
proceeds. Such conversion right to expire at the Maturity Date
or repayment.
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WARRANTS: At closing, the Company shall issue to the Lender 14,000,000
common stock purchase warrants at a 30% discount to the
weighted average price at which the common shares were
publicly traded over a ten market day period ending on the
last trading day prior to the first disbursement of Loan
proceeds. The warrants shall be exercisable at any time over a
three year term commencing from the date of issuance of said
warrants. The warrants shall be fully and freely transferable
and assignable by Lender without the prior consent of the
Borrower.
COMMITMENT FEE: ▇▇▇▇▇▇▇▇ agrees to pay to Lender the sum of 4% of the Loan
amount ($120,000)(the "Commitment Fee") which will be payable
upon funding of the Loan by the Lender. Borrower is
responsible and liable for all brokerage fees.
COSTS: Borrower shall pay all costs and pay all expenses incurred by
the Lender in connection with this letter of intent and
carrying out or attempting to carry out the Loan transaction
contemplated hereby to completion, including, but not limited
to, attorneys', consultants' and accountants' fees and charges
and other expenses incurred in connection the Lender's due
diligence activities or the documentation or closing of the
Loan (the "Lender Costs"). The Borrower shall be responsible
for its own legal and other costs associated with this
financing. The Borrower also agrees to pay all costs of
monitoring the Loan, such costs to be invoiced as incurred.
REPORTING
REQUIREMENTS: Reporting requirements set forth in the definitive loan
documentation shall include the following:
(i) Annualconsolidated audited financial statements for
the Company shall be provided within 120 days of each
fiscal year-end;
(ii) Monthly management prepared, interim financial
statements for the Company shall be provided within
15 days of each month end;
(iii) Aged listing of accounts receivable, accounts
payable, and inventory listing shall be provided
within 15 days of each month end;
(iv) Annual operating budgets for the Company shall be
provided 60 days before the year-end; and
(v) Any other information that the Lender may reasonably
require.
SECURITY: The Loan will be secured by a first lien, charge and security
interest on all of the Borrower's and the Guarantor's assets,
including without limitation all real estate, contractual
rights including but not limited to the purchase agreements
with the Mining Companies, personal property, intellectual
property (subject to the contractual rights of the Mine
Companies and further subject to paragraph (i) subsection C.
under the heading Conditions), licenses, leases, contracts,
inventory (including, for clarity, a pledge of the all of the
Vitrolite mineral that is currently mined and stored at the
respective mine site or processed and stored in any warehouse
which in the aggregate shall be no less than 30 million pounds
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owned by Borrower, Guarantor or the Mine Companies (as defined
further herein)), accounts receivable, goodwill, processes,
business plans, software, customer lists, equipment,
trademarks, logos, marketing materials, websites, and all
other chattels. The Loan will be evidenced by a loan agreement
and promissory note and secured by other loan and security
documentation in form acceptable to Lender in its sole
discretion, including but not limited to, a General Security
Agreement, UCC filing statements and an assignment/pledge of
the shares in the Guarantor held by ▇▇▇▇▇▇▇▇.
NEGATIVE
COVENANTS: Usual and customary, including but not limited to, the
Borrower or Guarantor shall not allow any of the following
without the prior written consent of the Lender which consent
may be arbitrarily withheld:
(i) Prohibition on incurring indebtedness excluding trade
payable in normal course of business;
(ii) Enter into any related party transactions with
Hi-Tech or the Mine Companies other than for material
purchases;
(iii) Sell or dispose of any assets subject to the Lender's
security except in the normal course of business;
(iv) Limitation on distributions and salaries;
(v) Restrictions on material change in business;
(vi) Restrictions on mergers, amalgamations and asset
sales, and
(vii) Restrictions on ▇▇▇▇▇▇ not to be unreasonably
withheld.
AFFIRMATIVE
COVENANTS: Usual and customary including, without limitation, the
following:
(i) Carry on business and operations in accordance with
good practices and applicable law;
(ii) Corporate existence;
(iii) Compliance with applicable law;
(iv) Payment of taxes;
(v) Inspection rights;
(vi) Maintenance of insurance;
(vii) Notice of material adverse effect and event of
default and default; and
(viii) Maintenance of books and records.
(ix) Financial covenants appropriate to a loan of this
type
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CONDITIONS: The conditions precedent of the Lender to advance any portion
of the Loan include without limitation:
(i) Amendment and modification of any and all agreements
between Borrower and/or Guarantor on the one hand and
Hi-Tech Environmental Products LLC ("Hi-Tech") and
Enviro Investment Group LLC, Red Rock LLC and Valley
Springs LLC (collectively, the Mine Companies") on
the other hand as the case may be, in form
satisfactory in the sole discretion of the Lender
which shall provide as follows:
A. The royalty and mineral payments to Hi-Tech
and the Mine Companies shall be modified to
provide for payments, in the aggregate, of
not more than 15% of Borrower sales; and
B. The annual mineral purchase requirement, for
calendar years commencing in 2006, will be
limited to the greatest total purchases of
raw material by the Borrower/Guarantor for
any prior calendar year.
C. Without modifying any of the foregoing,
acknowledgement by Hi-Tech and the Mine
Companies that they waive any and all
defaults presently existing, if any, under
any of the relevant agreements until
December 31, 2006.
(ii) Provision and registration of the security
documentation contemplated hereby;
(iii) No default or event of default shall have occurred;
(iv) Legal opinion from counsel for the Borrower in form
satisfactory in the sole discretion of the Lender
shall have been delivered to the Lender;
(v) The Lender, the Borrower and the Guarantor shall have
entered into definitive loan documentation in a form
satisfactory to the Lender in its sole discretion and
its legal counsel;
(vi) No material change in the business, operations,
property, assets or financial position of the
Borrower or the Guarantor or their subsidiaries shall
have occurred from the date hereof;
(vii) Inter-creditor Arrangement with existing Lenders of
Borrower and in form satisfactory in sole discretion
of Lender, if applicable;
(viii) Approval of the Borrower's and Guarantor's Board of
Directors.
(ix) Governmental and regulatory approvals including
relevant stock exchange approval of the transactions
contemplated herein and the acquisition of the Assets
shall have been obtained in form satisfactory to the
Lender in its sole discretion; and
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(x) The Lender shall have completed its due diligence of
the Borrower, the Guarantor, in its sole discretion
and to its sole satisfaction.
(xi) Commitment to register all shares receivable by the
Lender on a timely basis.
The conditions precedent of the Lender to advance any portion
of the Loan proceeds subsequent to the First Tranch (the
Second Tranch) shall include without limitation:
(i) Borrower shall have received subsequent to the First
Tranch distribution (as is hereinafter defined) a
cash equity contribution (including but not limited
to securities convertible into equity securities) in
the minimum amount of $3.0 million.
(ii) Borrower's total amount outstanding on the Loan shall
never exceed eighty (80%) per cent of the eligible
accounts receivable of the Borrower. Lender shall be
under no obligation to fund any portion of the Second
Tranch to the extent that such distribution will
cause the Loan Amount to exceed 80% of the then
existing outstanding eligible accounts receivable.
Borrower shall provide Lender with notice no less
than thirty (30) days prior to requesting funding
under the Second Tranch.
Such conditions precedent form a part of this letter and shall
be incorporated in the definitive loan documentation.
REPRESENTATIONS
AND WARRANTIES: Usual including without limitation:
(i) Due incorporation and registration;
(ii) Execution, delivery and enforceability;
(iii) No breach of organizational documents, applicable law
or agreements;
(iv) Good standing under agreements;
(v) No material litigation or proceedings;
(vi) Neither the Company or any of its subsidiaries are
involved in any dispute or legal proceedings likely
to materially affect its financial position or its
capacity to operate its business; and
(vii) Payment of taxes;
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(viii) Compliance with law;
(ix) No encumbrances except permitted encumbrances;
(x) Regulatory approvals; and
(xi) Ownership of properties.
DEFAULT
CONDITIONS: Usual including the following:
(i) Default in payment of principal, interest or fees
(subject to a ten (10) day cure period; provided
further that Hi-Tech and the Mine Companies will have
the right to cure any such default for a period of
thirty (30) days from the default date);
(ii) Failure to comply with any Affirmative or Negative
Covenant and such default remains unremedied for a
period of ten (10) business days;
(iii) If any representation or warranty proves to be
untrue;
(iv) Voluntary or involuntary bankruptcy or winding up of
borrower or Guarantor or any of its subsidiaries;
(v) Proceedings enforcing any encumbrance on assets of
the Borrower or Guarantor or any of its subsidiaries
having aggregate value greater than $1,000,000
excepting proceedings contested in good faith and
provided alternative security satisfactory to Lender
has been provided within 20 days of such proceedings;
(vi) Cessation of business;
(vii) Change of Control; and
(viii) Cross default on other indebtedness covenants.
(ix) Quarterly EBITDA is less than 70% of budgeted EBITDA,
such budget provided to the Lender prior to Closing.
BREAK-UP FEE: A break-up fee (the "break-up fee") of $500,000 in cash plus
1million shares of the Company shall be payable to the Lender,
if a material misrepresentation (including a material
omission) in any material or information that Borrower or
Guarantor has provided to the Lender constituting a default
under the Loan occurs; The break-up fee shall be in addition
to all remedies and amounts due Lender and shall be a genuine
pre-estimate of liquidated damages including consideration of
executive time spent.
GOVERNING LAW: State of California
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TIMING: The parties agree that the intention is to finalize
documentation and to advance $850,000 net (after deduction of
the Commitment Fee, Lender Costs and the Interest Reserve) to
Borrower of Loan proceeds (the First Tranch) by October 1,
2004.
CONFIDENTIALITY: The Borrower shall keep this Letter of Intent confidential and
shall not provide it to parties other than its employees and
professional advisors, Hi-Tech and the Mine Companies without
the prior written consent of the Lender.
ASSIGNABILITY: Lender shall have the right to assign the Loan, including the
obligation to fund the Second Tranch to a third party
institutional Lender.
PREPAYMENT: The Loan will not be prepayable without the Lender's prior
written consent.
NO WAIVER: ▇▇▇▇▇▇'s funding of the First Tranch by September 30, 2004
shall be deemed an accommodation by ▇▇▇▇▇▇ at the request of
Borrower and nothing shall be construed as a waiver by ▇▇▇▇▇▇
of any of the terms and conditions of this Term Sheet and Loan
Documents.
EXECUTION
OF DOCUMENTS: ▇▇▇▇▇▇▇▇ shall execute and deliver any and all documents
necessary in order to carry out the intent of the agreement.
Please confirm that the above is consistent with your intentions by signing and
returning the enclosed copy of this letter on or before close of business on
September 30, 2004.
Yours Truly,
1568931 Ontario Ltd.
By:_________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
The Undersigned hereby agree to and accept the Letter of Intent on the terms and
conditions set out herein, dated effective this 29th day of September, 2004.
VITROTECH CORPORATION
By:______________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, CEO
VITROCO INC.
By:______________________
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, CEO
The parties hereto agree that this Term Sheet may be executed in counterparts by
facsimile.
Balance of page left intentionally blank
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Each of the Undersigned, as an inducement to, and in consideration of, the
Lender's making of the Loan to the Borrower hereby agree and consent to the
terms and conditions contained in this Letter of Intent including without
limitation, the Undersigned's commitment and obligation to pledge its mineral,
contractual and intellectual property rights (as the case may be) as security
for the Lender's loan. The Undersigned further agree to execute and deliver any
and all documents necessary to carry out the intention and purpose of the
agreement.
Hi-Tech Environmental Products, LLC
By:_________________________________
THE MINES:
Red Rock, LLC
By:_________________________________
Valley Springs, LLC
By:_________________________________
Enviro Investment Group, LLC
By:_________________________________