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DISTRIBUTION AND OPERATION SERVICES AGREEMENT
THIS DISTRIBUTION AND OPERATION SERVICES AGREEMENT, ("Agreement") is made
as of June 21, 2005 (the "Effective Date"), by and among VitroTech Corporation,
a Nevadt 6 0 a corporation ("VitroTech"), VitroCo Incorporated, a Nevada
corporation and wholly-owned subsidiary of VitroTech ("VitroCo") and VitroTech
Product Distributor LLC, a Delaware limited liability company ("Distributor").
R E C I T A L S:
WHEREAS, VitroTech and VitroCo are engaged in the mining, processing and
sale of a family of proprietary amorphous aluminosilicate based products (the
"Products") designed to improve performance and quality of a broad array of
manufacturing applications;
WHEREAS, VitroTech and VitroCo lack the financial resources to fully
exploit the business opportunities relating to the Products and VitroTech is
presently seeking additional financing to fund those operations; and
WHEREAS, VitroTech and VitroCo desire to contract certain operations to
Distributor and Distributor is willing to perform such operations on the terms
set forth herein.
NOW, THEREFORE, in consideration of the premises and the covenants and
obligations of the parties herein contained, the parties hereto hereby agree as
follows:
1. Grant of Exclusive Rights. VitroTech and VitroCo hereby grant to the
Distributor, during the Term (as defined below) hereof, the exclusive,
royalty-free right to buy, mine, process, sell and distribute the Products on a
worldwide basis, and assume all of VitroTech's and VitroCo's customer accounts
and distributor agreements, including, but not limited to, the right to contact
and solicit any present, former or future customers of VitroTech or VitroCo, all
subject to the existing rights of third parties to distribute Products, as
follows:
(a) The rights of the Distributor hereunder may not be assigned,
transferred or sublicensed to any other person, other than to an affiliate
of the Distributor, without the prior written consent of the other
parties, which shall not be unreasonably withheld;
(b) The Distributor is an independent contractor and is not a legal
representative or agent of VitroTech or VitroCo for any purposes
whatsoever. The Distributor is not authorized to, and agrees that it will
not, make any warranties or representations, or assume or create any other
obligation on behalf of VitroTech or VitroCo except as expressly
authorized by such party in writing;
(c) Distributor agrees that it will not sell Product in
contravention to any agreement between VitroTech or VitroCo and any other
party effective as of the Effective Date.
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(d) VitroTech and VitroCo each hereby grant a royalty-free license
to the Distributor to utilize any and all of its respective trademarks,
service marks or trade names ("Trademarks"), whether or not registered, in
connection with promotion, sale and distribution of the Products; and
(e) Subject to the prior rights and security interests of the
VitroTech Secured Creditors (as defined below), VitroTech and VitroCo each
agree to sell, assign, transfer and convey all of the Inventory (defined
as any mined Product held by or for the benefit of VitroTech or VitroCo
and set forth on Exhibit A) to the Distributor, and Distributor agrees to
pay VitroTech and VitroCo the direct cost of their respective Inventory,
as set forth on Exhibit A, not later than five days following the receipt
of payment by Distributor from the sale to third party of such Inventory.
Notwithstanding the foregoing, if on the fifth anniversary of the
Effective Date any items of Inventory have not been sold and for which
payment to VitroCo has not been made hereunder, the Distributor shall, on
that date pay to VitroCo the direct cost of such Inventory items or, at
the Distributor's sole option, return the same to VitroCo. As of the date
hereof, Distributor agrees to assume all of the costs and expenses of
storage, warehousing, shipping and handling such Inventory, which arises
on or after the date hereof.
2. Mining and Processing of Products. It is the intention of the parties
to structure this transaction so that the ISO9001 Certificate of Registration
(the "ISO Registration") issued to VitroCo shall be maintained through out the
Term. If the ISO Registration can be transferred to another entity, upon the
Distributor's request, VitroCo agrees to transfer the ISO Registration to the
Distributor or any other entity designated by the Distributor, and VitroCo and
VitroTech covenant and to take any and all reasonable actions to facilitate such
transfer. VitroTech and VitroCo each hereby grant to the Distributor, during the
Term of this Agreement, the right to perform all mining, processing services,
quality control and warranting of Products as shall be reasonably necessary to
mine, process and deliver the Products in their final salable form, and to the
extent the ISO Registration does not permit such mining, processing services,
quality control and warranting of Products ("Restricted Activities") to be
performed by Distributor, but such Restricted Activities can be performed by
VitroTech, then VitroTech shall perform such Restricted Activities to the
maximum amount permitted pursuant to the ISO Registration and to the extent that
the ISO Registration does not permit such Restricted Activities to be performed
by VitroTech, such Restricted Activities shall be performed by VitroCo,
provided, however, VitroTech and VitroCo hereby agree that they shall provide
Distributor with any and all quality control services, warranting of Products
and any other services necessary to preserve the ISO Registration and to ensure
that the Distributor obtains the Products in the format required by the
Distributor. Distributor shall pay all of its own costs generated by mining,
processing services, quality control and warranting of Products and to the
extent VitroCo or VitroTech is performing any Restricted Activities, Distributor
shall reimburse VitroCo or VitroTech, as applicable, for all direct costs of
such Restricted Activities and preserving the ISO Registration, in a manner
consistent with the standards of the ISO Registration.
VitroTech and VitroCo each hereby grant a royalty-free license to the
Distributor to utilize any and all of its respective proprietary rights,
including any patented procedures or products, intellectual property, techniques
or other trade secrets (the "Proprietary Rights"), whether or not patented,
relating to the mining, processing and use of the Products.
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3. Rights Regarding VitroTech and VitroCo Employees. In conjunction with
the undertakings of the Distributor to assume the responsibility and associated
costs of sales activities relating to the Products of VitroTech and VitroCo, and
to facilitate those undertakings, the parties agree as follows regarding the
employees of VitroTech and VitroCo:
(a) The Distributor shall have the unlimited right to solicit and
hire any and all employees of VitroTech and VitroCo ("Employees", and any
Employees actually hired by the Distributor are referred to herein as
"Transferred Employees"). VitroTech and VitroCo will enter into a mutual
release which shall forever release such Transferred Employees from any
and all covenants, promises, agreements, obligations or liabilities which
relate in any way to the Transferred Employees' employment with
Distributor, which release shall be substantially in the form of Exhibit B
attached hereto. Upon executing the mutual release, the Distributor shall
pay such Transferred Employee all amounts owing for back wages, salary and
benefits by VitroTech and VitroCo, provided, however, that Distributor's
obligation hereunder will be decreased by any compromise reached between
Distributor and any Transferred Employees.
(b) Management of the Distributor and VitroTech will, not later than
ten calendar days following the date hereof (the "Employee Review Date"),
review the existing personnel of VitroTech and VitroCo ("Employees"): (i)
to facilitate Distributor's determination as to which Employees it wishes
to solicit pursuant to paragraph 3(a) above, (ii) to determine which
Employees will be reasonably required to carry on the business of
VitroTech (the "Retained VitroTech Employees"), (iii) to determine which
Employees will be reasonably required to carry on the business VitroCo
(the "Retained VitroCo Employees") and (iv) to determine which Employees,
if any, are not required to support the future operations of the
Distributor, VitroTech or VitroCo (the "Undesignated Employees"). For
purposes of this Agreement former employees set forth on Exhibit C shall
be deemed to be Undesignated Employees. In conjunction therewith,
representatives of both VitroTech and the Distributor will meet with all
Employees and evaluate their status, including amounts owing to those
Employees, on a case-by-case basis and in accordance with applicable
California law. The parties will negotiate in good faith to determine
which Employees shall be Retained VitroTech Employees, Retained VitroCo
Employees and Undesignated Employees.
(c) Within ten calendar days following the Employee Review Date, the
Distributor shall (i) pay on behalf of all Employees all employment
related taxes to the extent due and owing and not previously paid by
VitroTech and VitroCo to the appropriate governmental authorities and (ii)
pay all back salary, wages, unreimbursed expenses and other amounts due
and owing and not previously paid by VitroTech to Retained VitroTech
Employees; provided, however, that Distributor's obligation hereunder will
be decreased by any compromise reached between Distributor and any
Retained VitroTech Employees. In addition, as part of the Basic Overhead
Costs (as defined below), commencing as of the Effective Date until such
time as VitroTech is capable of paying the Basic Overhead Costs without
being Insolvent (as defined below), the Distributor shall reimburse
VitroTech, for the salary, wages, expenses and other amounts incurred by
VitroTech for the Retained VitroTech Employees; provided, however, that
Distributor's obligation hereunder will be decreased by any compromise
reached between Distributor and any Retained VitroTech Employees (the
"Current VitroTech Employee Costs"). The reimbursement of such Current
VitroTech Employee Costs for the Retained VitroTech Employees shall be
paid as the same become due. For purposes of this Agreement "Insolvent"
means with respect to VitroTech or VitroCo, as the case may be, that it is
not capable of paying its bills as they become due in the ordinary course
of business.
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(d) Within ten calendar days of the entering into a definitive and
binding Mine Transfer Agreement (as defined below)(the "Mine Transfer
Date"), the Distributor shall pay all back salary, wages, unreimbursed
expenses and other amounts to the extent due and owing and not previously
paid by VitroCo to Retained VitroCo Employees and Undesignated Employees
through the Mine Transfer Date; provided, however, that Distributor's
obligation hereunder will be decreased by any compromise reached between
Distributor and any Retained VitroCo Employees. In addition, as part of
the Basic Overhead Costs, commencing as of the Mine Transfer Date until
such time as VitroCo is capable of paying the Basic Overhead Costs without
being Insolvent, the Distributor shall reimburse VitroCo, for the salary,
wages, expenses and other amounts incurred by VitroCo for the Retained
VitroCo Employees (the "Post Mine Transfer Date VitroCo Employee Costs").
The reimbursement of such Post Mine Transfer Date VitroCo Employee Costs
for the Retained VitroCo Employees shall be paid as the same become due
after the Mine Transfer Date. To the extent that there is a disagreement
between the Distributor, on the one hand, and VitroTech and VitroCo, on
the other hand, as to whether an Employee shall be a Retained VitroCo
Employee or an Undesignated Employee, such Employee shall be deemed to be
an Undesignated Employee for purposes of this Agreement, and the
Distributor shall only have the obligation to pay or reimburse VitroCo as
if that Employee is a Undesignated Employee and under no circumstances
shall costs associated with the ongoing employment of such Employee be
included within Basic Overhead Costs.
4. Cooperation Regarding VitroTech and VitroCo Debt. VitroTech, VitroCo
and the Distributor agree to cooperate and use commercially reasonable efforts
to settle, restructure or convert into equity the current indebtedness of
VitroTech and VitroCo and, to that end, agree as follows:
(a) Management of VitroTech, VitroCo and the Distributor will
jointly meet and negotiate with existing creditors (including, but not
limited to, all trade debt, all Employees, all notes bearing contingent
interest ("Contingent Interest"), all secured debt and all convertible
debt) of VitroTech and VitroCo ("VitroTech Creditors") in an effort to
renegotiate the existing indebtedness;
(b) Subject to applicable limitations of securities laws, for a
period of six months following the Effective Date (the "Offering Period"),
the Distributor will make available to all VitroTech Creditors, pro rata,
the right to invest in the Distributor on terms substantially identical to
the terms on which the Distributor offers securities to Third Party
Investors. For purposes hereof, "Third Party Investors" means all persons
to whom the Distributor offers any of its securities during the six months
following the Effective Date, other than (i) the members of the
Distributor as of the Effective Date, and (ii) the VitroTech Secured
Creditors. In the event that the Distributor offers an ownership interest
to Third Parties during the Offering Period at varying prices, the terms
on which the VitroTech Creditors will be permitted to invest in the
Distributor will be the lowest price of any such offers. Notwithstanding
the foregoing however, the Distributor may offer the Secured Creditors of
VitroTech or VitroCo the opportunity to invest in the Distributor on terms
that are more favorable than the terms being offered to the unsecured
VitroTech Creditors, and the unsecured VitroTech Creditors shall have no
right to participate in such opportunity to the extent that they are not
Secured Creditors of VitroTech or VitroCo;
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(c) All settlements or other agreements with VitroTech Creditors
pursuant to this paragraph 4 shall be subject to the joint approval of
VitroTech and the Distributor;
5. Cooperation Regarding Mines and Hi-Tech. VitroTech, VitroCo and the
Distributor agree to cooperate and use commercially reasonable efforts to
negotiate with representatives of Enviro Investment Group, LLC ("EIG"), Red Rock
Canyon Mineral, LLC ("Red Rock"), Valley Springs Mineral, LLC ("Valley
Springs")(collectively, EIG, Red Rock and Valley Springs are referred to as the
"Mines") and Hi-Tech Environmental Products, LLC ("Hi-Tech") with a view to
obtaining an equitable transfer of the mining properties held by the Mines to
VitroTech or VitroCo and entering into a definitive and binding agreement (the
"Mine Transfer Agreement"), satisfactory to the Distributor, within the
Distributor's sole and absolute discretion, and the adjustment of payment
obligations of VitroTech and VitroCo to the Mines and Hi-Tech.
6. Other Obligations of Distributor. The Distributor shall:
(a) Devote its commercially reasonable efforts to the promotion and
sale of the Products consistent with good business practices and in a
manner that it reasonably believes will reflect favorably on the Products
and the goodwill and reputation of VitroTech and VitroCo;
(b) Comply, in all material respects, with the provisions of all
applicable laws and the rules and regulations thereunder, and refrain from
engaging in any illegal business practices whatsoever with respect to the
promotion and sale of the Products;
(c) Hold itself out as an independent contractor with respect to
VitroTech and VitroCo and not present itself as an agent, representative
or employee of any other party, and prominently display in any advertising
or signage related to the Products that it is an Authorized Master
Distributor of VitroTech and VitroCo;
(d) Not make any warranties, express or implied, by operation of law
or otherwise, concerning the Products which are in addition to any written
warranties made by VitroTech and VitroCo;
(e) Advise VitroTech and VitroCo of complaints relating to the
Products received in writing;
(f) Pay for all the Distributor's costs associated with the
promotion and advertising of the Products;
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(g) Obtain and pay for such licenses, permits and authorizations as
may be necessary in connection with the Distributor's promotion and sale
of the Products.
7. Payment and Funding Obligations. As consideration for the rights
granted to the Distributor hereunder, the parties agree as follows:
(a) Direct Costs and Basic Overhead Costs.
(i) The Distributor shall pay the known fixed Direct Costs (as
defined below) as the same shall become due and payable.
(ii) Until such time as VitroTech and VitroCo can pay their
own Basic Overhead Costs (as defined below) without being Insolvent,
the Distributor shall pay the Basic Overhead on a monthly basis on
the first day of each month.
(iii) The Distributor, in its sole and absolute discretion,
may pay any Direct Costs or Basic Overhead Costs to third parties
directly on behalf of VitroCo or VitroTech, as applicable, and the
Distributor shall provide evidence of such payment to VitroCo or
VitroTech, as applicable.
(iv) Set forth on Exhibit D, is the current quarterly budget
(the "Current Quarter Budget"). During the Term, thirty days prior
to the beginning of each calendar quarter, VitroCo and VitroTech
shall cause to be prepared and delivered to Distributor a quarterly
budget (each, including the Current Quarter Budget, a "Budget") for
the succeeding quarter. The Distributor shall have fifteen days to
review the Budget. If the Distributor disputes any items set forth
in the Budget, the Distributor shall notify VitroCo and VitroTech,
and the parties shall negotiate in good faith as to whether and what
amount of such disputed items should be incurred. The final
determination with respect to disputed items shall be made by the
Distributor in its sole and absolute discretion. Notwithstanding
anything to the contrary set forth herein, the Distributor shall
have no obligation to pay VitroTech or VitroCo any amount in excess
of the amount set forth in the Budget for such line item unless the
Distributor consents, which consent shall be in the Distributor's
sole and absolute discretion, to make such payment.
(v) The parties acknowledge and agree that it is the intent of
the parties to reduce the Direct Costs and Basic Overhead Costs as
much as reasonably possible without materially adversely affecting
VitroTech and VitroCo. To the extent that the Distributor can
reasonably arrange for any Direct Costs or Basic Overhead Costs to
be obtained at a lower price, VitroCo and/or VitroTech shall utilize
such arrangement (and Budget shall be amended to reflect such lower
cost), so long as the operations of VitroCo and VitroTech are not
materially harmed by such arrangements.
(vi) For purposes hereof, "Direct Costs" means costs incurred
by VitroCo or VitroTech relating to the mining, processing, sale or
transfer of Products to or for the benefit of the Distributor,
including but not limited to the mining costs, processing costs,
freight charges, storage charges, warehouse charges, handling
charges, payments to the Mines measured based on sales (but no
greater than 10%), payments to Hi-Tech measured by sales (but no
greater than 5%), and payments Contingent Interest (measured by
sales of Product) incurred by VitroTech or VitroCo; provided
however, to the extent that any Contingent Interest obligation is
decreased for any reason, then the Distributor is only obligated to
pay such reduced amount of Contingent Interest.
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(vii) For purposes hereof, "Basic Overhead Costs" means costs
incurred by VitroTech to support its essential operations as a
public reporting company, including, lease payments, utilities,
taxes (other than taxes based on the income of VitroTech and
VitroCo), insurance, directors fees, filing fees accounting fees and
legal fees related to public company reporting, the Current
VitroTech Employee Costs and Post Mine Transfer Date VitroCo
Employee Costs, provided, however, that Basic Overhead Costs shall
not: (i) cumulatively exceed $600,000 in any 12-month period
("Overhead Cap"), or (ii) include any Processing Oversight and ISO
Costs (as defined below) and Trade Debt (as defined below).
Notwithstanding anything to the contrary set forth herein, the
Distributor shall have no obligation to pay VitroTech or VitroCo any
amount in excess of the Overhead Cap, unless the Distributor
consents, which consent shall be in the Distributor's sole and
absolute discretion, to make such payment.
(b) Product Royalty Payment. The Distributor shall pay to VitroCo an
amount (the "Product Royalty") equal to five percent (5%) of the gross
sales price of all Products sold by the Distributor, as follows:
(i) Product Royalty payments will be due and payable on or
before the fifteenth day of each month based on gross amou






