FORBEARANCE AND AMENDMENT AGREEMENT
FORBEARANCE AND AMENDMENT AGREEMENT
THIS AGREEMENT made the 28th day of February, 2005.
A M O N G:
689158 B.C. LTD.
(the “Borrower”)
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THE XXXXXXX X. XXXXX CORPORATION
(the “Lender”)
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(“XLR”)
WHEREAS the Borrower is indebted to the Lender in the principal amount of $580,000 (U.S.), together with interest (the “Indebtedness”) pursuant to the terms of the Loan Agreement dated March 8, 2004 (the “Loan Agreement”);
AND WHEREAS TSI Medical Corp. guaranteed the payment and performance of all debts, liabilities and obligations, both present and future, including the Indebtedness, of the Borrower to the Lender, which may be outstanding from time to time (the “Obligations”), pursuant to a guarantee dated March 8, 2004 (the “Guarantee”);
AND WHEREAS TSI Medical Corp. executed and delivered a share pledge agreement (the “Share Pledge”) to and in favour of the Lender as security for its obligations (the “XLR Obligations”) under the Guarantee, dated March 8, 2004;
AND WHEREAS XLR is successor to TSI Medical Corp. by way of merger and has succeeded to all of the obligations of TSI Medical Corp. under the Guarantee and the Share Pledge;
AND WHEREAS pursuant to letters dated October 26, 2004 and November 15, 2004, the Lender, by its solicitors, demanded repayment from the Borrower of the Indebtedness, together with all costs, charges, fees and expenses incurred and to be incurred in connection therewith, and together with interest thereon as a result of the Borrower’s default of its obligations under the Loan Agreement, and issued a Notice of Intention to Enforce Security (the “Notice of Intention”) pursuant to the Bankruptcy and Insolvency Act;
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AND WHEREAS each of the Borrower and XLR (collectively, the “Debtors”) has requested the Lender’s forbearance during the Forbearance Period (as defined below) with respect to the enforcement of the Lender’s rights and remedies against the Debtors;
AND WHEREAS each of the Debtors has agreed to perform or fulfill, or cause to be performed or fulfilled, all of the covenants, agreements, undertakings and conditions contained in this Agreement in consideration of the Lender entering into this Agreement;
NOW THEREFORE THIS AGREEMENT WITNESSES that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby covenant and agree with each other as follows:
| 1. | Debtors’ Acknowledgement.
Each of the Debtors hereby confirms, acknowledges and agrees that
each of the Loan Agreement, the Share Pledge and the Guarantee (collectively,
the “Existing Security”) is fully enforceable by the
Lender against each party thereto in accordance with its terms unaltered,
that the Borrower is in default and that the Lender is entitled to exercise
all of its rights and remedies. Each of the Debtors hereby further acknowledges
and agrees that the Lender has provided reasonable notice to all of the
Debtors in respect of the exercise of all such rights and remedies and
that no further notice shall be required prior to such exercise at any
time in the future. To the extent permitted by law, each of the Debtors
hereby waives all defences and claims now held against the Lender in connection
with the exercise of the said rights and remedies by or on behalf of the
Lender. |
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| 2. | Debtors’ Representations.
Each of the Debtors hereby jointly and severally represents and warrants
to the Lender, and acknowledges that the Lender is relying upon all of
such representations and warranties in entering into this Agreement, as
follows: |
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| (a)
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the recitals to this Agreement are true and correct;
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| (b) |
all corporate action on their part necessary for
the authorization, execution, delivery and performance of this Agreement
by the Borrower has been duly authorized and taken; |
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| (c) |
this Agreement, when duly executed and delivered
by the Debtors will constitute a legal, valid and binding obligation,
enforceable against each of the Debtors in accordance with its terms;
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| (d) |
there is no charter or by-law provision or directors’
or shareholders’ resolution of the Borrower or XLR which would be
contravened by the execution and delivery of this Agreement, or by the
performance of any provision, condition, covenant or other term hereof;
and |
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| (e) |
there is no provision of any indenture or agreement,
written or oral, to which any of the Debtors is a party or under which
any of the Debtors is obligated and, to the knowledge of each Debtor,
there is no statute, rule, regulation, judgment, decree or order of any
court or agency binding any of the Debtors, which would be |
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contravened by the execution and delivery of this
Agreement, or by the performance of any provision, condition, covenant
or other term hereof. |
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| 3. | Forbearance.
Except as otherwise specifically provided herein, the Lender hereby
covenants and agrees to refrain, during the Forbearance Period, from further
enforcing its rights and remedies against any of the Debtors. In this
Agreement, “Forbearance Period” shall mean the period
commencing upon the execution and delivery of this Agreement by the Lender
and all of the Debtors and ending upon the earlier of March 31, 2005 and
the termination of the Forbearance Period by the Lender in accordance
with this Agreement. Upon and after the expiration or termination of the
Forbearance Period, the Lender shall have no obligations whatsoever pursuant
to this Agreement but in all other respects this Agreement and all of
the obligations of the Debtors hereunder shall survive and continue in
full force and effect. |
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| 4. | No Waiver.
None of the covenants and agreements of the Lender in this Agreement,
nor the performance thereof at any time, shall constitute, or be deemed
or implied to be, a waiver by the Lender of any default, either hereunder
or under the Existing Security, that has occurred to the date hereof or
any other subsequent or similar default. |
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| 5. | Amendments.
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| (a) | Section 2.2 of the Loan Agreement is
amended by deleting the final sentence thereof and amending the second
sentence thereof to read as follows: |
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“Interest shall accrue on each tranche of the Principal Sum remaining unpaid from time to time (from the date of advance of such tranche) both before and after the Maturity Date, at a rate of 12% per annum, and payable on the Maturity Date.”
| In addition, the Promissory Note dated March 8,
2004 made by the Borrower in the principal amount of U.S. $500,000
is hereby amended by inserting a period after the word “demand”
in the second paragraph and deleting the remainder of such paragraph.
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| Such amendments shall be effective retroactively.
It is acknowledged that as a result of such amendments, the Borrower’s
obligations on account of principal and accrued interest in respect of
the U.S. $500,000 loan forming part of the Obligations were U.S. $549,662.23
as at December 17, 2004. |
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| (b) | The Promissory Note dated the 8th
day of March, 2004 made by the Borrower in the principal amount
of U.S. $80,000 is hereby amended by replacing the words “2%
per month” in the second paragraph with the words “24% per
annum”. It is acknowledged that the Borrower’s obligations
on account of principal and accrued interest in respect of such Promissory
Note were U.S. $89,182.25 as at December 17, 2004. |
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| 6. | Debtors’ General Covenants.
Each of the Debtors hereby further jointly and severally covenants
and agrees with the Lender, and acknowledges that the Lender is relying
upon all of such covenants in entering into this Agreement, which covenants
shall be separate and cumulative and in addition to all other covenants
in this Agreement, that at all times from and after the date hereof and
until the payment and performance of all of the Obligations in full, each
of the Debtors shall: |
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| (a)
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not provide any financial assistance or make any
payment or transfer any asset to any person not at arm’s length
(within the meaning of the Income Tax Act (Canada)) other than
regular consulting fees paid under presently existing arrangements as
set out in the Schedule to this Agreement or reimbursements of reasonable
expenses incurred on behalf of the Debtors; |
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| (b) |
pay or cause to be paid, and shall indemnify and
save the Lender harmless against, all fees, costs and expenses (including
legal fees on a solicitor and client basis, but excluding all costs, fees
and expenses incurred by the Lender in the preparation and execution of
this Agreement) incurred with respect to: advice to the Lender in respect
of the Indebtedness and in the preparation and execution of any amendment
to this Agreement and all other documentation required hereunder or under
the Existing Security and any financing statements, financing change statements
and notices of security interest filed with respect thereto; the exercising
of any or all of the rights, remedies and powers of the Lender under this
Agreement or the Existing Security; the taking, recovering or possessing
of any or all of the assets of the Debtors, and of any other proceedings
taken for the purpose of enforcing the remedies provided herein or therein
or by reason of non- payment of the Obligations; and all other fees, costs,
expenses and interest obligations constituting the Obligations, as they
accrue; and all of the foregoing amounts shall bear interest at an annual
rate equal to the highest rate borne by any of the Obligations and shall
be payable on demand; |
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| (c) |
pay or cause to be paid to the Lender when due any
and all amounts required by this Agreement to be paid to the Lender; |
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| (d) |
carry on its business in the ordinary course and
in a commercially reasonable and prudent manner, maintain and preserve
all of its property, assets and undertaking in good condition and repair,
and maintain in good standing all of its insurance policies; |
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| (e) |
outside of the ordinary course of business, refrain
from making any purchases or payments, or declaring any dividends, or
incurring any expenses or liabilities, or granting any bonuses or salary
increases, or making any capital expenditures, or selling, transferring,
releasing, settling, assigning, transferring or moving any of its property
or assets except with the Lender’s prior written consent; |
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| (f) |
keep proper books of account and records covering
all its business and affairs on a current basis in accordance with generally
accepted accounting principles consistently applied and shall deliver
financial statements to the Lender from time to time as required by the
Lender; prepare and file all tax returns in a timely |
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manner; permit the Lender and any representative
of the Lender at any time to inspect its books of account, records and
documents, to make copies and summaries thereof and to make enquiries
and tests for the purpose of verification thereof; provide the Lender
with all reports as required by the Lender, including reports on all sales,
purchases, receipts, deposits, payments, contracts or agreements which
have been made or may be made by it or on its behalf; |
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| (g) |
at all times maintain its corporate existence and
take all prudent action necessary or desirable to preserve and protect
all of the rights, powers, privileges and goodwill owned by it; |
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| (h) |
not, without first obtaining the written consent
of the Lender, consolidate, amalgamate or merge with any other corporation
or acquire the shares of any corporation, firm or partnership or acquire
the assets of any corporation, firm or partnership outside of the ordinary
course of its business, nor shall it invest in, lend money to, guarantee
or assume the indebtedness of any person, firm or corporation otherwise
than by way of credit or advances in the ordinary course of its business
in respect of goods or services required or provided by it; it shall not
enter into any transaction whereby all or a substantial part of its undertaking,
property and assets become the property of any other person, firm or corporation;
it shall not, without the prior written consent of the Lender, increase,
reduce, change, classify or reclassify its authorized or issued capital
or issue any additional shares thereof; and it shall not without the prior
written consent of the Lender, purchase, redeem, acquire or retire any
of its shares; |
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| (i) |
not, without first giving notice to the Lender,
change its name; and |
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| (j) |
notwithstanding the Lender’s covenant in Section
3, during the Forbearance Period, pay to the Lender, to be applied against
the Indebtedness, the proceeds received by such Debtor in connection with
any transaction out of the ordinary course of business (including, without
limitation, any sale of assets, any issuance of shares and any merger
or amalgamation), such proceeds to be remitted to the Lender immediately
upon receipt by the relevant Debtor(s), except that XLR shall be required
to remit such proceeds only to the extent that it has a working capital
surplus in excess of U.S. $100,000. |
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| 7. |
Default. All of the
Debtors shall be deemed to be in default hereunder (“Default”)
if: |
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| (a) |
any representation or warranty of any of the Debtors
in this Agreement is at the date hereof, or shall at any time after the
date hereof, become untrue, inaccurate or incomplete in any respect; |
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| (b) |
any of the Debtors breach or default in performing,
complying with or fulfilling any covenant, agreement, undertaking, condition
or obligation in, under or pursuant to this Agreement; |
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| (c) |
any condition, step, act or thing required to be
completed, performed, fulfilled, executed or delivered by any of the Debtors
under this Agreement shall not be so |
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completed, performed, fulfilled, executed or delivered
as, when and in the form required by the Lender or stipulated hereunder;
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| (d) | any creditor (secured or unsecured) of the Borrower
takes steps to enforce its rights against the assets of a Debtor, including
rights pursuant to any security granted to such creditor or creditors
other than merely the making of a demand for payment, the filing of a
notice under section 244 of the Bankruptcy and Insolvency Act or
the filing of a statement of claim; or |
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| (e) | if either of the Debtors, other than as provided
hereunder, or without the consent of the Lender, applies for, consents
to, or acquiesces in, the appointment of a trustee, receiver or other
custodian for such Debtor or any property thereof, or, in the absence
of such application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for such Debtor or for any property thereof, or
if either of the Debtors makes a general assignment for the benefit of
creditors, or if a bankruptcy, insolvency, reorganization, readjustment,
arrangement, composition, moratorium or other case or proceeding seeking
similar relief, or any dissolution, liquidation or winding-up proceeding,
under any bankruptcy, insolvency, moratorium, corporate or other analogous
law or provision is commenced in respect of either of the Debtors or any
property thereof, or, if such case or proceeding is not commenced by either
of the Debtors, is consented to or acquiesced in by such Debtor or if
either of the Debtors takes any corporate or other action to authorize,
or in furtherance of, any of the foregoing. |
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| 8. | Termination of Forbearance Period.
In the sole and absolute discretion of the Lender, upon the occurrence
of any Default at any time during the Forbearance Period, or upon the
expiration of the Forbearance Period: |
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| (a) | all of the Obligations, including without limitation
all of the Indebtedness and all other amounts payable hereunder, shall
become immediately due and payable without further notice, presentment,
demand or request; |
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| (b) | any or all of the rights and remedies available
to the Lender, under the Existing Security or otherwise, may be immediately
exercised; and |
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| (c) | each of the Debtors shall forthwith perform and
make payment in full of all of the Obligations which remain outstanding
at that time, including without limitation all of the Indebtedness including
all amounts payable hereunder together with all accrued interest and accruing
interest thereon, without any further notice, presentment, demand or request
for payment from the Lender, failing which each of the Debtors hereby
consent to the immediate enforcement by the Lender of all of the Existing
Security, without any further notice, presentment, demand or request for
payment, and each of the Debtors hereby further agrees to assign any or
all of the Debtors into bankruptcy or to consent to the making of an interim
or final receiving order against any or all of the Debtors if so requested
by the Lender; |
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PROVIDED THAT NO FORBEARANCE ON THE PART OF THE LENDER WITH RESPECT TO ANY OCCURRENCE OF ANY DEFAULT HEREIN SPECIFIED WILL CONSTITUTE OR BE DEEMED OR IMPLIED TO BE A WAIVER BY THE LENDER OF SUCH DEFAULT OR ANY OTHER, SUBSEQUENT OR SIMILAR DEFAULT.
| 9. | Other Agreements. In the event
of an inconsistency between the provisions of this Agreement and the provisions
of the Existing Security, the provisions of this Agreement shall govern
and prevail; provided that, to the extent that either this Agreement or
the Existing Security shall be silent in respect of any particular matter
or issue, the Existing Security or this Agreement, as the case may be,
shall govern with respect to such matter or issue. Subject to the foregoing,
this Agreement constitutes the entire agreement between the Lender and
the Debtors with respect to the subject matter hereof. There are no representations,
warranties, terms, conditions, undertakings or collateral agreements,
expressed, implied or statutory, between such parties other than as expressly
set forth herein. No modification or amendment of any provision of this
Agreement shall in any event be effective, unless the same shall be in
writing and duly executed by the parties hereto or thereto and then such
modification or amendment shall be effective only in the specific instance
and for the purpose for which it was given. |
| 10. | Waiver. Any breach by any of
the Debtors of any of the provisions contained in this Agreement or under
the Existing Security or any default by such Debtor in the observance
or performance of any covenant or condition required to be observed or
performed by such Debtor hereunder or thereunder, may only be waived by
the Lender in writing, provided that no such waiver by the Lender will
extend to or be taken in any manner to affect any subsequent, other or
similar breach or default or the rights resulting therefrom. |
| 11. | Rights Cumulative. All rights
and remedies of the Lender set out in this Agreement and in the Existing
Security will be cumulative and no such right or remedy contained herein
or therein is intended to be exclusive but each will be in addition to
every other right or remedy contained herein or therein. The taking of
a judgment or judgments with respect to any of the Obligations will not
operate as a merger of any of the covenants or representations contained
in this Agreement or the Existing Security. |
| 12. | Further Assurances. Each of
the Debtors will do, execute, acknowledge and deliver or cause to be done,
executed, acknowledged and delivered, such further acts, deeds, documents,
instruments, mortgages, transfers, demands, assignments, consents and
assurances as the Lender may reasonably require for the purpose of accomplishing
and effecting the intention of this Agreement. |
| 13. | Binding Effect and Assignments.
This Agreement shall be binding on each of the Debtors and its successors
upon the execution hereof by such Debtor, notwithstanding that any other
party or parties hereto have not executed this Agreement, and shall enure
to the benefit of the Lender and its successors and assigns. The Debtors
shall not assign any rights or obligations hereunder without the Lender’s
prior written consent. The Lender may in its absolute discretion assign
any and all of its rights and/or obligations |
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| under this Agreement and may transfer the Existing
Security to any corporation or other entity. |
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| 14. | Severability. If any provision
hereof is held to be illegal, invalid or unenforceable in any jurisdiction,
such provision shall be deemed to be severed from the remainder of this
Agreement with respect only to such jurisdiction and the remaining provisions
of this Agreement shall not be affected thereby and shall continue in
full force and effect. |
| 15. | Interpretation. All grammatical
changes in gender, tense and number required to give meaning to any provision
herein shall be deemed to be made. References to “this Agreement”,
“hereof”, “herein”, “hereto” and like
references are to this Agreement and not to any particular article, section
or other subdivision of this Agreement. The insertion of headings in this
Agreement is for convenience of reference only and will not affect the
construction or interpretation of this Agreement. Unless otherwise specified
herein, all statements of or reference to dollar amounts in this Agreement
will mean lawful money of Canada. |
| 16. | Governing Law. This Agreement
and all documents delivered pursuant hereto shall be governed by and interpreted
in accordance with the laws of the Province of British Columbia and the
laws of Canada applicable therein. Each of the Debtors hereby irrevocably
attorns to the non-exclusive jurisdiction of the courts of British Columbia.
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| 17. | Time. Time will in all respects
be of the essence of this Agreement, and no extension or variation of
this Agreement or any obligation hereunder will operate as a waiver or
implied waiver of this provision. |
| 18. | Counterparts. This Agreement
may be executed in one or more counterparts, each of which shall constitute
an original and binding agreement as and when so executed. |
| 19. | Receipt of Copy. Each of the
Debtors hereby acknowledges having received a signed copy of this Agreement.
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IN WITNESS WHEREOF each of the parties has executed this Agreement on the date first above written.
| 689158 B.C. LTD. | ||
| Per: | /s/ Xxxxx X. Hogendoorn | |
| Title | ||
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| THE XXXXXXX X. XXXXX | ||
| CORPORATION | ||
| Per: | /s/ Xxxxxx X. Xxxxxxx | |
| Title | ||
| Per: | ||
| Title | ||
| XLR MEDICAL CORP. | ||
| Per: | /s/ Xxxxx X. Hogendoorn | |
| Title | ||
SCHEDULE
| Consulting Fees | |
| Name | Amount of Fee |
| Xxxxx X. Hogendoorn | US $5,000 per month |
| Xxxxx X. Xxxxxxxx | US $5,000 per month |
