Royal Bank of Canada
L. James Blattman Business Banking Centre
Senior Account Manager 90 Sparks Street, P.O. Box 746, Station B
Advanced Technology Ottawa, Ontario K1P 5T6
January 7, l994 Transit 01196
Fax: (613) 564-4527
Toll Free: 1-800-267-0305
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
Dear Sirs:
Royal Bank of Canada (the "Bank") is pleased to offer Gandalf
Canada Ltd. (the "Borrower") a revolving operating facility (the
"Credit Facility"), guaranteed by Gandalf Technologies Inc. (the
"Guarantor"), which, upon your acceptance shall supersede and
cancel the credit facilities outlined in our letter agreement of
September 16, 1993. The Credit Facility shall be governed by the
following terms and conditions:
1. Definitions:
The definitions attached hereto in Schedule "A" are
incorporated in this agreement by reference as if set out in full
herein and unless otherwise provided, all accounting terms herein
shall be interpreted in accordance with GAAP.
2. Amount:
The amount available under the Credit Facility (the "Amount")
shall not exceed the lesser of:
(i) $15,000,000, and
(ii) the Margin Requirement,
or the Equivalent Amount in US Dollars or Pounds Sterling.
3. Credit Facility:
The Credit Facility is available as follows:
(i) Royal Bank Prime based loans in Canadian Dollars ("RBP
Loans"),
(ii) Royal Bank US Base Rate based loans in US Dollars
("RBUSBR Loans"),
(iii) Libor based loans in US Dollars or Pounds Sterling
("Libor Loans"),
(iv) Bankers' Acceptances in Canadian Dollars ("B/As"), and
(v) Letters of Credit in Canadian or US Dollars ("L/Cs").
Each use of the Credit Facility by way of any of the
foregoing methods and each rollover is referred to as a
"Borrowing". The face amount of each Borrowing outstanding shall be
used to determine the amount of Borrowings outstanding under the
Credit Facility at any time.
4. Purpose:
The Borrower shall use the Credit Facility for the purpose of
financing its general operating requirements, including, without
limitation, the financing of receivables, inventory and current
operating expenditures.
5. Availability:
Borrowings under the Credit Facility are available on any
Business Day through the Branch of Account, subject to the notice
provisions set out in Schedule "B".
During the term of the Credit Facility, the Borrower may
borrow, repay and reborrow hereunder at any time, unless otherwise
provided.
After the Maturity Date, the Credit Facility shall convert to
a demand facility, the Bank may cancel any undrawn portion of the
Amount at any time and all Borrowings outstanding shall be due and
payable on demand by the Bank.
6. Interest Rates and Fees:
The following rates and fees shall apply:
(a) The interest rates applicable to the Credit Facility
shall be RBP, RBUSBR, Libor or RBPAF, as applicable, plus an
interest component (the "Fluctuating Interest Component") which
shall be determined by the profitability of the Guarantor during
its previous fiscal quarter(s). The Fluctuating Interest Component
shall be set on a quarterly basis, in accordance with the following
schedule, effective on the first day of the third month following
the end of such fiscal quarter, subject to receipt of the
information stipulated in Section 24 (d) (i), failing which, the
Guarantor shall thereafter be conclusively deemed to have incurred
a net loss during such previous fiscal quarter.
Fluctuating Interest Component:
No. of
Consecutive
Profitable RBP RBUSBR Libor
Quarters Loans Loans Loans B/A's
one or less 1.375% 1.375% 2.375% 1. 375%
two 1.00% 1.00% 2.00% 1.00%
three .75% .75% 1.75% .75%
four or more .50% .50% 1.25% .50%
(b) L/C fees to be quoted by the Bank at time of issue of
each L/C.
7. Calculation and Payment of Interest and Fees:
(a) RBP and RBUSBR Loans:
The Borrower shall pay interest on each RBP Loan in
Canadian Dollars and interest on each RBUSBR Loan in US Dollars
monthly in arrears on the first Business Day following the 24th of
each month. Such interest will accrue and be computed daily on the
daily closing balance on the basis of a year of 365 days. Any
change in RBP or RBUSBR shall be effective as of the opening of
business on the day such change takes place.
(b) Libor Loans:
The Borrower shall pay interest on each Libor Loan in
the currency in which such Libor Loan was made in arrears on each
Libor Interest Date. Such interest will accrue and be computed
daily on the basis of a year of 360 days.
(c) B/As:
The Borrower shall pay acceptance fees in Canadian
Dollars at the rates provided for above in advance on the date of
issue of each B/A. Acceptance fees shall be calculated on the face
amount of the B/A issued and based upon the number of days in the
term thereof and a year of 365 days.
(d) L/C Fees:
The Borrower shall pay an L/C fee on the date of
issuance of such L/C in the currency in which such L/C is issued.
Such fee shall be calculated on the face amount of the L/C issued
and based on the number of days in the term thereof and a year of
365 days.
(e) Operation of Account Fee:
The Borrower shall pay fees of $100 and US$100 payable
monthly in arrears on the first day of each month to compensate the
Bank for the expense of revolving the Borrower's accounts.
(f) Standby Fee:
A standby fee equal to 3/16 of 1% per annum calculated
on the unused portion of the Credit Facility is payable monthly in
arrears within the first five business days of each month.
(g) Interest Act (Canada):
The annual rates of interest or fees to which the
rates calculated in accordance with this Agreement are equivalent,
are the rates so calculated multiplied by the actual number of days
in the calendar year in which such calculation is made and divided
by 365 or, in the case of Libor Loans, 360.
8. Time and Place of Payment:
Payments of principal, interest, fees and all other amounts
payable by the Borrower pursuant to this Agreement shall be paid at
the Branch of Account in immediately available funds in Canadian
Dollars except as otherwise herein provided. Each payment under
this Agreement shall be made for value on the day such payment is
due, provided that if any such day is not a Business Day such
payment shall be deemed for all purposes of this Agreement to be
due on the Business Day next following such day and all interest
and other fees shall continue to accrue until payment. Interest
and fees payable under this Agreement are payable both before and
after any or all of default, demand and judgment.
9. Withholding Taxes:
All payments required under this Credit Facility shall be
made free and clear of and without any withholding on account of
any taxes or other charges of any nature or kind whatsoever.
If any such taxes or charges are required to be withheld from any
payment made hereunder, the Borrower shall pay an additional amount
such that the net amount received by the Bank shall be equal to the
amount which would have been received if no such withholding were
required to be made.
10. Exchange Rate Fluctuations:
If, in the sole determination of the Bank, due to exchange
rate fluctuations or for any other reason, the value of Borrowings
outstanding under the Credit Facility, when converted to
Canadian Dollars, exceeds the Amount as of the 25th day of any
month, the Borrower shall either repay or otherwise retire the
outstanding Borrowings to the extent of the amount of such excess,
or shall secure the amount of such excess in a manner which is
satisfactory to the Bank.
11. Repayment:
Borrowings are repayable on the later of the Maturity Date or
the date of any demand by the Bank, provided that on or prior to
the Maturity Date the Bank may demand repayment pursuant to Section
25 hereof, and in such event, Borrowings shall be payable upon such
demand.
After the Maturity Date, all Borrowings made hereunder shall
be due and payable on demand by the Bank.
Upon any demand by the Bank hereunder, the Borrower shall pay
all amounts outstanding hereunder including, without limitation, an
amount equal to the aggregate of the face amounts of all B/As and
L/Cs which are unmatured or unexpired, which amount shall be held
by the Bank as collateral security for the Borrower's obligations
to the Bank with respect thereto. With respect to such unmatured
or unexpired B/As and L/Cs, the Borrower will have the further
obligation to execute such security documents as the Bank may
require.
12. Conversion:
The Borrower may convert a Borrowing into another basis of
Borrowing provided that no Event of Default has occurred and is
continuing and that the conditions for borrowing by way of such
instruments are fulfilled. Libor Loans may only be converted on
the last day of the relevant Libor Interest Period, B/As may only
be converted on their respective maturity dates and L/Cs may only
be converted on their expiry dates or such earlier date as agreed
by the Borrower, Bank and the beneficiary thereof.
13. Prepayment:
Libor Loans may only be prepaid on the last day of the
relevant Libor Interest Period and B/As may only be prepaid on
their respective maturity dates.
14. Evidence of Indebtedness:
The Bank shall open and maintain at the Branch of Account
accounts and records evidencing the Borrowings made available to
the Borrower by the Bank under this Agreement. The Bank shall
record the principal amount of each Borrowing, the payment of
principal and interest and all other amounts owing to the Bank.
The Bank's accounts and records constitute, in the absence of
manifest error, conclusive evidence of the indebtedness of the
Borrower to the Bank.
The Borrower authorizes and directs the Bank to automatically
debit any bank account of the Borrower for all amounts payable by
the Borrower to the Bank including, without limitation, the
repayment of all amounts due under this Agreement and all charges
for the keeping of such bank account.
This provision shall be interpreted as a separate contract
between the parties, independent of all other terms of this
Agreement and shall remain in full force and effect notwithstanding
that this Agreement shall have otherwise ceased to have any force
or effect.
15. Operating Account:
Pursuant to a central banking offset agreement dated on or
about April 1, 1993 between the Borrower, the Guarantor and the
Bank, the Bank shall establish an account in each of Canadian
Dollars and US Dollars (each a "Group Account"). If the balance in
a Group Account:
(a) is a credit, the Bank may apply at any time in its
discretion, the amount of such credit or any part thereof, rounded
to the nearest $100,000, or US$100,000, as applicable as a
repayment of Borrowings outstanding hereunder, or
(b) is a debit, the Bank shall, provided that Borrowings
hereunder are available, make available a Borrowing by way of an
RBP or RBUSBR Loan in an amount, rounded to the nearest $100,000 or
US$100,000, as applicable, as required to place the affected Group
Account at not less the balance set out in this paragraph.
In either instance, a minimum net credit balance of $100,000
or US$100,000, as applicable as adjusted from time to time will be
maintained in each Group Account.
16. Libor Loan Conditions:
The Borrower may borrow by way of Libor Loan subject to the
following conditions:
(a) Libor Loans shall be made in minimum amounts of
US$1,000,000 or 500,000 pds.stlg., as applicable or larger whole multiples
of US $100,000 or 100,000 pds.stlg., as applicable;
(b) the Borrower may select the Libor Interest Period
applicable to any Libor Loan and shall notify the Bank of such
Libor Interest Period when giving notice pursuant to
Schedule "B";
(c) if the Borrower fails to select and to notify the Bank
of the Libor Interest Period applicable to any Libor Loan, the
Borrower shall be deemed to have selected a 3 month Libor Interest
Period;
(d) the Borrower shall indemnify the Bank against any
loss, cost or expense (including without limitation, any loss
incurred by the Bank in liquidating or redeploying deposits
acquired to fund or maintain any Libor Loan) incurred by the Bank
as a result of:
(i) repayments, prepayments, conversions or
rollovers of a Libor Loan other than on the last day of the Libor
Interest Period applicable to such Libor Loan, or
(ii) failure to draw down a Libor Loan on the
requested date;
(e) if the Bank determines, which determination is final,
conclusive and binding upon the Borrower, that:
(i) adequate and fair means do not exist for
ascertaining the rate of interest on a Libor Loan,
(ii) the making or the continuance of a Libor Loan
has become impracticable by reason of circumstances which
materially and adversely affect the London interbank market,
(iii) deposits in US Dollars or Pounds Sterling, as
applicable, are not available to the Bank in the London interbank
market in sufficient amounts in the ordinary course of business for
the applicable Libor Interest Period to make or maintain a Libor
Loan during such Libor Interest Period, or
(iv) the cost to the Bank of making or maintaining a
Libor Loan does not accurately reflect the effective cost to the
Bank thereof and if the costs to the Bank are increased or the
income receivable by the Bank is reduced in respect of a Libor
Loan, then the Bank shall promptly notify the Borrower of such
determination and the Borrower shall, prior to the next Interest
Determination Date, notify the Bank as to the basis of Borrowing it
has selected in substitution for such Libor Loan. If the Borrower
has not so notified the Bank, such Libor Loan will automatically be
converted into an RBUSBR Loan on the expiry of the then current
Libor Interest Period.
17. B/A Conditions:
The Borrower may borrow by way of B/A subject to the
following conditions:
(a) B/As shall be issued and mature on a Business Day and
shall be issued in minimum face amounts of $100,000 for terms of
not less than 30 and not more than 365 days with each issue being
for an aggregate face amount of $500,000 or such larger amount as
is a whole multiple of $100,000;
(b) the Bank may, in its sole discretion, refuse to accept
the Borrower's drafts or limit the amount of any B/A issued at any
time;
(c) the Borrower shall, by no later than 12:00 (noon) on
the day on which a B/A becomes payable, pay to the Bank at the
Branch of Account an amount equal to the face amount of such B/A;
(d) if any maturing B/A is paid by the Bank with its own
funds, then as of the date of such payment, the B/A will be deemed
to be converted into an RBP Loan hereunder in the face amount of
such B/A;
(e) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the B/A
Undertaking, the terms hereof shall govern.
18. L/C Conditions:
The Borrower may borrow by way of L/C subject to the
following conditions:
(a) the Bank may, in its sole discretion, refuse to issue
L/Cs at any time;
(b) each L/C shall expire on a Business Day and shall have
a term of not more than 365 days;
(c) prior to the issue of an L/C, the Borrower shall
execute a duly authorized application with respect thereto in form
and substance satisfactory to the Bank, and each L/C shall be
governed by the terms and conditions of the relevant application
for such instrument;
(d) the Borrower shall, by no later than 12:00 (noon) on
any day on which a drawing is made under an L/C, pay to the Bank at
the Branch of Account an amount equal to the face amount of such
drawing, and if the Borrower fails to make such payment, the face
amount of such drawing shall be converted into either an RBP or
RBUSBR Loan hereunder at the option of the Bank;
(e) an L/C can only be revoked prior to its expiry date
with consent of the Borrower, Bank and the beneficiary thereof;
(f) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the
application for L/C, the terms thereof shall govern.
19. Increased Costs:
If, in the reasonable opinion of the Bank, the Bank is now or
hereafter becomes subject to, or there is a change in:
(a) any reserve, special deposit, deposit insurance, or
similar requirement against assets of, or deposits in or for the
account of, or credit extended by, or any acquisition of funds by,
the Bank,
(b) any reserve, special deposit, or similar requirement
with respect to all or any of the Borrowings or the undrawn portion
of all or any part of the Credit Facility,
(c) taxation of, or the basis of, taxation of any payments
due to the Bank hereunder (except for taxes on the overall net
income of the Bank) or taxation on reserves or deemed reserves with
respect to all or any part of the Credit Facility,
(d) any requirement relating to capital adequacy, or
(e) any other condition imposed by Applicable Law or any
interpretation of Applicable Law by an entity charged with the
administration thereof or any other condition with which financial
institutions operating in Canada are accustomed to comply or have
generally complied, whether or not having the force of law, and the
result of any of the foregoing, in the sole determination of the
Bank, is to increase the cost to, or to reduce any amount received
or receivable by, the Bank hereunder, or to reduce the Bank's
effective return hereunder to a level below that which the Bank
could have otherwise achieved (using any reasonable averaging and
attribution method), the Bank shall determine that amount of money
which shall compensate it for such increase in cost or reduction in
income or reduction in rate of return on the Bank's capital, and
the Borrower shall pay to the Bank upon demand such amount in
respect of such increased cost or reduction as the Bank may
determine to be required to compensate the Bank. The Bank's
determination of such increased cost or reduction shall be
conclusive absent manifest error.
20. Illegality:
If the introduction of or any change in Applicable Law makes
it unlawful, or prohibited for the Bank, in its sole opinion, to
perform its obligations under this Agreement, the Bank may, by
written notice to the Borrower, terminate its obligations under
this Agreement, and the Borrower shall prepay the Borrowings
immediately or at the end of such period as the Bank may agree,
together with all interest and fees which have accrued to the date
of payment.
21. Conditions Precedent to Disbursement:
(a) The obligation of the Bank to make available any
Borrowing is subject to and conditional upon the receipt in form
and substance satisfactory to the Bank, of:
(i) a duly executed copy of this Agreement;
(ii) a review of all documentation by legal counsel
to the Bank;
(iii) the following documents (the "Security
Documents"):
(a) guarantee and postponement of claim on
the Bank's standard form in the principal amount of $15,000,000
plus interest and fees signed by the Guarantor,
(b) general security agreement on the Bank's
standard form signed by the Borrower and representing a first
charge on all assets of the Borrower other than real estate and
purchase money security interests ("PMSIs"), save for PMSIs over
the Borrower's inventory,
(c) security under Section 427 of the Bank
Act covering all inventory of the Borrower,
(d) general security agreement on the Bank's
standard form signed by the Guarantor and representing a first
charge on all assets of the Guarantor other than real estate and
purchase money security interests ("PMSIs"), save for PMSIs over
the Guarantor's inventory,
(e) assignment of insurance policies covering
inventory of the Borrower all of which shall have been duly
registered in all appropriate jurisdictions in order to perfect and
maintain the security created by the Security Documents;
(iv) a duly executed B/A Undertaking; and
(v) such other documents as the Bank may reasonably
request.
22. Representations and Warranties of the Borrower and Guarantor:
The Borrower and Guarantor each represents and warrants to
the Bank, which representations and warranties are repeated as of
the time of each Borrowing or conversion and as of the time at
which each payment of interest or fees is due hereunder, that:
(a) the Borrower and Guarantor are corporations validly
incorporated and existing under the laws of Ontario and are duly
registered or qualified to carry on business in all jurisdictions
where the nature of their properties, assets or business makes such
registration or qualification necessary or desirable;
(b) the execution and delivery of this Agreement and the
Security Documents have been duly authorized by all necessary
actions and do not (i) violate any law, regulation or rule by which
the Borrower and Guarantor is bound, (ii) violate any provision of
their constating documents, by-laws or any unanimous shareholders'
agreement to which either of them is subject, (iii) result in a
breach of, or a default under, any agreement or instrument to which
any of them is a party or by which they or any of their properties
or assets may be bound or affected, or (iv) result in the creation
of any encumbrance on any of their properties or assets except as
contemplated herein;
(c) the Guarantor's most recent audited, consolidated
financial statements are correct and complete in all material
respects and the Borrower's and Guarantor's most recent annual
financial statement are correct and complete in all material
respects;
(d) no Event of Default has occurred and no event has
occurred which constitutes, or which with giving of notice, lapse
of time or the occurrence of any other condition would constitute
a default having a material adverse effect on their financial
condition under or in respect of any agreement, undertaking or
instrument to which the Borrower and Guarantor or any of their
properties or assets may be subject;
(e) they are in compliance with all Applicable Laws,
including, without limitation, those dealing with the environment;
(f) the Borrower and Guarantor have filed all material
income tax returns which were required to be filed, paid or made
provision for payment of all material taxes (including interest and
penalties) which are due and payable, and provided adequate
reserves for payment of any tax, the payment of which is being
contested;
(g) no consent, approval, order, authorization, licence,
exemption or designation of or by any governmental body or person
is required in connection with the execution, delivery and
performance of this Agreement or the Security Documents or the
transactions contemplated hereby on behalf of the Borrower and
Guarantor and no registration, qualification, designation,
declaration or filing with any governmental body is necessary to
enable or empower either of them to perform their respective
obligations under this Agreement or the Security Documents, except
such as have been made or obtained, which are in full force and
effect.
The representations and warranties made in this Section shall
continue in effect until payment and performance of all debts,
liabilities and obligations under this Agreement.
23. Covenants of the Borrower:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings under
the Credit Facility after the Maturity Date, the Borrower covenants
and agrees with the Bank, while this Agreement is in effect or any
Borrowings are outstanding:
(a) to maintain its corporate existence as a validly
existing corporate entity;
(b) to provide the Bank with the following:
(i) quarterly, unaudited financial statements within
45 days of the end of each fiscal quarter accompanied by a
certificate in the form of Schedule "C" executed by two officers of
the Borrower, one of whom shall be its chief financial officer;
(ii) annual audited financial statements within 90
days of each fiscal year end;
(iii) an aged list of its accounts receivable and a
report of inventory owned by the Borrower within 15 Business Days
of the end of each month, accompanied by a certificate of the
Borrower; and
(iv) details of securities pledged as Liquid
Collateral Security determined in accordance with Schedule "D";
(c) to provide the Bank with access to its business and
records as may be requested from time to time including, without
limitation, its annual financial forecasts and plans;
(d) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which, with notice
or lapse of time or both, would constitute an Event of Default;
(e) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by companies
carrying on similar business in similar locations against all
risks, including but not limited to business interruption, with
loss payable to the Bank as loss payee or mortgagee, as the case
may be;
(f) to file all income tax returns which are to be filed
from time to time, to pay or make provision for payment of all
taxes (including interest and penalties) and Potential Preferred
Claims which are or will become due and payable and to provide
adequate reserves for the payment of any tax, the payment of which
is being contested;
(g) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to hold the Bank
harmless for any costs or expenses which it incurs for any
environment-related liabilities which exist now or in the future
with respect to the Borrower's property;
(h) not to directly or indirectly, guarantee or otherwise
provide for on a direct or indirect contingent basis, the payment
of any monies or performance of any obligations by any third party
for an amount in excess of $5,000,000 in the aggregate, except as
may be consented to in writing by the Bank from time to time;
(i) not to do anything to affect the ranking of this debt;
(j) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or other
encumbrance affecting any of its properties, assets or other
rights, without the prior written consent of the Bank;
(k) during any fiscal year of the Borrower, not to sell,
transfer, convey, lease, assign or otherwise dispose of any part of
its undertaking, property, assets or rights with an aggregate value
exceeding $5,000,000, other than inventory in the ordinary course
of business and on commercially reasonable terms, without the prior
written consent of the Bank;
(l) not to change its name or merge, amalgamate,
consolidate or otherwise enter into any other form of business
combination with any other person without the prior written consent
of the Bank, such consent not to be unreasonably withheld.
24. Covenants of the Guarantor:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings under
the Credit Facility after the Maturity Date, the Guarantor
covenants and agrees with the Bank, while this Agreement is in
effect or any Borrowings are outstanding:
(a) to maintain as at the end of any fiscal quarter
Tangible Net Worth on a consolidated basis of not less than US$
60,000,000. minus any Allowable Reduction.
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.50:1 as at the end of any fiscal quarter.
(c) not to permit its Total Liabilities to Tangible Net
Worth Ratio on a consolidated basis to exceed .90:1 as at the end
of any fiscal quarter.
(d) to provide the Bank with the following:
(i ) quarterly consolidated and non-consolidated
unaudited financial statements within 45 days of the end of each
fiscal quarter, and
(ii) quarterly consolidated analysis of bookings,
billings and backlog, within 45 days of the end of each fiscal
quarter, and
(iii) annual consolidated audited financial statements
within 90 days of each fiscal year end, each of the above financial
statements to be accompanied by a certificate in form satisfactory
to the Bank.
(e) to maintain its corporate existence as a validly
existing corporate entity;
(f) to provide the Bank with access to its business and
records as may be requested from time to time including, without
limitation, its annual financial forecasts and plans;
(g) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which, with notice
or lapse of time or both, would constitute an Event of Default;
(h) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by companies
carrying on similar business in similar locations against all
risks, including but not limited to business interruption, with
loss payable to the Bank as loss payee or mortgagee, as the case
may be;
(i) to file all income tax returns which are to be filed
from time to time, to pay or make provision for payment of all
taxes (including interest and penalties) and Potential Preferred
Claims which are or will become due and payable and to provide
adequate reserves for the payment of any tax, the payment of which
is being contested;
(j) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to hold the Bank
harmless for any costs or expenses which it incurs for any
environment-related liabilities which exist now or in the future
with respect to the Guarantor's property;
(k) not to make any capital expenditures in any fiscal
year of the Guarantor except those as may be set out in the
Guarantor's operating budgets as provided to the Bank from time to
time, plus an allowance of 20%, without the Bank's prior written
consent;
(l) not to directly or indirectly, guarantee or otherwise
provide for on a direct or indirect contingent basis, the payment
of any monies or performance of any obligations by any third party,
other than wholly owned Subsidiaries, for an amount in excess of
$5,000,000 in the aggregate, except as may be consented to in
writing by the Bank from time to time;
(m) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or other
encumbrance affecting any of its properties, assets or other
rights, without the prior written consent of the Bank;
(n) during any fiscal year of the Guarantor, not to sell,
transfer, convey, lease, assign or otherwise dispose of any part of
its undertaking, property, assets or rights with an aggregate value
exceeding $5,000,000, other than inventory in the ordinary course
of business and on commercially reasonable terms, without the prior
written consent of the Bank;
(o) not to change its name or merge, amalgamate,
consolidate or otherwise enter into any other form of business
combination with any other person without the prior written consent
of the Bank, such consent not to be unreasonably withheld.
(p) To refrain from making any principal repayments on the
Convertible Subordinated Debenture.
25. Events of Default:
During the Term Period if any one or more of the following
events has occurred and is continuing:
(a) the non-payment when due of principal, interest, fees
or any other amounts due under this Agreement;
(b) the breach by the Borrower or Guarantor or any of
their respective Affiliates of any provision of this Agreement or
any other agreement with the Bank or any of the Bank's
Subsidiaries;
(c) the default by the Borrower or Guarantor or any of
their respective Affiliates under any obligation to repay borrowed
money in excess of $1,000,000, other than amounts due under this
Agreement, or in the performance or observance of any agreement or
condition in respect of such borrowed money where, as a result of
such default, the maturity of such obligation is accelerated;
(d) if any representation or warranty made or deemed to
have been made herein shall be false or inaccurate in any
materially adverse respect;
(e) if in the opinion of the Bank there is a material
adverse change in the financial condition, ownership or operation
of the Borrower or the Guarantor or any of its Material
Subsidiaries;
(f) if proceedings for the bankruptcy, receivership,
dissolution, liquidation, winding-up, reorganization or
readjustment of debt of the Borrower or Guarantor or any of their
respective Affiliates or for the suspension of the operations of
the Borrower or Guarantor or any of their respective Affiliates are
commenced, unless such proceedings are being actively and
diligently contested in good faith;
(g) if the Borrower or Guarantor or any of their
respective Affiliates is insolvent, or is adjudged or declared
bankrupt or insolvent, or makes an assignment for the benefit
of its creditors, or petitions or applies to any tribunal for the
appointment of a receiver or trustee for it or for any substantial
part of its property, or commences any proceedings relating to it
under any reorganization, arrangement, readjustment of debt,
dissolution, liquidation or other similar proceeding under
Applicable Law, or by any act or failure to act indicates its
consent to, approval of, or acquiescence in, any such proceeding
for it or any substantial part of its property, or suffers the
appointment of any receiver or trustee;
(h) if the Guarantor should incur a loss exceeding US
$5,000,000, excluding restructuring charges to an aggregate maximum
of $2,000,000 during the Term Period, in any fiscal quarter.
then in such event the ability of the Borrower to make further
Borrowings under the Credit Facility shall immediately terminate
and the Bank may, by written notice to the Borrower, declare the
Borrowings outstanding hereunder to be immediately due and payable.
After the Maturity Date, nothing in this Agreement shall be
construed to affect or limit in any way the right of the Bank to
terminate its commitment and demand all Borrowings under the Credit
Facility.
26. Expenses:
The Borrower shall pay the reasonable fees (including,
without limitation, all documentation fees charged by the Bank for
use of its internal legal counsel) and expenses incurred by the
Bank in connection with the preparation, negotiation, documentation
and operation of the Credit Facility and the Security Documents,
including the enforcement of the Bank's rights under the Credit
Facility whether or not any amounts are advanced hereunder.
27. Indemnity:
The Borrower shall indemnify the Bank from and against all
losses, damages, expenses and liabilities (including legal fees on
a solicitor and client basis) which the Bank sustains or incurs as
a consequence of any breach by the Borrower under any of the
provisions of this Agreement or of any document or instrument
delivered in connection hereunder.
28. Limit on Rate of Interest:
The Borrower shall not be obliged to pay any interest under
or in connection with this Agreement to the extent such interest
exceeds the effective annual rate of interest on the credit
advanced hereunder that would be lawfully permitted under the
Criminal Code. For purposes of this section, "interest" and
"credit advanced" have the meanings ascribed to such terms in the
Criminal Code, and the "effective annual rate of interest" shall be
calculated in accordance with generally accepted actuarial
practices and principles.
29. Judgment Currency:
If for the purpose of obtaining judgment in any court in any
jurisdiction with respect to this Agreement, it is necessary to
convert into the currency of such jurisdiction (the "Judgment
Currency") any amount due hereunder in any currency other than the
Judgment Currency, then such conversion shall be made at the rate
of exchange prevailing on the Business Day before the day on which
judgment is given. For this purpose "rate of exchange" means the
rate at which the Bank will, on the relevant date, sell such
currency in Toronto, Ontario, against the Judgment Currency.
In the event that there is a change in the rate of exchange
prevailing between the Business Day before the day on which the
judgment is given and the date of payment of the amount
due, the Borrower will, on the date of payment, pay such additional
amounts (if any) or be entitled to receive reimbursement of such
amount if any, as may be necessary to ensure that the amount paid
on such date is the amount in the Judgment Currency which, when
converted at the rate of exchange prevailing on the date of
payment, is the amount then due under this Agreement in such other
currency. Any additional amount due from the Borrower under this
Section will be due as a separate debt and shall not be affect by
judgment being obtained for any other sums due under or in respect
of this Agreement.
30. Notices:
Any notice or demand hereunder shall be given in writing by
telecopier or letter, in each case addressed to an officer of the
receiving party. A telecopier communication shall be deemed
received on the date of transmission provided such transmission is
received prior to 5:00 p.m. on a day on which the receiving party's
office is open for normal business, and otherwise on the next such
day. A letter shall be deemed received when hand-delivered to the
receiving party, at the address shown herein or at such other
address as the receiving party may notify the other from time to
time. Each party shall be bound by any notice given hereunder and
entitled to act in accordance therewith, unless otherwise agreed.
Th addresses of the parties for the purpose hereof shall be:
as to the Borrower:
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 727-0617
as to the Guarantor:
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 727-0617
as to the Bank:
Royal Bank of Canada
90 Sparks Street
Ottawa, Ontario K1P 5T6
Attention: Senior Account Manager, Advanced Technology
Telecopier: (613) 564-4527
or such other address for delivery as each party from time to
time may notify the other as aforesaid.
31. Assignment:
This Agreement shall be binding upon and enure to the benefit
of the Bank and the Borrower and their respective successors and
permitted assigns. The Borrower cannot assign or transfer all or
any of its rights and obligations hereunder without the prior
written consent of the Bank.
32. Set-Off:
The Bank is authorized (but not obligated), at any time and
without notice, to apply any credit balance (whether or not then
due) to which the Borrower is then beneficially entitled on any
account (in any currency) at any branch or office of the Bank in or
towards satisfaction of the obligations and liabilities of the
Borrower due to the Bank under this Agreement. For that purpose,
the Bank is authorized to use all or any part of any such credit
balance to buy such other currencies as may be necessary to effect
such application.
33. Waivers and Amendments:
No failure to exercise and no delay in exercising on the part
of the Bank, any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude any other right, power or
privilege. No amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Borrower from
any provision of this Agreement will in any event be effective
unless it is in writing signed by the Borrower and the Bank, and
then the amendment, modification, waiver or consent will be
effective only in the specific instance, for the specific purpose
and for the specific length of time for which it is given by the
Bank.
34. Counterparts:
This Agreement may be executed in any number of counterparts,
each of which when executed and delivered is an original but all of
which taken together constitute one and the same instrument, and
any party may execute this Agreement by signing any counterpart of
it.
35. Further Assurances:
The Borrower shall from time to time promptly upon the
request of the Bank take such action and execute and deliver such
further documents, as shall be reasonably required in order to
fully perform the terms of, and to carry out the intention of, this
Agreement.
36. Severability:
If any provision of this Agreement is or becomes prohibited
or unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate, affect or impair any of the
remaining provisions hereof or invalidate or render unenforceable
the provision concerned in any other jurisdiction.
37. Governing Law and Submission to Jurisdiction:
This Agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and of Canada
applicable therein. The Borrower irrevocably submits to the
non-exclusive jurisdiction of the courts of such Province and
acknowledges the competence of such courts and irrevocably agrees
to be bound by a judgment of any such court.
38. Periodic Review:
The Credit Facility is subject to an annual review by the
Bank on or before the Maturity Date. The Bank may, in its sole
discretion, terminate the Credit Facility following such annual
review without limiting or affecting the Bank's rights pursuant to
Section 25 hereof.
39. Whole Agreement:
This Agreement and any agreements delivered pursuant to or
referred to in this Agreement constitute the whole and entire
agreement between the parties in respect of the Credit Facility,
and cancel and supersede any prior written or verbal agreements
including undertakings, declarations or representations made with
respect thereto.
40. Effective Date:
Except as otherwise provided in this Agreement, the date on
which this Agreement becomes effective is the date the offer is
accepted by the Borrower and the Guarantor.
41. Expiry Date:
This offer is open for acceptance until close of business at
the Branch of Account on January 21, 1994 unless extended in
writing by the Bank.
Please acknowledge your acceptance of the above terms and
conditions by signing the attached copy of this letter in the space
provided below and returning it to the undersigned.
Yours truly,
s/L.J.BLATTMAN
ORIGINAL SIGNED BY L.J. BLATTMAN
We acknowledge and accept the terms and conditions of this
Agreement as of the 21st day of January, 1994.
GANDALF CANADA LTD.
Per: s/W.R. MACDONALD, VP FINANCE
Per: s/B.R. HEDGES
Date: JANUARY 21, 1994
GANDALF TECHNOLOGIES INC.
Per: s/W.R. MACDONALD, VP FINANCE
Per: s/B.R. HEDGES
Date: JANUARY 21, 1994
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
DEFINITIONS
"Affiliate" of a person means any person which directly or
indirectly, controls or is controlled by or is under common control
with such first mentioned person, and for the purposes of this
definition, "control" (including with correlative meanings the
terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management and
policies of any person, whether through the ownership of shares or
by contract or otherwise, and without restricting the above, one
corporate body shall be deemed to be affiliated with another
corporate body if one of them is the Subsidiary of the other or
both are Subsidiaries of the same corporate body;
"Agreement" means collectively this agreement and all schedules
attached hereto;
"Allowable Reduction" means the amount, not exceeding $2,000,000 in
aggregate, expended by the Guarantor to restructure between October
1, l993 and March 31, l994.
"Applicable Law" means, in respect of any person, property,
transaction or event, all present or future applicable laws,
statutes, regulations, treaties, judgments and decrees and (whether
or not having the force of law) all applicable official directives,
rules, guidelines, orders and policies of any governmental body
having jurisdiction;
"B/A Undertaking" means the Bank's standard form of undertaking in
respect of bankers acceptances issued by borrowers and accepted by
the Bank;
"Branch of Account" means the Bank's branch at 90 Sparks Street,
Ottawa, Ontario;
"Business Day" means a day, excluding Saturday, Sunday, and any
other day which shall be in the City of Toronto, Ontario a legal
holiday or a day on which banking institutions are closed and, with
respect to a Libor Loan, "Business Day" means a day with the
foregoing characteristics which is also a day on which dealings in
US Dollar or Pounds Sterling, as applicable, deposits by and
between leading banks in the London interbank market may be
conducted;
"Canadian Dollars" and the symbols "Cdn$" and "$" each means lawful
money of Canada;
"Convertible Subordinated Debenture" means the Cdn $30,000,000 8.5%
convertible subordinated debenture due November 10, 2002 issued by
the Guarantor;
"Current Ratio" of a person means the ratio of that person's
current assets to that person's current liabilities, net of cash on
hand;
"Equivalent Amount" determines the amount of availability only and
means on any date, the amount of Canadian Dollars required to
convert from Canadian Dollars to: U.S. Dollars at the rate of 1.30
Canadian Dollars for 1.00 US$; Pounds Sterling at the rate of 1.90
Canadian Dollars for 1 Pound Sterling.
The Equivalent amount will be amended by the Bank from time to time
to reflect changes in the rate of exchange and such amendments will
be advised to the Borrower in writing.
"Event of Default" means each of the events listed in the section
entitled "Events of Default";
"GAAP" means generally accepted accounting principles in effect
from time to time in Canada applied in a consistent manner from
period to period;
"Good Accounts Receivable" means all accounts receivable of the
Borrower excluding without duplication:
(a) those outstanding more than 90 days after the billing date,
(b) those between the Borrower and any Affiliate of the
Borrower,
(c) those subject to any mortgage, charge, assignment, lien,
security interest or other encumbrance ranking in priority to or
equal to that granted to the Bank pursuant to this Agreement,
(d) those subject to any claim or assertion of a right of
set-off on the part of the account debtor to the extent of such
claim or assertion,
(e) those which would be required to be treated as bad or
doubtful accounts in accordance with GAAP including, without
limitation, those outstanding from entities which are bankrupt,
insolvent or which have suspended operations, and
(f) those subject to a contractual right on the part of the
account debtor to refuse payment either in whole or in part;
"Interest Determination Date" means, with respect to a Libor Loan,
the date which is 2 Business Days prior to the first day of the
Libor Interest Period applicable to such Libor Loan;
"Inventory" means inventory of the Borrower not subject to any
mortgage, charge, lien, consignment, title retention arrangement,
security interest or other encumbrance ranking in priority
to or equal to that granted to the Bank pursuant to this Agreement;
"Letter of Credit" or "L/C" each means a documentary credit issued
by the Bank on behalf of the Borrower for the purpose of providing
security to a third party that the Borrower will perform a
contractual obligation owed to such third party;
"Libor" means, with respect to each Libor Interest Period
applicable to a Libor Loan, the annual rate of interest (rounded
upwards, if necessary, to the nearest whole multiple of one
sixteenth of one percent (1/16th%)), at which the Bank, in
accordance with its normal practice, would be prepared to offer to
leading banks in the London interbank market for delivery on the
first day of such Libor Interest Period and for a period equal to
such Libor Interest Period, deposits in US Dollars or Pounds
Sterling of amounts comparable to such Libor Loan to be outstanding
during such Libor Interest Period, at or about 10:00 a.m. (Toronto
time) on the Interest Determination Date;
"Libor Interest Date" means, with respect to any Libor Loan, the
last day of each Libor Interest Period and, if the Borrower selects
a Libor Interest Period longer than 3 months, the Libor Interest
Date shall be the date falling every 3 months after the beginning
of such Libor Interest Period as well as the last day of such Libor
Interest Period;
"Libor Interest Period" means, with respect to any Libor Loan, a
period (subject to availability) of approximately 1 month (or
longer whole multiples of 1 month to and including 12 months as
selected by the Borrower and notified to the Bank) commencing with
the date on which such Libor Loan is made, the date on which
another method of Borrowing is converted to such Libor Loan or
the last day of the immediately prior Libor Interest Period;
"Liquid Collateral Security" means the liquid collateral security
determined in accordance with Schedule "D";
"Margin Requirement" means the total amount of Borrowings available
under this Agreement, which amount may not exceed the sum of (i)
75% of Good Accounts Receivable from account debtors resident in
Canada, (ii) to a maximum value of $8,000,000, 50% of the book
value of the Inventory located in the Province of Ontario and (iii)
Liquid Collateral Security;
"Material Subsidiary" means, with respect to the Guarantor, any
Subsidiary of the Guarantor now or hereinafter located in Canada,
the United States, the United Kingdom, France or the Netherlands
as well as any Subsidiary of the Guarantor which is identified as
being a Material Subsidiary by the Bank in writing to the Guarantor
from time to time and "Material Subsidiaries" means any such
Subsidiaries of the Guarantor;
"Maturity Date" means July 31, 1994;
"Potential Preferred Claims" means amounts accrued or owing for
wages, vacation pay, employee benefits or pensions, municipal tax,
corporate tax, sales tax, Canadian goods and services tax, source
deductions and remittances (including income tax, Canada Pension
Plan and unemployment insurance obligations), Government royalties,
purchase money security interests and any other statutory preferred
claims as well as the aggregate of the next three months rent
payments for each rental property of the Borrower;
"Pounds Sterling" and "character symbol" and "GBP" each means lawful money of
the United Kingdom;
"Royal Bank Prime" (in this Agreement, "RBP") means the annual rate
of interest announced by the Bank from time to time as being a
reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans made in Canada;
"Royal Bank Prime Acceptance Fee" (in this Agreement, "RBPAF")
means the annual rate announced by the Bank from time to time as
being a reference rate then in effect for determining fees on
Canadian Dollar bankers' acceptances accepted by the Bank in
Canada;
"Royal Bank US Base Rate" (in this Agreement, "RBUSBR") means the
annual rate of interest announced by the Bank from time to time as
being a reference rate then in effect for determining interest
rates on US Dollar commercial loans made in Canada;
"Subsidiary" of a person means (i) any corporation of which the
person and/or one or more of its Affiliates, holds, directly or
beneficially, other than by way of security only, securities to
which are attached more than 50% of the votes that may be cast to
elect directors of such corporation, or (ii) a corporation of which
such person has through operation of law or otherwise, the ability
to elect or cause the election of a majority of the directors of
such corporation and "Subsidiaries" of such person mean all such
corporations;
"Tangible Net Worth" of a person means its shareholders' equity
plus, but not in duplication, the amount of the Convertible
Subordinated Debenture less the aggregate of its goodwill, deferred
income taxes, deferred software costs and other assets (all as
defined and set out on the person's audited annual financial
statements), that the Bank deems to be intangible. For the purpose
of calculating shareholders' equity, items on the balance sheet of
the relevant person under the heading "foreign exchange translation
amount" shall be deemed to be zero;
"Term Period" means the period of time from the date of this
Agreement to and including the Maturity Date;
"Total Liabilities" of any person means all liabilities appearing
on the balance sheet of that person, net of cash on hand;
"Total Liabilities to Tangible Net Worth Ratio" of a person means
the ratio of that person's Total Liabilities to that person's
Tangible Net Worth;
"US Dollars" and "US$" each means lawful money of the United States
of America in same day immediately available funds or, if such
funds are not available, the form of money of the United
States of America that is customarily used in the settlement of
international banking transactions on the day payment is due
hereunder.
SCHEDULE "B"
Schedule "B" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$ or US$10,000,000,
up to and including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
B/As
Amount Prior Notice
Under Cdn$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$10,000,000 up to and
including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the
Equivalent Amount in Pounds
Sterling by 10:00 a.m. on the
Interest Determination Date
US$10,000,000 up to and including
the Amount or the Equivalent
Amount in Pounds Sterling by 10:00 a.m. 1 Business Day
prior to the Interest
Determination Date
SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
OFFICER'S COMPLIANCE CERTIFICATE
We, ___________________________________, of the City of
__________________ and the City of _______________________,
respectively in the Province of Ontario, and hereby certify as
follows:
1. That we are the [office] and [office], respectively of the
Guarantor, and we have been designated by the Borrower to sign this
compliance certificate on behalf of the Borrower.
2. That we have read the provisions of the letter agreement (the
"Agreement") dated January 7, 1994 between the Borrower and
Guarantor and Royal Bank of Canada (the "Bank") which are relevant
to this compliance certificate and have made such examination or
investigation as is reasonably necessary to enable us to express an
informed opinion on the matters contained in this certificate.
Terms defined in the Agreement have the same meanings where used in
this certificate. As of the date of this certificate:
(a) the representations and warranties contained in the
Agreement are true and correct;
(b) no Event of Default or event which would with lapse of time
or the happening of some further condition constitute an Event of
Default has occurred and is continuing; and
(c) the covenants contained in the Agreement have not been
breached and during the next fiscal quarter of the Borrower and
Guarantor there is no reason to believe that any of such covenants
will be breached.
3. The attached report of the Borrower of aged accounts receivable
by debtor and amount and inventory by net book value is complete
and accurate in all material respects.
DATED this _______ day of _________________, 19__.
By:____________________________________
Name/
Title: ____________________________________
By:____________________________________
Name/
Title: ____________________________________
SCHEDULE "D"
Schedule "D" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE LOANING
VALUE
A. Canada Savings Bonds, and Savings 100% of par value
Bonds redeemable at par issued by
Provincial Governments; Province of
British Columbia Parity Bonds redeemable
at par and fully guaranteed by the
Province of British Columbia, issued in
the names of Provincial Crown Corporations.
B. Government of Canada or Government 95% of market value
of Canada guaranteed bonds and Treasury
Bills except as indicated in (a) above.
(c) Provincial Government or Provincial 95% of market value
Government guaranteed bonds and Treasury
Bills except as indicated in (a) above.
(d) Bankers acceptances or similar 95% of market value
investments effectively assigned to the
Bank. ________________
= LIQUID
COLLATERAL
SECURITY