Royal Bank of Canada
90 Sparks Street
Ottaw, Ontario
KlP 5T6
May 30, 1995
Private & Confidential
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
Dear Sir:
Royal Bank of Canada (the "Bank") is pleased to offer
Gandalf Technologies Inc. (the "Borrower") the following
credit facilities (the "Credit Facility"), which, upon
your acceptance shall supersede and cancel the credit
facilities provided to the Borrower in our letter
agreement of November 8, 1994. 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. Credit Facility:
The Credit Facility is available in the following
segments as follows:
(1) Letters of Credit in Canadian or US
Dollars ("L/C's").
(2) Foreign exchange forward contracts ("FEF
Contracts").
(a) Royal Bank US Base Rate based loans
in US Dollars ("RBUSBR Loans"),
(b) Royal Bank Prime based loans in
Canadian Dollars ("RBP Loans"),
(c) Libor based loans in US Dollars
("Libor Loans"),
(d) Banker's Acceptances in Canadian
Dollars ("B/As"), and
(e) Letters of Credit in Canadian or US
Dollars ("L/Cs").
Each use of the Credit Facility by way of any of
the foregoing methods 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 with the exception
that the amount of Borrowings ascribed to FEF Contracts
shall be determined by the Bank, in its sole discretion,
from time to time and advised to the Borrower upon
request.
3. Amount(s):
(1) $1,350,000 or the Equivalent Amount in US
Dollars.
(2) $6,750,000 or the Equivalent Amount in US
Dollars.
(3) The lesser of:
US $4,500,000 or the Equivalent Amount in
Canadian Dollars, the Margin Requirement.
4. Purpose:
The Borrower shall use the Credit Facility for the
purpose of accommodating:
(a) L/C requirements.
(b) Foreign exchange hedging activities.
(c) General operating requirements.
5. Availability:
Borrowings under the Credit Facility are available
on any Business Day through the Branch of Account.
During the term of the Credit Facility, the
Borrower may borrow, repay and reborrow hereunder at any
time, unless otherwise provided.
FEF Contracts may not have maturities exceeding one
year.
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:
(1) L/C fees to be quoted by the Bank at time of issue
of each L/C.
(a) Royal Bank Prime ("RBP") plus 1/2%.
(b) Royal Bank US Base Rate ("RBUSBR") plus 1/2%.
(c) Libor ("Libor") plus 1 1/4%.
(d) Royal Bank Prime Acceptance Fees ("RBPAF")
plus 1/2%.
(e) 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 US Dollars 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 Segment 3 is
payable monthly in arrears within the first five
business days of each month.
(g) Monitoring Fee:
The Borrower shall pay a fee of $250. monthly in
arrears on the first day of each month to compensate the
Bank for the cost of monitoring, reviewing and analyzing
financial reports of the Borrower and its Material
Subsidiaries.
(h) 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 24 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 and the amount
advised by the Bank, pursuant to Section 2 hereof, with
respect to FEF Contracts 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 and FEF Contracts,
the Borrower will have the further obligation to execute
such security documents as the Bank may reasonably
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,
Gandalf Canada Ltd. ("GCL") 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
under Segment 3 hereunder, or
(b) is a debit, the Bank shall, provided that
Borrowings under Segment 3 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, as applicable or larger whole multiples of
US $100,000, 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, 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, at the option of the Bank
into a loan with interest at either RBP or RBUSBR;
(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) the following documents (the "Security Documents"):
(a) a general security agreement (the "GSA") 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;
(b) a general assignment of debts on the Bank's
standard form signed by the Borrower;
(c) assignment by the Borrower of all of its
shares in Gandalf Systems Corporation ("GSC"), Gandalf
Digital Communications Ltd. ("GDCL") and GCL;
(d) assignment by the Borrower of all patents,
trademarks and licenses;
(e) a general assignment of leases signed by the
Borrower covering 130 Colonnade Rd. S. and 40 Concourse
Gate, both in Nepean, Ontario;
(f) a general security agreement on the Bank's
standard form signed by GSC and representing a first
charge on all assets of GSC other than real estate;
(g) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of not less
than US $4,500,000 plus interest and fees, signed by
GSC;
(h) assignment by GSC of all patents, trademarks,
copyrights and licenses;
(i) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of
$3,000,000 plus interest and fees signed by GCL;
(j) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of not less
than US $4,500,000 plus interest and fees signed by GCL;
(k) a general security agreement on the Bank's
standard form signed by GCL and representing a second
charge on all assets of GCL other than real estate and
PMSIs over GCL's inventory;
(l) a general assignment of debts on the Bank's
standard form signed by GCL;
(m) a general hypothecation signed by the Borrower
with respect to any Liquid Collateral Security;
(n) assignment of insurance policies covering
inventory of GSC;
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;
(i) a duly executed B/A Undertaking; and
(ii) a review of all documentation by legal counsel
to the Bank; and
(iii)such other documents as the Bank may
reasonably request.
22. Representations and Warranties of the Borrower:
The Borrower represents and warrants to the Bank,
which representations and warranties are repeated as of
the time of each Borrowing and as of the time at which
each payment of interest or fees is due hereunder, that:
(a) the Borrower is a corporation 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 its 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 is bound, (ii)
violate any provision of its constating documents, by-
laws or any unanimous shareholders' agreement to which
it is subject, (iii) result in a breach of, or a default
under, any agreement or instrument to which either it is
a party or by which it or any of its properties or
assets may be bound or affected, or (iv) result in the
creation of any encumbrance on any of its properties or
assets, except as contemplated herein;
(c) its most recent audited, consolidated financial
statements 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 its financial condition under or in
respect of any agreement, undertaking or instrument to
which the Borrower or any of its properties or assets
may be subject;
(e)it is in compliance with all Applicable Laws,
including, without limitation, those dealing with the
environment;
(f) the Borrower has 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 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, 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:
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 as at the end of any fiscal quarter
Tangible Net Worth on a consolidated basis of not less
than US $40,000,000;
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.60:1 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) an aged list of accounts receivable owned by GSC
within 15 Business Days of the end of each month,
accompanied by a certificate of the Borrower and GSC;
(ii) quarterly consolidated and non-consolidated
unaudited financial statements within 45 days of the end
of each fiscal quarter, accompanied by a certificate in
the form of Schedule "C" hereto;
(iii) quarterly consolidated analysis of bookings,
billings and backlog within 45 days of the end of each
fiscal quarter;
(iv) annual consolidated audited financial statements of
each of the Borrower and GSC within 90 days of each
fiscal year end;
(v) details of securities pledged as Liquid Collateral
Security determined in accordance with Schedule D,
each of the above financial statements to be
accompanied by a certificate in form satisfactory to the
Bank.
(e) 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;
(f) not to do anything to affect the ranking of this
debt;
(g) to maintain its corporate existence as a validly
existing corporate entity;
(h) 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;
(i) 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;
(j) 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;
(k) 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;
(l) 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;
(m) 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 C$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;
(n) 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;
(o) 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;
(p) 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 C$5,000,000 in
the aggregate, except as may be consented to in writing
by the Bank from time to time;
(q) To refrain from making any principal repayments on
the Convertible Subordinated Debenture;
(r) to make best efforts to arrange an operating
facility for GSC with a US lender, in replacement of
Segment 3 hereunder;
(s) to refrain from making investments in, or acquiring
the shares of, any third party exceeding US $3,000,000
in aggregate in any fiscal year without the prior
written consent of the Bank such consent not to be
unreasonably held. This provision does not extend to
existing Affiliates.
24. 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 its 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 its 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 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 its Affiliates
or for the suspension of the operations of the Borrower
or its Affiliates are commenced, unless such proceedings
are being actively and diligently contested in good
faith;
(g) if the Borrower or any of its 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 Borrower should incur a loss exceeding US
$5,000,000 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.
25. 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.
26. 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.
27. 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.
28. 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.
29. 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. The addresses of
the parties for the purpose hereof shall be:
as to the Borrower:
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 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.
30. 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.
31. 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.
32. 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.
33. 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.
34. 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.
35. 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.
36. 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.
37. 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 24
hereof.
38. 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.
39. 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.
40. Expiry Date:
This offer is open for acceptance until close of
business at the Branch of Account on June 15, 1995
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
We acknowledge and accept the terms and conditions of
this Agreement on the 30th day of May, 1995.
THE BORROWER:
GANDALF TECHNOLOGIES INC.
By: S/W. MACDONALD
Name/Title: V.P. FINANCE AND CFO
By: S/M. RENNIE
Name/Title: DIRECTOR OF FINANCE
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower 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;
"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 deposits by and between leading banks in the
London interbank market may be conducted;
"Canadian Dollars" and the symbols "Cdn$", "C$" and "$"
each means lawful money of Canada;
"Convertible Subordinated Debenture" means the Cdn
$30,000,000 8.5% convertible subordinated debenture due
November 10, 2002 issued by the Borrower;
"Current Ratio" of a person means the ratio of that
person's current assets to that person's current
liabilities, net of cash on hand;
SCHEDULE "A" (CONT'D.)
"Equivalent Amount" determines the amount of
availability only and means on any date, the amount of
Canadian Dollars required to convert from Canadian
Dollars to US Dollars at the rate of 1.35 Canadian
Dollars for 1.00 US$;
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";
"GCL Margin Surplus" means the amount, if any, by which
the calculated Margin Requirement exceeds actual
Borrowings.
"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 US based trade
receivables owing to GSC excluding without duplication:
(a) those outstanding more than 90 days after the
billing date,
(b) those between GSC and any Affiliate
(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;
"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;
SCHEDULE "A" (CONT'D.)
"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 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 75% of Good Accounts Receivable plus the
GCL Margin Surplus.
"Material Subsidiary" means any Subsidiary of the
Borrower now or hereinafter located in Canada, the
United States, the United Kingdom, France or the
Netherlands, as well as any Subsidiary of the Borrower
which is identified as being a Material Subsidiary by
the Bank in writing to the Borrower from time to time
and "Material Subsidiaries" means any such Subsidiaries
of the Borrower;
"Maturity Date" means June 30, 1996;
"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;
SCHEDULE "A" (CONT'D.)
"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 any 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 (all as defined and set out on the person's
audited annual financial statements), and other assets
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$" each means lawful money of the
United States of America in same day immediately
available funds or, if such funds are not available, the
form of money of the United States of America that is
customarily used in the settlement of international
banking transactions on the day payment is due
hereunder.
SCHEDULE "B"
Schedule "B" to the Agreement dated as of the 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower and Royal Bank of Canada as the Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on
the day of drawdown
or conversion
Cdn$ or US$10,000,000, by 12:00 (noon) 1 Business
up to and including the Day prior to drawdow
Amount 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 by 12:00 (noon) 1 Business
including the Amount Day prior to drawdown or
conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the by 10:00 a.m. on the
Equivalent Amount in Interest Determination
Pounds Sterling Date
US$10,000,000 up to by 10:00 a.m. 1 Business
and including Day prior to the the
Amount or the Equivalent Determination Date
Amount in Pounds Sterling
SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower 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 Gandalf Technologies Inc. (the "Borrower")
2. That we have read the provisions of the letter
agreement (the "Agreement") dated May 30, 1995 between
the Borrower 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 there is no reason to believe that any of such
covenants will be breached.
3. The attached report of aged accounts receivable
owned by Gandalf Systems Corporation as well as similar
reports submitted to the Bank within the past fiscal
quarter, are 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 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower and Royal Bank of Canada as the Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE LOANING
VALUE
(g) Canada Savings Bonds, 100% of par value
and Savings 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.
(h) Government of Canada or 95% of par value
Government of Canada guaranteed
bonds and Treasury Bills except
as indicated in (a) above.
(c) Provincial Government or 95% of par value
Provincial 95% of market value
Government guaranteed bonds and
Treasury Bills except as indicated
in (a) above.
(d) Bankers acceptances or 95% of par value
similar investments effectively
assigned to the Bank.
-------------------
= LIQUID COLLATERAL
SECURITY