Royal Bank of Canada
90 Sparks Street
Ottawa, Ontario
K1P 5T6
May 30, 1995
Private & Confidential
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 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. Amount:
The amount available under the Credit
Facility (the "Amount") shall not exceed the
lesser of:
(a) $15,000,000, and
(b) the Margin Requirement,
or the Equivalent Amount in US Dollars
or Pounds Sterling.
3. Credit Facility:
The Credit Facility is available as follows:
(a) Royal Bank Prime based loans in Canadian
Dollars ("RBP Loans"),
(b) Royal Bank US Base Rate based loans in
US Dollars ("RBUSBR Loans"),
(c) Libor based loans in US Dollars or Pounds
Sterling ("Libor Loans"),
(d) Bankers' 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 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) 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.
<PAGE
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 Pounds Sterling 500,000, as applicable or
larger whole multiples of US $100,000 or Pounds Sterling
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 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 C$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 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;
(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;
(m) 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
withheld. This provision does not extend to existing
Affiliates.
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 $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) 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 C$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 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;
(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;
(q) 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
withheld. This provision does not extend to existing
Affiliates.
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 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.
The 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 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 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.
GANDALF CANADA LTD. GANDALF TECHNOLOGIES INC.
Per: S/W. MACDONALD Per: S/W. MACDONALD
VP FINANCE GTI VP FINANCE GTI
Per: S/M. RENNIE Per: S/M. RENNIE
Date: May 30, 1995 Date: May 30, 1995
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 30th day of
May, 1995 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;
"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$", "C$" and "$"
each means lawful money of Canada;
"Convertible Subordinated Debenture" means the Cdn
$30,000,000 8.5% convertible subordinated debenture due
November 10, 2002 issued by the Guarantor;
"Current Ratio" of a person means the ratio of that
person's current assets to that person's current
SCHEDULE "A" (CONT'D.)
"Equivalent Amount" determines the amount of availability
only and means on any date, the amount of Canadian Dollars
required to convert from Canadian Dollars to: US Dollars
at the rate of 1.35 Canadian Dollars for 1.00 US$; 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";
"GTI 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 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;
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 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 C$8,000,000, 50% of the book value of the
Inventory located in the Province of Ontario and (iii)
Liquid Collateral Security (iv) the GTI Margin Surplus.
"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 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;
"Pounds Sterling" and "GBP" each means lawful money of the
United Kingdom;
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 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 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, 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 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 May 30, 1995 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 aged accounts receivable owned
by Gandalf Canada Ltd. 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: ____________________________________
<PAGE
SCHEDULE "D"
Schedule "D" to the Agreement dated as of the 30th day of
May, 1995 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
(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