NATIONAL BANK OF CANADA
350 Burnhamthorpe Road West, Suite 216, Mississauga, Ontario L5B 3J1
Telephone: (905) 276-9464
FAX: (905) 276-1750
Commercial Banking Centre
June 22, 1994
Sirco International (Canada) Ltd.
1321 Blundell Road
Mississauga, Ontario
L4Y 1M6
ATTENTION: Mr. Doug Turner, President
Dear Sirs:
We are please to inform you that the National Bank of Canada (hereinafter called
the "Bank") agrees to make available to Sirco International (Canada) Ltd.
(hereinafter called the "Borrower") the financing below, subject to the
following terms and conditions:
AMOUNT: A. $700,000. by way of an Operating Loan on a revolving demand
loan agreement.
B. $630,000. by way of a non-revolving demand loan.
C. $150,000. by way of a Foreign exchange Limit with net risk
of 10% i.e. at any time, the total foreign exchange
contracts outstanding may not exceed the Canadian
equivalent of $1,500,000.
PURPOSE: A. To finance day to day operations.
B. To payout and consolidate an existing commercial mortgage
with Royal Trust, and a term loan with the CIBC.
C. To purchase United States dollar foreign exchange
contracts, the equivalent of Canadian $25,000 is required
to obtain an exchange contract. Applicable term will be
from a minimum of 1 day to a maximum of 1 year.
INTEREST RATE: A. Prime Rate of National Bank of Canada plus 1.25% , that is
10.00% as at June 22, 1995, calculated daily and paid
monthly in arrears. Prime Rate is defined as the rate as
established from time to time by the Bank for Canadian
dollar loans in Canada.
B. Floating Rate Option: Prime rate of National Bank of Canada
plus 1.50%, that is 10.25% as at June 22, 1995, calculated
daily and paid monthly in arrears. Prime Rate is defined as
the rate as established from time to time by the Bank for
Canadian dollar loans in Canada.
Fixed Rate Option: (available for a maximum of $490,000 or
that amount required to retire the Royal Trust commercial
mortgage) The Bank's cost of funds for fixed rate term
loans + 2.00%, that is 9.75% as at June 22, 1995 for a 5
year term.
C. As quoted by International Dept., National Bank of Canada
at date of booking.
REPAYMENT: On demand.
A. To revolve in multiples of $25,000.
B. Floating Rate Option:
(i) $490,000 or the amount required to retire the Royal
Trust commercial mortgage. Based on a 20 year
amortization, repaid in monthly payments of $2,042
plus interest.
(ii) $140,000 or the amount required to retire the CIBC
term loan. Monthly payments of $10,000 plus interest.
Fixed Rate Option: (available for a maximum of $490,000)
Based on a 20 year amortization, and cost of funds for a 5
years term as quoted herein, repaid in monthly blended
payments of $4,586.
C. According to the specified maturity date.
DEMAND NATURE OF
THE FACILITIES:
The Borrower and the Guarantors acknowledge and agree that
notwithstanding anything contained herein to the contrary
theses facilities constitute Demand Loans and as such, are due
and payable at any time at the sole discretion of the Bank.
MARGIN AVAILABILITY:
The sum of operating advances and total Letters of Credit
outstanding shall be limited to the lesser of $700,000 or the
aggregate of the following:
(a) 85% of good quality Canadian accounts receivable for
"Major Retailers" ( as approved by the Bank, see below),
plus 65% of good qualify Canadian accounts receivable for
those Bank approved customers offered Future dating terms
(see approved list below), plus 60% of all other good
quality Canadian accounts receivable, excluding contra
accounts and intercompany accounts, doubtful accounts,
and those aged 60 days and over; plus
(b) 50% of all letters of Credit outstanding and all current
season's (i.e. Spring `95) finished goods inventory, plus
25% of all finished goods inventory for the prior 2
seasons (i.e. Fall `94 and Spring `94) excluding
handbags, combined capped at an overall maximum of
$300,000; less;
(c) all claims which rank prior to the Bank's security (i.e.
deductions at source, GST, etc).
Major retailers: Bay, Costco, Eaton's, K-Mart, Sears, Zellers.
Acceptable Future dating customers: Jovin, Pelle Imports,
Access Leather and all major retailers. Non-Acceptable Future
dating customers: Curry's Jewelers.
SECURITY:
All legal and other documentation to be in a form and content
satisfactory to the Bank and its solicitors and is to be
supported by all usual representations and opinions to confirm
its enforceability. To include but not limited to:
1. General Assignment of Book Debts, registered in Ontario
and all other applicable jurisdictions, providing a first
charge over accounts and other receivables.
2. Pledge of Inventory under Section 427 of the Bank Act
providing a first charge over inventory.
3. Assignment of sufficient fire insurance to protect the
Bank's interest.
4. General Security Agreement providing a first floating and
fixed charge over all assets of the Borrower.
5. Subordination and Postponement of Claim to the Bank of all
loans, advances and accrued interest payable to
shareholder(s) totalling $304,581 as at May 31, 1995. US
$223,958 @ .7353 exchange rate.
6. A first fixed and floating charge Debenture in the amount
of $1,500,000 over the real property located at 1321
Blundell Road, Mississauga (the "Property") accompanied by
appropriate pledge agreement.
7. General Assignment of Rents and Leases.
CONDITIONS PRECEDENT:
The following information/documentation satisfactory to the
Bank is to be provided prior to the completion of a formal
credit application (or prior to the advance of funds).
1. Receipt of the Borrower's Review Engagement financial
statement for the 6 months ending May 31, 1995 which will
not be materially different from the May 31, 1995 internal
financial statement already received.
2. The licensing agreement with Airway Industries Inc. is to
be reviewed and deemed satisfactory by the Bank's legal
counsel. In addition, ad addendum to the licensing
agreement is to be executed by the licensor:
(i) providing the Bank notice in the event the agreement
is to be terminated; and
(ii) enabling the Bank to dispose of the inventory in the
event it chooses to realize on its security
3. Satisfactory report from the Bank's consultant with
respect to a review of current assets and the internal
financial reporting system. Consultant's cost is to the
account of the Borrower, and is estimated at $250.
4. All legal and security documents to be in form and
substance, satisfactory to the Bank and its solicitors,
accompanied by the relevant legal opinions and registered
in the appropriate jurisdictions.
5. Report from Hendren Mitchell Real Estate Appraisal Ltd.
updating the Oct. 31, 1989 appraisal on the Property
completed by Huronia York Appraisal Corp. evidencing a
minimum value of $900,000.
6. Satisfactory Phase I environmental audit from a firm
acceptable to the Bank and completion of the Bank's
standard environmental questionnaire.
7. Any other important information.
FINANCIAL COVENANTS:
The Borrower agrees to the following covenants which shall be
calculated as indicated below, maintained at all time and
tested monthly except where otherwise indicated:
1. Current Ratio: The ratio of Current Assets to Current
Liabilities will not be less than 1.50 at anytime. Current
Assets shall exclude any intercompany advances, deferred
costs, or any other assets of doubtful or intangible
nature. Current Liabilities to include only the true
current portion of the commercial mortgage.
2. Debt to Equity Ratio: The ratio of Debt to Equity will not
be more than 1.50 at any time. Debt shall be defined as
total liabilities less any shareholder loans postponed to
the Bank, less deferred income taxes. Equity shall be
defined as Share Capital plus Retained Earnings plus any
Shareholders' loans postponed to the Bank, less any
deferred expenditures, loans to officers, directors, or
shareholders, or intercompany advances and any other
assets of value.
3. Debt Service Coverage: The ratio of Net Cash Flow to Debt
Service shall be a minimum of 1.20. Net Cash Flow shall be
defined as the Income After Tax plus: deferred taxes;
depreciation; any other non-cash expenses; and all cash
interest expense; less: dividends and capital expenditures
not funded by debt. Debt Service shall be defined as all
debt principal payments plus all cash interest expense.
4. Parent remuneration, whether a repayment of the parent
company advance ($304,581 @ May 31, 1995) or a
bonus/dividend, is prohibited without the prior written
consent of the Bank. US $223,958 @.7353 exchange rate.
REPORTING CONDITIONS:
1. Within 25 days of each month-end, the Borrower shall
provide the following information on Bank documents,
signed by the appropriate authorized officer of the
Borrower:
(a) monthly accounts receivable listing classified
according to age;
(b) inventory declaration;
(c) prior claims declaration;
(d) internally prepared income statement, balance sheet
and statement of financial changes as compared against
last year actual and current year to date budget.
(e) order backlog report.
2. The Borrower agrees to submit to the Bank its annual
audited financial statement within 90 days of the end of
its fiscal year.
3. The Borrower agrees to submit to the Bank its annual
budget including budgeted monthly balance sheet, income
statement, and cashflow within 90 days of its fiscal year
end.
OTHER CONDITIONS:
1. All legal and registration fees incurred to prepare,
execute and maintain legal documents will be assumed by
the Borrower.
2. The cost of all appraisals and environmental reports
requested by the Bank are the responsibility of the
Borrower.
3. The Bank reserves the right to request appropriate annual
financial statements or quarterly financial statements at
any time and whenever it deems it appropriate. This
information may be required on a continuous basis or for a
specific period or periods and must always be to the
Bank's satisfaction.
4. The ownership structure of the company shall not be
altered without the Bank's prior written consent which
shall be unreasonably withheld.
5. The nature of the Borrower's business shall not be
substantially changed without the Bank's prior written
consent which shall not be unreasonably withheld.
FEES:
1. Transaction fee of $6,250 which is payable upon acceptance
of this Discussion Paper. These monies are refundable if
such approval is not provided as outlined herein.
2. $75 monthly management fee to review the monthly reporting
package, margin the account and process note rollovers.
ENVIRONMENTAL MATTERS:
1. The Borrower and the Guarantors represent and warrant that
the owner of the subject property has complied and is
complying in all respects with all applicable laws
relating to the environment, that no contaminants,
pollutants or other hazardous substances (including,
without limitation, asbestos, products containing urea
formaldehyde or polychlorinated biphenyl or any
radioactive substances) have been or are now stored or
located at the subject property, that no order, approval,
direction or other governmental or regulatory notice
relating to the environment has been threatened against,
is pending or has been issued with respect to the subject
property, and that none of them is aware of any pending or
threatened action, suit or proceedings relating to any
actual or alleged environmental violation from or at the
subject property.
2. The Borrower and Guarantors shall permit the Lender to
conduct, at the Borrower's expense, such test, inspections
and environmental audits as may be required by the Lender
including without limitation, the right to take soil
samples from the subject property and the right to review
and photocopy all records relating to the subject property
or the business or operations now or hereinbefore
conducted at the subject property in order to attempt to
corroborate the veracity of the aforementioned
representations and warranties.
3. The Borrower and Guarantors agree to pay the cost of all
environmental audits which may be deemed necessary by the
Bank.
4. The Borrower and Guarantors agree to delivery to the Bank
documents guaranteeing compliance and showing that the
land and building are not contaminated by hazardous
materials.
5. The Borrower and Guarantors certify that past and present
owners have not violated environmental law and regulations
and that, to the best of their knowledge, no proceedings
have been or are being instituted to make him comply with
environmental laws and regulations.
6. The Borrower and Guarantors agree to comply with and
respect any and all environmental laws and regulations.
7. The Borrower and Guarantors agree to maintain a system or
mechanism through which the emission or release of
contaminants can be controlled in compliance with laws and
regulations.
8. The Borrower and Guarantors agree to periodically provide
the Bank with a summary report stating the Borrower's
status with regard to environmental laws and regulations,
such as confirmation of the renewal of permits,
certificates of compliance and the proper application of
control procedures.
9. The Borrower and Guarantors agree to indemnify the Bank
for all decontamination costs or for damages incurred by
the Bank or its agents as a result of such contamination.
10. The loan shall be disbursed upon performance and/or
completion of the above conditions to the Bank's
satisfaction.
11. In the event any environmental report shows that
decontamination is required the Borrower and Guarantors
undertake to carry out decontamination at their own
expense should this be required or requested. However, the
undertaking of such decontamination's shall not guarantee
that the Bank will make any disbursements. All the other
conditions stipulated in this Offer of Finance shall be
performed to the Bank's satisfaction.
ACKNOWLEDGMENT
OF NON MERGER:
The terms and conditions contained in this Offer to Finance
shall not merge upon the execution and delivery of the
security documentation referred to herein but shall at all
times remain in full force and effect. The events of default
as stated herein (if applicable), shall be in addition to and
not restrict in any way whatsoever the events of default as
stated in the security documents.
ANNUAL REVIEW:
To be reviewed at least annually, and in any event not later
than March 31, 1996.
OTHER:
The Borrower agrees to keep the contents of this Letter
strictly confidential.
If these conditions are acceptable to you, please indicate your acceptance
thereof by signing and returning a copy of this letter to the Bank before June
27, 1995, after which time this offer in null and void.
Your truly,
/s/Guy Jarvis /s/ R.A. Garrad
Guy Jarvis R.A. Garrard
Account Manager Senior Manager
a:/guydp\sirco.mp
ACCEPTANCE:
WE ACCEPT THE TERMS AND CONDITIONS OUTLINED HEREIN THIS 26TH DAY OF JUNE, 1995
SIRCO INTERNATIONAL (CANADA) LIMITED
Per: /s/ Doug Turner Per: /s/ Maric Weichel
Doug Turner, President Maric Weichel, Office Manager