ROYAL BANK ----------------------------------------------------------------- L.James Blattman Royal Bank of Canada Senior Account Manager Business Banking Centre Advanced Technology 90 Sparks Street, P.O. Box 746, Station B Tel.: (613) 564-4898 Ottawa, Ontario K1P 5T6 Transit 01196 June 1, 1994 Fax: (613) 564-4527 Toll Free: 1-800-267-0305 Gandalf Technologies Inc. 130 Colonnade Road South Nepean, Ontario K2E 7M4 AND Gandalf Canada Ltd. 130 Colonnade Road South Nepean, Ontario K2E 7M4 Attention: Mr. Walter MacDonald Vice-President, Finance & CFO ----------------------------- Dear Sirs: Royal Bank of Canada (the "Bank") refers to a letter agreement dated January 7, 1994 between Gandalf Technologies Inc. ("GTI") and the Bank (the "GTI Agreement") and to a letter agreement also dated January 7, 1994 between Gandalf Canada Ltd. ("GCL") and the Bank (the "GCL Agreement"), collectively referred to herein as the Gandalf Agreements. The Bank hereby acknowledges notice from GTI of its expected breach of Sections 23(a), 23(b), 23(c) and 24(h) of the GTI Agreement and Sections 24(a), 24(b), 24(c) and 25(h) of the GCL Agreement for the fiscal quarter ended March 1994. Specifically, Tangible Net Worth is expected to be $40,000,000, the Current Ratio 1.30:1, the ratio of Total Liabilities to Tangible Net Worth 1.15:1 and the loss for the fiscal quarter $37,000,000. The Bank hereby waives its rights in respect of such breach for the period March 31, 1994 to July 31, 1994 inclusive provided no further deterioration occurs in any of Sections 23(a), 23(b) and 23(c) of the GTI Agreement and Sections 24(a), 24(b) and 24(c) of the GCL Agreement as at the fiscal quarter ending June 25, 1994. This waiver is granted only in respect of the aforementioned ----------------------------------------------------------------- - 1 - June 1, 1994 Gandalf Technologies Inc. & Gandalf Canada Ltd. --------------------------- breach and only for the aforementioned period and is further subject to the following paragraph. As long as any of the aforementioned sections of the Gandalf Agreement remain in breach, GTI agrees with the Bank as follows: a. To provide the Bank with the following information within 15 days of the end of each month: i. Internallyy prepared consolidated financial statements. ii. A consolidated summary of bookings, billings and backlog . iii. A consolidated cash flow and margin forecast for the following 13 weeks. b. To pay to the Bank a risk premium calculated as 1/8 of 1% per month on the aggregate of average outstanding balances under the GCL Agreement and Segment (3) of the GTI Agreement, subject to a monthly minimum payment of US $5,000. The risk premium will be calculated and is payable monthly by the fifth day of each month. This letter supersedes our tolerance letter dated April 14, 1994. Please acknowledge your acceptance of the above terms and conditions by signing the attached copy of this letter in the space provided and returning it to the undersigned no later than June 3, 1994. Yours truly, ORIGINAL SIGNED BY L.J.BLATTMAN WE ACKNOWLEDGE AND ACCEPT THE TERMS AND CONDITIONS GANDALF TECHNOLOGIES INC. GANDALF CANADA LTD. Per: s/W.MacDonald, V.P. Finance Per: s/W.MacDonald, V.P. Finance GTI Per: s/A.Gordon, Corp.Controller Per: s/A.Gordon, Corp. Controller GTI Date: June 2, 1994 Date: June 2, 1994 ------------ ------------