1
Exhibit 10.13
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INTERNATIONAL MENU SOLUTIONS CORPORATION INTERNATIONAL MENU SOLUTIONS INC.
- and -
FIRST ONTARIO FUND
-and-
BANK OF MONTREAL CAPITAL CORPORATION
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LOAN AGREEMENT
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FOGLER, RUBINOFF
Suite 4400, Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1G8
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INDEX
ARTICLE 1.- INTERPRETATION .................................................. 2
1.1 Interpretation ........................................... 2
1.2 Schedules ................................................ 6
ARTICLE 2. - THE LOAN ....................................................... 6
2.1 Loan Amount .............................................. 6
2.2 Advances ................................................. 6
ARTICLE 3. - PAYMENT OF PRINCIPAL AND INTEREST .............................. 6
3 1 Interest Rate ............................................ 6
3.2 Interest Payments ........................................ 6
3.3 Principal Repayments ..................................... 7
3.4 Place of Payment ......................................... 7
3.5 Maximum Interest Rate; ................................... 7
3.6 Effective Rate ........................................... 7
ARTICLE 4. - PREPAYMENT AND FORCED CONVERSION ............................... 8
4.1 Prepayment ............................................... 8
4.2 Forced Conversion: ....................................... 8
4.3 Forced Conversion Block: ................................. 8
4.4 Failure to Find Purchaser: ............................... 8
4.5 Closing of Forced Conversion: ............................ 8
ARTICLE 5. - SECURITY ....................................................... 9
5.1 Security for Advance ..................................... 9
5.2 Form of Security ......................................... 9
5.3 Exception ................................................ 9
5.4 No Prejudice ............................................. 9
5.5 Registration of Security ................................. 9
5.6 Supplemental Security .................................... 9
5.7 Paramountcy .............................................. 10
ARTICLE 6. - REPRESENTATIONS AND WARRANTIES ................................. 10
6.1 Representations and Warranties ........................... 10
(a) Organization; Subsidiaries ............................... 10
(b) Authorized and Issued Capital ............................ 10
(c) Corporate Authority ...................................... 10
(d) Security Authorization ................................... 10
(e) Ranking of Security ...................................... 10
(f) No Default ............................................... 11
(g) Litigation ............................................... 11
(h) No Conflict .............................................. 11
(i) Financial Statements ..................................... 11
(j) Conduct of Business ...................................... 11
(k) Taxes .................................................... 11
(l) Outstanding Obligations .................................. 12
(m) Title to Assets .......................................... 12
(n) Leased Property .......................................... 12
(o) Real Property ............................................ 12
(p) Insurance ................................................ 12
(q) Guarantees ............................................... 12
(r) Outstanding Securities ................................... 12
(s) Loan Proceeds ............................................ 13
(t) Affiliates ............................................... 13
(u) Material Facts ........................................... 13
(v) Assets in Good Condition ................................. 13
(w) No Restrictions on Business .............................. 13
(x) Business ................................................. 13
(y) Asset Mix ................................................ 13
(z) Employees ................................................ 13
(aa) Asset Value .............................................. 13
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(bb) Compliance with Employee Obligations ..................... 13
(cc) Employment Agreements .................................... 14
(dd) Y2K Compliance ........................................... 14
(ee) No Hazardous Substances .................................. 14
6.2 Update of Representations and Warranties ................. 14
ARTICLE 7.- CONDITIONS OF CLOSING ........................................... 14
7.1 Closing Conditions ....................................... 14
(a) Security ................................................. 14
(b) Corporate Proceedings .................................... 14
(c) Constating Documents ..................................... 15
(d) Employment Contracts ..................................... 15
(e) Opinions of Counsel ...................................... 15
(f) Subscription Agreements .................................. 15
(g) No Change to Representations and Warranties .............. 15
(h) Compliance with Agreement ................................ 15
(i) Litigation ............................................... 15
(j) No Substantial Damage .................................... 15
(k) No Material Adverse Change ............................... 15
(l) Governmental Approvals ................................... 15
(m) Insurance ................................................ 15
(n) Equity ................................................... 15
(o) Acquisitions ............................................. 16
7.2 Material Inaccuracy ...................................... 16
7.3 Waiver of Conditions ..................................... 16
ARTICLE 8. - COVENANTS ...................................................... 16
8.1 Positive Covenants ....................................... 16
(a) Payment .................................................. 16
(b) Business Licences ........................................ 16
(c) Comply with Security ..................................... 16
(d) Comply with Operating Agreements ......................... 16
(e) Maintain Authority ....................................... 16
(f) Business Operations ...................................... 16
(g) Taxes .................................................... 16
(h) Maintain Security ........................................ 17
(i) Further Assurances ....................................... 17
(j) To Register .............................................. 17
(k) Lenders Entitled to Perform Covenants .................... 17
(l) To Cooperate in the Event of Default ..................... 17
(m) Obtain Discharge ......................................... 18
(n) Financial Statements ..................................... 18
(o) Leases ................................................... 19
(p) Corporate Existence ...................................... 19
(q) Inspections .............................................. 19
(r) Insurance ................................................ 19
(s) Life Insurance ........................................... 19
(t) Repair ................................................... 19
(u) Government Approvals ..................................... 19
(v) Default .................................................. 19
(w) Litigation ............................................... 20
(x) Use of Proceeds .......................................... 20
(y) Environmental Claims ..................................... 20
8.2 Negative Covenants ....................................... 21
(a) Reorganization ........................................... 21
(b) Dissolution .............................................. 22
(c) Articles of Amendment .................................... 22
(d) Fiscal Year .............................................. 22
(e) Change of Name ........................................... 22
(f) Business Plan ............................................ 22
(g) Management Salaries ...................................... 22
(h) Employee Plans ........................................... 22
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(i) Distributions ............................................ 22
(j) Liens .................................................... 22
(k) Loans .................................................... 22
(l) Disposal of Assets ....................................... 22
(m) Capital Expenditures ..................................... 22
(n) Expansion ................................................ 23
(o) Non-Arm's Length Transactions ............................ 23
ARTICLE 9. - SURVIVAL OF REPRESENTATIONS AND WARRANTIES ..................... 23
9.1 Survival ................................................. 23
ARTICLE 10.-EVENTS OF DEFAULT ............................................... 23
10.1 Default .................................................. 23
(a) Payment Default .......................................... 23
(b) Security Default ......................................... 23
(c) Other Payment Obligations ................................ 23
(d) Other Obligations ........................................ 24
(e) Liquidation .............................................. 24
(f) Insolvency ............................................... 24
(g) CCAA ..................................................... 24
(h) Distress ................................................. 24
(i) False Representation ..................................... 24
(j) Cease to Carry on Business ............................... 24
(k) Default .................................................. 24
(l) Parent Status ............................................ 24
(m) Prospectus ............................................... 24
(n) Share Ownership .......................................... 25
(o) Death of Michael A. Steele ............................... 25
10.2 Acceleration ............................................. 25
10.3 Remedies Cumulative ...................................... 25
ARTICLE 11.- FEES ........................................................... 25
11.1 Expenses ................................................. 25
11.2 Commitment Fee ........................................... 25
ARTICLE 12. - SUBORDINATION ................................................. 25
12.1 Subordination ............................................ 25
ARTICLE 13.- GENERAL ........................................................ 26
13.1 No Waiver of Rights ...................................... 26
13.2 No Waiver of Defaults .................................... 26
13.3 Notices .................................................. 26
13.4 Method of Payment ........................................ 27
13.5 Successors and Assigns ................................... 27
13.6 Governing Law ............................................ 28
13.7 Entire Agreement ......................................... 28
13.8 Headings ................................................. 29
13.9 Number ................................................... 29
13.10 Severable Provisions ..................................... 29
13.11 Modification ............................................. 29
13.12 Execution of Additional Documents ........................ 29
13.13 Other Definitional Terms ................................. 29
13.14 Counterparts ............................................. 29
13.15 Conflicts ................................................ 29
13.16 Consultant ............................................... 29
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LOAN AGREEMENT
THIS AGREEMENT dated for reference the 10th day of May, 1999
AMONG:
INTERNATIONAL MENU SOLUTIONS CORPORATION, a
corporation incorporated under the laws of the State of
Nevada
(hereinafter called the "Parent")
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INTERNATIONAL MENU SOLUTIONS INC., a corporation
amalgamated under the laws of the Province of Ontario
(hereinafter called the "Borrower')
-and-
FIRST ONTARIO FUND, a labour sponsored venture fund governed
under the laws of the Province of Ontario
(hereinafter called "First Ontario")
-and-
BANK OF MONTREAL CAPITAL CORPORATION, a corporation
incorporated under the laws of Canada
(hereinafter called "BMOCC")
WHEREAS the Parent and the Borrower have requested and the Lenders
have agreed to provide the Borrower with a secured term loan credit facilities
in the aggregate principal amount of FOUR MILLION DOLLARS ($4,000,000), which
shall be applied for the purposes set out in Section 6.1(s);
AND WHEREAS the parties hereto desire to set forth the terms and
conditions that shall govern the establishment and continuation of the said
secured term loan;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
covenants and agreements hereinafter set out and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged), it
is agreed by the parties hereto as follows:
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ARTICLE 1. - INTERPRETATION
1.1 Interpretation: In this Agreement, unless there is something in the subject
matter or context inconsistent therewith, the following words and phrases shall
have the following meanings respectively:
(a) "Act" means the Business Corporations Act (Ontario) as in effect on
the date hereof;
(b) "Affiliate" has the meaning given in the Act;
(c) "Approved Forecast" means the budget delivered in accordance with
Section 8.1(n)(iii) as approved and, if applicable, amended by the board of
directors of the Parent;
(d) "Associate" has the meaning given in the Act;
(e) "Borrower" means International Menu Solutions Inc. and its permitted
successors and assigns;
(f) "Business" means the business of developing, marketing, manufacturing
and selling food products;
(g) "Business Day" means any day other than a Saturday, Sunday or a day on
which financial institutions generally are closed for business in Toronto,
Ontario;
(h) "Capital Expenditures" means any expenditures made which, in
accordance with Generally Accepted Accounting Principles, are chargeable to a
capital or a fixed asset account of the Borrower, calculated on a consolidated
basis, and include, without limitation, real estate, Capital Lease Obligations
and expenditures made in connection with the acquisition of fixed assets,
machinery and/or equipment;
(i) "Capital Lease Obligations" means any obligations of the Borrower,
calculated on a consolidated basis, to pay rent or other amounts under a lease
of (or other agreement conveying the right to use) real and/or personal property
which obligations are required to be classified and accounted for as liabilities
on a balance sheet prepared in accordance with Generally Accepted Accounting
Principles;
(j) "Closing Date" means May 10, 1999 or such earlier or later date as the
parties determine;
(k) "Class N Shares" means the Class N shares in the capital of the
Parent;
(l) "Common Shares" means shares of common stock in the capital of the
Parent;
(m) "Conversion" means the conversion of the Promissory Note into
Exchangeable Shares and an equivalent number of Class N Shares whether by Forced
Conversion or at the option of the Lenders in accordance with the terms of the
Note;
(n) "Conversion Price" means $2.62, subject to adjustment from time to
time in accordance with the provisions of the Promissory Note;
(o) "Dollars" or "$" and all statements of or reference to dollar amounts
mean lawful money of Canada, except as otherwise specifically provided;
(p) "EBITDA" means, in respect of any Person and in respect of any fiscal
period, the Consolidated Net Income for such fiscal period plus:
(i) amounts deducted in calculating the Consolidated Net Income in
respect of depreciation and amortization; plus
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(ii) amounts deducted in calculating the Consolidated Net Income in
respect of Interest Expense (net of any interest income in
respect of such fiscal period); plus
(iii) amounts deducted in calculating the Consolidated Net Income in
respect of income taxes, whether or not deferred;
from which total shall be excluded any addition or deduction, as the case may
be, relating to:
(iv) any gain or loss attributable to the sale, conversion or other
disposition of assets other than in the ordinary course of
business; and
(v) any other extraordinary, non-recurring or unusual items,
all of which shall be calculated in accordance with Generally Accepted
Accounting Principles;
(q) "Environmental Laws" means all Laws relating in full or in part to the
protections of the environment, product liability and employee and public health
and safety, and includes, without limitation, those Environmental Laws relating
to the storage, generation, use, handling, manufacture, processing, labelling,
advertising, sale, display, transportation, treatment, release and disposal of
Hazardous Substances;
(r) "Event of Default" has the meaning set out in Article 10 hereof;
(s) "Exchangeable Shares" means the Class X exchangeable shares of the
Borrower which may, by their terms, be converted into Common Shares on a
one-for-one basis;
(t) "Financial Statements" means the audited consolidated financial
statements for the Parent for the fiscal year ended December 31,1998 attached as
Schedule 6.1(i) hereof;
(u) "Forced Conversion" has the meaning set out in Section 4.2 hereof
(v) "Forced Conversion Block" has the meaning set out in Section 4.3;
(w) "Forced Conversion Block Price" means the weighted average trading
price set out in Section 4.3 hereof;
(x) "Funded Debt" of any Person at any particular time means (i) all
indebtedness of such Person for borrowed money; (ii) all indebtedness of such
Person for the deferred purchase price of property or services; (iii) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person; (iv) all Capital Lease Obligations; and (v) all debt referred to in (i)
through (iv) hereof which is directly or indirectly guaranteed by such Person or
which such Person has agreed (contingently or otherwise) with the creditor to
purchase or assume, or in respect of which such Person has otherwise assured a
creditor against loss by means of an indemnity, security or bond;
(y) "Generally Accepted Accounting Principles "or "GAAP" means the
accounting principles set forth in the Handbook of the Canadian Institute of
Chartered Accountants as being generally accepted accounting principles, save
and except that in connection with the Parent, "Generally Accepted Accounting
Principles" means the generally accepted accounting principles applicable in the
United States;
(z) "Governmental Authority" means any government, regulatory authority,
governmental department, agency, commission, board, tribunal, crown corporation
or court or other law, rule or regulation-making entity having or purporting to
have jurisdiction on behalf of any nation, or province or state or other
subdivision thereof or any municipality, district or other subdivision thereof;
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(aa) "Hazardous Substance" means any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance, dangerous
substance or dangerous goods as defined, judicially interpreted or identified in
any Environmental Law;
(bb) "Interest Expense" means, for any period, the aggregate of the
amounts paid or payable by the Borrower during such period on account of
interest for borrowed money, including the interest portion of Capital Lease
Obligations, all as determined in accordance with Generally Accepted Accounting
Principles;
(cc) "Laws" means all applicable laws, by-laws, rules, regulations,
orders, ordinances, protocols, codes, guidelines, policies, notices, directions
and judgments or other legal requirements of any Governmental Authority;
(dd) "Lenders" means, collectively, BMOCC and First Ontario, their
successors and assigns;
(ee) "Lenders' Approval" means, at any time, the written approval of the
Lenders to whom not less than 75% of the outstanding principal of Loan is due at
that time;
(ff) "Lien" means any mortgage, hypothec, title retention, pledge, lien,
charge, security interest, Bank Act (Canada) security, assignment by way of
security, repurchase arrangement, collateral deposit arrangement or other form
of encumbrance whatsoever;
(gg) "Loan" has the meaning set out in Section 2.1 hereof;
(hh) "Loan Agreement" or "Agreement" means this Agreement and all
amendments hereto;
(ii) "Loan Documents" means, collectively, this Agreement, the Promissory
Note, the Security, the Warrants and any and all documents, trust deeds,
intercreditor agreements, certificates and instruments delivered by the Borrower
to the Lenders, whether on, before or after execution hereof, including any and
all amendments, replacements and supplements thereto or thereof made from time
to time;
(jj) "Loan Interest Rate" or "LIR" means seven percent (7%) per annum for
the period ending April 15, 2000 and thirteen percent (13%) per annum
thereafter, calculated in accordance with Section 3.1 hereof;
(kk) "Maturity Date" means April 15, 2003;
(ll) "Non-Arm's Length Person" means a Person who is not at arm's length
(as such term is defined in the Income Tax Act (Canada)) to the Borrower and the
Parent, or either of them;
(mm) "Operating Lease Obligations" means the obligations to pay rent or
other amounts under a lease of (or other agreement conveying the right to use)
personal property or real property, which obligations are not required to be
classified and accounted for as Capital Lease Obligations in accordance with
Generally Accepted Accounting Principles;
(nn) "Parent" means International Menu Solutions Corporation and its
permitted successors and assigns;
(oo) "Permitted Encumbrances" means, collectively:
(i) Liens for taxes, assessments, governmental charges or levies
not at the time due and delinquent in respect of which the
Borrower has set aside on its books reserves considered by the
Lenders, acting reasonably, to be adequate therefor;
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(ii) Liens given to a public utility or any municipality or
governmental or other public authority when required by such
utility or other authority in connection with the operations
of the Business;
(iii) statutory Liens incurred or deposits made in the ordinary
course of business in connection with workers compensation,
unemployment insurance and other types of social security
statutory obligations;
(iv) the exceptions and existing registrations under the Personal
Property Security Act (Ontario), all of which are more
particularly described on Schedule 1.1(oo);
(v) present and future bank operating lines of credit, real estate
construction facilities and term debt and interest thereon and
any and all security granted from time to time in connection
therewith; and (vi) equipment lease financing;
(pp) "Person" includes any individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, body corporate, Governmental Authority, and a natural
person in such person's capacity as trustee, executor, administrator or other
legal representative;
(qq) "Promissory Note" means the promissory note referred to in Section
2.2 in the form attached hereto as Schedule 1.1(qq);
(rr) "Security" means the documents listed in Section 5.1 of this
Agreement and all other documents and instruments provided from time to time by
the Borrower, the Parent and the Subsidiaries as security for the Loan;
(ss) "Senior Debt" at any time means all Funded Debt other than the Loan,
and any other debt which is either (i) unsecured, or (ii) specifically and
validly subordinated in right of collection and payment to the repayment in full
of the Loan pursuant to subordination agreements satisfactory to the Lenders;
(tt) "Subscription Agreements" means the subscription agreements between
each of the Lenders and the Borrower dated the date hereof, pursuant to which
the Warrants are to be issued;
(uu) "Subsidiaries" means, collectively, Prime Foods Processing Inc.,
Transcontinental Gourmet Foods Inc., Norbakco Ltd., Tasty Selections Inc.,
1005549 Ontario Limited and all other Persons in which the Borrower or the
Parent, directly or indirectly, has rights to vote a majority of the shares
required to elect directors or managers of such Person;
(w) "Tangible Net Worth" at any time means the aggregate of the
outstanding principal of the Loan at that time plus the shareholders' equity and
minority interest (as such term is used in a letter dated April 9,1999 from
Deloitte & Touche LLP to the Borrower) less goodwill and other assets normally
regarded as intangible under GAAP;
(ww) "Time of Closing" means 10:00 a.m. (Toronto time) on the Closing
Date;
(xx) "Warrants" means the warrants to acquire Exchangeable Shares and
Class N Shares to be issued to the Lenders pursuant to the Subscription
Agreements; and
(yy) "Y2K Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years
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1999 and 2000), including leap year calculations, and (b) neither the
performance nor the functionality nor the business' provision of the services,
products and other item(s) at issue will be materially affected by any
dates/times prior to, on, after or spanning January 1, 2000. The design of the
services, products and other item(s) at issue to ensure compliance with the
representations and warranties contained in this Agreement includes proper
date/time data century recognition and recognition of 1999 and 2000,
calculations that accommodate single century and multi-century formulae and
date/time values before, on, after and spanning January 1, 2000, and date/time
data interface values that reflect the century, 1999 and 2000.
1.2 Schedules: The Schedules listed below and attached hereto form part of this
Agreement:
Schedule 1.1(oo) - Permitted Encumbrances
Schedule 1.1(qq) - Promissory Note
Schedule 5.1(h) - Steele Undertaking
Schedule 6.1(b) - Shareholders of the Parent and the Subsidiaries
Schedule 6.1(f) - Default
Schedule 6.1(g) - Litigation
Schedule 6.1(i) - Financial Statements
Schedule 6.1(k) - Taxes
Schedule 6.1(l) - Capital Lease Obligations and Conditional Sales Contracts
Schedule 6.1(o) - Leases
Schedule 6.1(p) - Insurance
Schedule 6.1(q) - Guarantees and Indemnities
Schedule 6.1(r) - Outstanding Securities, Options, etc.
Schedule 6.1 (w) - Restrictions on Business
Schedule 6.1 (bb) - Employment and Benefit Contracts
ARTICLE 2.- THE LOAN
2.1 Loan Amount: The Lenders hereby establish in favour of the Borrower a
secured loan in the aggregate principal amount of $4,000,000 (the "Loan"), to be
disbursed as to $1,500,000 by BMOCC and $2,500,000 by First Ontario and to be
available in accordance with and subject to compliance by the Borrower with the
terms of this Agreement. Neither Lender shall have any obligation to advance
more than the amount to be advanced by it as set out in this Section 2.1.
2.2 Advances: On the Closing Date, the Lenders will advance the Loan to the
Borrower subject to compliance by the Borrower and the Parent with the terms of
this Agreement. The resulting indebtedness is to be evidenced by the delivery of
a Promissory Note.
ARTICLE 3.- PAYMENT OF PRINCIPAL AND INTEREST
3.1 Interest Rate: Interest on the Loan, both before and after maturity, default
or judgment and overdue interest, both before and after default or judgment,
shall accrue at the Loan Interest Rate on a daily basis on the principal amount
of the Loan remaining unpaid from time to time and on the basis of the actual
number of days elapsed and on a year of 365 days.
3.2 Interest Payments:
(a) Subject to subsection (b) hereof, interest shall be payable in arrears
on the last Business Day of April, July, October and January in each year on the
outstanding principal indebtedness of the Loan from time to time, on any accrued
interest and on any overdue interest until paid.
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(b) Interest during the first twelve (12) months from the Closing Date
shall accrue and be payable on April 30, 2000, provided that, if the outstanding
principal indebtedness of the Loan is reduced prior to such date upon Conversion
of the Promissory Note, all accrued interest shall be paid on the Conversion.
(c) At the option of the Lenders, upon notice to the Borrower, the whole
or any part of the accrued and unpaid interest on the outstanding principal
indebtedness of the Loan from time to time may be converted into fully paid and
non-assessable Exchangeable Shares at the Conversion Price per share payable
upon Conversion of such accrued and unpaid interest and an equivalent number of
Class N Shares. As soon as practicable and in any event not later than the fifth
(5th) Business Day following the delivery of notice exercising the right of
conversion, the Borrower will mail to the Lender(s) certificates representing
the Exchangeable Shares and Class N Shares so acquired.
3.3 Principal Repayments: The outstanding principal indebtedness of the Loan
together with any other amounts owing to the Lenders pursuant to this Agreement
shall be repaid in full on the earlier of (a) the Maturity Date, and (b) at the
option of the Lenders, upon the occurrence of an Event of Default.
3.4 Place of Payment: Payments of principal or interest under the Loan shall be
made to the Lenders, or as they may otherwise direct, as set forth in Sections
12.3 and 12.4 hereof.
3.5 Maximum Interest Rate:
(a) In the event that any provision of this Agreement would oblige any
person to make any payment of interest or any other payment which is
construed by a court of competent jurisdiction to be interest in an
amount or calculated at a rate which would be prohibited by
applicable law, regulation, order, rule or direction (a "Usury
Restraint) which prohibits or restricts the charging, receipt or
retention of interest or other amounts at the rates and amounts set
forth herein (the "Stated Rate") in excess (the "Excess") of the
maximum rates or amount (the "Maximum Rate") stipulated in the Usury
Restraint, then notwithstanding such provision, such amount or rate
shall be deemed to have been adjusted nunc pro tunc to the Maximum
Rate, such adjustment to be effected, to the extent necessary as
follows:
(i) firstly, by reducing the amount or rate of interest required
to be paid under Section 3.2 of this Agreement; and
(ii) thereafter, by reducing any fees, commissions, premiums and
other amounts which would constitute interest for the purposes
of such Usury Restraint;
(b) If, notwithstanding the provisions of clause (a) of this Section and
after giving effect to all adjustments contemplated thereby, the
Lender shall have received an amount in excess of the Maximum Rate,
then such Excess shall be applied by the Lender to the reduction of
the principal balance of the Loan and not to the payment of interest
or if such excessive interest exceeds such principal balance, such
Excess shall be refunded to the Borrower; and
(c) Any amount or rate of interest referred to in this Section shall be
determined in accordance with Generally Accepted Accounting
Principles at an effective annual rate of interest over the term of
this Agreement on the assumption that any charges, fees or expenses
that fall within the meaning of "interest" (as defined in Usury
Restraint) shall, if they relate to a specific period of time, be
prorated over that period of time and otherwise be prorated over the
terms of this Agreement.
3.6 Effective Rate: The parties acknowledge and agree that the Loan Interest
Rate is intended to be a nominal rate of interest and not an effective rate of
interest. The parties agree that all calculations of the Loan Interest Rate for
the purposes of the Loan shall be made without giving effect in any manner to
the principle of deemed reinvestment of interest.
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ARTICLE 4.- PREPAYMENT AND FORCED CONVERSION
4.1 Prepayment: The Borrower shall have no right to prepay the whole or any part
of the Loan.
4.2 Forced Conversion: On or after July 1,1999, subject to Section 4.4 hereof,
the Borrower has the right to require the Lenders from time to time to convert
the outstanding principal balance of the Loan or any portion thereof exceeding
$600,000 into Exchangeable Shares, together with an equivalent number of Class N
Shares, at the Conversion Price provided that:
(a) the Borrower has provided a notice to the Lenders (the "Forced
Conversion Notice"), which shall stipulate (i) that it wishes to
exercise the right of Forced Conversion set Out in Section 4.1 of
this Loan Agreement, (ii) the amount of the Loan subject to the
Forced Conversion, and (iii) the Borrower's detailed calculation
relating to the trading volumes and share prices as set out in
Subsections 4.2(c) and (d) hereof;
(b) the Common Shares are listed for trading or quoted on The Toronto
Stock Exchange, the New York Stock Exchange, the NASDAQ Large Cap
market or another recognized North American stock exchange
acceptable to the Lenders (the "Principal Exchange");
(c) the cumulative trading volume on the Principal Exchange during the
20 trading days prior to the delivery of the Forced Conversion
Notice is not less than the greater of (i) 300,000 Common Shares, or
(ii) five percent (5%) of the number of issued Common Shares which
are not subject to any escrow agreement or resale restrictions set
out in the Ontario Securities Act;
(d) the weighted average trading price of the Common Shares on the
Principal Exchange during the 20 trading days preceding the date of
the Forced Conversion Notice is not less than 2.0755 times the
Conversion Price at such time; and
(e) the Common Shares into which the Exchangeable Shares and Class N
Shares are convertible are free-trading in the Province of Ontario
and are not subject to any statutory hold or resale restrictions
under the provisions of the Ontario Securities Act.
4.3 Forced Conversion Block: Unless the Lender has advised the Borrower within
10 Business Days of the receipt of the Forced Conversion Notice that it will not
require the Borrower to find a purchaser for that portion of the Promissory Note
stipulated in the Forced Conversion Notice, the Borrower shall be obligated to
find a purchaser for that portion of the Promissory Note evidencing the Loan
that is subject to the Forced Conversion Notice (the "Forced Conversion Block").
Such purchaser shall be required to purchase that portion of the Promissory Note
subject to the Forced Conversion Notice for an amount in cash equal to the
product obtained when the number of Exchangeable Shares receivable by the Lender
upon Conversion is multiplied by 95% of the weighted average trading price set
out in Section 4.2(d) hereof (the "Forced Conversion Block Price"). At the
closing, the Borrower shall or shall, at its option, cause the Purchaser to
deliver to the Lender exercising the Forced Conversion Block a certified cheque
representing the Forced Conversion Block Price and the Lender shall deliver an
assignment of the Promissory Note to the Parent or the purchaser as the Parent
may direct.
4.4 Failure to Find Purchaser: In the event the Parent fails to find a purchaser
as required by Section 4.3 and the transaction of purchase and sale resulting
from the exercise of the Forced Conversion Block is not completed within 30 days
of the delivery of the Forced Conversion Block Notice for cash, the Lender shall
not be required to complete the Forced Conversion and the Borrower may not
reissue a Forced Conversion Notice in accordance with Section 4.2 for 30 days
thereafter.
4.5 Closing of Forced Conversion: Unless the Lender has delivered a Forced
Conversion Block Notice within the time period set out in Section 4.2(d) hereof,
the closing of the Forced Conversion transaction
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contemplated by delivery of the Forced Conversion Notice shall be completed on
the 20th Business Day following delivery of the Forced Conversion Notice.
ARTICLE 5.- SECURITY
5.1 Security for Advance: To secure the due payment of the principal portion of
the Loan, and interest thereon, and all other amounts which the Borrower may be
required to pay hereunder and to secure the due performance of the obligations
of the Borrower hereunder, the following documentation and security granted in
favour of the Lenders shall be delivered:
(a) a Promissory Note to each Lender in the amount of the advance made by
such Lender;
(b) a general security agreement of the Borrower in favour of the Lenders;
(c) a guarantee and general security agreement from the Parent and each of
the Subsidiaries (except Norbakco Ltd.);
(d) a share pledge agreement executed by the Parent in favour of the
Lenders in the form with respect to all of the common shares of the Borrower
owned by the Parent together with a power of attorney to transfer securities;
(e) a mortgage/charge of the premises owned by Prime Food Processing Inc.
located at 620 Colby Drive, Waterloo, Ontario;
(f) a certified copy of fire and all risk insurance policies of the
Borrower and the Subsidiaries in an amount satisfactory to the Lenders, each of
which provides for the Lenders being loss payees as their interests may appear;
(g) an assignment of life insurance on the life of Michael A. Steele in
the amount of $4,000,000; and
(h) an undertaking from Michael A. Steele in favour of the Lenders in
favour of the Lenders in the form attached hereto as Schedule 5.1(h).
5.2 Form of Security: All Security shall be in a form acceptable to the Lenders,
acting reasonably.
5.3 Exception: Notwithstanding anything contained in this Agreement and the
Security, the security interests and charges granted hereunder and thereunder
shall not, and shall not be deemed to, include fixed charges on the collateral
to the extent that such security interests and charges are for the benefit of
First Ontario Fund or any other Person governed by the Community Small Business
Investment Fund Act (Ontario) (formerly, the Labour Sponsored Venture Capital
Corporations Act, 1992 (Ontario)).
5.4 No Prejudice: Nothing contained herein or in any Security, nor any act of
the Lenders (or either of them) with respect to any such Security shall in any
way prejudice or affect the rights, remedies or powers of the Lenders with
respect to any other security at any time held by the Lenders.
5.5 Registration of Security: The Security shall be registered in such
jurisdictions as the Lenders may from time to time require, acting reasonably.
5.6 Supplemental Security: All real or personal property acquired by the
Borrower, the Parent or any Subsidiary thereof on or after the date of execution
of the Security (the "After-Acquired Property") shall be made subject to
security interests of the same nature and rank as real or personal property of a
similar type or nature already subject to the Security and the Borrower, on
request by the Lenders, shall forthwith execute, deliver and register at its own
expense, such instruments supplemental to the Security in form and substance
satisfactory to
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the Lenders as may be necessary or desirable to ensure that, subject to the
Permitted Encumbrances, the Security constitutes in favour of the Lenders an
effective charge over such After-Acquired Property having an identical ranking
to the real or personal property of a similar type or nature already subject to
the Security. For greater certainty, upon the acquisition of all of the
outstanding shares in the capital of Norbakco Ltd. not already owned by the
Borrower, the Borrower shall cause Norbakco Ltd. to forthwith execute, deliver
and register at its expense, instruments identical to the Security granted by
the other Subsidiaries in favour of the Lenders.
5.7 Paramountcy: In the event of any conflict between the provisions of any
Security and the provisions of this Loan Agreement, the provisions of this Loan
Agreement shall be paramount.
ARTICLE 6. - REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties: To induce the Lenders to make the Loan, the
Borrower and the Parent hereby jointly and severally represent and warrant to
and in favour of the Lenders, and acknowledge that the Lenders are relying
thereon, that, as at the Closing Date:
(a) Organization: Subsidiaries: The Borrower and each of the Subsidiaries
is a corporation duly incorporated and validly subsisting under the laws of the
Province of Ontario. The Parent is a corporation duly incorporated and validly
subsisting under the laws of the State of Nevada. The Borrower, the Parent and
the Subsidiaries are duly qualified to carry on the Business and are in good
standing in all material respects under the Laws of each jurisdiction in which
they carry on business. The Parent has no subsidiaries other than the Borrower.
The Borrower has no subsidiaries other than the Subsidiaries.
(b) Authorized and Issued Capital: The authorized capital of the Parent
consists of 25,000,000 Common Shares and 10,000,000 Class N Shares of which
8,223,023 Common Shares and 2,508,837 Class N Shares are issued and outstanding
as at the date hereof. Schedule 6.1(b) attached hereto contains a true and
complete list of all of the holders of Common Shares, together with the number
of Common Shares owned by such Persons. The Parent is the holder of all of the
issued common shares of the Borrower. The authorized capital of the Borrower
consists of an unlimited number of common shares and an unlimited number of
Class A, Class B, Class C, Class D and Class X preference shares. Schedule
6.1(b) lists the number of issued shares of the Borrower, the holders thereof
and the number of shares of each class held by such holders. The Borrower is the
holder of all of the issued shares of each of the Subsidiaries (except for
Norbakco Ltd. in which it holds 59% of the issued shares);
(c) Corporate Authority: The Borrower, the Parent and each of the
Subsidiaries each have the corporate power and authority to carry on the
Business in the manner presently carried on, and each of them has the power and
authority to own its property, to enter into this Agreement, the Subscription
Agreements and the Loan Documents, to provide the Security and do all such acts
and things as are required hereunder or thereunder to be done, preserved or
performed;
(d) Security Authorization: The execution and delivery of this Agreement
and the Loan Documents and the issuance of the Security have been duly
authorized by all necessary action on the part of the Borrower, the Parent and
the Subsidiaries (except for Norbakco Ltd.). This Agreement and the Security
constitute valid and legally binding obligations of the parties delivering same
enforceable against each of them in accordance with their respective terms
(except as the enforceability thereof may be limited by bankruptcy, insolvency
or similar laws affecting creditors' rights generally and general equitable
principles);
(e) Ranking of Security: By virtue of the Security, the Lenders have,
subject only to the Permitted Encumbrances and any exceptions specifically set
out in the Security:
(i) valid fixed and floating specific charges and security
interest in all assets, property and undertaking of the
Borrower, the Parent and the Subsidiaries (except for Norbakco
Ltd.), as the case may be; and
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(ii) a valid ranking pledge of all the issued shares of the
Borrower owned by the Parent.
(f) No Default: Except as described in Schedule 6.1(f), none of the
Borrower, the Parent or any Subsidiary is in default or in breach, in any
material respect, of, or aware of any state of facts which after notice or lapse
of time, or both, would constitute a default or breach, in any material respect,
of their respective obligations to their bankers or any other material contract
or other instrument to which any of them is a party or by which any of them may
be bound, including contracts with any customers
(g) Litigation: Except as described in Schedule 6.1(g), there are no
actions or proceedings pending against the Borrower, the Parent or any of the
Subsidiaries or, to the best of the knowledge of the Borrower, threatened
against or affecting the Borrower, the Parent or any of the Subsidiaries before
any court or administrative agency which could result in a material adverse
change in the Business or condition of the Borrower;
(h) No Conflict: None of the execution and delivery of the Loan Documents,
the consummation of the transactions therein contemplated, compliance with the
terms and provisions of the Loan Documents or the issuance of the Warrants will
conflict with or result in a breach of any of the terms, conditions and
provisions of the articles and other constating documents of the Borrower or the
Parent, or of any law or any regulation or order to which either of the Borrower
or the Parent is subject, or of any agreement to which either of the Borrower or
the Parent is a party or will be a party on the Closing Date or by which either
of the Borrower or the Parent may be bound;
(i) Financial Statements: The Financial Statements present fairly the
financial position of the Parent, on a consolidated basis, as at December 31,
1998 and the results of the operations and changes in financial position of the
Parent, on a consolidated basis, in accordance with Generally Accepted
Accounting Principles. Since December 31, 1998, there has been no material
adverse change in the business operations, affairs or conditions of the Borrower
or the Parent, financial or otherwise, or arising as a result of any legislative
or regulatory change, revocation of any licence or right to do business, fire,
explosion, accident, casualty, labour trouble, flood, drought, riot, storm,
condemnation, act of God or otherwise.
(j) Conduct of Business: The Borrower and the Subsidiaries are conducting
the Business in compliance in all material respects with all Laws. The Borrower
and the Subsidiaries are not in breach of any Laws in any material respect to
the extent that their ability to carry on the Business is impaired or which
affects in any way the value of their properties and assets and are duly
licensed, registered or qualified in the Province of Ontario and in all
jurisdictions in which they own or lease property or carry on business, to
enable the Business to be carried on as now conducted and all property and
assets to be owned, leased and operated, and all such licenses, registrations
and qualifications are valid and subsisting and in good standing, except in
respect of matters which do not and will not result in any material adverse
change to the Business, prospects or condition (financial or otherwise) of the
Borrower and except for the failure to be so qualified or the absence of any
such license, registration or qualification which does not and will not have a
material adverse effect on the Business, assets or properties, results of
operations, prospects or condition (financial or otherwise) of the Parent, on a
consolidated basis;
(k) Taxes: Except as described in Schedule 6.1(k) hereto, none of the
Borrower, the Parent or any of the Subsidiaries is in default in the filing of
any tax returns required to be filed by them and they have paid all taxes which
are due and payable and have paid all assessments and reassessments and all
other taxes, governmental charges, penalties, interests and fines due and
payable by them on or before the date hereof, except those which have been
disclosed in the Financial Statements or to the Lenders and which are currently
being contested in good faith. To the best of the knowledge of the Borrower,
there are no actions, suits, proceedings, investigations or claims now
threatened or pending against the Borrower, the Parent or the Subsidiaries in
respect of taxes, governmental charges or assessments or any matters under
discussion with any Governmental Authority relating to taxes, governmental
charges or assessments asserted by any such Governmental Authority. Each of the
Borrower and the Subsidiaries has withheld from each payment made to any of its
past or present officers, directors and employees, amounts in respect of all
taxes (including, but not limited to, income tax), and other
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deductions required to be withheld therefrom and has paid the same to the proper
tax or other receiving officers within the time required under any Laws; and,
except for taxes contested in good faith, has set up, or caused to be set up, an
adequate reserve for the payment of all taxes required to be paid in respect of
the period covered by such returns and has paid all instalments of income taxes
when due;
(l) Outstanding Obligations: Except as described in Schedule 6.1(l) hereto
and except for leases of real property, equipment leases and automobile leases,
there are no bonds, purchase money mortgages, debentures, security agreements,
promissory notes, Capital Lease Obligations, conditional sales contracts or
other evidences of secured indebtedness outstanding affecting the Business or
the property or assets of the Borrower or the Subsidiaries;
(m) Title to Assets: The Borrower, the Parent and the Subsidiaries own,
possess and have good and marketable title to their respective undertaking,
property and assets, free and clear of any and all Liens, claims or demands of
any nature howsoever arising, except for the Permitted Encumbrances;
(n) Leased Property: Except for the leases described on Schedule 6.1(o)
hereto, none of the Borrower, the Parent or the Subsidiaries is a party to or is
bound by any lease or agreement in the nature of a lease or providing for an
Operating Lease Obligation, whether as lessor or lessee in which annual rental
exceeds $25,000.00. Each lease described on Schedule 6.1(o) is in good standing
and in full force and effect without amendment thereto. None of the Borrower,
the Parent or the Subsidiaries is in breach of any of the material covenants,
conditions or agreements contained in each such leases. Except as noted on
Schedule 6.1(o), the entering into of this Loan Agreement, the granting of the
Security and the performance of the obligations hereunder and thereunder will
not result in the violation of any of the terms of such leases and agreements;
(o) Real Property: Except as set out on Schedule 6.1(o), none of the
Borrower, the Parent or the Subsidiaries has entered into or is bound by any
agreement to acquire real property. The uses to which the real property subject
to the lease(s) and the real property owned by the Borrower, the Parent and the
Subsidiaries, each as described on Schedule 6.1(o), have been put are not in
breach, in any material respect, of any statutes, by-laws, zoning by-laws,
ordinances, regulations, covenants, restrictions or official plans, other than
minor variances or breaches of which the Borrower is not aware and which do not
materially affect the conduct of the Business. The Borrower, the Parent and the
Subsidiaries are not currently under notice from any Governmental Authority or
any landlord in respect of any such breaches or breaches of the leases. To the
best knowledge of the Borrower and the Parent, there are no outstanding work
orders relating to the properties owned by the Borrower, the Parent and the
Subsidiaries or the properties subject to the leases or agreements described on
Schedule 6.1(o) hereto from or required by any police or fire department,
sanitation, health, environmental or factory authorities or from any other
federal, provincial or municipal authority or any matters under discussion with
any such departmental authorities relating to work orders and none of the
Borrower, the Parent or the Subsidiaries have received notice of any such work
orders;
(p) Insurance: The property and undertaking of the Subsidiaries is insured
against loss or damage and attached hereto as Schedule 6.1(p) is a true and
complete schedule setting out particulars of all such insurance policies. None
of the Borrower nor any of the Subsidiaries is in default, in any material
respect, with respect to any of the provisions contained in any such insurance
policy nor have any of them failed to give any notice or present any claim under
any insurance policy in due and timely fashion;
(q) Guarantees: Except as listed on Schedule 6.1(q) and the obligations of
the Parent with respect to the Exchangeable Shares, none of the Borrower, the
Parent or the Subsidiaries is a party to or bound by any agreement of guarantee,
indemnification, assumption, endorsement or any other like commitment of the
obligations, liabilities (contingent or otherwise) or indebtedness of any other
Person;
(r) Outstanding Securities: Except as listed on Schedule 6.1(r), no Person
has any agreement or option or any right or privilege (whether by law,
pre-emptive or contractual), capable of becoming an agreement, including
convertible securities, warrants or convertible obligations of any nature, for
the purchase of any properties
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or assets of the Borrower, the Parent or the Subsidiaries (except sales of
inventory in the ordinary course of business) or for the purchase, subscription,
allotment or issuance of any of the unissued shares in the capital of the
Borrower, the Parent or the Subsidiaries;
(s) Loan Proceeds: The proceeds of Loan shall be used for capital
expenditures, working capital and general corporate purposes. For greater
certainty, no funds provided by First Ontario Fund will be utilized for
acquisitions and the Borrower will provide detailed transaction registers to
First Ontario Fund in such form as is reasonably required to permit First
Ontario Fund to satisfy its regulatory requirements.
(t) Affiliates: The Parent is not an Affiliate or Associate of any other
Person other than Michael A. Steele, the Subsidiaries and the Borrower;
(u) Material Facts: All information furnished in writing by the Parent or
the Borrower to the Lenders for the purposes of or in connection with this
Agreement or any transaction contemplated hereby did not as at the date it was
so furnished (and, except as superceded by other information furnished by them
to the Lenders, does not), and all such information hereafter furnished in
writing by them to the Lenders will not as at the date it is furnished, contain
any inaccurate statement of a material fact;
(v) Assets in Good Condition: All of the assets and properties of the
Borrower and the Subsidiaries that are necessary for the operation of the
Business are in good working condition, consistent with prudent business
practice and industry standards, ordinary wear and tear excepted, and are able
to serve the function for which they are currently being used and are subject to
the Security. There are no tangible assets, including real or personal property,
necessary for or to the on-going operation of the Business which are not owned
by the Borrower (or leased as set out on Schedule 6.1(o)) and charged pursuant
to the Security;
(w) No Restrictions on Business: Except for the contracts described on
Schedule 6.1 (w), none of the Borrower, the Parent or the Subsidiaries is a
party to and no property of any of them is subject to or bound by any exclusive
purchase contract, futures contract, covenant not to compete, take or pay or
other agreement which restricts its ability to conduct its business and which is
having or may reasonably be expected to have a material adverse effect on the
Business;
(x) Business: Each of the Borrower and the Subsidiaries:
(i) is a taxable Canadian corporation within the meaning of the
Income Tax Act (Canada), and
(ii) carries on no business other than the Business;
(y) Asset Mix: Not less than 90% of the fair market value of the property
of the Borrower and the Subsidiaries is attributable to property used in the
Business;
(z) Employees: Immediately prior to the Closing Date, the Borrower, the
Subsidiaries and all corporations related to them together have fewer than 500
full time employees and the ordinary place of employment for 50% or more of such
full time employees is located in the Province of Ontario and the wages and
salaries payable to the employees whose ordinary place of employment is located
in the Province of Ontario constitutes 50% or more of the total payroll expense
of the Borrower.
(aa) Asset Value: Immediately prior to the Closing Date, the carrying
value of the assets of the Borrower and all corporations related to it
(determined in accordance with General Accepted Accounting Principles) does not
exceed $50,000,000;
(bb) Compliance with Employee Obligations: Each of the Borrower, the
Parent and the Subsidiaries is in compliance, in all material respects, with all
obligations relating to any pension plan, employee benefit or
18
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collective or other agreement relating to present or former employees. There are
presently no strikes, slowdowns or work stoppages nor has any notice been
received with respect to any potential strikes, slowdowns or work stoppages.
There are no pension plans, employee benefit plans, collective agreements or
written contracts of employment or severance entered into by any of them or with
respect to which any of them are bound other than those summarized on Schedule
6.1(bb) hereof;
(cc) Employment Agreements: The employment agreement containing
confidential disclosure and non-competition covenants, between the Borrower and
each of Michael A. Steele, Ian Hamilton, Jim Guinard, Victor Fradkin, Theodore
Greatros, Larry Hoffman, Biago Fusco and Allan Greenspoon are in good standing
and are in full force and effect as at the date hereof;
(dd) Y2K Compliance: The computer systems and other equipment containing
embedded microchips. which employ, store, exchange or process date/time
information, in either case owned or operated by the Borrower or the
Subsidiaries or used in the conduct of the Business, and the Borrowers and the
Subsidiaries' products and services are Y2K Compliant; and
(ee) No Hazardous Substances: No claims, demands, liabilities,
investigations, litigation, administrative proceedings, whether pending or
threatened, or judgments or orders relating to any Environmental Laws, including
any law relating to Hazardous Substances, have been asserted or, to the best of
the knowledge of the Borrower, threatened against the Borrower or the
Subsidiaries or in relation to any of their property, currently or formerly
owned, leased or operated. The Borrower and the Subsidiaries currently operate
the Business in compliance in all material respects with all such Environmental
Laws; and no Hazardous Substances (including asbestos and urea formaldehyde
foam) are or have been stored by the Borrower or any of the Subsidiaries or were
otherwise located by it in violation of any Environmental Law and, to the best
of the knowledge of the Borrower, no underground storage tanks were located by
it on any real property owned or leased by them and no part of any real property
or groundwater in, on or under such property is presently contaminated by any
Hazardous Substances or materials caused by it. To the best of the knowledge of
the Borrower, no Hazardous Substances were stored or located in violation of any
Environmental Law and no underground storage tanks were located on any real
property currently leased or used by the Borrower or any of the Subsidiaries and
no part of any real property or groundwater in, on or under such property, or to
the best of the Borrowers knowledge, any property adjacent to its property, is
presently contaminated by any Hazardous Substances. The Borrower and the
Subsidiaries have and maintain all material permits, licences, authorizations
and other documentation required by all applicable Environmental Laws required
to carry on the Business.
6.2 Update of Representations and Warranties: Each of the representations and
warranties contained in Section 6.1 shall survive the closing of this Agreement
until repayment in full or Conversion of the Loan in its entirety.
ARTICLE 7.- CONDITIONS OF CLOSING
7.1 Closing Conditions: The advance of the Loan shall take place on the Closing
Date at the offices of Messrs. Fogler, Rubinoff, upon delivery of the documents
set out below and the fulfilment of the following conditions:
(a) Security: The Loan Documents and the Security referred to in Section
5.1 hereof shall have been duly authorized, executed and delivered to the
Lenders and registered wheresoever reasonably required to protect and preserve
the charges contained therein and registration particulars shall have been
provided to counsel for the Lenders;
(b) Corporate Proceedings: Certified copies of all proceedings by the
directors and, if applicable, by the shareholders of the Borrower, the Parent
and the Subsidiaries (except for Norbakco Ltd.) where required, necessary to
authorize the execution and delivery of this Agreement, the Security and the
Subscription Agreement and performance of their respective provisions shall have
been executed and delivered to the Lenders;
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(c) Constating Documents: Certified copies of all articles and by-laws of
the Borrower, the Parent and the Subsidiaries shall have been executed and
delivered to the Lenders;
(d) Employment Contracts: Copies of all Employment Agreements referred to
in Section 6.1 (cc) shall have been delivered to the Lenders.
(e) Opinions of Counsel: A corporate opinion from Messrs. McCarter Grespan
Robson Beynon and an opinion from U.S. counsel for the Parent, each in a form
acceptable to the Lenders, shall have been executed and delivered to the
Lenders;
(f) Subscription Agreements: The Subscription Agreements shall have been
executed and delivered by the Borrower and the Warrants shall have been issued
to the Lenders;
(g) No Change to Representations and Warranties: The representations and
warranties of the parties set forth in Section 6.1 hereof shall be true and
correct as of the Closing Date and on such date no Event of Default and no
condition, event or act which, with the giving of notice or the lapse of time,
or both, would constitute an Event of Default, shall have occurred and be
continuing or shall exist and the Borrower shall have provided a bring-down
certificate to such effect in a form satisfactory to the Lenders;
(h) Compliance with Agreement: The Borrower and the Parent shall be in
compliance with all of the terms, covenants and conditions of this Agreement
which are binding upon them;
(i) Litigation: Except as set out in Schedule 6.1(g), there shall be no
action or proceeding or investigation pending or threatened against the
Borrower, the Parent or the Subsidiaries which would, if successful, result in
the payment of more than $50,000.00 or have a material adverse effect upon the
ability of any of the parties to perform their respective obligations under this
Agreement;
(j) No Substantial Damage: There shall have been no substantial damage by
fire or other hazard to the property or assets of the Borrower or the
Subsidiaries prior to the Closing Date;
(k) No Material Adverse Change: There shall have been no material adverse
change in the affairs, assets, liabilities, financial condition or prospects of
the Business or of the Borrower, the Parent or the Subsidiaries, in the sole
determination of the Lenders, acting reasonably (but which, in any event, will
have a financial impact of $100,000.00 or greater);
(l) Governmental Approvals: Any and all government and/or regulatory
approvals shall have been obtained, if necessary, to the execution of this
Agreement and the Security and satisfactory evidence of same delivered to the
Lenders for review and approval;
(m) Insurance: The Lenders shall have received:
(i) a certified copy of the insurance policies required to be
maintained pursuant to this Agreement on all assets of the
Borrower and the Subsidiaries with the Lenders named thereon
as a loss payee as their interests may appear; and
(ii) a certified copy of the life insurance policy owned by the
Borrower on the life of Michael A.Steele, which shall have
been assigned to the Lenders in accordance with the provisions
hereof;
(n) Equity: The Borrower or the Parent shall have raised equity of not
less than $4,000,000 on terms satisfactory to the Lenders, acting reasonably;
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(o) Acquisitions: The Borrower has completed or will concurrently with the
closing of this transaction complete the acquisition of 1005549 Ontario Limited
on terms substantially the same as the letter of intent provided to the Lenders;
and
(p) The Financial Statements shall have been delivered and are
satisfactory to the Lenders.
7.2 Material Inaccuracy: If at any time prior to the Closing Date or the date of
any subsequent advance, the Lenders or their professional advisors shall have
been apprised of or shall have determined on their own behalf that there was a
material inaccuracy as at the date given in written information given by the
Borrower, or other persons acting for or on behalf of the Borrower, to the
Lenders or others on their behalf concerning the Borrower or the Business, the
Lenders, acting reasonably, may terminate this Agreement by written notice to
the Borrower, and all monies advanced hereunder, if any, prior to that time
shall be repayable forthwith and the Borrower shall be required to pay all
reasonable legal fees incurred by the Lenders until the date of termination
7.3 Waiver of Conditions: The conditions contained in Sections 7.1 hereof may be
waived, either in whole or in part, by the Lenders.
ARTICLE 8. - COVENANTS
8.1 Positive Covenants: The Borrower and the Parent hereby jointly and severally
covenant and agree that until repayment or Conversion of the Loan in its
entirety, the Borrower and the Parent shall, and shall where applicable cause
the Subsidiaries to, unless the Lenders' Approval is first obtained:
(a) Payment: punctually make or cause to be made all payments pursuant to
Article 3 hereof and all other sums required to be paid by them hereunder, on
the dates, at the places and in the manner mentioned herein
(b) Business Licences: do or cause to be done all things necessary to keep
in full force and effect all contracts, rights, franchises, leases, licenses and
qualifications reasonably required for the Borrower and each of the Subsidiaries
to carry on the Business in each jurisdiction in which they carry on business or
own property and maintain their status as a taxable Canadian corporations;
(c) Comply with Security: Comply at all times with all of the terms,
provisions and obligations of the Loan Documents;
(d) Comply with Operating Agreements: Comply, in all material respects,
with all of the terms, provisions and obligations contained in all the
Borrower's and the Subsidiaries' lending arrangements and the Capital Lease
Obligations;
(e) Maintain Authority Continue to have good right and lawful authority to
mortgage and charge their respective undertaking, properties, rights and assets
as provided in and by this Agreement and the Security,
(f) Business Operations: Carry on no business other than the Business and
conduct the Business (including the use of commercially reasonable efforts for
the collection of accounts receivable on a timely basis) in a proper and
efficient manner and keep or cause to be kept proper books of record and account
and make or cause to be made therein entries properly recording all dealings and
transactions in relation to their business all in accordance with Generally
Accepted Accounting Principles, and at all reasonable times furnish or cause to
be furnished to the Lenders or their duly authorized agents or attorneys such
information relating to the Business as the Lenders may reasonably require;
(g) Taxes: Pay or cause to be paid all rents, taxes, tax instalments,
rates, levies or assessments, ordinary or extraordinary, government fees, dues
or other obligations to pay money validly levied, assessed or imposed upon the
Borrower, the Parent and the Subsidiaries or upon their respective undertaking,
property and
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assets or any part thereof as and when the same become due and payable, save and
except when and so long as the validity of any such rents, taxes, rates, levies,
assessments, fees, dues or obligations to pay is in good faith contested by the
Borrower, provided that in such case the Borrower shall satisfy the Lenders,
and, if reasonably required, furnish security satisfactory to the Lenders, that
any such contestation will involve no forfeiture of any material part of the
property or assets of the Borrower, the Parent or the Subsidiaries, and exhibit
to the Lenders, when required, the receipts and vouchers establishing such
payment and duly observe and conform to all requirements of any Governmental
Authority relative to any of their undertaking, property and assets and all
covenants, terms and conditions upon or under which any of their undertaking,
property and assets are held;
(h) Maintain Security: Fully and effectually maintain and keep maintained
the Security as valid and effective security at all times and, if requested to
do so by the Lenders, promptly execute or cause to be executed any and all
documents which the Lenders, in their sole discretion, acting reasonably, deem
necessary and advisable for the purposes of establishing, perfecting or
maintaining the security granted by the Loan Documents;
(i) Further Assurances: At any and all times, at its cost, do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged and
delivered all and every such further acts, deeds, conveyances, mortgages,
transfers and assurances in law as the Lenders shall reasonably require, for the
purpose of giving the Lenders a valid mortgage, hypothec, charge or security as
contemplated by the Security upon all property of the Borrower, the Parent and
the Subsidiaries and for the better assuring, conveying, mortgaging,
hypothecating, assigning, confirming, pledging, charging, ceding and
transferring unto the Lenders the property charged by the Security, or intended
so to be or which the Borrower, the Parent or the Subsidiaries may hereafter
become bound to mortgage, pledge or charge, or cede and transfer, in favour of
the Lenders. In accordance with the Powers of Attorney Act (Ontario), each of
the Borrower and the Parent hereby irrevocably appoints each of the Lenders its
attorney in fact to do all such acts and things to give effect to the provisions
of this paragraph with full power of substitution in the premises, and each of
the Borrower and the Parent agree to ratify and confirm all acts of the said
attorneys lawfully done in the premises;
(j) To Register: Unless waived by Lenders' counsel from time to time,
register or cause to be registered the security constituted by the Security
without delay at every office where the registration or record thereof may, in
the opinion of counsel to the Lenders, from time to time, be of material
advantage in preserving and protecting the security intended to be created by
the Security and it will deliver or exhibit to the Lenders, on demand,
certificates or registered duplicate instruments establishing such registration,
and renew the same from time to time as may be required by law;
(k) Lenders Entitled to Perform Covenants: If the Borrower, the Parent or
any of the Subsidiaries shall fail to perform any covenant on their part herein
contained, the Lenders may, in their discretion, perform any of the said
covenants capable of being performed by them and, if any such covenant requires
the payment or expenditure of money, they may make such payments or expenditures
with their own funds, or with money borrowed by or advanced to them for such
purpose, but shall be under no obligation so to do; and all reasonable sums so
expended or advanced shall be at once payable by the Borrower on demand and
shall bear interest at the Loan Interest Rate until paid and shall be payable
out of any funds coming into the possession of the Lenders and shall form part
of the obligations hereunder but no such performance or payment shall be deemed
to relieve the Borrower from any default hereunder
(l) To Cooperate in the Event of Default: After the security created by
the Security shall have become enforceable and the Lenders shall have determined
to enforce the same, the Borrower will, from time to time, execute and do all
such assurances and things as the Lenders may reasonably require for
facilitating the realization of the property and assets of the Borrower, the
Parent and the Subsidiaries and for exercising all the powers, authorities and
discretions hereby or by the Security conferred upon the Lenders and for
confirming to any purchaser of any of such property and assets whether sold by
the Lenders pursuant to the Security or by judicial proceedings, the title to
the property so sold, and the Borrower, the Parent and the Subsidiaries will
give all notices and directions as the Lenders may consider expedient;
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(m) Obtain Discharge: Obtain and register discharges of all security
granted to third parties other than the Lenders and to lessors under Capital
Lease Obligations and the Permitted Encumbrances as soon as possible after the
obligations secured by such security are discharged and, in any event, no later
than three (3) months following the payment in full of all amounts owing
pursuant to such Capital Lease Obligations and the Permitted Encumbrances;
(n) Financial Statements: Furnish to the Lenders:
(i) Monthly Statements - as soon as possible and, in any event,
within twenty-five (25) days after the end of each month, a
monthly financial report consisting of: (A) monthly financial
statements of the Parent, consisting of a consolidated balance
sheet, a statement of retained earnings, a consolidating
statement of income (including sales and margin by business
unit, and reasonable detail on SG&A expenses) and a statement
of changes in financial position on a consolidated basis in
each case with comparison to the most recent Approved Forecast
and to the same period for the prior year; (B) a capital
expenditure summary indicating period expenditures and
year-to-date totals; (C) management's analysis and discussion
of results and comments on variances from budget; (D) a sales
report highlighting customers and prospects, units sold in the
previous quarter, anticipated sales in the upcoming quarter,
potential annualized sales and other pertinent information;
and (E) a certificate detailing the calculation of all senior
lender financial covenants and all financial covenants under
this Agreement and a certificate of compliance with respect to
all banking and Capital Lease Obligations signed by the
President and Chief Financial Officer;
(ii) Audited statements - as soon as practicable and, in any event,
within one hundred and twenty (120) days after the end of each
fiscal year of the Parent, (i) the audited consolidated
financial statements of the Parent, consisting of a balance
sheet, a statement of retained earnings, a statement of income
and a statement of changes in financial position as at the end
of and for the period commencing with the end of the previous
fiscal year and ending with the end of the current fiscal
year, setting forth, in each case, in comparative form, the
figures for the previous fiscal year; and (ii) the auditors'
management letter;
(iii) Business plan and budget - as soon as practicable and, in any
event, not later than thirty (30) days prior to the end of
each fiscal year, a business plan and a capital and operating
budget for each of the twelve (12) months in the forthcoming
fiscal year with respect to the: (A) balance sheet; (B)
statement of earnings, which shall include details of all
management salaries and bonuses together with such other
information as may be reasonably requested by the Lenders; (C)
statement of changes in financial position; and (D) planned
Capital Expenditures, all of which shall be submitted to the
Parent's board of directors for approval;
(iv) Trading information - not later than thirty (30) days prior to
the end of each fiscal quarter, a statement of daily trading
volumes of the Common Shares of any public market on which
they are then traded, the weighted average trading price for
each month in the quarter and a calculation of the number of
issued Common Shares not subject to any escrow or resale
restrictions (exclusive of rights of first refusal in favour
of the Borrower), all as certified by a senior officer of the
Borrower and, if requested from time to time by either of the
Lenders, details supporting the calculations contained in such
report; and
(v) Other information - such other information respecting the
affairs and property of the Borrower, the Subsidiaries and the
Business as may reasonably be requested by either of the
Lenders;
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(o) Leases: Pay all rents and do, observe and perform in all material
respects all other obligations and all matters and things that are necessary or
expedient to be done, observed or performed under or by virtue of any lease or
licence forming part of the assets, property, undertaking of the Borrower,
including all leases described in Schedule 6.1(o) hereof;
(p) Corporate Existence: At all times maintain their corporate existence
and diligently preserve all of the rights, powers, privileges and goodwill owned
by them;
(q) Inspections: Permit the authorized agents of the Lenders to inspect
from time to time their contracts, facilities, property, plant, books and
records at all times upon reasonable notice whether or not such times are during
normal business hours so as not to unduly interfere with the Business;
(r) Insurance: Insure and keep insured with insurers acceptable to the
Lenders, acting reasonably, all buildings, plant, structures, machinery,
equipment, apparatus, materials and supplies of the Borrower and the
Subsidiaries as are customarily insured by companies operating or owning similar
properties against loss or damage by such perils as are customarily insured
against by companies carrying on a similar business or operating or owning
similar properties and maintain fire and extended coverage, third party
liability, and business interruption insurance in amounts satisfactory to the
Lenders; in respect to all such policies the Lenders shall be named as loss
payees as their respective interests may appear; on a timely basis pay all
premiums and all other sums of money payable for maintaining such insurance and
give to the Lenders evidence of such insurance, deliver an acknowledgement from
the insurer that such policies may not be terminated or cancelled without at
least thirty (30) days' prior notice to each of the Lenders; provided that, if
premiums on the insurance required to be maintained pursuant to this Agreement
are not paid, then such premiums may be paid by the Lenders and treated in all
respects as part of the principal monies secured by the Loan and shall bear
interest at the Loan Interest Rate; to complete all proof of loss forms in
connection with any loss in such manner and at such time or times as the Lenders
requires; and, upon request of the Lenders, the Borrower will have its insurance
arrangements reviewed by an insurance professional satisfactory to the Lenders,
acting reasonably, and will modify coverages to the extent subsequently
requested by the Lenders, acting reasonably;
(s) Life Insurance: Maintain in good standing life insurance on the life
of Michael A. Steele with an insurer acceptable to the Lenders, acting
reasonably, in an amount of not less than $4,000,000, with the Lenders being
named as loss payees thereon;
(t) Repair: Maintain and keep all property and assets owned or held under
lease by the Borrower in good repair, working order and condition, reasonable
wear and tear excepted, and from time to time make all needed repairs, renewals
and replacements, and warrants to defend the same against all claims to preserve
the Security, continue to own, and continue to be lawfully in possession of or
have a right of possession to all of its property and assets from time to time
and continue to have good, right and lawful authority to mortgage, pledge and
charge its property and assets as provided for herein;
(u) Government Approvals: Comply with all applicable Laws which are
material to the Business and obtain and maintain in good standing all leases,
licenses, permits and approvals from any and all Governmental Authorities
required from time to time with respect to carrying on the Business;
(v) Default: Notify the Lenders immediately by telephone, and within five
(5) Business Days thereof in writing, upon obtaining knowledge of:
(i) any Event of Default hereunder; or
(ii) any event which but for notice or lapse of time or both would
be an Event of Default hereunder;
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(w) Litigation: Give to the Lenders notice, including reasonable
particulars, of any action, suit or proceedings, to the knowledge of the
Borrower, pending or threatened against or affecting the Borrower or any of the
Subsidiaries before any court or before any governmental department, commission
or agency, or any arbitrator, in Canada or elsewhere, which:
(i) could involve a claim for money damages exceeding $25,000.00
(excluding any portion of such claim the payment of which
would be covered by any insurance policy then in effect); or
(ii) could result in any material adverse changes in the Business,
or the operation, prospects or assets or in the condition,
financial or otherwise, of the Borrower, on a consolidated
basis;
(x) Use of Proceeds: Use the proceeds of each advance of the Loan
exclusively for the purposes set out in Section 6.1(s);
(y) Environmental Claims: Notify the Lenders as soon as practicable and in
any event within five (5) days of receipt of any notice in connection therewith,
if the Borrower or any of the Subsidiaries
(i) receives notice of any violation or potential violation of any
Environmental Laws which may have occurred or been committed
or is about to occur or be committed;
(ii) receives notice that any administrative or judicial complaint
or order has been issued or filed or is about to be issued or
filed against the Borrower or any of the Subsidiaries,
alleging violations of any Environmental Laws or requiring the
taking of any action in connection with any Hazardous
Substance;
(iii) learns of the enactment of any Environmental Laws or the
issuance of any environmental orders which may have a material
adverse effect on the Business; or
(iv) knows of or have a reasonable suspicion that any Hazardous
Substance has been brought onto any part of the premises
occupied by the Borrower or any of the subsidiaries for that
there is any actual, threatened or potential release of any
Hazardous Substance on, from, in or under any part of such
premises;
(z) Observer Status: Permit a representative of each of the Lenders to
attend all board of directors meetings of the Parent and the Borrower, appoint
one representative of the Lenders to the board of the Borrower and solicit
proxies for the election of one nominee of the Lenders as a member of the board
of directors of the Parent each year; appoint one such nominee to the board of
the Parent at the next directors meeting of the Parent.
(aa) Independent Director: Appoint and maintain an independent director
satisfactory to the Lenders to the board of directors of the Parent within six
months and propose such director for the board of the Parent at the earliest
possible time.
(bb) Board Meetings: Hold meetings of the board of directors of the
Parent, on not less than five (5) Business Days' notice, at least once in every
calendar quarter. Notice of a directors meetings should specifically contain a
statement as to the business proposed to be transacted at such meeting. The
directors shall be sent copies of all minutes of all meetings of directors and
of all resolutions passed by the directors on or before the earlier of (i)
thirty (30) days following the holding of such meeting or passage of such
resolution, and (ii) the next meeting of directors;
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(cc) Financing Arrangements: Notify the Lenders as soon as practicable of
any financing arrangements contemplated for the Borrower or any of the
Subsidiaries and of any material amendments to those currently in place and
provide the Lenders with copies of all documents in connection therewith;
(dd) Notification: Notify First Ontario if either of the following are no
longer true:
(i) the Borrower and all corporations related to it have fewer
than 501 full time employees and the ordinary place of
employment for 50% or more of such full time employees is
located in the Province of Ontario and the wages and salaries
payable to the employees whose ordinary place of employment is
located in the Province of Ontario constitutes 50% or more of
the total payroll expense of the Borrower; and
(ii) the carrying value of the assets of the Borrower and all
corporations related to it (determined in accordance with
generally accepted accounting principles) does not exceed
$50,000,000;
(ee) Asset Mix: Ensure that not less than 90% of the fair market value of
the property of the Borrower is attributable to property used by the Borrower in
the Business;
(ff) Listing: The Common Shares shall continue to be listed on the NASDAQ
Bulletin Board or a and shall comply with all legal and regulatory requirements
to maintain such listing;
(gg) Tangible Net Worth: Measured at the end of each fiscal quarter
commencing the quarter ending December 31, 1999, on a consolidated basis, the
Parent shall have a Tangible Net Worth of:
(i) $8,400,000 for each fiscal quarter to and including the fiscal
quarter ending December 31, 2000; and
(ii) $10,900,000 at the end of each fiscal quarter thereafter;
(hh) Funded Debt/EBITDA: Measured at the end of each fiscal quarter
commencing December 31, 1999, on a consolidated basis, the Parent shall maintain
a ratio of Funded Debt to EBITDA of not more than:
(i) 3.3: 1 for each fiscal quarter to and including the fiscal
quarter ending December 31, 2000; and
(ii) 2.0: 1 for each fiscal quarter thereafter; and
(ii) Senior Debt/Tangible Net Worth: Measured at the end of each fiscal
quarter commencing December 31, 1999, on a consolidated basis, the Parent shall
maintain a ratio of Senior Debt to the sum of Tangible Net Worth plus the
principal amount of the Loan remaining outstanding at the time of no more than
1: 1 for each fiscal quarter.
8.2 Negative Covenants: The Borrower and the Parent hereby jointly and severally
covenant and agree that so long as any portion of the Loan shall be outstanding
and neither of the Borrower, the Parent or any of the Subsidiaries shall not,
unless Lenders' Approval is first obtained:
(a) Reorganization: Enter into any transaction (whether by way of
reconstruction, reorganization, consolidation, amalgamation, merger, transfer,
sale, lease or otherwise) whereby all or substantially all of the undertaking,
property and assets of the Borrower, the Parent or any of the Subsidiaries would
become the property:
(i) in the case of an amalgamation, of a continuing corporation
resulting therefrom; or
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(ii) in any other case, of any Person other than the Borrower;
(b) Dissolution: Take or institute any proceedings for the winding-up,
reorganization or dissolution of the Borrower or the Parent;
(c) Articles of Amendment: Effect any change to the articles or by-laws of
the Borrower or the Parent, except in connection with any acquisition or other
transaction permitted or approved in accordance with the terms hereof, and
approved by the Board of Directors of the Borrower and/or the Parent and in
accordance with all applicable laws;
(d) Fiscal Year: Change its fiscal year end;
(e) Change of Name: Change its name, with respect to which the Lenders
shall not unreasonably withhold their consent;
(f) Business Plan: Amend or deviate in any material manner from, as
applicable, the current or then current business plan and Capital Expenditure
budget approved by the Lenders;
(g) Management Salaries: Pay monthly aggregate management compensation,
including all salaries, bonuses, commission and other compensation of any kind
whatsoever (excluding dividends and normal benefits), to Michael A. Steele or
any Persons related to him in any fiscal year except as set out in his
employment agreement with the Parent dated as of August 1, 1998, a copy of which
has been provided to the Lenders.
(h) Employee Plans: Authorize any stock option plan, profit sharing plan
or similar plan or the payment of any management, consulting fees or salaries or
the entering into of any management, employment or consulting agreement, other
than those currently in place or permitted hereunder;
(i) Distributions: Make distributions or loans to shareholders, officers
or directors of the Parent or payments to purchase, redeem, retract, acquire or
retire shares including any shares of the Borrower or the Subsidiaries or
expenditures for the benefit of any shareholder of the Borrower, the Parent or
any of the Subsidiaries or any of their Affiliates or Associates or by way of
management bonuses not otherwise permitted under this Agreement, or by repayment
of shareholders' loans not otherwise permitted under this Agreement or the
Security or otherwise), except as herein provided or permitted, or make any
change in its authorized capital stock;
(j) Liens: Except as permitted herein, create, issue, incur or suffer to
exist any Lien on all or any part of the property, assets or undertaking of the
Borrower, ranking pari passu with or senior to the Security other than Permitted
Encumbrances, nor dispose of all or any material part of the assets subject to
the Security, out of the ordinary course of business;
(k) Loans: Except as specifically permitted herein, lend money to or
invest money in any Person, whether by loan, acquisition of shares, acquisition
of debt obligations, incorporation or in any other manner whatsoever or
guarantee, endorse or otherwise become surety for or upon the obligations of
others except by endorsement of negotiable instruments for deposit or collection
in the ordinary course of the Business;
(l) Disposal of Assets: Except as permitted herein, attempt to sell or
sell or otherwise dispose of out of the ordinary course of business all or
substantially all or any material portion of the property necessary to conduct
the Business, assets or undertaking of the Borrower by conveyance, transfer or
lease or sale in bulk;
(m) Capital Expenditures: Incur or make commitments to incur Capital
Expenditures in any fiscal year in excess of $5,000,000 on or before December
31, 1999 and $500,000 in each year thereafter, either individually or in the
aggregate;
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(n) Expansion: Carry on any business other than the Business, reasonable
expansions thereof within North America, and directly related businesses or
change in any material manner, the nature of the Business, in each case;
(o) Non-Arm's Length Transactions: Make any loan to, or enter into any
contracts or other arrangements (written or oral) material to its business or
operations with, any of the officers, directors or shareholders of the Borrower,
the Parent or any of the Subsidiaries, any member of their immediate families,
any firm or corporation in which such Persons have an ownership interest, or any
Affiliate of any the foregoing; provided, however, that the Borrower shall not
be in violation of this section by virtue of payments permitted pursuant to
Section 8.1(k) hereof;
(p) Subsidiaries Except with Lenders' Approval, not to be unreasonably
withheld, create any new subsidiaries other than the Subsidiaries; or
(q) Use of Proceeds: The proceeds of the loan advance from First Ontario
Fund contemplated by this Agreement shall not be used to fund any of the
following purposes:
(i) relending;
(ii) investment in land except land that is incidental and
ancillary to the Business;
(iii) reinvestment outside of Canada;
(iv) the purchasing or acquiring of the securities of any Person;
(v) the payment of dividends;
(vi) a return of capital to the shareholders of the Parent; or
(vii) to carry on a business through a permanent establishment or
branch operation outside of Canada.
ARTICLE 9. - SURVIVAL OF REPRESENTATIONS AND WARRANTIES
9.1 Survival: All representations, warranties, covenants and agreements made
herein and any certificate, opinion or other document delivered by or on behalf
of the Borrower, the Parent or the Subsidiaries shall conclusively be deemed to
have been relied upon by the Lenders, notwithstanding any prior or subsequent
investigation by the Lenders, and shall survive the making of all advances and
the fulfilment of all other transactions and deliveries contemplated hereunder,
all of which shall continue in full force and effect so long as any amount of
principal or interest under the Loan remains outstanding and unpaid or
unconverted. All statements contained in any certificate or other document
delivered to the Lenders under this Agreement or in connection with any of the
transactions contemplated hereunder shall be deemed to be representations and
warranties by the party making the same.
ARTICLE 10.- EVENTS OF DEFAULT
10.1 Default: It shall be an Event of Default upon the happening of any one or
more of the following events which, except in the case of (e), (f) or (g) below,
following thirty (30) days' written notice from either of the Lenders to the
Borrower, has not been cured:
(a) Payment Default: The Borrower fails to pay any instalment of interest
or principal or other amount hereunder (other than payments made under Section
8.1(k)) which shall have become due and payable, with or without demand therefor
having been made by or on behalf of the Lenders;
(b) Security Default: The Borrower fails to perform or be in compliance
with any of the other terms or covenants of this Agreement or of any document
constituting the Security;
(c) Other Payment Obligations: The Borrower, the Parent or any Subsidiary
fails to pay when due any principal or interest in respect of the Capital Lease
Obligations, any banking lines of credit permitted
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hereunder, and such failure to pay is not remedied within any applicable grace
period, whether or not such obligation is declared to be due and payable prior
to the express maturity thereof;
(d) Other Obligations: The Borrower, the Parent or any Subsidiary has
committed an event of default as defined and contained in any banking lines of
credit permitted hereunder, the Capital Lease Obligations, any material
conditional sales contract, any material instrument, indenture or document
evidencing any of the above, or any other credit facility approved by the
Lenders from time to time, and has failed to remedy the same within any curative
period provided for therein and such event of default has not been waived by the
applicable lenders or security holder, and such event of default is continuing;
(e) Liquidation: An order is made or a resolution is passed for the
winding-up, dissolution or liquidation of the Borrower, the Parent or any
Subsidiary or if a petition is filed or other process taken for the winding-up,
dissolution or liquidation of any of them and is not disputed by the Borrower in
good faith;
(f) Insolvency: The Borrower, the Parent or any Subsidiary commits or
threatens to commit an act of bankruptcy, becomes insolvent, goes into
liquidation, makes a general assignment forth benefit of its creditors,
otherwise acknowledges its insolvency or if a bankruptcy petition is filed or
presented against any of them and is not diligently contested in good faith and
discharged within thirty (30) days after it is filed or presented;
(g) CCAA: Any proceedings with respect to the Borrower, the Parent or any
Subsidiary are taken with respect to a compromise or arrangement under the
Companies Creditors Arrangement Act (Canada) or any Act substituted therefor or
similar legislation of any other jurisdiction;
(h) Distress: An encumbrancer or landlord takes possession of any part of
the property or leased premises of the Borrower, the Parent or any Subsidiary,
or if a distress or execution or any similar process becomes enforceable or is
enforced against the Borrower, the Parent or any Subsidiary in connection with a
debt or claim in excess of $25,000.00, except where same is being contested
actively and diligently in good faith by appropriate and timely proceedings, or
if a custodian or sequestrator or a receiver or receiver and manager or any
other officer with similar powers is appointed for the Borrower, the Parent or
any Subsidiary or for any part of their property;
(i) False Representation: Any representation or warranty contained herein
or made in any certificate or other document delivered by the Borrower or any
persons acting for or on behalf of any of them to the Lenders and material to
the Lenders shall have been found to be false or is incorrect in any material
respect (except any such representation and warranty as is already qualified by
the term material which representation and warranty shall be true and correct in
all respects) as of its date of making unless the Borrower shall have taken
steps within ten (10) days of determining that such representation or warranty
is false or misleading, or having received written notice to that effect from
the Lenders, to make such representation or warranty true and correct;
(j) Cease to Carry on Business: The Borrower, the Parent or any Subsidiary
shall cease to carry on in the ordinary course the Business or a substantial
part thereof;
(k) Default: The Borrower, the Parent or any Subsidiary defaults in
observing or performing any of the agreements or covenants in any material
lease, licence, debenture, deed of trust or agreement whereby any material
property or rights may become liable for forfeiture or where any such material
lease, licence, debenture, deed of trust or agreement would be subject to
termination and the Borrower fails to cure such default within any curative
period provided for therein, and such default has not been waived;
(l) Parent Status: The Parent fails to maintain a listing on the Nasdaq
bulletin board or a Principal Exchange. The Parent fails to get a listing on a
Principal Exchange on or before April 30, 2000;
(m) Prospectus: On or before April 30, 2000, the Parent fails to obtain
final receipt for a Registration Statement (or if the Common Shares are listed
on The Toronto Stock Exchange, a prospectus) qualifying the
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Common Shares which (i) into the Exchangeable Share and Class N Shares available
to the Lenders are convertible and (ii) issuable on the exercisable of the
Warrants so that such Common Shares, when issued, shall be free trading and
shall not be subject to any holding periods or resale restrictions;
(n) Share Ownership: There is any sale or pledge of the beneficial
ownership of shares in the Parent or the Borrower owned by Michael A. Steele; or
(o) Death of Michael A. Steele: The death of Michael A. Steele.
10.2 Acceleration: Upon the occurrence of any one or more Events of Default:
(i) all indebtedness of the Borrower or the Parent, as the case
may be, to the Lenders hereunder shall, at the option of the
Lenders, immediately become due and payable upon five (5)
Business Days' written notice to but without requirement for
presentment, demand, protest or other notice of any kind to
the Borrower or the Parent; and
(ii) all Security and other loan documentation shall thereupon, at
the option of the Lenders, become enforceable by the Lenders
or their duly authorized agent(s).
10.3 Remedies Cumulative: The rights and remedies of the Lenders hereunder are
cumulative and in addition to and not in substitution for any rights or remedies
provided by law.
ARTICLE 11.-FEES
11.1 Expenses: Whether or not any monies are advanced under the Loan, the
Borrower agrees to pay all reasonable out-of-pocket expenses, disbursements and
legal expenses of the Lenders in connection with the preparation of this
Agreement and the Loan Documents and the ongoing maintenance and enforcement of
the Security and the exercise of any rights hereunder including without
limitation renewals of registrations when necessary. If the Loan is advanced,
the initial legal fees and disbursements and the Commitment Fee contemplated in
Section 11.2 hereof shall be deducted from the amount of the advance.
11.2 Commitment Fee: A commitment fee of $120,000, plus GST where applicable,
for services rendered up to and including the Closing Date shall be payable by
the Borrower to the Lenders on the Closing Date. The Lenders acknowledge the
payment of $40,000 of this fee prior to Closing.
11.3 Restructuring Fee: The Borrower shall pay to the Lenders on the Maturity
Date or the date the Promissory Note is repaid in full, whichever is earlier, a
restructuring fee in an amount equal to five percent (5%) of the outstanding
principal of the Promissory Note on the date of such repayment, as applicable,
calculated and compounded semi-annually, not in advance.
ARTICLE 12. - SUBORDINATION
12.1 Subordination:The indebtedness evidenced by the Promissory Notes shall be
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt of the Borrower and the Security shall be subject to any security
granted in connection with the Senior Debt. The parties hereto hereby agrees to
and shall be bound by the provisions of this section.
12.2 Maturity of Senior Debt: Upon the maturity of any Senior Debt by lapse of
time, acceleration or otherwise, then all principal of, premium (if any) on, and
interest on all such matured Senior Debt shall first be paid in full, or shall
first have been duly provided for, before any payment on account of the
Promissory Notes is made.
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12.3 No Payments: In case of default with respect to any Senior Debt permitting
the holders thereof to accelerate the maturity thereof, then, unless and until
such default shall have been cured or waived or shall have ceased to exist, no
payment (by conversion of the Promissory Notes or otherwise) shall be made by
the Company with respect to the Promissory Notes after the happening of such a
default unless and until such default shall have been cured or waived. The fact
that any payment hereunder is prohibited by this section shall not prevent the
failure to make such payment from being an Event of Default.
12.4 Agreement of Lenders: The Lenders hereby agree to take such action as may
be necessary to effect the subordination as provided in this Section 12. Upon
request of the Borrower, and upon being furnished a certificate of an officer of
the Borrower stating that one or more named Persons are holders of Senior Debt,
or the representative or representatives of such holders, or the trustee or
trustees under which any instruments evidencing such Senior Debt may have been
issued, and specifying the amount and nature of such Senior Debt, the Lenders
shall enter into a written agreement or agreements with the Borrower and the
Person or Persons named in such certificate, providing that such Person or
Persons are entitled to all the rights and benefits of this Section 12 Nothing
herein shall impair the rights of any holder of Senior Debt who has not entered
into such an agreement.
12.5 Obligation to Pay Not Impaired: Nothing contained in this Section 12 or
elsewhere in this Agreement is intended to or shall impair, as between the
Borrower, its creditors other than the holders of the Senior Debt and the
Lenders, the obligation of the Borrower, which is absolute and unconditional, to
pay to the Lenders the principal amount and other amounts due under the Loan as
and when the same shall become due and payable or affect the relative rights of
the Lenders and creditors of the Company other than the holders of the Senior
Debt, nor shall anything herein or therein prevent the Lenders from exercising
all remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this Section 12 of the holders
of Senior Debt in respect of cash, property or securities of the Borrower
received upon the exercise of any such remedy.
12.6 Life Insurance: Notwithstanding the provisions of this Section 12, the
interest of the Lenders in the life insurance on the life of Michael A. Steele
referred to in Subsection 7.1(m)(ii) hereof shall not be subordinated to any
Person or Persons holding Senior Debt.
ARTICLE 13. - GENERAL
13.1 No Waiver of Rights: No course of dealing between the Borrower, the Parent
and the Lenders and no delay on the part of the Lenders under this Agreement or
any other agreement between the Lenders and the Borrower or the Parent shall
operate as a waiver of any rights of the Lenders hereunder.
13.2 No Waiver of Defaults: No failure or delay on the part of the Lenders in
exercising any right or privilege hereunder and no waiver as to any default by
the Borrower shall operate as a waiver thereof unless made in writing and signed
by the appropriate officers of the Lenders. Any written waiver by the Lenders
will not preclude the further or other exercise by the Lenders of any right,
power or privilege hereunder or extend or apply to any further default by the
Borrower. For greater certainty, any failure or delay on the part of the Lenders
in requiring strict compliance with any time period prescribed herein, will not
preclude the Lenders from reasserting the strict compliance with any such time
period whereupon the Borrower shall so comply.
13.3 Notices: Any notice to be given hereunder shall be in writing and may be
effectively given by delivering the same at the addresses hereinafter set forth
or by sending the same by prepaid registered mail, or telefax to the Lenders or
the Borrower at such addresses. Any notice so mailed shall be deemed to have
been received on the third (3rd) Business Day following the mailing thereof and
if given by delivery or telefax, the same shall be deemed to have been received
upon delivery or upon transmission (with appropriate answer back). The delivery,
mailing, and telefax address of the parties for the purpose hereof shall be:
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(a) as to the Borrower and the Parent:
350 Creditstone Road
Concord, Ontario
L4K 3Z2
Attention: Michael A. Steele
Telecopy: (905) 366-6368
(b) as to the Lenders
Bank of Montreal Capital Corporation
302 Bay Street, 7th Floor
Toronto, Ontario
M5X lAl
Attention: Managing Director
Telecopy: (416) 867-4108
First Ontario Fund
234 Eglinton Avenue East, Suite 310
Toronto, Ontario
M4P 1K5
Attention: Ken Delaney
Telecopy: (416) 487-1345
with a copy to:
Crosbie Capital Management Inc.
One First Canadian Place
P.O. Box 116, 9th Floor
Toronto, Ontario
M5X 1A4
Attention: Cohn W. Walker
Telecopy: (416) 362-3447
13.4 Method of Payment: All payments to be made by the Borrower to the Lenders
hereunder shall be made by means of cheque (or such other method as the Lenders
agree upon) of immediately available funds to such bank account as the Lenders
advise from time to time. The Borrower shall annually provide the Lenders with
four quarterly post-dated cheques to pay the interest due under the Loan.
13.5 Successors and Assigns: This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their successors and permitted assigns;
provided however, neither the Borrower nor the Parent shall assign any of their
respective rights or obligations hereunder without the prior written consent of
the Lenders.
Each Lender shall be entitled to assign all or any portion of the Loan and
the Security in the following circumstances:
(a) each Lender may assign all or any portion of its interest in the Loan and
the Security to an Affiliate at any time without the provision of notice
to the Borrower;
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(b) in the event that an Event of Default has occurred and is continuing, each
Lender may assign all or any portion of its interest in the Loan and the
Security upon written notice to the Borrower;
(c) in the event that the Borrower is not in default hereunder or under any of
the documents evidencing the Security, either of the Lenders may only
assign its respective interest in the Loan and the Security if:
(i) it has received a bona fide, arm's length, unsolicited offer to
acquire the Loan that it is willing to accept, provided that the
Lender(s) gives the Borrower fifteen (15) days' written notice of
the offer and permits the Borrower to acquire (or arrange for the
acquisition of) the Loan at a price equal to the value of the offer,
as determined by the Lender(s), acting reasonably, which the
Lender(s) is willing to accept; or
(ii it desires to sell all or any portion of its interest in the Loan
and the Security, it provides the Borrower with fifteen (15) days'
written notice of its intention to solicit offers for such interest
and within such fifteen (15) days of receipt of the notice, the
Borrower does not elect in writing to the Lender(s) to acquire (or
arrange for the acquisition of) the Loan at a price equal to the
greater of:
(A) the outstanding principal amount of the Loan plus all accrued
and unpaid interest thereon together with the fee referred to
in Section 11.3 hereof accrued to the date of closing of the
purchase and sale of the Loan, calculated and compounded
quarterly, not in advance; or
(B) the cash equivalent of the amount equal to entire outstanding
principal amount of the Loan being converted into Common
Shares at the then current market price (being, for such
purpose, equal to the 20 day weighted average trading price of
the Common Shares on the principal stock exchange or over the
counter market upon which they trade or are quoted at that
time);
In the event that the Borrower elects to acquire the Loan at the
applicable price, the closing of the transaction of purchase and sale
shall occur on the seventh (7th) day following the receipt by the
Lender(s) of such notice from the Borrower. In the event that the Borrower
does not elect to acquire the Loan at such price, the Lender(s) shall be
entitled to sell such portion, provided that the sale is completed within
one hundred and twenty (120) days after the date of the Lenders notice to
the Borrower pursuant to this subsection;
provided that, without the consent of the Borrower, the Lenders shall not assign
any portion of the Loan or the Security to a competitor of the Borrower unless
an Event of Default has occurred and is continuing.
The Lenders may direct the Borrower to engross the Security to be
delivered pursuant to this Loan Agreement from time to time in favour of a third
party, and such direction shall not, in any way, alter nor affect the validity
or enforceability of the Security.
13.6 Governing Law: This Agreement, the Security and all certificates and other
documentation delivered to the Lenders shall be construed and interpreted in
accordance with the laws of the Province of Ontario except with respect to any
document which may be required to be registered, lodged or filed under the laws
of another jurisdiction, in which case the laws of such other jurisdiction shall
apply and the Borrower and the Parent agree to attorn to such other jurisdiction
(where applicable) and to the jurisdiction of the Province of Ontario.
13.7 Entire Agreement: This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
undertakings whether oral or written relative to the subject matter hereof,
including the term sheet dated February 16,1999, as amended. This agreement may
not be amended or modified in any respect except by written instrument signed by
the parties hereto.
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13.8 Headings: The division of this Agreement into articles, sections and
subsections and the insertion of headings are for convenience and reference only
and shall not affect the construction or interpretation of this Agreement.
13.9 Number: Words importing the singular number only shall include the plural
and vice versa, words importing the masculine gender shall include the feminine
and neuter genders and words importing persons shall include firms and
corporations and vice versa.
13.10 Severable Provisions: The provisions of this Agreement are severable, and
if any one or more provisions may be determined to be unreasonable or illegal or
otherwise unenforceable, in whole or in part, the remaining provisions shall
nevertheless be binding and enforceable. In the event that any provision of this
Agreement is found to be unenforceable, the parties agree to reform such
provision, to the maximum extent permitted by law and if a court indicates what
reforms would make such provision enforceable, the parties will abide by what
that court determines.
13.11 Modification: Except as specifically set out herein, no term or provision
hereof may be changed, modified, waived, terminated or discharged, in whole or
in part, except by a writing which is dated and signed by the Borrower and the
Lenders.
13.12 Execution of Additional Documents: From time to time, the Borrower and the
Parent shall, at the request of the Lenders, execute and deliver such additional
transfers, instruments, documents and other assurances as may, in the opinion of
counsel for the Lenders, be reasonably required effectually to carry out the
intent of this Agreement. Such additional transfers, instruments, documents and
other assurances shall be in form satisfactory to counsel for the Lenders,
acting reasonably.
13.13 Other Definitional Terms: The terms "this Agreement", "hereby", "herein",
"hereunder", "hereto" and similar expressions refer to this Agreement and not to
any particular article, section, subsection or portion thereof and include every
amendment or instrument supplementary thereto or an implementation hereof.
13.14 Counterparts: This Agreement may be executed in two or more counterparts
(by original or facsimile signature), each of which shall be deemed to be an
original and all of which together shall constitute one and the same agreement.
13.15 Conflicts: To the extent that any term, condition, representation,
covenant or other provision contained in the Security or other instruments
delivered pursuant to this Agreement is at any time inconsistent or conflicts
with any term, condition, representation, covenant or other provision contained
in this Agreement, then this Agreement shall govern and the Borrower shall be
deemed not to be in default under such first-mentioned term, condition,
representation, covenant or other provision, so long as it complies with the
terms, conditions, representations, covenants and other provisions contained in
this Agreement. For greater certainty, to the extent the Security contains any
covenants, representations, warranties or events of default which are not in any
way addressed or contained in this Agreement, such covenants, representations,
warranties or events of default shall not be considered inconsistent with or
conflict with this Agreement.
13.16 Consultant: The Borrower agrees that, upon written request delivered by
the Lenders, they shall appoint a financial consultant (hereinafter referred to
as the "Consultant"), for the purposes of reviewing the Borrower's operations
from time to time. The terms of the Consultant's scope of duties shall be
settled by the Borrower with the consent of the Lenders, provided that such
terms may be settled by the Lenders if agreement with the Borrower is not
reached within fifteen (15) days of the date of the notice. The Borrower
consents at all times to a free exchange of information between the Lenders and
the Consultant, whether or not the Borrower is apprised of the occurrence of
such exchange of information or the particulars of any such information
exchanged at any time.
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IN WITNESS WHEREOF the parties hereto have executed this Agreement
as of the date first above written.
INTERNATIONAL MENU SOLUTIONS CORPORATION
Per: /s/
-----------------------------------------
Name:
Title
INTERNATIONAL MENU SOLUTIONS INC.
Per: /s/
-----------------------------------------
Name:
Title
FIRST ONTARIO FUND
Per: /s/ Don McDonald
-----------------------------------------
Name: Don McDonald
Title: Vice President
Per:
-----------------------------------------
Name:
Title
BANK OF MONTREAL CAPITAL CORPORATION
Per: /s/
-----------------------------------------
Name:
Title
Per:
-----------------------------------------
Name:
Title