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EXHIBIT 10.3
LOAN AGREEMENT
This agreement dated as of the 26th day of May, 2000
BETWEEN:
INTERNATIONAL MENU SOLUTIONS CORPORATION, a
corporation incorporated pursuant to the laws of the
State of Nevada,
(hereinafter referred to as the "Parent")
- and -
INTERNATIONAL MENU SOLUTIONS INC., a corporation
amalgamated pursuant to the laws of the Province of
Ontario,
(hereinafter referred to as the "Borrower")
- and -
SOUTHBRIDGE INVESTMENT PARTNERSHIP NO. 1, a
partnership constituted pursuant to the laws of the
Province of Ontario,
(hereinafter referred to as "Southbridge")
- and -
FIRST ONTARIO LABOUR SPONSORED INVESTMENT FUND LTD.,
a corporation incorporated pursuant to the laws of
the Province of Ontario,
(hereinafter referred to as "First Ontario")
- and -
BANK OF MONTREAL CAPITAL CORPORATION, a corporation
incorporated pursuant to the laws of Canada,
(hereinafter referred to as "BMOCC" and, together
with Southbridge and First Ontario, referred to as
the "Lender Group")
THIS AGREEMENT WITNESSES THAT for valuable consideration the parties agree as
follows:
PART 1.0 - INTERPRETATION
1.1 DEFINITIONS. For the purposes of this Agreement and where the context does
not otherwise require, terms shall have the meanings assigned thereto in
Schedule A annexed hereto.
1.2 BORROWER. Unless otherwise specified herein, all representations, warranties
and covenants in respect of the Borrower in this Agreement mean representations,
warranties and covenants in respect of:
(a) the Parent, Borrower and the Group Subsidiaries as a group and
on a Consolidated basis; or
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(b) each of the Parent, Borrower and the Group Subsidiaries,
as applicable and as the context implies.
1.3 AUDITED FINANCIAL STATEMENTS. All references in this Agreement to audited
financial statements of a corporation, including the balance sheet and related
statements of income, retained earnings and changes in financial position, mean
Consolidated financial statements prepared by the corporation in accordance with
GAAP together with an auditor's opinion that the statements fairly present the
financial position of the corporation and the results of its operations for the
Fiscal Period reported on in accordance with GAAP. All accounting determinations
for purposes of determining compliance with the financial covenants contained in
section 7.2 shall be made in accordance with GAAP as in effect on the Closing
Date and applied on a basis consistent in all material respects with the
Benchmark Financials. If GAAP shall change from the basis used in preparing the
said financial statements, the certificates required to be delivered pursuant to
subsection 7.1(e) attesting to compliance with the covenants contained herein
shall include, at the election of the Borrower or upon the request of the Lender
Group, calculations setting forth the adjustments necessary to demonstrate how
the Borrower is in compliance with the financial covenants based upon GAAP in
effect on the Closing Date.
1.4 CANADIAN CURRENCY. Unless otherwise specified herein, all amounts and values
referred to in this Agreement shall be calculated in lawful money of Canada.
1.5 INTEREST ACT. Unless otherwise specified, all annual rates of interest
referred to herein are based on a calendar year of 365 or 366 days, as the case
may be. Where a rate of interest hereunder is calculated on the basis of a year
(the "Deemed Year") which contains fewer days than the actual number of days in
the calendar year of calculation, such rate of interest shall be expressed as a
yearly rate for the purposes of the Interest Act (Canada) by multiplying such
rate of interest by the actual number of days in the calendar year of
calculation and dividing it by the number of days in the Deemed Year.
1.6 HEADINGS AND TABLE OF CONTENTS. The division of this Agreement into Parts
and sections and the insertion of headings are for convenience of reference only
and shall not affect the meaning or interpretation of this Agreement.
1.7 REFERENCES. All references to sections, Parts and Schedules are to sections
and Parts of and Schedules to this Agreement. The words "hereto", "herein",
"hereof", "hereunder", "this Agreement" and similar expressions mean and refer
to this Agreement.
1.8 NUMBER AND GENDER. Where the context so requires, words importing the
singular include the plural and vice versa, and words importing gender include
the masculine, feminine and neuter genders.
1.9 MAXIMUM INTEREST RATE.
(a) In the event that any provision of this Agreement would oblige
the Company 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 law or would result in a
receipt by the Lender of interest at a criminal rate (as such
terms are construed under the Criminal Code (Canada)), then
notwithstanding such provision, such amount or rate of
interest shall be deemed to have been adjusted nunc pro tunc
to the maximum amount or rate of interest, as the case may be,
as would not be so prohibited by law or so result in a receipt
by the Lender of interest at a criminal 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 hereunder; and
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(ii) thereafter, by reducing any fees, commissions,
premiums and other amounts which would constituted
interest for the purposes of Section 347 of the
Criminal Code (Canada);
(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 permitted by such clause, then such
excess shall be applied by the Lender to the reduction of the
principal balance of the Outstanding Borrowing and not to the
payment of interest or if such excessive interest exceeds such
principal balance, such excess shall be refunded to the
Company; and
(c) Any amount or rate of interest referred to in this section
shall be determined in accordance with generally accepted
actuarial practices and principles as an effective annual rate
of interest over the terms of this Agreement on the assumption
that any charges, fees or expenses that fall within the
meaning of "interest" (as defined in the Criminal Code
(Canada)) shall, if they relate to a specific period of time,
be prorated over that period of time and otherwise be prorated
over the term of this Agreement and, in the event of dispute,
a certificate of a Fellow of the Canadian Institute of
Actuaries appointed by the Lender shall be conclusive for the
purposes of such determination.
1.10 PARAMOUNTCY. In the event of any conflict or inconsistency between the
provisions of this Agreement and the provisions of the Security, the provisions
of this Agreement shall prevail and be paramount.
1.11 COMMUNICATIONS FROM THE LENDER GROUP. References to notices, consents,
waivers or any other form of communication from the Lender Group mean notices,
consents, waivers or any other form of communication in written form signed or
acknowledged by Southbridge, First Ontario and BMOCC.
1.12 JOINT ACTION OF LENDER GROUP. Southbridge, BMOCC and First Ontario agree to
consult with each other to determine a common course of action to be agreed upon
and Southbridge, First Ontario nor BMOCC shall be entitled to exercise its
rights and remedies pursuant to this Agreement independently of the other except
as herein provided. Each Lender hereby acknowledges that to the extent permitted
by applicable law, the Security and the remedies provided thereunder and
pursuant to this Agreement are for the benefit of the Lenders collectively and
acting together and not severally and further acknowledges that its rights
hereunder and under the Security are to be exercised not severally but by them
upon the decision of the Majority Lenders. Accordingly, notwithstanding any of
the provisions contained herein or in the Security, each Lender shall only take
any action hereunder or thereunder with the prior written agreement of the
Majority Lenders. Each Lender shall, upon any such agreement, cooperate fully
with the Majority Lenders in carrying out such action.
1.13 SCHEDULES. The Schedules forming part of this Agreement are as follows:
Schedule A Defined Terms
Schedule B Benchmark Financials Schedule A - section 1.1(g)
Schedule C Real Property Description section 6.1(hh)
Schedule D Environmental Disclosure section 6.1(ii)
Schedule E Material Contracts Schedule A - section 1.1(ss)
Schedule F Opinions of Counsel section 5.1(p)
Schedule G PPSA Registrations Schedule A - section 1.1(xx)
Schedule H Capital section 6.1 (l)
Schedule I Dilution section 6.1 (m)
Schedule J Intellectual Property section 6.1(s)
Schedule K Borrower Financials section 6.1(i)
Schedule L Tax Filings section 6.1(g)
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Schedule M Consolidated Forecasts section 5.1(g)
Schedule N Litigation section 6.1(h)
PART 2.0 - CREDIT FACILITY
2.1 CREDIT FACILITY. Subject to the provisions of this Agreement, the Lender
Group agrees to make available to the Borrower a non-revolving term facility in
the maximum principal amount of $4,500,000 available by way of two advances of
the Borrowing with the First Advance and the Second Advance available no later
than June 10, 2000. A Lender shall not be obligated to advance more than its
Loan Amount of the Borrowing.
2.2 PURPOSES OF CREDIT FACILITY. Subject to section 2.3 hereof, the Borrower
shall use the proceeds of the Borrowing for:
(a) working capital purposes to operate its business ;
(b) other capital expenditures set out in an annual business plan
of the Borrower approved by the Lender Group; and
for greater certainty, the Borrower shall not use any of the proceeds from the
Borrowing as consideration for the acquisition of the Great American Barbeque
Company.
2.3 EVIDENCE OF INDEBTEDNESS. The Lender Group shall maintain accounts and
records evidencing the obligations of the Borrower to the Lender Group
hereunder. The Lender Group's accounts and records shall constitute prima facie
evidence of the indebtedness of the Borrower to the Lender Group hereunder.
2.4 ILLEGALITY. If the introduction of or any change in any Applicable Law or in
the interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof, makes it unlawful or
prohibited for the Lender Group to make, to fund or to perform any of its
obligations under this Agreement, the Lender Group may, by sixty days written
notice to the Borrower (unless the provision of the Applicable Law requires
earlier prepayment in which case the notice period shall be such shorter period
as required to comply with the Applicable Law), terminate its obligations under
this Agreement and in such event, the Borrower shall prepay such Borrowing
forthwith (or at the end of such period as the Lender Group in its discretion
agrees), without notice or penalty, together with all accrued but unpaid
interest and fees as may be applicable to the date of payment.
PART 3.0 - PRINCIPAL PAYMENTS
3.1 PRINCIPAL REPAYMENT. Unless the Outstanding Borrowing, or any part thereof,
shall have been required to be paid on an earlier date pursuant to the terms
hereof, the Borrower shall repay the principal portion of the Outstanding
Borrowing on the Maturity Date.
3.2 CATCH-UP PAYMENTS. Should the Borrower for any reason be prohibited,
pursuant to the terms of the Senior Loan Agreements, from making any payment of
interest or scheduled principal payment to the Lender Group pursuant to section
3.1 or any other amount payable pursuant to this Agreement, then the Borrower
shall pay interest on such unpaid amounts at the Interest Rate, and all such
payments (including principal, interest and interest on unpaid interest) shall
become immediately due and payable to the extent permitted under the terms of
the Senior Loan Agreements.
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3.3 PREPAYMENT. The Borrower shall have the right at any time or from time to
time to prepay, subject to payment of three months interest, all or any of the
Outstanding Borrowing in a minimum amount of $200,000 by providing the Lender
Group with five Business Days prior written notice of its intention to prepay.
Each such prepayments shall be applied in reverse order of maturity to the
scheduled principal repayments contemplated by section 3.1 hereof.
3.4 PAYMENT MECHANICS. Each payment under this Agreement shall be made for value
at or before 1:00 p.m. (Toronto time) on the day such payment is due, provided
that, if any such day is not a Business Day, such payment shall be deemed for
all purposes of this Agreement to be due on the Business Day immediately
preceding such day (and any such adjustment shall be taken into account for
purposes of the computation of interest and fees payable under this Agreement).
The First Ontario Proportionate Interest, BMOCC Proportionate Interest, and
Southbridge Proportionate Interest of all payments shall be made by post-dated
cheques delivered to First Ontario, BMOCC, and Southbridge, respectively at
addresses set out in Section 11.1 or such other address as such Lender may from
time to time advise the Borrower in writing. The Borrower shall ensure that each
Lender has at least two post-dated cheques at all times.
3.5 NO CREDIT FOR TRUST FUNDS. For greater certainty, payments of any nature
whatsoever made by the Borrower to the Lender Group which the Lender Group is
required to pay to any Person by reason of any trust imposed by law or by any
Person upon amounts received by the recipient from the Borrower, shall not be
credited against, or deemed to be payment on account of, all or any portion of
the Outstanding Borrowing. All costs and expenses incurred by the Lender Group,
its agents, representatives and solicitors in connection with the repayment of
such monies to any Person shall be for the account of the Borrower and payable
on demand. Interest shall accrue on these costs and expenses, until paid, at the
Interest Rate.
PART 4.0 - INTEREST, FEES AND EXPENSES
4.1 PAYMENT OF INTEREST.
(a) RATE. The Borrower shall pay interest on the outstanding
principal amount of each Borrowing from the applicable Borrowing
Date at a rate per annum equal to the Interest Rate.
(b) CALCULATION. Interest shall be calculated and payable monthly in
arrears on each Interest Payment Date.
4.2 FEES. The Borrower shall pay to Southbridge each of the following:
(a) a non-refundable work fee of $157,500 (plus goods and services
tax exigible thereon), which latter amount was earned on the
date of execution of the financing proposal dated May 2, 2000
for the transaction contemplated herein payable on the date of
the First Advance;
(b) a non-refundable commitment fee of 6.5% of the Borrowing plus
goods and services tax exigible thereon, payable on the date of
the First Advance.
The said work fee and commitment fee are hereinafter collectively referred to as
the structuring fee. Such fee shall be deemed to be earned for the time, effort
and exposure incurred by the Lender Group in (i) reviewing and establishing all
documentation, financial information, proposal and plans referable to the Credit
Facility, and (ii) establishing satisfactory priority arrangements with the
holders of the Permitted Encumbrances. Southbridge shall pay the First Ontario
Proportionate Interest of the structuring fee to First Ontario Management Ltd.
(acting as agent for First Ontario) and the BMOCC Proportionate Interest of the
structuring fee to BMOCC on the date of the Second Advance.
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4.3 REIMBURSEMENT OF EXPENSES. All statements, reports, certificates, opinions
and other documents or information required to be furnished to the Lender Group
by the Borrower under this Agreement shall be supplied by the Borrower without
cost to the Lender Group. The Borrower agrees to pay promptly on demand all of
the reasonable legal fees, documentation costs and other reasonable expenses
incurred by the Lender Group, First Ontario Management Ltd. and Crosbie Capital
Management Inc. in connection with the preparation, negotiation, documentation
and operation of this Agreement, and any other document to be executed and
issued as provided herein, including the enforcement of the rights of the Lender
Group under this Agreement or the security granted pursuant to the terms of this
Agreement, whether or not any amounts are advanced under this Agreement
including, without limitation, all due diligence expenses and consulting fees
incurred by the Lender Group. All such amounts which remain unpaid after demand
shall accrue interest at the Interest Rate plus 3% per annum calculated monthly
until paid in full.
4.4 DETERMINATION CONCLUSIVE. Each determination by the Lender Group, acting
reasonably, of any rate or fee shall, in the absence of error, be final,
conclusive and binding on the Borrower.
PART 5.0 - CONDITIONS PRECEDENT
5.1 CONDITIONS. The obligation of the Lender Group to make available any
Borrowing under this Agreement is subject to the terms and conditions of this
Agreement and is conditional upon satisfactory evidence being given to the
Lender Group and its counsel as to compliance with the following conditions:
(a) REPRESENTATIONS AND WARRANTIES, COVENANTS AND CONDITIONS. The
representations and warranties contained in section 6.1 are
and shall continue to be true and correct in every respect as
if made by the Borrower contemporaneously with the Borrowing.
The Lender Group shall have received such certificates or
other instruments of the Borrower or of the officers of the
Borrower as the Lender Group's counsel may reasonably think
necessary in order to establish that the terms, covenants and
conditions contained in this Agreement have been performed or
complied with at or prior to the Closing by the Borrower and
that the representations and warranties of the Borrower herein
given are correct at the Closing.
(b) RESOLUTIONS AND CERTIFICATES. The Lender Group shall have
received, duly executed and in form and substance satisfactory
to it:
(i) a copy of the constating documents and by-laws of the
Borrower and a copy of the resolutions of the board
of directors of each of the Parent and the Borrower
authorizing the execution, delivery and performance
of this Agreement, the Security and any other
instruments contemplated hereunder, certified by an
appropriate officer of each of the Parent and the
Borrower;
(ii) a certificate of incumbency for each of the Parent
and the Borrower showing the names, offices and
specimen signatures of the officers who will execute
this Agreement, the Security and any other
instruments contemplated hereunder and thereunder;
and
(iii) such additional supporting documents as the Lender
Group or its counsel may reasonably request.
(c) APPROVAL. The Investment Committee of each Lender shall have
approved the transactions contemplated hereby.
(d) DELIVERY OF SECURITY. The Lender Group shall have received the
Security (including any necessary consents or subordinations
of third parties as may be required by the Lender Group)
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duly executed by the issuer thereof and in form and substance
satisfactory to the Lender Group and its counsel.
(e) REGISTRATION. The Security has been registered, recorded or
filed in all jurisdictions deemed necessary by the Lender
Group and its counsel acting reasonably.
(f) EVIDENCE OF SENIOR LOANS AND FINANCING COMMITMENTS. The Lender
Group shall have received evidence to its satisfaction of the
completion of the following loans and financing commitments to
or in favour of the Borrower:
(i) credit facilities in the aggregate minimum amount of
$10,000,000.00 by the Bank of Nova Scotia;
The Lender Group shall also be satisfied with all of the terms
and conditions of the above loans and financing commitments
consistent with the financial projections used by the Lender
Group including, without limitation, the waiver of the
requirement to maintain a cash collateral account with the
Bank of Nova Scotia, inclusion of 30% of inventory in the
borrowing base, and shall have received evidence to its
satisfaction that the Bank of Nova Scotia has waived any
technical default under its credit facilities or has agreed
not to take any action in connection with such technical
default.
(g) FINANCIAL FORECASTS. The Lender Group shall be satisfied with
the Borrower's annual business consolidated plan and forecasts
set out in Schedule M given to the Lender Group for the fiscal
years ending December 31, 2000 and December 31, 2001.
(h) LENDER GROUP SATISFIED RE: TITLE AND LIENS. The Borrower shall
have provided evidence satisfactory to the Lender Group that
all its Property is free and clear of all Liens except as
permitted by the Lender Group. For greater certainty, the
Borrower shall have executed and delivered to or shall have
caused to be executed and delivered to the Lender Group in
form and substance satisfactory to the Lender Group documents
evidencing the discharge of any registrations pursuant to the
Personal Property Securities Act (Ontario) or other similar
legislation in other jurisdictions against the Borrower in
favour of any Person (other than the Senior Lenders), unless
consented to in writing by the Lender Group.
(i) EVIDENCE OF ENVIRONMENTAL COMPLIANCE. The Lender Group shall
have received such environmental reports and audits as it may
require, but not limited to the Lender Group"s Environmental
Questionnaire. The Lender Group and its counsel shall be
satisfied with the environmental risk associated with the
transactions contemplated herein including, if necessary, with
the results of any environmental audit or investigation
conducted.
(j) INDEBTEDNESS. As at the Closing Date, except for the Borrowing
hereunder and Indebtedness disclosed in the Benchmark
Financials and Indebtedness incurred in the ordinary course of
business, the Borrower shall have no other Indebtedness.
(k) LEGAL OPINION. The Lender Group shall have received from
counsel to the Borrower favourable legal opinions, in
substantially the form and substance of the legal opinion
annexed hereto as Schedule F, in connection with this
Agreement and the Security, including an opinion to the effect
that this Agreement and the Security are valid, legally
binding and enforceable subject to the usual qualifications
and exceptions.
(l) NO DEFAULT. No Default or Event of Default has occurred and is
continuing except with respect to a technical default under a
Senior Loan Agreement which default has been waived by the
Senior Lenders. The Borrower has not received any notice
(written or otherwise), and is not
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otherwise aware, of any event or circumstances, whether
existing or pending, which would cause any Default or Event of
Default to occur with the lapse of time.
(m) DUE DILIGENCE. The Lender Group shall have completed and be
satisfied in its sole discretion with its review of the
results of its due diligence inquiries.
(n) MATERIAL ADVERSE CHANGE. No Material Adverse Change has
occurred and no event shall have occurred since March 31, 2000
which, in the sole discretion of the Lender Group, has had or
could reasonably be expected to have a Material Adverse
Effect, including without limitation, litigation or claims
threatened against the Borrower.
(o) Y2K COMPLIANCE. The lender Group shall have received a
certificate signed by an officer of the Borrower that all the
software used in the Business or owned, developed, installed,
packaged or customized by the Borrower, in its existing or
previous form, complies with year 2000 requirements in the
sole discretion of the Lender Group.
(p) FEES AND DISBURSEMENTS. The Lender Group shall have received
payment in full of all fees and out of pocket expenses payable
to the Lender Group and its agents which have become due in
accordance with the provisions hereof, including, without
limitation, the structuring fee described in section 4.3 and
payment of all disbursements and out of pocket expenses of the
Lender Group, First Ontario Management Ltd., and Crosbie
Capital Management Inc.
(q) INSURANCE. The Lender Group shall have received a certificate
of insurance in respect of all policies maintained by the
Borrower which shall name Southbridge and BMOCC as next loss
payee (after the Senior Lenders) and then First Ontario as
next loss payee or as otherwise specified by the Lender Group.
(r) LENDER GROUP SATISFIED RE: INSURANCE COVERAGE. The Lender
Group shall be satisfied with the insurance coverage of the
Borrower's business and Property on terms satisfactory to the
Lender Group in its sole and unfettered discretion.
(s) MATERIAL CONTRACTS. The Lender Group or its counsel shall have
reviewed copies of all documents including without limitation
all contracts, permits, licenses and leases material to the
business of the Borrower as determined by the Lender Group
acting reasonably.
(t) SECURITY SHARING AGREEMENT. The Lender Group shall have
received the Security Sharing Agreement duly executed by all
parties thereto and the Lender Group shall be satisfied that
the Security Sharing Agreement is in effect and is valid,
binding and enforceable as against all parties thereto.
(u) COMPLIANCE WITH LAWS AND MATERIAL CONTRACTS. The business and
operations of the Borrower comply in all material respects
with all Applicable Laws and, except as otherwise disclosed to
the Lenders, with the terms of all Material Contracts to which
the Borrower is a party including, without limitation,
contracts relating to Permitted Encumbrances and other
Indebtedness permitted hereunder.
(v) CONSENTS, APPROVALS. The Borrower and the Lender Group shall
have received all necessary consents, approvals, exemptions
and authorizations required to complete all the transactions
contemplated herein.
(w) EMPLOYMENT AND NON-COMPETITION AGREEMENT. Michael Steele shall
have entered into an employment and non-competition agreement
with the Borrower in form and substance satisfactory to the
Lender Group.
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5.2 WAIVER. The terms and conditions stated in this Part 5.0 are inserted for
the sole benefit of the Lender Group and may be waived by it in whole or in part
and with or without terms or conditions in respect of the Borrowing.
PART 6.0 - REPRESENTATIONS AND WARRANTIES
6.1 REPRESENTATION AND WARRANTIES. The Borrower represents and warrants to the
Lender Group that:
(a) DUE INCORPORATION. The Borrower is duly incorporated,
organized and subsisting under the laws of its incorporating
jurisdiction. The Borrower has all necessary corporate power
and authority to own its properties and assets and to carry on
its business as now conducted and is or will be duly licensed
or registered or otherwise qualified in all jurisdictions
wherein the nature of its assets or the business transacted by
it makes such licensing, registration or qualification
necessary, except where failure to do so would not give rise
to any material legal impediment to the use of the property in
the business of the Borrower or the ability of the Borrower to
carry on the Business or to perform its obligations hereunder.
(b) POWER. The Borrower has full power and capacity to enter into,
deliver and perform its obligations under this Agreement, the
Security and all other instruments contemplated hereunder.
(c) DUE AUTHORIZATION AND NO CONFLICT. The execution, delivery and
performance by the Borrower of this Agreement, the Security,
and all other instruments contemplated hereunder and the
consummation of the transactions contemplated hereby and
thereby
(i) have been duly authorized by all necessary corporate
action,
(ii) do not and will not conflict with, result in any
breach or violation of, or constitute a default under
the constating documents or by-laws of, or any
Applicable Laws, determination or award presently in
effect and applicable to the Borrower, or of any
commitment, agreement or any other instrument to
which the Borrower is now a party or is otherwise
bound,
(iii) do not (except for the Security) result in or require
the creation of any Security Interest upon or with
respect to any of the properties or assets of the
Borrower, and
(iv) do not require the consent or approval (other than
those consents or approvals already obtained and
copies of which have been delivered to the Lender
Group) of, or registration or filing with, any other
party (including shareholders of the Borrower) or any
governmental body, agency or authority.
(d) VALID AND ENFORCEABLE OBLIGATIONS. This Agreement, the
Security and all other instruments contemplated hereunder are,
or when executed and delivered to the Lender Group will be,
legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms.
(e) TITLE TO ASSETS. The Borrower has a good and marketable title
to all its Property, free from any mortgage, charge, hypothec,
pledge, assignment, lien, security interest or other
encumbrance other than the Permitted Encumbrances.
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(f) ALL ASSETS IN CORPORATIONS. All property (tangible or
intangible, including all Intellectual Property) used in
carrying on the Business is owned or leased by all or any of
the Borrower and the Group Subsidiaries.
(g) VALIDITY AND PRIORITY OF SECURITY. The Security constitutes
assignments, floating charges or security interests, as
applicable, on the undertaking and property and assets of the
Borrower purported to be assigned, mortgaged, charged or
subjected to a security interest thereby and ranks in priority
to any other Security Interests upon such undertaking and
property and assets other than Permitted Encumbrances.
(h) NO ACTIONS. Except as disclosed in Schedule "N", there are no
actions, suits, proceedings, inquiries or investigations
existing, pending or threatened, affecting the Borrower in any
court or before or by any federal, provincial or municipal or
other governmental department, commission, board, tribunal,
bureau or agency, Canadian or foreign, which is reasonably
likely to materially and adversely affect the financial
condition, property, assets, operations or business of the
Borrower, the ability of the Borrower to repay the Outstanding
Borrowing or which is reasonably likely to materially and
adversely affect the ability of the Borrower to perform any of
its obligations under this Agreement, the Security or any
other instrument contemplated hereunder, or the validity or
enforceability of this Agreement or the Security.
(i) FINANCIAL INFORMATION. The financial statements of the
Borrower furnished to the Lender Group under this Agreement or
which were furnished to the Lender Group to induce it to enter
into this Agreement including the Benchmark Financials and the
Borrower's Financials present fairly the financial condition
of the Borrower as at the dates thereof. Since March 31, 2000,
no Material Adverse Change has occurred in respect of the
financial position of the Borrower except as disclosed to the
Lender Group or its agents prior to Closing. All such
financial statements and all other information, certificates,
schedules, reports and other papers and data furnished to the
Lender Group are accurate, complete and correct in all
material respects, and all financial forecasts have been
prepared in good faith based upon the facts and circumstances
known to the Borrower at the time they were provided to the
Lender Group and are based upon reasonable assumptions. No
event has occurred or subsequent information has become
available to the Borrower since the said financial forecasts
were provided to the Lender Group which would give rise to a
Material Adverse Change in the said forecasts.
(j) NO DEFAULTS OR EVENTS OF DEFAULT. Except as disclosed by the
Borrower to the Lenders, no event has occurred and is
continuing, and no circumstance exists which has not been
waived which constitutes a Default or Event of Default
hereunder or a default or event of default in respect of any
material commitment, agreement or any other instrument to
which the Borrower is now a party or is otherwise bound,
entitling any other party thereto to accelerate the maturity
of amounts of principal owing thereunder, or which would give
rise to a Material Adverse Change upon the financial
condition, property, assets, operations or business of the
Borrower.
(k) COMPLIANCE WITH LAW. The Borrower is not in violation of any
terms of its constating documents or by-laws or of any law,
regulation, rule, order, judgment, writ, injunction, decree,
determination or award presently in effect and applicable to
it, the violation of which would give rise to a Material
Adverse Change.
(l) CAPITAL OF THE BORROWER. The authorized and issued share
capital of the Borrower is as set out in Schedule 6.1(l);
(m) NON-DILUTION. Except as contemplated by Schedule 6.1.m, no
Person now has any agreement, option or right capable of
becoming an agreement or option for the pledge, purchase,
subscription or issuance from the Borrower of any shares of
the Borrower issued or
<PAGE> 11
11
unissued, and no other shares in the capital of the Borrower
will be issued without the prior written consent of the Lender
Group.
(n) LOCATION OF ASSETS. Except for inventory from time to time in
the possession of freight forwarders acting on behalf of the
Borrower in the ordinary course or stored in warehouses, all
property and assets of the Borrower are located at the
Borrower's place of business in Ontario, Quebec and
California.
(o) SUBSIDIARIES. None of the Parent, Borrower, or Group
Subsidiaries owns any shares or voting securities of any
Person or has any Subsidiaries except as set out herein.
(p) PARTNERSHIP. The Borrower is not in partnership with any
Person nor is it a participant in any joint venture.
(q) TAXES. Except as set out in Schedule 6.1(q), the Borrower has
filed all foreign, provincial and local tax returns which are
required to be filed and has paid all Taxes due pursuant to
such returns or pursuant to any assessment received by the
Borrower except such Taxes, if any, as are being contested in
good faith and as to which adequate reserves have been
provided. The Borrower is not in arrears in the payment of any
amount to any governmental body or agency including, without
limitation, amounts owing or to be remitted with respect to
employee withholdings for income tax or Canada Pension Plan,
goods and services tax or provincial sales taxes. The charges,
accruals and reserves on the books of the Borrower in respect
of any taxes or other governmental charges are adequate.
(r) INTELLECTUAL PROPERTY. The Borrower owns or has the right to
use all patents, trademarks, trade names, copyrights, licenses
and rights with respect thereto necessary for the conduct in
all material respects of its business as now conducted and as
presently proposed to be conducted, without any known conflict
with the rights of others, and in each case free from any lien
other than Permitted Encumbrances.
(s) INTELLECTUAL PROPERTY.
(i) Schedule J attached hereto lists all issued patents,
patent applications and registrations, trade marks,
trade mark applications and registrations, copyright
applications and registrations, registered trade
names, and registered industrial designs, domestic or
foreign, owned by the Borrower and used in the
operation of the Business,
all of the foregoing, together with:
A. all trade secrets, know-how, inventions and
other intellectual property owned by the
Borrower and material to the operation of
the Business; and
B. all computer systems and application
software, including without limitation all
documentation relating thereto and the
latest revisions of all related object and
source codes therefor, owned by the Borrower
and material to the operation of the
Business,
being hereinafter collectively called the
"Intellectual Property").
(ii) The Borrower has good and valid title to all of the
Intellectual Property, free and clear of any and all
encumbrances, except in the case of any Intellectual
Property licensed to the Borrower as disclosed in
Schedule J. Complete and correct copies of all
agreements whereby any rights in any of the
Intellectual Property have been granted or licensed
to the
<PAGE> 12
12
Borrower have been provided to the Purchaser. No
royalty or other fee is required to be paid by the
Borrower to any other person in respect of the use of
any of the Intellectual Property except as provided
in such agreements delivered to the Purchaser. The
Borrower has protected its rights in the Intellectual
Property in the manner and to the extent described in
Schedule J. Complete and correct copies of all
agreements whereby any rights in any of the
Intellectual Property have been granted or licensed
by the Borrower to any other person have been
provided to the Purchaser.
(iii) Except as disclosed in Schedule J, and to the best of
the Borrower's knowledge after due inquiry, there are
no restrictions on the ability of the Borrower or any
successor to or assignee from the Borrower to use and
exploit all rights in the Intellectual Property. To
the best of the Borrower's knowledge after due
inquiry, all statements contained in all applications
for registration of the Intellectual Property were
true and correct as of the date of such applications.
Except as noted in Schedule J, each of the trade
marks and trade names included in the Intellectual
Property is in use. To the best of the Borrower's
knowledge after due inquiry, none of the rights of
the Borrower in the Intellectual Property will be
impaired or affected in any way by the transactions
contemplated by this Agreement.
(iv) To the best of their knowledge after due inquiry, the
conduct of the Business and the use of the
Intellectual Property does not infringe, and the
Borrower has not received any notice, complaint,
threat or claim alleging infringement of, any patent,
trade mark, trade name, copyright, industrial design,
trade secret or other Intellectual Property or
propriety right of any other person, and the conduct
of the Business does not include any activity which
may constitute passing off.
(v) To the best of their knowledge after due inquiry, the
computer systems, including hardware and software,
are free from viruses and the Borrower has taken, and
will continue to take, all steps and implement all
procedures necessary to ensure, so far as reasonably
possible, that such systems are free from viruses and
will remain so until the Closing.
(t) SOLVENCY. The Borrower is solvent, is able to pay its debts as
they become due and has capital sufficient to carry on its
business, now owns property having a value both at fair
valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered
insolvent by the execution and delivery of this Agreement or
the Senior Loan Agreements or by the completion of the
transactions contemplated hereunder or thereunder.
(u) MARGIN SECURITIES. The Borrower does not own any margin
securities, and none of the proceeds of the borrowings
hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing
or retiring any Indebtedness which was originally incurred to
purchase any margin securities.
(v) EMPLOYEE RELATIONS. To the best of the Borrower's knowledge
after due inquiry, there are no controversies pending or
threatened between the Borrower and any of its employees,
other than employee grievances arising in the ordinary course
of business which are not, in the aggregate, material to the
continued financial success and well-being of the Borrower,
and the Borrower is in compliance in all material respects
with all federal and provincial laws respecting employment and
employment terms, conditions and practices, except where the
failure to so comply would not give rise to a Material Adverse
Change.
(w) DISCLOSURE OF MATERIAL CONTRACTS. The Borrower has provided to
the Lender Group or its agents copies of all Material
Contracts to which it is a party or by which it is bound.
<PAGE> 13
13
(x) ENVIRONMENTAL AUDIT REPORTS. The Borrower has provided the
Lender Group with all environmental audit reports and site
assessment reports in its possession. The Borrower is in
compliance with all Environmental Laws.
(y) FRENCH FORM OF NAME. The Borrower's full corporate name is
International Menu Solutions Inc. and the Borrower has no
French form of name. Other than its corporate name, the
Borrower does not use any other business name except those
described in Schedule J hereto.
(z) REAL PROPERTY. Schedule C to this Agreement contains a
complete and accurate description of the Real Property and of
the Borrower's interest in the Real Property. Except as
disclosed in this Agreement, the occupation and uses to which
the Real Property has been put by the Borrower are in material
compliance with all applicable statutes, by-laws, ordinances,
regulations, covenants, restrictions or official plans
(including, without limitation, applicable zoning by-laws,
building codes, regulations and ordinances).
(aa) ENVIRONMENTAL COMPLIANCE. Except as set forth in Schedule D
attached to this Agreement,
(i) all facilities and property (including underlying
ground water) owned or leased by the Borrower have
been, and continue to be, owned, leased or used in
compliance with all Requirements of Environmental
Law;
(ii) there have been no past, and there are no pending or
threatened:
A. claims, complaints notices or requests for
information received by the Borrower with
respect to any alleged violation of any
Requirements of Environmental Law concerning
the Property; or
B. complaints, notices or inquiries to the
Borrower regarding potential liability under
any Requirements of Environmental Law
concerning the Property;
(iii) to the best of the Borrower's knowledge after due
inquiry, there have been no Releases of Hazardous
Materials at, on or under any property now or
previously owned, leased or used by the Borrower,
that, singly or in the aggregate, have resulted in or
may be expected to result in a Material Adverse
Change and there is not now and has not been any
storage tanks located beneath the surface of any such
property;
(iv) except as described in Schedule D hereof, each of the
Borrower and its predecessors in title has been
issued and is in compliance with all material
permits, certificates, approvals, licenses and other
authorizations under any Requirements of
Environmental Law to carry on its business;
(v) to the best of the Borrower's knowledge after due
inquiry, there are no conditions that, directly or
indirectly, relate to environmental matters and any
property owned, leased or used by the Borrower,
(whether on, above or below the lands or any
structures, buildings or facilities, now or formerly
owned, operated or used by the Borrower, or by
adjoining properties or businesses) including,
without limitation, being located within an
environmentally sensitive area as determined by any
governmental authority, the condition of the soil or
ground water in the area, the use of urea
formaldehyde foam insulation, friable asbestos
fireproofing or insulation, PCBs or radioactive
substances that, singly or in the aggregate have
resulted in, or may be expected to result in, a
Material Adverse Change; and
<PAGE> 14
14
(vi) the Borrower is maintaining and its predecessors in
title have maintained an appropriate environmental
management system and compliance programs, policies
and procedures to manage its business and ensure
compliance with the Requirements of Environmental Law
and the proper understanding and management of all
environmental and occupational health and safety
matters.
(bb) CONTINGENT FINANCIAL OBLIGATIONS. Except for Contingent
Financial Obligations in favour of the Senior Lenders and as
set out in Schedule 6.1(bb), the Borrower does not have any
Contingent Financial Obligations. The Borrower has not
received notice of and is not otherwise aware of any event or
circumstance, whether existing or pending, which would cause
any Contingent Financial Obligation to become payable or
liquidated.
(cc) FULL DISCLOSURE. All information heretofore furnished by the
Borrower to the Lender Group for the purposes of, or in
connection with, this Agreement or any transactions
contemplated hereby is, and all such information hereinafter
furnished by the Borrower to the Lender Group will be, true,
accurate and complete in all material respects on the date as
of which such information is stated or certified. The Borrower
has disclosed to the Lender Group in writing any and all facts
which materially and adversely affect, or may affect, (to the
extent the Borrower can reasonably foresee) the Business,
operations or financial condition of the Borrower or the
ability of the Borrower to perform its obligations under this
Agreement and the Security.
(dd) "CSBIFA QUALIFICATIONS" The Borrower:
(i) is a taxable Canadian corporation within the meaning
of the Income Tax Act (Canada);
(ii) carries on no business other than the Business;
(iii) 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;
(iv) immediately prior to Closing, the Borrower and all
corporations related to it 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; and
(v) immediately prior to Closing, the carrying value of
the assets of the Borrower and its Subsidiaries
calculated in the manner prescribed by the CSBIFA
legislation does not exceed $50,000,000.
The interpretation of the Borrower under Section 1.2 is not
applicable for the purposes of this subparagraph 6.1(dd).
(ee) ELIGIBLE USE OF FUNDS. The proceeds of the loan advance from
First Ontario contemplated by this Agreement shall not be used
to fund any of the following purposes:
(i) relending unless permitted pursuant to the CSBIFA
legislation;
(ii) investment in land except land that is incidental and
ancillary to the business of the Borrower;
(iii) reinvestment outside of Canada;
<PAGE> 15
15
(iv) the purchasing or acquiring of the securities of any
person unless permitted pursuant to the CSBIFA
legislation;
(v) the payment of dividends;
(vi) a return of capital to the shareholders of the
Borrower; or
(vii) to carry on a business through a permanent
establishment or branch operation outside of Canada.
6.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Part 6.0 shall survive the execution and delivery
of this Agreement and the making of the Borrowing hereunder, regardless of any
investigation or examination made by the Lender Group or its counsel and the
Lender Group shall be deemed to have relied upon each of such representations
and warranties in making available each Borrowing hereunder.
PART 7.0 - COVENANTS
7.1 POSITIVE COVENANTS. From the date hereof and until the Outstanding Borrowing
is repaid in full, the Borrower will observe and perform, or will cause the
observance and performance of each of the following covenants, unless compliance
therewith shall have been waived in writing by the Majority Lenders:
(a) EXISTENCE. The Borrower will do or cause to be done all such
things as are necessary to maintain its corporate existence in
good standing, to ensure that it has at all times the right
and is duly qualified to conduct its business and to obtain
and maintain all rights, privileges and franchises necessary
for the conduct of its business.
(b) CONDUCT OF BUSINESS. The Borrower will maintain, operate and
use its properties and assets, and will carry on and conduct
its business in a proper and efficient manner so as to
preserve and protect such properties and assets and business
and the profits thereof.
(c) PAYMENT OF PRINCIPAL, INTEREST AND EXPENSES. The Borrower will
duly and punctually pay or cause to be paid to the Lender
Group the Outstanding Borrowing at the times and places and in
the manner provided for herein.
(d) PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and
discharge promptly when due all Taxes, assessments and other
governmental charges or levies imposed upon it or upon its
properties or assets or upon any part thereof, as well as all
claims of any kind (including claims for labour, materials and
supplies) which, if unpaid, would by law become a Lien or
charge upon any such properties or assets; but the Borrower
shall not be required to pay any such Tax, assessment, charge
or levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by
appropriate proceedings and if the Borrower shall have set
aside on its books a reserve to the extent required by GAAP in
an amount which is reasonably adequate with respect thereto.
(e) REPORTING REQUIREMENTS. The Borrower shall deliver to each of
Southbridge, Crosbie Capital Management Inc. (as agent of
First Ontario), and BMOCC or such other party as the Lender
Group may otherwise from time to time direct:
(i) within 90 days of the Fiscal Year end of the
Borrower, one copy of its annual audited financial
statements which shall be prepared on a Consolidated
basis by the auditor of the Borrower, including the
balance sheet and statements of income, retained
earnings and
<PAGE> 16
16
changes in financial position, together with a
detailed unqualified report of the auditors of the
Borrower and all supporting notes and schedules (the
"Annual Financials");
(ii) within 90 days of the Fiscal Year end of the
Borrower, a certificate signed by the President or
Treasurer of the Borrower to the effect that the
Annual Financials present fairly the financial
position of the Borrower at the date thereof and have
been prepared in accordance with GAAP;
(iii) within 30 days prior to the end of each Fiscal Year
an annual business plan and forecast for the next two
Fiscal Years consisting of:
A. monthly detailed pro forma balance sheets,
income statements and statements of changes
in financial position for the Borrower (all
prepared in accordance with GAAP) together
with covenant calculations and such
explanations, notes and supporting
information which are required to explain
and supplement the information so provided
and key assumptions (particularly relating
to revenues, gross margins, detailed
general, selling and administrative expenses
and working capital);
B. a written point form commentary by the
President of the Borrower describing any
changes in any Fiscal Year"s budget compared
to the most recent previously submitted plan
and forecast for such Fiscal Years;
C. a capital expenditure plan indicating:
(i) the nature and amount of capital
expenditures;
(ii) planned expenditures for facilities
proposed to be incurred in such Fiscal
Years; and
D. a sales forecast by month for the following
Fiscal Year setting out anticipated revenue
by prior year comparatives and a brief note
explaining each significant line of the said
forecast;
which annual business plan is subject to approval by
the Lender Group, acting reasonably.
(iv) within 30 days after the end of each month a monthly
financial report consisting of:
A. monthly and year-to-date financial
statements on a Consolidated basis in a form
consistent with its business plan (the
"Monthly Financials") which shall contain a
comparison of budget to the actual results
of both the current and prior year, a
calculation of all the financial covenants
provided for in section 7.2 hereof);
B. a forecast of its balance sheet, income
statement, and cash flow statement
calculated on a rolling 12 month basis with
up-to-date pro forma calculations of the
financial covenants contained in section 7.2
herein and the Incorporated Covenants
certified by the President or the Chief
Financial Officer of the Borrower;
C. a written bullet point commentary signed by
the President or Chief Financial Officer of
the Borrower on the material variances in
actual results to date from budgeted results
and on the outlook for the business of the
Borrower for the balance of the Fiscal Year
in comparison to the budget for that Fiscal
Year; and
<PAGE> 17
17
D. a certificate signed by the President or
Chief Financial Officer of the Borrower
stating that:
(1) the amounts of vacation pay, wages,
source deductions and taxes
required to be remitted by the
Borrower and those said amounts not
yet due have been or will be so
remitted in a timely fashion and
are in good standing since the date
of the last such certificate;
(2) the property and business
operations and activities of the
Borrower are to, the best of such
officers after due inquiry, in
compliance in all material respects
with all Environmental Laws and
Environmental Orders or describing
in reasonable detail any such
non-compliance and the Borrower's
plans, if any, to remedy such
non-compliance; and
(3) that the Borrower is not in breach
of any of the covenants or
representations and warranties
contained herein, or if such is not
the case, providing detailed
particulars of all such breaches,
together in either case with
reasonably detailed evidence of
compliance with all financial
covenants contained herein; and
(v) coincident with their delivery to the Senior Lenders
a copy of all reports and notices given or delivered
to the Senior Lenders to the extent that they are not
duplicative of the information provided for herein,
and a summary sheet which converts any information
contained therein expressed as U.S. dollars into
Canadian dollars and combines such information with
the information provided to all Senior Lenders on a
consolidated basis; and
(vi) upon request, such further information concerning the
financial position and business operations as the
Lender Group may from time to time request.
All forecasts and projections contemplated in the financial
reports and summaries described above shall be prepared by
management of the Borrower based on the best available
information and shall be applied on the basis of an analysis
which shall be consistently applied.
(f) LOCATION OF ASSETS. The Borrower shall give to the Lender
Group prompt written notice of any change in the location of
all property and assets of the Borrower such that the
representation and warranty set out in paragraph 6.1(n)
hereof, as updated, shall be true and correct at all times.
(g) INSURANCE. The Borrower shall insure and keep insured its
business, properties and assets, placed with such insurers and
with such coverage (including without limitation business
interruption insurance and all existing coverages now in
place) and against such loss or damage to the full insurable
value of such properties and assets without co-insurance as
the Lender Group shall reasonably require or, in the absence
of such requirement, to the extent insured against by
comparable corporations engaged in comparable businesses. Upon
request by the Lender Group, the Borrower shall promptly
supply the Lender Group with copies of all insurance policies;
losses under all such insurance policies affecting assets
charged by the Security shall be payable to the Lender Group
as loss payee as its interest may appear and each such policy
shall provide for a minimum of 45 days notice to the Lender
Group of cancellation or lapse; the Borrower shall pay or
cause to be paid all premiums necessary to maintain any such
insurance policies in good standing as such premiums become
due and payable. At the Lender Group"s request, the Borrower
shall retain, at the Borrower's expense, an independent
insurance consultant and/or auditor, to review the adequacy of
the Borrower's
<PAGE> 18
18
insurance coverage and to confirm compliance with this
covenant. If the said independent consultant and/or auditor
shall recommend changes in the Borrower's insurance coverage
or other arrangements, the Borrower shall promptly implement
such recommendations.
(h) BOOKS AND RECORDS. The Borrower shall at all times maintain
proper records and books of account and therein make true and
correct entries of all dealings and transactions relating to
its business, shall keep such books, records and accounts at
the principal place of business of the Borrower (and shall not
maintain any duplicate of such books, records and accounts
elsewhere except for electronic back-ups required for data
recovery). The Borrower shall make its books of account and
other accounting and corporate records and its property,
plants and equipment available for inspection by the Lender
Group or any agent of the Lender Group and make its senior
management available to discuss with the Lender Group its
affairs, finances and accounts, in each case upon reasonable
prior notice to the Borrower at all reasonable times.
(i) ACCESS. The Borrower will permit the Lender Group through its
officers or employees or through any consultants or agents
retained by it, upon request, to have access at any reasonable
time and from time to time, to any of the Borrower's
management employees and premises and to any records,
information or data in its possession so as to enable the
Lender Group to ascertain the state of the Borrower's
financial condition or operations and will permit the Lender
Group to make copies of and abstracts from such records,
information or data and will upon request of the Lender Group
to deliver to the Lender Group copies of such records,
information or data.
(j) NOTICE OF ADVERSE CHANGE. The Borrower shall give to the
Lender Group prompt written notice of any Material Adverse
Change in the condition of its business, financial or other,
or of any material loss, destruction or damage to its
properties and assets.
(k) NOTICE OF NAME CHANGE OR ACQUISITION OF ASSETS. The Borrower
shall give to the Lender Group written notice thirty days
prior to any change of name or any acquisition of assets in
any jurisdiction outside the Province of Ontario.
(l) NOTICE OF DEFAULT IN THIS AGREEMENT OR SENIOR LOAN AGREEMENTS.
The Borrower shall give to the Lender Group prompt written
notice of:
(i) any Default or Event of Default hereunder; and
(ii) any event of default arising pursuant to the Senior
Loan Agreements.
(m) NOTICE OF LITIGATION. The Borrower will give to the Lender
Group prompt written notice of any action, suit, litigation,
or other proceeding which is commenced or threatened against
it and which involves a claim or potential claim in excess of
$50,000 or an aggregate of claims or potential claims in
excess of $100,000.
(n) REGISTRATION OF SECURITY. The Borrower will provide the Lender
Group with such assistance and do such things as the Lender
Group may from time to time request so that the Security and
any other instruments of conveyance or assignment effected
pursuant to this Agreement or otherwise will be and remain
registered, recorded or filed from time to time in such manner
and in such places as may in the opinion of the Lender Group
be necessary or advisable in perfecting the Security Interests
constituted thereby.
(o) AFTER ACQUIRED PROPERTY AND FURTHER ASSURANCES. The Borrower
shall notify the Lender Group in writing in advance of any
proposed acquisition and confirmation of completion by the
<PAGE> 19
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Borrower in an amount greater than $100,000 of any property or
asset (unless contemplated by the Borrower's capital
expenditure budget) including a full description of such
property or asset, and the Borrower shall from time to time
execute and deliver to the Lender Group, in form satisfactory
to the Lender Group and its counsel, all such further deeds or
other instruments of conveyance, assignment, transfer,
mortgage, pledge, charge or security interest in connection
with all property or assets acquired by the Borrower after the
date of this Agreement, including any insurance thereon.
(p) NON-DILUTION. Except as contemplated by Schedule 6.1(p) or
approved by the board of directors of the Borrower, the
Borrower shall not enter into or grant any agreement, option
or right capable of becoming an agreement or option for the
pledge, purchase, subscription or issuance from the Borrower
of any shares of the Borrower, issued or unissued, and no
other shares in the capital of the Borrower will be issued
without the prior written consent of the Lender Group.
(q) ENVIRONMENTAL MATTERS. The Borrower shall,
(i) use and operate all of its facilities and properties
in compliance with all Requirements of Environmental
Law, keep all permits, approvals, certificates,
licenses and other authorizations relating to
environmental matters in effect and remain in
compliance therewith, and handle all Hazardous
Materials in compliance with all applicable
Requirements of Environmental Law;
(ii) immediately notify the Lender Group of any event or
occurrence that will, or is likely to give rise to a
report, inquiry or investigation and provide copies
upon receipt of all written claims, complaints,
investigations, notices or inquiries relating to the
condition of the Borrower's facilities and properties
or compliance with Requirements of Environmental Law,
and shall proceed diligently to resolve any such
claims, complaints, investigations, notices or
inquiries relating to compliance with Requirements of
Environmental Law in a manner which in the reasonable
judgment of the Lender Group is appropriate in the
circumstances and not adverse to the interests of the
Lender Group under this Agreement;
(iii) immediately notify the Lender Group of any proposed
business activity to be conducted by the Borrower
that involves the use or handling of Hazardous
Materials or which increases the potential
environmental liability of the Borrower in any
manner;
(iv) immediately notify the Lender Group of any proposed
change in the use or occupation of any real property
occupied by the Borrower before the change occurs or
of any proposal of the Borrower to acquire or become
a tenant in any real property;
(v) immediately notify the Lender Group of any release of
any Hazardous Material or of any other environmental
incident affecting the Borrower or any of its
properties or assets that has resulted or may result
in a Material Adverse Change;
(vi) provide such information and certifications which the
Lender Group may reasonably request from time to time
to evidence compliance by the Borrower of all its
obligations under this Agreement and the Security
Documents;
(vii) undertake, at the Borrower's expense, such
environmental audits or studies on any property
owned, leased or used by the Borrower or the
operations of its business as the Lender Group may
reasonably request;
<PAGE> 20
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(viii) provide, at the Borrower's expense, all third party
consents, authorizations and directions that are
required to permit any inspection or review of any
property owned, leased or used by the Borrower and
the activities carried out thereon and the Borrower
hereby consents to the release to the Lender Group,
or its representatives, of information relating to
the same and compliance by the Borrower and others
having an interest in the same with all Requirements
of Environmental Law; and
(ix) maintain an appropriate environmental management
system and compliance programs, policies and
procedures to manage its business and ensure
compliance with the Requirements of Environmental Law
and the proper understanding and management of all
environmental and occupational health and safety
matters.
(r) ILLNESS & INCAPACITY. If, at any time, Mr. Michael Steele
shall be prevented by reason of illness or other physical
incapacity from performing his duties as senior executive
officer of the Borrower for a period of two (2) consecutive
months or more, and, if such incapacity relates to an illness,
a duly qualified medical physician has certified that his
condition is not likely to materially improve so as to permit
him to re-assume his duties hereunder within the then next
following month, then the Borrower shall immediately appoint,
as a temporary replacement for Mr. Michael Steele, a senior
executive officer (to be consented to by the Lender Group in
its sole discretion), to perform the duties and assume the
responsibilities of Mr. Michael Steele during his continued
illness or other physical incapacity.
(s) INTELLECTUAL PROPERTY. The Borrower shall use commercially
reasonable best efforts to cause any past and current
employee, independent contractor or consultant which has dealt
with any intellectual property of the Borrower to execute and
deliver an assignment and waiver of any right relating to the
intellectual property of the Borrower.
(t) CSBIFA QUALIFICATIONS. The Borrower will give to the Lender
Group prompt written notice if any of the following cease to
be true:
(i) the Borrower is a taxable Canadian corporation within
the meaning of the Income Tax Act (Canada);
(ii) the Borrower carries on no business other than the
Business;
(iii) 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;
(iv) the Borrower and its Subsidiaries 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; or
(v) the carrying value of the assets of the Borrower and
its Subsidiaries calculated in the manner prescribed
by the CSBIFA legislation does not exceed
$50,000,000.
(u) REGISTRATION
(i) On or before August 31, 2000, the Parent shall file
with the U.S. Securities & Exchange Commission a
registration statement (a "Qualifying Registration
Statement") which shall include shares of the Common
Stock of the Parent which will be available to the
Lenders:
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A. upon conversion or exchange of any
securities held by the Lenders for Common
Stock of the Parent; and
B. upon the exercise of any warrants issued by
the Parent and held by any of the Lenders
and conversion of the Class X shares of the
Borrower for Common Stock of the Parent.
(ii) On or before May 31, 2001, the Securities and
Exchange Commission shall have declared the
Qualifying Registration Statement described in
Section 7.1(u)(i) above effective so that the Common
Stock of the Parent to be issued to the Lenders may
be freely sold by the Lenders under the Qualifying
Registration Statement without any holding periods or
resale restrictions applicable to legended securities
in the United States."
7.2 FINANCIAL COVENANTS. The Borrower shall maintain and keep in full force and
effect each of the financial covenants set forth below. The calculations and
determination of each such financial covenant, and all accounting terms
contained therein, shall be calculated and construed in accordance with GAAP:
(a) WORKING CAPITAL OF THE BORROWER. The Borrower shall at all
times after the First Advance maintain Working Capital of not
less than $2,750,000.00.
(b) INCORPORATED COVENANTS. Borrower shall at all time after
Closing maintain the Incorporated Covenants.
(c) TARGETS. For any rolling three month period after the First
Advance, the Borrower shall maintain its consolidated revenue
and EBITDA at not less than 85% of that forecasted in the
Consolidated Forecasts contained in Schedule "M" hereof.
If the Incorporated Covenants are in conflict with or impose a more burdensome
obligation on the Borrower than the respective covenants set out in paragraph
7.2(a) hereof, then the obligation of the Borrower shall be to perform the more
burdensome respective obligation imposed by the Incorporated Covenants.
If the covenants set out in paragraph 7.2(a) hereof are in conflict with or
impose a more burdensome obligation on the Borrower than the respective
Incorporated Covenants, then the obligation of the Borrower shall be to perform
the more burdensome respective obligation imposed by the covenants set out in
paragraph 7.2(a) hereof, as applicable.
7.3 NEGATIVE COVENANTS. From the date hereof and until the Outstanding Borrowing
is paid in full, the Borrower shall adhere to the following covenants unless
waived in writing by the Majority Lenders:
(a) NOT TO AMALGAMATE, ETC. The Borrower shall not enter into any
transaction or series of related transactions (whether by way
of amalgamation, merger, winding-up, consolidation,
reorganization, reconstruction, continuance, transfer, sale,
lease or otherwise) whereby all or substantially all of its
undertaking, properties, rights or assets would become the
property of any other Person or, in the case of amalgamation
or continuance, of the continuing corporation resulting
therefrom.
(b) NEGATIVE PLEDGE. The Borrower shall not create, assume, incur
or suffer to exist any Security Interest in or upon any of
their respective undertakings, properties, rights or assets
except for:
(i) Permitted Encumbrances;
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(ii) Security Interests in respect of which the Lender
Group has given its prior written consent as to
existence and ranking; and
(iii) Security Interests in inventory and accounts
receivable in favour of an operating lender.
(c) NO GUARANTEES. The Borrower shall not be or become liable,
directly or indirectly, contingently or otherwise, for any
obligation of any other Person by Guarantee other than as
permitted hereunder or in connection with a Permitted
Encumbrance.
(d) RESTRICTIONS ON SUBSIDIARIES, INVESTMENTS AND LOANS. The
Borrower shall not, directly or indirectly, acquire or form
any Subsidiary or make any loan to or investment in, or
purchase or otherwise acquire or hold any shares or securities
of, any other Person except as contemplated herein. The
Borrower shall not become a partner in any partnership or a
participant in any joint venture.
(e) RELOCATION OF ASSETS. The Borrower shall not locate or permit
to be situated any of its property or assets in any
jurisdiction other than as set out in section 6.1(v) without
having first (i) obtained the prior consent of the Lender
Group in writing and (ii) taken such action as is necessary to
perfect a Security Interest in favour of the Lender Group in
such property or assets; (iii) if a leasehold premises,
obtained a form of non-disturbance agreement satisfactory to
the Lender Group, and (iv) delivered such opinions of counsel
with respect thereto as the Lender Group may reasonably
require, all at the Borrower's expense.
(f) PAYMENTS TO SHAREHOLDERS. The Borrower shall not declare or
make any payment to any shareholder of the Borrower or any
Person related thereto, other than the Lender Group, without
the prior written consent of the Lender Group, except regular
periodic payments for salary and remuneration made to
employees in the ordinary course of business or except as
required pursuant to agreements existing prior to the date
hereof as disclosed to the Lender Group.
(g) CAPITAL EXPENDITURES. The Borrower shall not make Capital
Expenditures in excess of the Permitted Capital Expenditures
without the prior written consent of the Lender Group.
(h) LEASE PAYMENTS. The aggregate Lease Payments and payments
pursuant to Capitalized Lease Obligations made by the Borrower
during any Fiscal Year shall not exceed $1,000,000 without the
prior written consent of the Lender Group.
(i) DISPOSITION OF ASSETS. The Borrower shall not sell, assign,
transfer, lease (as lessor) or otherwise dispose of any of its
properties or assets other than inventory and obsolete or
surplus fixed assets in the ordinary course of business.
(j) INVENTORY AND BONA FIDE. Except for purchases and sales
amongst the Group Subsidiaries, the Borrower shall purchase
and sell inventory only from and to parties respectively at
arm"s length to the Borrower.
(k) CHANGE OF BUSINESS. The Borrower shall not change the nature
of its business or discontinue any of its material business.
(l) NO AMENDMENT TO ORGANIZATIONAL DOCUMENTS, FISCAL YEAR OR
SENIOR LOAN AGREEMENTS. The Borrower shall not amend its
organizational documents or change its Fiscal Year end or
agree to any amendment or refinancing of the terms, conditions
and provisions of the Senior
<PAGE> 23
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Loan Agreements as such exist on the Closing Date, without the
prior written consent of the Lender Group.
(m) NO REDUCTION IN INSURANCE COVERAGE. The Borrower shall not
reduce the extent or scope of its insurance coverage without
the prior written consent of the Lender Group.
(n) NO MATERIAL CONTRACTS. The Borrower shall not enter into, or
become bound by, any Material Contracts without the prior
written consent of the Lender Group except in the ordinary
course of business.
(o) ELIGIBLE USE OF FUNDS. The proceeds of the loan advances from
First Ontario contemplated by this Agreement shall not be used
to fund any of the following purposes:
(i) relending unless permitted pursuant to the CSBIFA
legislation;
(ii) investment in land except land that is incidental and
ancillary to the business of the Borrower;
(iii) reinvestment outside of Canada;
(iv) the purchasing or acquiring of the securities of any
person unless permitted pursuant to the CSBIFA
legislation;
(v) the payment of dividends;
(vi) a return of capital to the shareholders of the
Borrower; or
(vii) to carry on a business through a permanent
establishment or branch operation outside of Canada.
(p) ACQUISITION. The Borrower shall not complete the acquisition
of Great American Barbeque Company unless it has obtained a
new working capital credit facility of at least $1,000,000 USD
on terms satisfactory to the Lender Group.
7.4 TRACING OF FUNDS. For greater certainty, the proceeds of the loan advance
from First Ontario shall not be used for any purpose which are not an eligible
use of funds pursuant to section 18 of the Community Small Business Investment
Funds Act (Ontario). Such ineligible expenditures shall be paid from the
proceeds of the loan advance from Southbridge and BMOCC.
7.5 INCURRING FURTHER DEBTS. Subject to paragraph 7.3(b) hereof, from the date
hereof and until the Outstanding Borrowing is paid in full, the Borrower shall
not incur any additional secured indebtedness or indebtedness ranking pari passu
or senior to the Outstanding Borrowing without the prior written consent of
Southbridge and BMOCC except Indebtedness secured by Permitted Encumbrances.
PART 8.0 - SECURITY
8.1 OBLIGATION TO PROVIDE. As security for the repayment of the Outstanding
Borrowing, and the discharge and performance of all obligations of the Borrower
to the Lender Group hereunder, the Borrower shall issue or cause to be issued in
favour of the Lender Group the security contemplated under this Part 8.0 which
shall rank in priority to the security of any other Person (other than the
Senior Lenders) unless specifically provided.
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8.2 SECURITY. Subject to section 8.3 hereof, the Borrower shall execute and
deliver to or shall cause to be executed and delivered to the Lender Group in
form and substance satisfactory to the Lender Group the following documents:
(a) in respect of First Ontario, a general security agreement
creating a floating charge on all the undertaking, property
and assets of any or all of the Parent, the Borrower and the
Group Subsidiaries including, without limitation, all
intellectual property, licenses and leases in registerable
form (as appropriate); and in respect of Southbridge and
BMOCC, a general security agreement creating a fixed charge on
all the undertaking, property and assets of any or all of the
Parent, the Borrower and the Group Subsidiaries including,
without limitation, all intellectual property, licenses and
leases in registerable form (as appropriate);
(b) an assignment of insurance policies and proceeds thereof
issued to any or all of the Parent, the Borrower and the Group
Subsidiaries covering its business or Property;
(c) a pledge by the Borrower and the Parent to the Lender Group of
all of the shares of each of the Group Subsidiaries;
(d) a guarantee from each of the Parent, and Group Subsidiaries in
respect of the obligations of the Borrower pursuant to this
Agreement, such guarantee to be secured by the respective
general security agreement and assignment of insurance
policies and proceeds thereof described in paragraphs (a) and
(b) above; and
(e) all such other security agreements which the Lender Group may
reasonably require.
For purposes of this section 8.2, the interpretation of Borrower in section 1.2
does not apply.
8.3 FIRST ONTARIO SUBORDINATION OF SECURITY. Notwithstanding any other provision
in this Agreement, First Ontario hereby subordinates all existing and future
security now or hereinafter delivered by the Borrower to First Ontario pursuant
to this Agreement (collectively, the "Subordinate Security") to and in favour of
all existing security now or hereafter delivered by the Borrower to Southbridge
and BMOCC pursuant to this Agreement (collectively, the "Senior Security") and
all liens, charges, security interests and other encumbrances contained in the
Senior Security shall, in all events and under all circumstances, rank in
priority to all liens, charges, security interests and other encumbrances
contained in the Subordinate Security.
8.4 DISCHARGE OF PPSA REGISTRATIONS. The Borrower shall execute and deliver to
or shall cause to be executed and delivered to the Lender Group in form and
substance satisfactory to the Lender Group documents evidencing the discharge of
the registrations under the Personal Property Securities Act (Ontario) and
similar legislation in other jurisdictions in favour of any Person (other than
the Senior Lenders) against the Property of the Borrower unless consented to in
writing by the Lender Group.
8.5 ACKNOWLEDGMENT OF SECURITY ARRANGEMENTS. The Borrower hereby agrees with,
and acknowledges to, the Lender Group that all of the security granted to First
Ontario and BMOCC pursuant to the subordinated loan agreement dated May 10, 1999
between First Ontario, BMOCC, the Parent, and the Borrower is continuing
security for all obligations of the Borrower to First Ontario and BMOCC,
including all obligations of the Borrower to Southbridge, First Ontario and
BMOCC under the credit facility contemplated by this Agreement.
8.6 FURTHER ASSURANCES. The Borrower from time to time shall deliver or cause to
be delivered to the Lender Group duly executed documents in form and substance
satisfactory to the Lender Group and its counsel as may be reasonably requested
by the Lender Group for the purpose of giving effect to this Agreement or the
Security or for the purpose of establishing compliance with the representations,
warranties and conditions of this Agreement.
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PART 9.0 - EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT. Notwithstanding anything to the contrary herein, the
Outstanding Borrowing shall, at the option of the Lender Group, become
immediately due and payable to the Lender Group and the Security shall, at the
option of the Lender Group, become immediately enforceable upon the occurrence
of any of the following events:
(a) FAILURE TO PAY PRINCIPAL OR INTEREST - if the Borrower fails
to make payment within 2 Business Days of the day on which any
principal amount or interest payable hereunder is due;
(b) FAILURE TO PAY OTHER AMOUNTS - if the Borrower fails to make
payment when due of any amount payable hereunder other than
principal or interest and if such payment is not made within 5
Business days of the day on which such payment is due;
(c) FALSE REPRESENTATIONS, ETC. - if any representation, warranty,
certificate, statement or report made or given herein or
otherwise in connection with the Credit Facility is false or
erroneous in any material respect;
(d) CROSS-DEFAULT - if the Borrower defaults in the payment, when
due, of any Indebtedness to any Person(s), and such default
has not been waived by such Person(s); or such Indebtedness is
accelerated or otherwise becomes due and payable prior to the
stated maturity thereof;
(e) CROSS DEFAULT TO THE SENIOR LOAN AGREEMENTS - if the Borrower
is in default of any obligation which has not been waived by
the Senior Lenders under a Senior Loan Agreement;
(f) RECEIPT OF NOTICE FROM SENIOR LENDER. If the Lender Group
receives notice from a Senior Lender that a payment may not be
made to the Lender Group by the Borrower.
(g) DEFAULT IN OTHER COVENANTS - if, other than in respect of any
covenant to pay, there is any default or failure in the
observance or performance of any other act hereby required to
be done or any other covenant or condition hereby required to
be observed or performed, and the default or failure continues
for 5 Business Days after notice by the Lender Group to the
Borrower specifying such default or failure;
(h) CHANGE IN OWNERSHIP OR CONTROL - if there is any sale or
pledge of the beneficial ownership of the shares in the Parent
owned by Michael Steele or if any Person holds more than 30%
of the issued voting shares of the Parent;
(i) INSURANCE LAPSE - if any insurance on the properties or assets
of the Borrower lapses and such coverage shall not be
reinstated within 15 Business Days of such lapse;
(j) INSOLVENCY - if the Borrower is unable to pay debts as such
debts become due, or is, or is adjudged or declared to be, or
admits to being, bankrupt or insolvent;
(k) VOLUNTARY PROCEEDINGS - if the Borrower makes a general
assignment for the benefit of creditors; or any proceeding or
filing is instituted or made by the Borrower seeking relief on
its behalf as debtor, or to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding-up, reorganization,
arrangement, adjustment or composition of it or its debts
under any similar law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other similar official for
it or for any substantial part of its
<PAGE> 26
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properties or assets; or the Borrower takes any corporate
action to authorize any of the actions set forth in this
section 9.1(k);
(l) INVOLUNTARY PROCEEDINGS - if any notice of intention is filed
or any proceeding or filing is instituted or made against the
Borrower in any jurisdiction seeking to have an order for
relief entered against it as debtor or to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding-up,
reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of
a receiver, trustee, custodian or other similar official for
it or for any substantial part of its properties or assets or
seeking possession, foreclosure or retention, or sale or other
disposition of, or other proceedings to enforce security over,
all or a substantial part of the assets of the Borrower unless
the same is being contested actively and diligently in good
faith by appropriate and timely proceedings and is dismissed,
vacated or stayed within 30 days of institution thereof;
(m) RECEIVER, ETC. - if a receiver, liquidator, trustee,
sequestrator or other officer with like powers is appointed
with respect to, or an encumbrancer takes possession of, or
forecloses or retains, or sells or otherwise disposes of, or
otherwise proceeds to enforce security over any material
portion of the properties or assets of the Borrower or gives
notice of its intention to do so;
(n) EXECUTION, DISTRESS - if any writ, attachment, execution,
sequestration, extent, distress or any other similar process
becomes enforceable against the Borrower or if a distress or
any analogous process is levied against any of the properties
or assets of the Borrower, except where the same is being
contested actively and diligently in good faith by appropriate
and timely proceedings;
(o) SUSPENSION OF BUSINESS - if the Borrower suspends or ceases or
threatens to suspend or cease its business;
(p) SALE - if the Borrower sells or otherwise disposes of, or
threatens to sell or otherwise dispose of, all or a
substantial part of its undertaking and property and assets
whether in one transaction or a series of related
transactions;
(q) IMPAIRMENT OF SECURITY - if, in the sole and unfettered
opinion of the Lender Group, any Security may be or becomes
impaired, invalid, unperfected or unenforceable in any
material respect unless such impairment, invalidity,
unperfection or unenforceability was solely caused by or was
the result of an omission by the Lender Group;
(r) MATERIAL CHANGE - if there is a Material Adverse Change in the
business or affairs of the Borrower;
(s) LITIGATION - if the Borrower fails, within 30 days of the
commencement of same, to contest actively and diligently in
good faith by appropriate and timely proceedings any action,
suit, litigation or other proceeding commenced against it
which would materially adversely affect the Borrower;
(t) DEATH OR TERMINATION OF KEY PERSON - if Mr. Michael Steele
should die; and
(u) TERMINATION OF EMPLOYMENT OF KEY PERSON - if Mr. Michael
Steele should be terminated from his employment with the
Borrower and has not been reinstated by the Borrower within 15
days of such termination.
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9.2 LENDER GROUP MAY WAIVE. The Lender Group may at any time waive any Default
or Event of Default which may have occurred, provided that no such waiver shall
extend to or be taken in any manner whatsoever to affect any subsequent Default
or Event of Default or the rights or remedies resulting therefrom. No such
waiver shall be effective unless given by the Lender Group in writing.
9.3 ACCELERATION. If any Event of Default shall occur,
(a) the whole or any part of the principal amount of the
Outstanding Borrowing and all accrued and unpaid interest
thereon, and
(b) all other payments due under this Agreement,
shall, at the option of the Lender Group, become immediately due and payable
with interest thereon, at the rate or rates determined as provided in this
Agreement, to the date of actual payment thereof, all without additional notice,
presentment, protest, demand, notice of dishonour or any other demand or notice
whatsoever, all of such are hereby expressly waived by the Borrower. In such
event the Security shall become immediately enforceable and the Lender Group
may, in its discretion, exercise any right or recourse and/or proceed by any
action, suit, remedy or proceeding against the Borrower authorized or permitted
by law for the recovery of all the obligations and proceed to exercise any and
all rights under this Agreement and under the Security, and no such remedy for
the enforcement of the rights of the Lender Group shall be exclusive of or
dependent on any other remedy but any one or more of such remedies may from time
to time be exercised independently or in combination.
9.4 TERMINATION OF LENDER GROUPS' OBLIGATIONS. The occurrence of an Event of
Default terminates any right of the Borrower to obtain any further credit from
the Lender Group pursuant to this Agreement and relieves the Lender Group of any
obligation to provide any further credit under this Agreement.
9.5 MONITOR. Upon the occurrence of an Event of Default, and until such Event of
Default is cured, the Lender Group shall have the right to require the Borrower
to appoint such financial adviser as the Lender Group may specify, as monitor to
provide on-going reports to the Lender Group on the financial condition and
prospects of the Borrower. The reasonable expenses of such monitor shall be paid
promptly by the Borrower upon receipt of invoice.
9.6 REMEDIES ARE CUMULATIVE. For greater certainty, the rights and remedies of
the Lender Group under this Agreement are cumulative and are in addition to and
not in substitution for any rights or remedies provided by law; and any single
or partial exercise by the Lender Group of any right or remedy for a Default or
Event of Default or breach of any term, covenant, condition or agreement herein
contained shall not be deemed to be a waiver of or to alter, affect or prejudice
any other right or remedy to which the Lender Group may be lawfully entitled for
the same default or breach, and any waiver by the Lender Group of the strict
observance, performance or compliance with any term, covenant, condition or
agreement herein contained and any indulgence granted by the Lender Group shall
be deemed not to be a waiver of that or any subsequent default.
9.7 CASH COLLATERAL ACCOUNTS. Upon the occurrence of an Event of Default and in
addition to any other rights or remedies of the Lender Group hereunder, the
Lender Group as and by way of collateral security shall be entitled to deposit
and retain in an account to be maintained by the Lender Group (with interest)
amounts which are received by the Lender Group from the Borrower hereunder or as
proceeds of realization of any Security to the extent such amounts may be
required to satisfy any contingent or unmatured obligations or liabilities of
the Borrower to the Lender Group hereunder.
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PART 10.0 - ENVIRONMENTAL MATTERS
10.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants
as follows:
(a) The Borrower's business has been operated in compliance in all
material respects with all applicable Environmental Laws and
with all permits, licenses and authorizations issued pursuant
to Environmental Laws.
(b) There are no claims, investigations, litigation,
administrative proceedings, whether pending, or to the best of
the Borrower's knowledge after due inquiry, threatened
relating to any Contaminants, Releases or other forms of
pollution or alleged violation of applicable Environmental
Laws (collectively Environmental Matters) that may reasonably
be expected to have or give rise to a Material Adverse Change
upon the Borrower. The Borrower has not assumed any material
liability of any other Person for response, removal,
remediation, investigation, clean up, compliance or required
capital expenditures in connection with any matter arising
prior to the date hereof.
10.2 ENVIRONMENTAL COVENANTS. The Borrower covenants with the Lender Group as
follows:
(a) COMPLIANCE. The Borrower shall comply in all respects with the
requirements of any Environmental Law applicable to it.
(b) NOTIFICATION. The Borrower shall promptly forward to the
Lender Group copies of all material orders, notices, permits,
applications or other communications and reports in connection
with any Environmental Law affecting or relating to the
Property or the operations and activities of the Borrower.
10.3 INDEMNITY. The Borrower shall at all times indemnify and hold the Lender
Group harmless against and from any and all claims, suits, actions, debts,
damages, costs, losses, obligations, judgments, charges, and expenses, of any
nature whatsoever suffered or incurred by the Lender Group, whether upon
realization of the Security, or as lender to the Borrower, or as successor to or
assignee of any right or interest of the Borrower, or as a result of any order,
investigation or action by any governmental or regulatory authority relating to
the Borrower or its business or Property or as privileged or hypothecary
creditor or mortgagee in possession of Property or as successor or
successor-in-interest to the Borrower as a result of any taking of possession of
all or any of the Property or by any other means relating to the Borrower, under
or on account of any breach of Environmental Law, with respect to:
(a) the Release of a Contaminant, the threat of the Release of any
Contaminant, or the presence of any Contaminant affecting any
Property, whether or not the same originates or emanates from
such Property, including any loss of value of the Property as
a result of any of the foregoing,
(b) the Release of a Contaminant owned by, or under the charge,
management or control of the Borrower, or any predecessor or
assignor of the Borrower,
(c) any costs incurred by any federal, provincial, state,
municipal, local or other governmental or regulatory authority
or any other person or damages from injury to, destruction of,
or loss of natural resources in relation to, the Property or
elsewhere, including reasonable costs of assessing such
injury, destruction or loss incurred under any Environmental
Laws,
(d) liability for personal injury or property damage arising by
reason of any civil law offenses or quasi-offenses or under
any statutory or common law tort or similar theory, including,
without
<PAGE> 29
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limitation, damages assessed for the maintenance of a public
or private nuisance or for the carrying on of a dangerous
activity at, near, or with respect to the Property or
elsewhere, and/or
(e) any other environmental matter affecting the Property or the
operations and activities of the Borrower within the
jurisdiction of any federal, provincial, municipal, state or
local environmental agency.
The obligations of the Borrower under this section 10.3 shall arise upon the
discovery of the presence or Release of any Contaminant, whether or not any
federal, provincial, municipal, state or local environmental agency has taken or
threatened any action in connection with the presence of any Contaminant.
10.4 SCOPE OF INDEMNITY. The Borrower acknowledges that the Lender Group has
agreed to make the Borrowing available in reliance upon its representations,
warranties, and covenants in this Part. For this reason, it is the intention of
the Borrower and the Lender Group that the provisions of this Part shall
supersede any other provisions in this Agreement, or the Security which in any
way limit the liability of the Borrower and the Borrower shall be liable for any
obligations arising under or in connection with this Part even if the amount of
the liability incurred exceeds the Outstanding Borrowing. The obligations of the
Borrower arising under this Part are absolute and unconditional and shall not be
affected by any act, omission or circumstance whatsoever, except in respect of
negligence or wilful misconduct by the Lender Group. The obligations of the
Borrower arising under this Part shall survive the repayment of the Outstanding
Borrowing and shall survive the transfer of any or all right, title and interest
in and to any Property by the Borrower to any person.
10.5 CONSULTANTS, ETC. The Lender Group, acting reasonably, may employ lawyers,
engineers, scientists, or consultants of the Lender Group"s choice at the
expense of the Borrower. Any engineer, scientist, or consultant so engaged by
the Lender Group may upon reasonable notice to the Borrower enter onto the
premises of the Borrower for the purpose of any inquiry and may make any
necessary excavation or bore holes and take samples of any material or
substance, and record or copy any information by any method. The Lender Group
shall ensure that any such Person employed by or acting on behalf of the Lender
Group shall conduct itself and any inquiry or other activity on or in respect of
any Property in a manner which does not disrupt the business of the Borrower or
which results in a breach of any Environmental Law. The Borrower hereby consents
to any inquiries by the Lender Group or any lawyers, engineers, scientists, or
consultants engaged on its behalf under any freedom of access or freedom of
information legislation and agrees to execute such further consents or documents
as may be necessary to give effect to this section 10.5. The Lender Group shall
not disclose to any Person any of the information obtained as a result of the
foregoing without the prior written consent of the Borrower unless disclosure is
required by law, in which case the Lender Group shall notify the Borrower and
provide the Borrower with a reasonable opportunity to oppose the disclosure of
such information.
10.6 FEES AND EXPENSES. If the Lender Group retains the services of any lawyer,
engineer, scientist, or consultant in connection with the subject of this Part,
the Borrower shall pay the reasonable out-of-pocket costs and fees thereby
incurred if retained and applicable to such party as a result of any breach of
Environmental Law or in connection with any inquiry or investigation by a
federal, provincial, municipal, state or local government or agency in
connection with Environmental Law or if the services performed are reasonably
necessary for the performance of the functions of the Lender Group under this
Agreement or for the preservation or protection of the Security.
10.7 INTEREST. If the Lender Group incurs any obligations, costs or expenses
under this Part or in respect of any Environmental Activity covered by this
Part, the Borrower shall pay the same to the Lender Group on demand in respect
of such party's obligations, and if such payment is not received within ten
days, such amount will be treated as a Borrowing and the Borrower will pay
interest thereon at the Interest Rate plus 3% per annum calculated monthly which
shall accrue from the date of expiry of such ten day period to the date of
payment.
<PAGE> 30
30
10.8 ENVIRONMENTAL COMPLIANCE. If the Borrower provides the Lender Group with
any notification required under section 7.1(q) or 10.2 hereof or if the Lender
Group otherwise receives any environmental information, the Lender Group, in its
sole discretion, may determine that an adverse change in the environmental
condition of the Borrower has occurred, which decision shall constitute, in the
absence of manifest error, conclusive evidence of the adverse change. Following
such determination, the Lender Group may provide to the Borrower directions or
instructions as to the remedial action to be undertaken by the Borrower with
respect to such adverse change, and the Borrower shall comply with any such
direction or instruction diligently and at its own expense. Notwithstanding the
issuance of any such direction or instruction, the Borrower shall remain solely
responsible for compliance with all Requirements of Environmental Law with
respect to its assets, properties and businesses and the Lender Group shall not,
and shall not be deemed to, assume or be charged with any liability or
obligation with respect to such compliance.
PART 11.0 - GENERAL
11.1 NOTICES. Any notice, request or other communication hereunder to any of the
parties hereto shall be in writing and be well and sufficiently given if
delivered personally or sent by prepaid registered mail to its address or by
telecopier to the number and to the attention of the person set forth below:
(a) In the case of the Borrower and Parent:
350 Creditstone Road
Concord, Ontario
L4K 3Z2
Attention: Mr. Michael Steele, President
Telecopier No.: (905) 366-6368
With a copy to:
McCarter Grespan Robson Beynon Thompson
675 Riverbend Drive
Kitchener, Ontario
N2K 3S5
Attention: Thomas D. Beynon
Telecopier No.: (519) 742-1841
(b) In the case of the Lender Group:
First Ontario Labour Sponsored Investment Fund Ltd.
c/o First Ontario Management Ltd.
234 Eglinton Avenue East
Suite 310
Toronto, Ontario
M4P 1K5
Attention: Mr. Ken Delaney, President
Telecopier No.: (416) 487-1345
<PAGE> 31
31
and
Bank of Montreal Capital Corporation
302 Bay Street
7th Floor
Toronto, Ontario
M5X 1A1
Attention: Mr. Mel Margolese, Managing Director
Telecopier No.: (416) 867-4108
with a copy to:
Crosbie Capital Management Inc.
9th Floor, P.O. Box 116
First Canadian Place
Toronto, Ontario
M5X 1A4
Attention: Mr. Colin Walker, Partner
Telecopier No.: (416) 362-3447
Southbridge Investment Partnership No. 1
150 Water Street South
Cambridge, Ontario
N1R 3E2
Attention: Lynda King
Telecopier No.: (519) 621-8886
and with a copy to:
Gowling, Strathy & Henderson
Suite 1020
50 Queen Street North
Kitchener, Ontario
N2H 6M2
Attention: Mr. Peter M. Koch
Mr. F. John Durdan
Telecopier No.: (519) 571-5040
Any such notice shall be deemed to be given and received, if delivered, when
delivered, and if mailed, on the third Business Day following the date on which
it was mailed, unless an interruption of postal services occurs or is continuing
on or within the three Business Days after the date of mailing in which case the
notice shall be deemed to have been received on the third Business Day after
postal service resumes and if sent by telecopier on the next Business Day after
the day on which the telecopy is sent. Either party may by notice to the other,
given as aforesaid, designate a changed address or telecopier number.
<PAGE> 32
32
11.2 PERFORMANCE OF COVENANTS BY THE LENDER GROUP. If any of the covenants or
obligations contained herein shall not be performed by the Borrower, the Lender
Group may perform such covenant or obligation and, if in so doing the Lender
Group spends money or incurs liability, the amount of money so spent or
liability incurred shall be added to the principal of Outstanding Borrowing. All
such amounts shall become immediately due and payable and any such amounts which
remain unpaid after demand shall accrue interest at the Interest Rate plus 3%
per annum calculated monthly until paid in full.
11.3 BREAK FEE. If the Borrower does not complete the transactions contemplated
hereby, the Borrower shall promptly, but no later than June 10, 2000, pay to
First Ontario Management Ltd. (acting as agent for the Lender Group) a break fee
of $100,000 plus goods and services tax exigible thereon. Such fee shall be
deemed to be earned for the time, effort and exposure incurred by the Lender
Group in (i) reviewing and establishing all documentation, financial
information, proposal and plans referable to the Credit Facility, and (ii)
establishing satisfactory priority arrangements with the holders of the
Permitted Encumbrances. Such fee shall be paid on the Closing Date if it has not
been paid prior to the Closing Date.
11.4 INDEMNITY. In addition to any other indemnity provided for herein, the
Borrower hereby indemnifies the Lender Group on demand against any loss (other
than loss of profit), expense or liability which the Lender Group may sustain or
incur as a consequence of the action or inaction of the Borrower in connection
with:
(a) any default in payment of the principal amount of any
Borrowing or any part thereof or interest accrued thereon, as
and when due and payable;
(b) any failure to fulfill on or before any Borrowing Date the
conditions precedent to any Borrowing as provided for in this
Agreement, if as a result of such failure such Borrowing is
not made on such date;
(c) the occurrence of any Event of Default; or
(d) any misrepresentation made by the Borrower herein or in any
instrument in writing delivered to the Lender Group in
connection with this Agreement,
excluding only any loss arising as a result of the Lender Group"s negligence.
11.5 PUBLICITY. The Lender Group shall be entitled to publicity in connection
with the transactions contemplated in this Agreement.
11.6 NO SET-OFF OR COUNTERCLAIM. The obligation of the Borrower to make payments
hereunder shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, any set-off, compensation,
counterclaim, recoupment, defence or other right which the Borrower may have
against the Lender Group.
11.7 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
hereof and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
11.8 TIME OF ESSENCE. Time shall, in all respects, be of the essence of this
Agreement.
11.9 ASSIGNMENT. The Borrower may not assign this Agreement or any part hereof
without the prior written consent of the Lender Group. The Lender Group shall be
entitled to assign this Agreement.
11.10 ENTIRE AGREEMENT. This Agreement, together with any security or other
instrument contemplated hereby, constitutes the entire agreement between the
parties with respect to the matters covered hereby and supersedes any other
prior agreements or representations.
<PAGE> 33
33
11.11 AMENDMENTS. No amendment, modification or waiver of any provision of this
Agreement or consent by the Lender Group to any departure from any provision of
this Agreement is in any way effective unless it is in writing and signed by the
Borrower (in respect of an amendment or modification), and the Lender Group, in
which event the amendment, modification, waiver or consent is effective only in
the specific instance and for the specific purpose for which it is given.
11.12 LAW GOVERNING. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein and shall be treated in all respects as an Ontario contract
and the parties hereby submit and attorn to the non-exclusive jurisdiction of
the courts of the Province of Ontario.
11.13 CONFLICT. In the event that there is any conflict between the provisions
contained in this Agreement and the provisions contained in any document
delivered pursuant hereto or in connection herewith including, without
limitation, the Security, the provisions of this Agreement shall have priority
over and shall override the provisions contained in the other document.
11.14 LOAN PARTICIPATION. The Lender Group, without additional cost and expense
to the Borrower, reserves the right to sell, assign or transfer or grant a
participation in the Credit Facility, in whole or in part, to one or more
Persons (the "Participants"), without notice to, or the consent of the Borrower.
For the purpose of selling, assigning, transferring or granting a participation,
the Lender Group may disclose, on a confidential basis, to a potential
Participant such information concerning the Borrower as the Lender Group
considers appropriate. The Borrower agrees to execute and deliver such further
documentation and take such further action as the Lender Group considers
necessary or advisable to give effect to such sale, assignment, transfer or
grant of participation. In the case of sale, assignment, transfer or granting of
a participation, the Participant shall have, to the extent of such sale,
assignment, transfer or grant of participation, the same rights and obligations
as it would have if it were the Lender Group on the Closing Date and as such had
executed this Agreement and the Security and any other instrument contemplated
hereunder as required.
11.15 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and enure to
the benefit of the parties and their respective successors and assigns.
11.16 COUNTERPART. This Agreement and any agreement contemplated thereby may be
executed in one or more counterparts, each of which so executed shall constitute
an original and all of which together shall constitute one and the same
Agreement or agreement, as applicable.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK
<PAGE> 34
34
INTERNATIONAL MENU SOLUTIONS CORPORATION
By: ______________________________
Name: Michael Steele
Title: President
c/s
INTERNATIONAL MENU SOLUTIONS INC.
By: ______________________________
Name: Michael Steele
Title: President
c/s
SOUTHBRIDGE INVESTMENT PARTNERSHIP NO. 1
by its general partner,
SIPGP NO. 1 INC.
By: ______________________________
Name: Michael Petersen
Title: President
c/s
BANK OF MONTREAL CAPITAL CORPORATION
By: ______________________________
Name: Mel Margolese
Title: Managing Director
FIRST ONTARIO LABOUR SPONSORED INVESTMENT
FUND LTD.
By: ______________________________
Name: Colin Walker
Title: Vice-President
<PAGE> 35
SCHEDULE A
DEFINED TERMS
(a) "AFFILIATES" shall have the meaning ascribed to that term in the
Business Corporations Act (Ontario).
(b) "AGREEMENT" means this agreement and the schedules hereto and any
amendments or supplements to this agreement or the schedules at any
time and from time to time.
(c) "APPLICABLE LAW" means, at any time, with respect to any Person,
property, transaction or event, all applicable laws, statutes,
regulations, treaties, judgments and decrees and (whether or not having
the force of law) all applicable official directives, rules, consents,
approvals, by-laws, permits, authorizations, guidelines, orders and
policies of any governmental or regulatory body or Persons having
authority over any of the parties hereto.
(d) "BENCHMARK FINANCIALS" means the Consolidated interim financial
statements of the Parent prepared by the Parent and forming part of its
10-Q filing under the Securities Exchange Act of 1934 as at March 31,
2000 which are attached as Schedule B hereto.
(e) "BMOCC PROPORTIONATE INTEREST" means zero percent (0%) until the Second
Advance is made, and then it shall be 11.11%.
(f) "BORROWER'S FINANCIALS" means the consolidated financial statements of
International Menu Solutions Inc. and its Subsidiaries as at March 31,
2000 which are attached as Schedule K.
(g) "BORROWING" means a drawdown of or advance by a Lender under, the
Credit Facility.
(h) "BORROWING DATE" means the Business Day on which a Borrowing is made.
(i) "BUSINESS" means the business of a marketer and seller of home meal
replacement products throughout North America.
(j) "BUSINESS DAY" means a day on which banks are open for business in
Toronto, Ontario other than a Saturday, Sunday or such other day as
banks in Toronto, Ontario are authorized or required to be closed for
business.
(k) "CAPITAL EXPENDITURES" means expenditures by the Borrower which would
be classified as capital in nature according to GAAP.
(l) "CAPITALIZED LEASE OBLIGATIONS" means monetary obligations under
agreements for the lease or rental of real or personal property that in
accordance with GAAP are required to be capitalized.
(m) "CLOSING" means the completion of the first advance by the Lender Group
to the Borrower.
(n) "CLOSING DATE" means May 31, 2000.
(o) "CONSOLIDATED" means, when used to describe the calculation of any
amount relating to the Borrower and its Subsidiaries, consolidated in
accordance with GAAP.
<PAGE> 36
(p) "CONTAMINANT" includes, but is not limited to, any pollutant,
dangerous, toxic or hazardous substance, waste of any description
whatsoever, hazardous materials or contaminants including any of the
foregoing as defined in any Environmental Law.
(q) "CONTINGENT FINANCIAL OBLIGATION" means, at any time and without
duplication, any obligation of the Borrower guaranteeing, indemnifying
or securing or in effect guaranteeing, indemnifying or securing,
whether directly or indirectly, any indebtedness, liability or
obligation, absolute or contingent, of any other Person, as determined
in accordance with GAAP.
(r) "CREDIT FACILITY" means the credit facility made available under Part
2.0.
(s) "CSBIFA" means the Community Small Business Investment Fund Act
(Ontario);
(t) "CURRENT ASSETS" means, at any particular time, the current assets of
the Borrower as at such date determined in accordance with GAAP.
(u) "CURRENT LIABILITIES" means, at any particular time, the current
liabilities of the Borrower as at such date plus, to the extent not
otherwise included and without duplication:
(i) the current portion of Capitalized Lease Obligations; and
(ii) the current portion of all Indebtedness owed by the Borrower,
determined in accordance with GAAP.
(v) "DEBT" means, at any particular time, the aggregate amount of all
Current Liabilities and all long-term debt (both the current and
non-current portions) of the Borrower as such amounts would be
classified on the balance sheet of the Borrower in accordance with GAAP
at such time including, but not limited to:
(i) short-term debt;
(ii) long-term debt;
(iii) Capitalized Lease Obligations;
(iv) the current portion of subordinated debt;
(v) Guarantees; and
(vi) unpostponed shareholder loans.
For greater certainty, Debt shall exclude deferred taxes and the
long-term portion of the subordinated debt.
(w) "DEFAULT" means any of the events described in section 9.1 regardless
of whether any requirement in connection with such event for the giving
of notice, the lapse of time, or the happening of any further
condition, event or act has been satisfied or met.
(x) "EBITDA" means, in respect of any particular Fiscal Period, the
difference obtained by subtracting all gains included in net income
attributable to the sale of fixed assets or any other non-cash gains
arising out of the ordinary course of business from the aggregate of:
<PAGE> 37
(i) Consolidated Net Income;
(ii) Consolidated Interest Expenses;
(iii) Consolidated income tax expenses, including deferred income
taxes;
(iv) Consolidated depreciation and amortization expenses and other
non-cash expenses; and
(v) Consolidated losses included in net income attributable to the
sale of fixed assets or any other non-cash charges arising out
of the ordinary course of business,
all as determined at the end of the said Fiscal Period by the auditors
of the Borrower in accordance with GAAP.
(y) "ENVIRONMENTAL ACTIVITY" means any past, present or future activity,
event or circumstance in respect of a Contaminant, including, without
limitation, its storage, use, holding, collection, purchase,
accumulation, assessment, generation, manufacture, construction,
processing, treatment, stabilization, disposition, handling or
transportation or its Release into the natural environment including
the movement through or in the air, soil, subsoil, surface water or
groundwater.
(z) "ENVIRONMENTAL LAWS" means any and all federal, provincial, municipal,
local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders, decrees, permits, licences, agreements or other
governmental restrictions having the force of law relating to the
environment, occupational health and safety, health protection or any
Environmental Activity.
(aa) "ENVIRONMENTAL QUESTIONNAIRE" means the environmental questionnaire
prepared by the Lender Group and completed by the Borrower.
(bb) "EVENT OF DEFAULT" means any of the events described in section 9.1,
provided that any requirement in connection with such event for the
giving of notice, the lapse of time or the happening of any further
condition, event or act has been satisfied or met.
(cc) "FIRST ADVANCE" means the advance of $3,000,000 by Southbridge of the
Borrowing.
(dd) "FIRST ONTARIO PROPORTIONATE INTEREST" means zero percent (0%) until
the Second Advance is made and then, it shall mean 22.22 % thereafter.
(ee) "FISCAL PERIOD" means a Fiscal Year or any period of one, two or three
Fiscal Quarters.
(ff) "FISCAL QUARTER" means any of the fiscal quarters of the Borrower
ending on the last day of March, June, September and December in each
year.
(gg) "FISCAL YEAR" of an entity means the 12 month period ending on the
fiscal-year end of that entity and in the case of the Borrower the 12
month period ending on December 31 of each year.
(hh) "GAAP" means the generally accepted accounting principles recommended
in Canada by the Canadian Institute of Chartered Accountants as set
forth from time to time in the publication known as the CICA Handbook
save and except that in connection with the Parent,
<PAGE> 38
"GAAP" means the generally accepted accounting principles applicable in
the United States of America.
(ii) "GROUP SUBSIDIARIES" means, collectively, Prime Foods Processing Inc.,
Transcontinental Gourmet Foods Inc., Tasty Selections Inc., D. C. Food
Processing Inc., The Ultimate Cookie Co. Inc., Huxtable's Kitchens
Inc., and any other direct or indirect Subsidiary.
(jj) "GUARANTEE" means, with respect to a Person, any absolute or contingent
liability of that Person under any guarantee, agreement, endorsement
(other than for collection or deposit in the ordinary course of
business), discount with recourse or other obligation to pay, purchase,
repurchase or otherwise be or become liable or obligated upon or in
respect of any Indebtedness of any other Person and including any
absolute or contingent obligations to:
(i) advance or supply funds for the payment or purchase of any
Indebtedness of any other Person,
(ii) purchase, sell or lease (as lessee or lessor) any property,
assets, goods, services, materials or supplies primarily for
the purpose of enabling any other Person to make payment of
Indebtedness or to assure the holder thereof against loss, or
(iii) indemnify or hold harmless any other Person from or against
any losses, liabilities or damages, in circumstances intended
to enable such other Person to incur or pay any Indebtedness
or to comply with any agreement relating thereto or otherwise
to assure or protect creditors against loss in respect of such
Indebtedness.
(kk) "HAZARDOUS MATERIALS" means any substance or material that is
prohibited, controlled or otherwise regulated by any governmental
authority pursuant to the Requirements of Environmental Law, including,
without limitation, any contaminant, pollutant, dangerous substance,
toxic substance, designated substance, controlled product, hazardous
waste, subject waste, hazardous material, dangerous good or petroleum,
its derivatives, by-products or other hydrocarbons, asbestos,
polychlorinated biphenyls (PCBs) or PCB contaminated fluids or
equipment, explosives, or radioactive substances, all as defined in or
pursuant to the Requirements of Environmental Law.
(ll) "INCORPORATED COVENANTS" means the financial covenants imposed by the
Senior Loan Agreements, as amended from time to time thereafter,
provided that such amendments impose a more burdensome obligation on
the Borrower than the covenants set out in the Senior Loan Agreements.
(mm) "INDEBTEDNESS" of a Person means, without duplication,
(i) all debts, liabilities and obligations, contingent and other,
including principal, interest, charges and fees, which in
accordance with GAAP would be classified upon the Person's
balance sheet as liabilities including, without limitation,
all Capitalized Lease Obligations,
(ii) all obligations secured by any Security Interest, including
principal, interest, charges and fees, existing on property
owned or acquired by the Person subject to such Security
Interest whether or not the Person has assumed or otherwise
become liable for the payment of such obligations, and
(iii) all obligations and liabilities incurred pursuant to
Guarantees issued by the Person.
<PAGE> 39
(nn) "INTEREST EXPENSES" means, for any particular Fiscal Period, the amount
which would, in accordance with GAAP, be classified on the Consolidated
income statement of the Borrower for such period as gross interest
expense, including the interest component of all Capitalized Lease
Obligations.
(oo) "INTEREST PAYMENT DATE" means the last Business Day of each calendar
month.
(pp) "INTEREST RATE" means:
(i) for the period from the date of the First Advance until and
including August 31, 2000, 12% per annum;
(ii) for the period from September 1, 2000 until and including
November 30, 2000, 24% per annum; and
(iii) for the period December 1, 2000 until the outstanding
principal amount of the Borrowing has been paid in full, 36%
per annum.
(qq) "LEASE PAYMENTS" means, for any particular period, the amount which
would, in accordance with GAAP, be classified on the Consolidated
income statement of the Borrower for such period as operating or
non-capital lease payment expenses.
(rr) "LENDER" means one of the Lender Group
(ss) "LIEN" means any deed of trust, mortgage, charge, hypothec, assignment,
pledge, lien or other security interest or encumbrance of whatever kind
or nature, including without limitation, vendor"s privilege or
supplier"s right of reclamation, regardless of form and whether
consensual or arising by law (statutory or otherwise) that secures the
payment of any indebtedness or liability or the observance or
performance of any obligation, and including any agreement to give any
of the foregoing.
(tt) "LOAN AMOUNT" means $3,000,000 in the case of Southbridge, $1,000,000
in the case of First Ontario, and $500,000 in the case of BMOCC.
(uu) "MAJORITY LENDERS" means any one or more Lenders holding in the
aggregate a minimum of 75% of the Outstanding Borrowing.
(vv) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, with
respect to any event, act, condition or occurrence of whatever nature
(including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding), whether singly or in
conjunction with any other event or events, act or acts, condition or
conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of
the business, property, assets, operations, conditions (financial or
otherwise) or prospects of the Borrower as determined in the good faith
exercise of the Lender Group"s judgment.
(ww) "MATERIAL CONTRACTS" means the material contracts and agreements to
which the Borrower is a party in connection with the business of the
Borrower, including all leases, conditional sales agreements, licenses,
supply agreements and sales agreements, excluding those which have a
remaining term of less than three months or under which the annual
obligations or benefits of the Borrower are less than $250,000, all of
which are described in SCHEDULE E to this Agreement.
(xx) "MATURITY DATE" means February 28, 2001.
<PAGE> 40
(yy) "NET INCOME" means, for any particular Fiscal Period, the amount which
would be classified on the Consolidated income statement of the
Borrower for such period as net income in accordance with GAAP.
(zz) "OUTSTANDING BORROWING" means the aggregate of (i) the outstanding
principal amount of each Borrowing, (ii) all unpaid interest and fees
thereon as herein provided, and (iii) all other fees, charges and
expenses required to be paid by the Borrower to the Lender Group
hereunder or pursuant to any written agreements now or hereafter
entered into between the Borrower and the Lender Group.
(aaa) "PERMITTED CAPITAL EXPENDITURES" means:
(i) for the calendar year ending 12/31/2000, capital expenditures
in an amount not in excess of that presented to the Lenders as
part of the Consolidated Forecasts contained in Schedule M and
in particular, representing an amount of no greater than
$5,000,000 in respect of the capital projects (a) for
Transcontinental Gourmet Foods Inc; and (b) the relocation and
expansion of Pasta Kitchens; and
(ii) for the calendar year ending 12/31/2001, an amount not
exceeding $5,000,000 except as agreed to in writing by the
Lenders;
provided however, that the Company will immediately cease
making capital commitments and, to the extent possible, defer
payments at any time it foresees not being able to remain
within the working capital covenant (section 7.2(a)) herein or
any covenant of the Senior Lenders.
For greater certainty, the Company will not be permitted to
complete any acquisition of any business without the prior
written consent of the Lenders.
(bbb) "PERMITTED ENCUMBRANCES" means any one or more of the following with
respect to the property, assets and undertaking of the Borrower:
(i) Liens for taxes, assessments or government charges or levies
not at the time due and delinquent or the validity of which
are being contested in good faith by proper legal proceedings
and as to which reserves are being maintained in accordance
with GAAP so long as forfeiture of any part of the property or
assets of the Borrower will not result from the failure to pay
such taxes, assessments or governmental charges or levies
during the period of such contest;
(ii) the Lien of any judgment rendered or claim filed against the
Borrower which is being contested in good faith by proper
legal proceedings and as to which reserves are being
maintained in accordance with GAAP so long as forfeiture of
any part of the property or assets of the Borrower will not
result from the failure to satisfy such judgment or claim
during the period of such contest;
(iii) undetermined or inchoate Liens and charges incidental to
current operations which have not at such time been filed
pursuant to law or which relate to obligations not due or
delinquent;
(iv) restrictions, easements, rights-of-way, servitudes or other
similar rights in land granted to or reserved by other Persons
which in the aggregate do not materially impair the
usefulness, in the operation of the business of the Borrower,
of the property subject to such restrictions, easements,
rights-of-way servitudes or other similar rights in land
granted to or reserved by other Persons;
<PAGE> 41
(v) the right reserved to or vested in any municipality or
governmental or other public authority by the terms of any
lease, licence, franchise, grant or permit acquired by the
Borrower or by any statutory provision, to terminate any such
lease, licence, franchise, grant or permit, or to require
annual or other payments as a condition to the continuance
thereof;
(vi) the encumbrance resulting from the deposit of cash or
securities in connection with contracts, tenders or
expropriation proceedings, or to secure workers" compensation,
surety or appeal bonds, costs of litigation when required by
law and public and statutory obligations;
(vii) security 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 Borrower, all in the ordinary course of business;
(viii) the reservations, limitation, provisos and conditions, if any,
expressed in any original grants from the Crown or in
comparable grants, if any, in jurisdictions other than Canada;
(ix) title defects or irregularities which are of a minor nature
and in the aggregate will not materially impair the use of the
property for the purpose for which it is held;
(x) any validly perfected Lien created, assumed or arising by
operation of law after the date of this Agreement, to provide
or secure the whole or any part of the consideration of the
acquisition of property, whether by lease or by conditional
sales contract, where:
A. the principal amount secured does not exceed the cost
to the Borrower of such property,
B. the Borrower's obligation to repay is secured only by
the property so acquired by the Borrower,
C. the property is not being acquired as a replacement
or substitution for the property or assets which are
charged under the Security, and
D. the aggregate amount secured by the Liens described
in this paragraph (x) created, assumed or arising
during any Fiscal Year of the Borrower shall not
exceed the annual amount determined in the discretion
of the Lender Group, which annual amount shall not
exceed 75% of the actual capital expenditures for the
period;
(xi) security given to the Senior Lenders pursuant to the
respective Senior Loan Agreements; and
(xii) any other Lien on property or properties of the Borrower that
is hereafter specifically consented to in writing by the
Lender Group or described in Schedule G annexed hereto.
(ccc) "PERSON" includes an individual, a partnership, a joint venture, a
trust, an unincorporated organization, a company, a corporation, an
association, a government or any department or agency thereof and any
other incorporated or unincorporated entity.
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(ddd) "PROPERTY" means any moveable or immoveable or personal or real
property owned, leased, occupied or under the charge, management or
control of the Borrower.
(eee) "REAL PROPERTY" means the real properties which are owned or occupied
by the Borrower and situated at the locations which are identified in
Schedule C to this Agreement as the locations of freehold and leasehold
properties.
(fff) "RELATED PARTIES" means Persons who are Affiliates of the Borrower or
Subsidiaries of the Borrower or who are otherwise related to the
Borrower within the meaning of the Income Tax Act (Canada).
(ggg) "RELEASE" includes discharge, spray, inject, inoculate, abandon,
deposit, spill, leak, seep, pour, emit, empty, throw, dump, place,
escape, leach, disperse, migrate and exhaust, and when used as a noun
(as applicable) has a similar meaning.
(hhh) "REQUIREMENTS OF ENVIRONMENTAL LAW" means all requirements of the
common law or of statutes, regulations, by-laws, ordinances, treaties,
judgments and decrees, and (whether or not they have the force of law)
rules, policies, guidelines, orders approvals, notices, permits,
decisions, directives, directions and the like, of any federal,
territorial, provincial, regional, municipal or local, judicial,
regulatory or administrative agency, board or governmental authority
relating to environmental or occupational health and safety matters and
any property owned, leased or used by the Borrower and its activities
carried out thereon (whether in the past, present or the future)
including, but not limited to, all such requirements relating to: (i)
the protection, preservation or remediation of the natural environment
(the air, land, surface water or groundwater); (ii) the generation,
handling, treatment, storage, transportation or disposal of or other
dealing with solid, gaseous or liquid waste; and (iii) Hazardous
Materials.
(iii) "SECOND ADVANCE"means the advance of $1,000,000 by First Ontario and
$500,000 by BMOCC of the Borrowing.
(jjj) "SECURITY" means the security and agreements described in Part 8.0 and
any additional security issued from time to time by any Person in
support of the liabilities and obligations hereunder.
(kkk) "SECURITY INTEREST" includes a mortgage, charge, floating charge,
pledge, hypothec, assignment, lien, interest claim, encumbrance,
conditional sale agreement or other title retention agreement,
subordination trust or other security interest or arrangement of any
kind or character intended to create a security interest in substance
regardless of whether the Person creating the interest retains an
equity of redemption, and any agreement to provide or enter into at any
time or on the happening of any event such a security interest or
arrangement.
(lll) "SECURITY SHARING AGREEMENT" means an agreement of even date herewith
made between Southbridge, First Ontario, and BMOCC.
(mmm) "SENIOR LENDERS" means The Bank of Nova Scotia, Business Development
Bank of Canada, and The Royal Bank of Canada or any other lender
providing operating or term credit facilities (other than capital
leases or real estate mortgages) and having Liens in priority to the
Liens of the Lender Group.
(nnn) "SENIOR LOAN AGREEMENTS" means, certain loan agreements made between
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(i) The Bank of Nova Scotia as Lender and the Borrower, as
borrower, dated April 15, 1999;
(ii) Business Development Bank and Prime Foods Processing Inc.
dated November 5, 1997;
(iii) Royal Bank of Canada and D.C. Food Processing Inc. dated
August 19, 1999;
(iv) Bank of Montreal Capital Corporation and First Ontario Labour
Sponsored Investment Fund Ltd. as Lenders and the Borrower as
borrower dated May 10, 1999; and
(iv) any other credit agreement or mortgage with a Senior Lender.
(ooo) "SHAREHOLDERS" means any Person (other than the Lender Group) who
directly or indirectly is the legal or beneficial owner of any share in
the capital stock of the Borrower.
(ppp) "SOUTHBRIDGE PROPORTIONATE INTEREST" means 100% until the Second
Advance is made, then it shall mean 66.67%.
(qqq) "SUBSIDIARY" means a body corporate which is a subsidiary of another
body corporate within the meaning of that term as used in the Business
Corporations Act (Ontario) as amended from time to time and
"SUBSIDIARIES" means more than one Subsidiary.
(rrr) "TAX" and "TAXES" include all present and future taxes, levies,
imposts, stamp taxes, duties, charges to tax, fees, deductions,
withholdings and any restrictions or conditions resulting in a charge
to tax and all penalties, interest and other payments on or in respect
thereof.
(sss) "TOTAL PRINCIPAL" means the current portion of the principal of the
long term debt of the Borrower determined in accordance with GAAP.
(ttt) "WORKING CAPITAL" means Current Assets less Current Liabilities.
(uuu) "WRITTEN" and "IN WRITING" shall include printing, typewriting or any
electronic means of communication capable of being visibly reproduced
at the point of reception including telex, telegraph or telecopy.
