Exhibit 10.5
HSBC [LOGO]
July 12, 2000
Pultronex Corporation
2305 - 8th Street
Nisku, Alberta
T9E 7Z3
Attention: Kelly Delhon
Gary Loblick
Dear Sirs:
0n the basis of the financial statements and other information provided by
Pultronex Corporation (the "Borrower") and Pultronex Corporation (US Entity)
(the "Corporate Guarantor') in connection with your request for continued
financing, HSBC Bank Canada (tile "Bank") has authorized the renewal of the
following loans (the "Loans"):
1. Loans:
1.1 $1,600,000 demand revolving operating loan (the "Operating Loan")
(increase from $1,000,000). This includes an option for advances to be
made available up to USD$200,000, and an option for issuance of
letters of guarantees up to an amount of $200,000;
1.2 $233,300 demand capital loan (the "Capital Loan");
1.3 $460,000 demand capital loan (the "Equipment Loan") based on 75% of
purchase price of equipment, upgrades, etc., or alternatively,
$460,000 leasing facility (the "Leasing Facility") as outlined in the
attached Leasing Proposal dated June 1, 2000 put forward by HSBC Bank
Canada Leasing Division (the "Leasing Department");
1.4 $500,000 facility to arrange foreign exchange contracts (the "FX
Facility");
2. Purpose:
2.1 the Operating Loan will be used to assist in financing the operating
requirements of the Borrower, which may include the issuance of
documentary credits in payment for goods and services;
2.2 the Capital Loan is the residual balance of a loan used to provide
additional working capital and pay out loans to ZCL Composites Inc.;
2.3 the Equipment Loan (or Leasing Facility) will be used to finance
various equipment purchases, and to perform various computer upgrades;
HSCB Bank Canada
10561 Jasper Avenue, Edmonton, Alberta T5J 1Z4
Tel: (780) 423-3563 Fax: (780) 420-0506
(70)
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2.4 the L/G Facility, incorporated in the Operating Loan, will be used to
issue letters of guarantee;
2.5 the F/X Facility will be used to arrange forward contracts to fix
prices on forward purchases/sales of foreign currencies;
3. Interest:
3.1 interest on the daily balance of the principal advanced under the
Operating Loan and remaining unpaid from time-to-time will be payable
monthly in arrears on the last day of each month at a floating rate
equal to the Bank's Prime Rate plus 75 basis points per annum (change
from 100 bps), calculated monthly from the date of advance.
In the case of U.S. Dollar borrowings, interest on the daily balance
of the principal advanced and remaining unpaid from time-to-time will
be payable monthly in arrears on the last day of each month at a
floating rate equal to the Bank's U.S. Base Rate plus 75 basis points
per annum (change from 100 bps);
3.2 interest on the daily balance outstanding under the Capital Loan, and
Equipment Loan and remaining unpaid from time-to-time will be payable
on the last day of each month at a rate equal to the Bank's Prime Rate
plus 100 basis points per annum (change from 125 bps) calculated
monthly in arrears from the date of advance;
3.3 should the Leasing Facility be selected, the rental pricing on the
Leasing Facility will be determined by Leasing Department following
the conditions stipulated on the attached Leasing Proposal;
The Bank's "Prime Rate" means the floating annual rate of interest
established and announced by the Bank from time-to-time as a reference rate
for purposes of determining rates of interest it will charge on loans
denominated in Canadian dollars and which, by accepting this letter the
Borrower acknowledges was 7.50% on July 10, 2000. A certificate of the Vice
President of the Bank will be conclusive evidence of the Bank's Prime Rate
from time-to-time;
The Bank's "U.S. Prime Rate" means the floating annual rate of interest
established and announced by the Bank from time-to-time as a reference rate
for purposes of determining rates of interest it will charge on loans
denominated in U.S. dollars and which, by accepting this letter, the
Borrower acknowledges was 10.00% on July 10, 2000. A certificate of the
Vice-President of the Bank will be conclusive evidence of the Bank's Prime
Rate from time-to-time;
Notwithstanding anything to the contrary contained herein, the Bank may, in
its discretion, make an advance under the Operating Loan, or make a
reduction from the advance otherwise requested under Loans, to pay any
interest which has become due and payable as aforesaid.
4. Letter of Guarantee Fees:
165 basis points per annum (minimum $100) calculated on the amount of each
letter of guarantee issued, payable at the time of issue or on any renewal
thereof;
(71)
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5. Advances:
5.1 the Operating Loan will revolve on an overdraft basis and will be
available following satisfaction of the Conditions of Loans as set
forth below. Advances under the Operating Loan, together with 50% of
D/C's opened but not accepted plus 100% of D/C's under usance terms,
100% of L/G's issued and 31% of forward exchange contracts
outstanding, will at not time exceed the aggregate of 50% of
Acceptable Inventory and 75% of Acceptable Receivables. Employee
deductions and wages due will also be deleted from Acceptable
Receivables (the "Margin Requirements"). For the purpose of this
section "Acceptable Inventory" means the value based on cost of all
raw materials to be utilized by the Borrower for resale of production
of goods for resale, 50% of which value will not be greater than
$150,000 and "Acceptable Receivables" means the aggregate of accounts
receivable of the Borrower from customers approved by the Bank which
have been outstanding for not more than 90 days from which will be
excluded accounts receivable from affiliated corporations, accounts
receivable which are disputed by the Borrower's customers or from whom
all or part of other accounts receivable remain outstanding for in
excess of 90 days.
5.1.1 an exception will be made to the Margin Requirements to allow
Acceptable Receivables to be assessed at 90% of any accounts
receivable of the Borrower insured by Export Development
Corporation ("EDC") and in good standing.
5.1.2 daily credit balance positions in the Borrower's USD account up
to an amount equivalent to CAD $250,000 may be used to net off
outstanding balances on the Operating Loan but only for the
purpose of determining the margin requirement on that day.
5.2 the Capital Loan is fully advanced.
5.3 the Equipment Loan will be made available as required in up to three
tranches subject to ongoing compliance with the Conditions of Loans as
set forth below, in blocks representing 75% of the purchase price of
equipment, and computer upgrades;
Or, alternatively, should the Leasing Facility be chosen, advances
will be made according to the conditions stipulated by Leasing
Department;
5.4 forward exchange contracts may be arranged up to 180 days at any time
within the authorized limit of the FX Facility, provided 31% of the
Canadian equivalent of such contracts outstanding is assessed against
the Margin Requirements above;
6. Repayment:
6.1 All amounts outstanding under the Loans will be repaid on demand,
however, unless and until otherwise demanded, interest on the
Operating Loan will be payable as set forth above;
6.2 the Capital Loan will continue to be repaid in consecutive monthly
principal payments of $5,835 plus interest on the last day of each
month;
(72)
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6.3 the Equipment Loan will be repaid in consecutive monthly principal
payments plus interest on the last day of each month. Each advance
made under the Equipment Loan will be repaid within an amortization
period not to exceed 60 months.
6.4 Repayment of Leasing Facility to be determined by Leasing Department.
7. Loan Administration Fee:
A fee of %200 per month (change from $150) will be charges to compensate
the Bank of the lack of free balances which would normally be available to
the Bank if the Operating Loan were to revolve in normal note multiples.
8. Electronic Fund Transfer Services (EFT):
For a faster and easier way to process regularly scheduled transactions,
EFT software is available to move funds quickly and safely. You can
initiate payroll deposits, regular disbursements and obtain collection of
your receivables to efficiently manage your cash. The fee is $50 per month
plus 0.05 per entry and there is no cost for transmission (via modem to a
1-800 number).
9. Payment Filing Service (PFS):
PFS software package will allow you to electronically remit taxed (federal,
provincial and municipal), as well as employee payroll deductions (CPP,
EI), federal & provincial filings, and utility bills. The fee is a one time
$25 set up charge, plus approximately $2.75 per bill paid and there is no
cost for transmission (via modem to a 1-800 number).
10. Hexagon:
10.1 the Bank's global electronic banking software is available for
installation on IBM compatible computer with modem, for use at the
Borrower's office. This provides on-line banking for daily
transactional needs and detailed account information. The Bank's
monthly change in Canada for installations in the same office is
$50.00 and there is no set fee of line charge for usage;
10.2 up to 5 accounts may be accessed through Hexagon without further
charge, including accounts held with other members of the HSBC Bank
Group worldwide. Accounts of parent company, subsidiaries,
shareholders and other senior management may also be included.
11. Conditions of Loans:
The following covenants of the Borrower and the Guarantors will apply so
long as the Borrower is indebted to the Bank:
11.1 all accounts of the Borrower to be maintained with to the Bank;
11.2 the Borrower will maintain the Margin Requirements as set forth above;
11.3 the Borrower will maintain EDC insurance on all foreign accounts
receivable;
11.4 the Borrower will not, without the prior written consent of the Bank:
(73)
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11.4.1 permit its total debt to tangible net worth ratio to exceed
1.75:1 (change from 2.00:1). For the purpose of this calculation
total debt excludes shareholder loans formally postponed and
assigned to the Bank and tangible net worth includes the same
postponed loans and excludes any intangible assets such as
Goodwill. For calculation of this ratio based on monthly
operating statements, 50% of current before tax earnings will be
included in equity;
11.4.2 permit its net working capital ratio to at any time be less
than 1.75:1;
11.4.3 make capital expenditures aggregating in any one year in excess
of $100,000 which amount will not be cumulative from
year-to-year. An exception is made under this section to
accommodate the Borrower's capital expenditure program agreed
with the Bank in detailed capital asset budgets provided to and
agreed with by the Bank at time of each annual review;
11.4.4 inject further funds into new or existing affiliated or related
operations or make any capital expenditures in this regard;
11.4.5 declare or pay dividends on any class or kind of its shares,
repurchase or redeem any of its shares, which will result in a
reduction of its capital in any way whatsoever or repay any
shareholders' advances;
11.4.6 grant or allow any lien, charge, lease or other encumbrance,
whether fixed or floating, to be registered against or exist on
any of the assets of the Borrower save as specifically provided
herein;
11.4.7 become guarantor or endorser or otherwise become liable upon
any note or other obligation other than in the normal course of
the Borrower's business;
12. Financial Statements Reports:
The Borrower will from time-to-time deliver to the Bank the following:
12.1 monthly, within 25 days of each calendar month end:
12.1.1 signed aged list of accounts receivable of the Borrower with
those over 90 days and any hold back monies being listed
separately;
12.1.2 aged list of accounts payable of the Borrower;
12.1.3 declaration of inventory in the Bank's format detailing raw
materials, work in progress and finished products, together with
such supporting data as the Bank may require;
12.1.4 signed internally prepared interim financial and operating
statements;
12.1.5 signed margin calculation using the Bank's format;
12.1.6 signed statement of financial ratios/convenants using the
Bank's format;
(74)
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12.1.7 copy of EDC report.
12.2 annually, within 120 days (change from 90 days) of the Borrower's
fiscal year end:
12.2.1 signed audited financial statements for the Borrower;
12.2.2 pro forma financial statements, income and security margin
projections, and a cashflow budget for the following fiscal
year;
12.2.3 Registrar of Companies and Personal Property Security Act
searches to be conducted in July of each year;
13. Security:
The Loans will be secured by the following documents completed by the
Borrower and, where necessary, registered, in a form and manner
satisfactory to the Bank's solicitors:
On Hand
13.1 account and borrowing resolutions'
13.2 Hexagon documentation as required;
13.3 demand promissory notes;
13.4 overdraft agreement for $1,000,000 (TO BE RELEASED);
13.5 unlimited general security agreement creating a first charge over
all present and after acquired assets of the Borrower registered
in each jurisdiction in which the Borrower carries on business;
13.6 assignment of inventory under Section 427 of the Bank Act
including all ancillary legal forms of the Bank in this regard;
13.7 general security agreement relating to goods;
13.8 endorsement of all risk insurance on the aforesaid equipment and
inventory, showing the Bank as the first loss payee by way of
standard endorsement, the said policy to include business
interruption and public liability insurance, with the coverage
over inventory to be not less than $1,000,000, and over equipment
to be not less than $1,000,000 and the comprehensive liability
coverage to be not less than $1,000,000
13.9 agreement re: foreign exchange contracts;
13.10 assignment of EDC insurances;
13.11 indemnities re: D/C's and L/G's issued (as required);
(75)
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13.12 limited guarantee of the indebtedness to the Bank of the
Borrower, by each of the personal guarantors together with
interest and any recovery costs as follows:
Kelly Delhon $400,000 (TO BE RELEASED)
Jarnail Sehra $400,000 (TO BE RELEASED)
K. Mehra $290,000 (TO BE RELEASED)
13.13 Life insurance benefits to be assigned to the Bank of the
following individuals in amounts indicated:
$400,000 Kuldip Delhon
13.14 postponements and assignments of creditors claim with promissory
notes attached from the shareholders;
13.15 postponements and subordination agreement from ZCL Composites in
form satisfactory to the Bank's solicitors (TO BE RELEASED);
13.16 assignment over cash, credit balances, or term deposits executed
by the Borrower;
(To be obtained)
13.17 overdraft agreement for $1,600,000;
13.18 demand promissory notes as required (re: Equipment Loan);
13.19 unlimited guarantee of the indebtedness to the Bank of the
Borrower by the Corporate Guarantor;
13.20 postponements and assignments of shareholder loans executed by
the Corporate Guarantor;
13.21 such supporting certificates and opinions as the Bank will
reasonably require.
14. Premises Visits:
The Bank will have the right to inspect the aforesaid lands and the
Borrower's business premises at any time, and in any even not less than
quarterly;
15. Legal and Other Expenses:
The Borrower will pay all legal fees and disbursements in respect of the
Loans, the preparation and issue of the security documents, the enforcement
and preservation of the Bank's rights and remedies, all insurance
consultation, Corporate Registry, Personal Property Registry and Tax
Searches and similar fees and all other fees and disbursements of the Bank,
whether or not the documentation is completed or any funds are advanced
under the Loans.
16. Bank's Solicitors:
Legal work and documentation is to be performed on behalf of the Bank by
Messrs. Parlee, McLaws, Barristers and Solicitors, 1500, 10180-101 Street,
Edmonton, Alberta, Attention: Frank Niziol, Telephone Number 423-8660.
(76)
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17. Laspe and Cancellation/Annual Review:
If, in the opinion of the Bank a material adverse change in risk occurs at
any time, at the option of the Bank this offer of credit may be cancelled
or disbursement withheld. The availability of the Loans and the terms and
conditions of any offer of credit will be subject to periodic review by the
Bank, not less than annually.
18. Credit Reporting:
The Borrower and the Guarantor consent to the Bank obtaining from any
credit reporting agency or from any person such information as the Bank may
require at any time, and consent to the disclosure at any time of any
information concerning the Borrower and the Guarantor to any credit grantor
with who the Borrower and the Guarantor have financial relations or to any
credit reporting agency.
19. Non-Merger and Non-Assignment:
The terms and conditions of this offer of credit will not be merged by,
and will survive, the execution of the security documents, and the
benefits conferred hereby may not be assigned by the Borrower.
20. Guarantors:
By executing this letter, the Guarantor convenants and agrees with the Bank
to perform and to cause the Borrower to perform all convenants and
agreements herein in favour of the Bank.
This offer of credit my be accepted by the Borrower by signing, dating and
returning to the Bank by July 26, 2000 the enclosed "Acceptance Copy" of this
letter executed by the Borrower and the Guarantor.
Your sincerely,
/s/ Edgar Aragon
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Edgar Aragon
Account Manager
(77)
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