SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 1, 1994 Commission file number 0-12643
--------------- -------
GANDALF TECHNOLOGIES INC.
- ---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA NOT APPLICABLE
- --------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 COLONNADE ROAD SOUTH, NEPEAN, ONTARIO K2E 7M4
- ----------------------------------------- ------------------
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (613) 723-6500
--------------
NOT APPLICABLE
- -----------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
*Indicate by check mark whether the registrant (1) has filed all
reports required to be iled by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
The number of shares outstanding as at January 31, 1994 was
28,041,333.
<PAGE>
GANDALF TECHNOLOGIES INC.
INDEX
Page
No.
- --------
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - 3
Consolidated Statements of Income and
Retained Earnings - 4
Consolidated Statement of Changes in
Financial Position - 5
Notes to Consolidated Financial Statements - 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations - 11
PART II OTHER INFORMATION 17
SIGNATURE PAGE 17
<PAGE>
<TABLE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Thousands of U.S. dollars)
<CAPTION>
Jan 1
Mar 31
1994
1993
-------
-------
<S> <C>
<C>
ASSETS
Current assets:
Cash and short-term deposits $ 1,759
$ 9,737
Accounts receivable (note 1) 29,946
35,950
Inventories (note 2) 24,177
25,898
Other current assets 2,191
2,464
--------
- --------
Total current assets 58,073
74,049
Fixed assets (note 3) 27,852
30,768
Goodwill, net of amortization of $2,624
(March 31, 1993: $2,441) 3,790
3,973
Deferred income taxes 8,488
8,381
Other assets (note 4) 12,397
12,432
--------
- --------
Total assets $110,600
$129,603
========
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank operating lines $ 2,957
$ 10,025
Accounts payable and accrued liabilities (note 5) 19,549
28,802
Deferred revenue 7,116
8,932
Current portion of long-term debt 784
694
--------
- --------
Total current liabilities 30,406
48,453
Long-term debt 2,182
22,980
8.5% convertible debentures, due 2002 22,659
23,862
Shareholders' equity:
Capital stock:
Common shares, 28,041,333 issued and
outstanding (March 31, 1993: 15,864,833) (note 6) 79,742
45,585
Retained earnings (deficit) (17,614)
(6,532)
Cumulative translation adjustment (6,775)
(4,745)
--------
- --------
Total shareholders' equity 55,353
34,308
--------
- --------
Total liabilities and shareholders' equity $110,600
$129,603
========
========
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(Thousands of U.S. dollars)
<CAPTION>
13 Weeks Ended
39 Weeks Ended
-------------------
- --------------------
Jan 1 Dec 26
Jan 1 Dec 26
1994 1992
1994 1992
-------- -------
- -------- -------
<S> <C> <C> <C>
<C>
INCOME
Revenues:
Product revenue $ 20,301 $ 29,365 $
68,386 $ 87,089
Service revenue 9,965 11,926
31,071 35,326
-------- --------
- -------- --------
30,266 41,291
99,457 122,415
Operating expenses:
Cost of product sales 11,295 14,569
35,754 47,317
Service expenses 6,963 7,378
20,569 21,970
Selling and distribution 11,274 11,323
33,027 37,099
Administration and general 2,825 3,073
7,938 12,088
Research and development(note 7) 4,204 3,671
10,646 13,670
-------- --------
- -------- --------
Income (loss) from operations (6,295) 1,277
(8,477) (9,729)
Unusual items (note 8) - -
- (5,547)
Interest expense (1,010) (1,395)
(3,468) (3,396)
Other income 517 126
863 140
-------- --------
- -------- --------
Net income (loss) for the period $ (6,788) $ 8
$(11,082) $(18,532)
======== ========
======== ========
Basic earnings (loss) per share $ (0.29) $ - $
(0.60) $ (1.18)
(note 9) ======== ========
======== ========
Weighted average number of
shares outstanding (thousands) 23,517 15,682
18,460 15,681
====== ======
====== ======
RETAINED EARNINGS
Balance at beginning of period $(10,826) $ (5,565) $
(6,532) $ 12,975
Net income (loss) for the period (6,788) 8
(11,082) (18,532)
-------- --------
- -------- --------
Balance at end of period $(17,614) $ (5,557)
$(17,614) $ (5,557)
======== ========
======== ========
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(Unaudited)
(Thousands of U.S. dollars)
<CAPTION>
39
Weeks Ended
- --------------------
Jan 1
Dec 26
1994
1992
--------
-------
<S> <C>
<C>
Operating activities:
Cash provided by (applied to) operations (note 10) $(3,179)
$ 478
Decrease (increase) in operating working capital
requirements (note 11) (8,038)
1,665
-------
--------
Cash provided by (applied to) operations (11,217)
2,143
-------
--------
Financing activities:
Issue of capital stock (note 6) 34,157
9
Decrease in term bank indebtedness (20,382)
(2,638)
Increase (decrease) in operating lines (7,068)
4,095
Decrease in long-term debt (197)
(95)
Issue of convertible subordinated notes -
23,787
Escrow funds -
(23,970)
-------
--------
Cash provided by financing activities 6,510
1,188
-------
--------
Investing activities:
Proceeds on disposal of assets 2,246
-
Purchase of fixed assets (3,110)
(2,687)
Software development costs deferred (note 7) (1,923)
(2,025)
Other (159)
(310)
-------
--------
Cash applied to investing activities (2,946)
(5,022)
-------
--------
Decrease in cash in the period (7,653)
(1,691)
Effect of currency translation
adjustments on cash flows (325)
(122)
Cash and short-term deposits, beginning of period 9,737
3,832
-------
--------
Cash and short-term deposits, end of period $ 1,759
$ 2,019
=======
========
<FN>
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts stated in thousands of U.S. dollars.)
1. ACCOUNTS RECEIVABLE
Jan 1
Mar 31
1994
1993
-------
-------
Trade $26,546
$32,797
Contract 2,583
1,291
Current portion of sales-type leases 817
1,862
-------
-------
$29,946
$35,950
=======
=======
2. INVENTORIES
Jan 1
Mar 31
1994
1993
-------
-------
Raw materials $ 7,736
$ 7,167
Work-in-process 3,970
3,271
Finished goods 12,471
15,460
-------
-------
$24,177
$25,898
=======
=======
3. FIXED ASSETS
Jan 1
Mar 31
1994
1993
-------
-------
Cost:
Land $ 211
$ 216
Buildings 4,612
4,756
Equipment 67,921
72,185
Leasehold improvements 3,954
4,056
-------
- --------
76,698
81,213
Accumulated depreciation 48,846
50,445
-------
-------
Net book value $27,852
$30,768
=======
=======
<PAGE>
4. OTHER ASSETS
Jan 1
Mar 31
1994
1993
-------
-------
Software development costs $ 5,496
$ 5,437
Assets held for disposal 3,910
2,485
Deferred financing costs 1,656
2,122
Other 1,335
1,121
Net investment in sales-type leases -
1,267
-------
- --------
$12,397
$12,432
=======
=======
Assets held for disposal at January 1, 1994 primarily represent
certain
portfolio investments including approximately $2.6 million relating
to the
sale by the Company of its mobile dispatch subsidiary during fiscal
1994. At
March 31, 1993, assets held for disposal included a vacant facility
in the
United Kingdom which was sold during fiscal 1994. Certain
comparative figures
for March 31, 1993 have been reclassified to conform to this
presentation.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Jan 1
Mar 31
1994
1993
-------
-------
Trade accounts payable $ 9,419
$14,989
Payroll, commissions and related taxes 4,442
5,055
Other payables 5,688
8,758
-------
-------
$19,549
$28,802
=======
=======
<PAGE>
6. CAPITAL STOCK
The authorized capital stock of the Company consists of an
unlimited number of
common shares without par value. An analysis of the capital stock
account for
each of the thirty-nine week periods ended January 1, 1994 and
December 26,
1992 is presented in the following table. During the third quarter
of fiscal
1994, the Company completed the sale of 12,000,000 common shares
through
public issue.
39
Weeks Ended
- --------------------
Jan 1
Dec 26
1994
1992
--------
-------
Shares:
Balance March 31 15,864,833
15,671,907
Issued for cash 12,176,500
5,926
----------
----------
Balance end of period 28,041,333
15,677,833
==========
==========
Amount:
Balance March 31 $45,585
$45,242
Issued for cash, net of share issue costs 34,157
9
-------
-------
Balance end of period $79,742
$45,251
=======
=======
7. RESEARCH AND DEVELOPMENT
13 Weeks Ended 39
Weeks Ended
---------------------
- ---------------------
Jan 1 Dec 26 Jan 1
Dec 26
1994 1992 1994
1992
------ ------ ------
------
Research and development costs $4,185 $4,320 $11,415
$16,401
Investment incentives (156) (500) (710)
(1,726)
Software development costs:
Amortized 602 395 1,864
1,020
Deferred (427) (544) (1,923)
(2,025)
------ ------ -------
-------
$4,204 $3,671 $10,646
$13,670
====== ====== =======
=======
8. UNUSUAL ITEMS
Unusual items appearing on the consolidated statement of income for
the
thirty-nine week period ended December 26, 1992 represent
provisions for
severance and redundant facilities which were made at the end of
the second
quarter of fiscal 1993.
<PAGE>
Under Staff Accounting Bulletin 67, issued by the Securities and
Exchange
Commission in the United States, such costs would be presented as
a component
of the loss from operations. Under this format of presentation the
loss from
operations for the thirty-nine week period ended December 26, 1992
would have
been $15.3 million instead of $9.7 million.
Subsequent to the January 1, 1994 fiscal quarter end, the Company
eliminated
approximately 60 staff positions. The Company anticipates that
further
downsizing of the workforce will occur during the balance of the
current fiscal
quarter. Severance costs relating to these actions will be recorded
during the
fourth quarter ending March 31, 1994.
9. BASIC LOSS PER SHARE
Fully diluted earnings per share information has not been presented
as
potential conversions are anti-dilutive. Basic loss per share
figures are
calculated using the monthly weighted average number of common
shares
outstanding for the period.
<PAGE>
10. CASH PROVIDED BY (APPLIED TO) OPERATIONS
Cash provided by (applied to) operations is computed as
follows:
39 Weeks
Ended
- ---------------------
Jan 1
Dec 26
1994
1992
------
- ------
Loss from operations $(8,477)
$(9,729)
Depreciation and amortization 7,541
11,237
Other reserves not requiring an
outlay of cash -
6,182
Gain on disposal of assets (542)
-
Income taxes 438
(1,208)
Restructuring costs paid -
(2,748)
Interest paid (3,002)
(3,396)
Other income 863
140
-------
- -------
$(3,179) $
478
=======
=======
During the thirty-nine week period ended December 26, 1992, other
non-cash
reserves of $6.2 million represented provisions relating to
inventory and other
reserves made during the second quarter of fiscal 1993.
11. DECREASE (INCREASE) IN OPERATING WORKING CAPITAL REQUIREMENTS
The decrease (increase) in operating working capital
requirements is
computed as follows:
39 Weeks
Ended
- ---------------------
Jan 1
Dec 26
1994
1992
------
- ------
Accounts receivable $ 4,339 $
2,814
Inventories 189
1,230
Other current assets 228
815
Accounts payable and accrued liabilities (9,244)
(3,025)
Deferred revenue (1,383)
(72)
Foreign currency equity adjustment (2,167)
(97)
-------
- -------
$(8,038) $
1,665
=======
=======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The consolidated financial statements for the third fiscal quarter
ended
January 1, 1994, together with accompanying notes, should be read
as an
integral part of this review. These financial statements have been
prepared
by management in accordance with accounting principles generally
accepted in
Canada, the application of which, in the case of the Company,
conforms in all
material respects for the periods presented with accounting
principles
generally accepted in the United States and the International
Accounting
Standards for historical costs. All amounts are stated in U.S.
dollars unless
otherwise indicated. "C$" refers to Canadian dollars.
Liquidity and Capital Resources
- -------------------------------
During the third quarter of fiscal 1994, the Company completed the
sale of
12,000,000 common shares through public issue and received proceeds
of C$45.1
million (approximately $33.8 million) net of the underwriters' fees
and before
deducting expenses of the issue. Term bank indebtedness of $19.7
million was
retired during the third quarter of fiscal 1994 from the proceeds
of the share
issue, representing the full amount outstanding under these loans.
The
balance of the proceeds of approximately $13.5 million following
payment of
expenses of the issue was retained for working capital purposes.
This latter
amount was initially applied in November 1993 to eliminate the
utilization of
short-term bank operating lines thereby making those lines
available for
future working capital purposes and reducing interest costs to the
Company.
At January 1, 1994, the Company was borrowing $1.2 million under
these lines,
net of cash and short-term deposits of $1.8 million. At the end of
the
previous quarter on October 2, 1993, utilization of these
operating lines on
a net basis was $8.6 million.
Following the completion of the share issue in the third quarter of
fiscal
1994 and the subsequent retirement of all term bank debt, the
Company
renegotiated the terms of its operating loan agreements with a
Canadian
chartered bank. These amended agreements, which represent
committed credit
facilities until the annual review date of July 31, 1994, became
effective in
January 1994 following the end of the third quarter. Under the
amended
agreements, the authorized amount of the facilities increased from
$11.3
million to $15.8 million, when expressed in U.S. funds. The extent
to which
these facilities are available to the Company at any time is
determined by a
margin formula based on trade accounts receivable and inventories
of two of
the Company's subsidiaries. During January 1994, following the
date on which
the amended loan agreements became effective, approximately $11.8
million of
the $15.8 million was available to the Company under the margin
formulas. A
demand loan facility in the United Kingdom provided an additional
$2.1
million in available short-term credit. As indicated above, at
January 1,
1994, borrowings under these facilities were $1.2 million, net of
cash balances
of $1.8 million.
<PAGE>
The two operating loan agreements in Canada contain covenants
relating to the
Company's financial performance during the period for which the
facility is
committed (i.e. up to July 31, 1994). Although the Company is
currently in
compliance with these covenants, the Company is unlikely to be in
full
compliance with the terms of the agreements at the end of the
current fiscal
quarter ending March 31, 1994. The breach of a financial covenant
would
constitute an event of default for which the Company would seek a
waiver from
the bank. There can be no assurance that such a waiver would be
granted. The
breach of a financial covenant, if not waived, would give the bank
the right
to repayment on demand of all outstanding borrowings. If such
demand is made
the Company does not currently have the financial resources
available to repay
those lines. Upon maturity of the operating loans on July 31,
1994, the
outstanding borrowings under these facilities become repayable on
demand unless
a renewal of the committed operating facility is agreed between the
Company and
the bank. There can be no assurance that such an offer to renew
the facilities
will be provided by the bank.
The Company reported negative cash flow of $7.7 million during the
thirty-nine
week period ended January 1, 1994, representing negative cash flow
from
operating activities of $11.2 million and net positive cash flow
from
financing and investing activities (including the share issue in
the third
quarter) of $3.5 million. Of the $11.2 million in negative cash
flow from
operations during the first three quarters of fiscal 1994, $5.1
million
occurred in the third quarter ended January 1, 1994 and was
primarily related
to the net loss sustained in the quarter. Significant negative
cash flow is
expected to occur in the fourth quarter as a result of an
anticipated
operating loss and the payments associated with staff downsizing
actions.
Negative cash flow from operations is expected to continue during
the first
quarter of fiscal 1995 which will also be influenced by the fourth
quarter
restructuring actions. The restructuring measures being taken in
the fourth
quarter of fiscal 1994 will not have a full-quarter impact on
expenses until
the second quarter of fiscal 1995.
The Company intends to meet its short-term cash requirements
through operating
cash flow and currently available credit resources. However, as
described above,
it is currently unclear whether those credit resources will be
available after
the March 31, 1994 quarter. Even if they remain available, due to
anticipated
additional cash requirements during the next several fiscal
quarters relating to
operations and restructuring costs, there can be no assurance that
the Company's
short-term bank credit facilities, to the extent they remain
available, will be
sufficient to meet the Company's short-term obligations. The
availability of
these credit facilities will in part be determined by future
operating
performance. The Company is examining alternative sources of
short-term
financing. There can be no assurance that such financing will be
obtained, if
required by the Company. The Company's ability to generate
positive cash flow
is ultimately dependent on its ability to attain the break even
level resulting
from the downsizing actions being taken in the fourth quarter.
During the fourth quarter of fiscal 1994, the Company retained the
services of
Wood Gundy Inc. to explore possible strategic alliances to
accelerate the return
to profitability.
<PAGE>
Results of Operations - Third Quarter Ended January 1, 1994
- -----------------------------------------------------------
The following table sets forth items derived from the quarterly
consolidated
statements of income as a percentage of revenues for each of the
five fiscal
quarters ended January 1, 1994. The column in the table entitled
"Percentage
Change Quarter 3, 1994 vs 1993" represents the percentage change,
either
favourable or (unfavourable), in the dollar amount of such items
for the third
quarter of fiscal 1994 compared with the third quarter of fiscal
1993.
<TABLE>
<CAPTION>
Percentage
Fiscal 1993 Fiscal 1994
Change
--------------------
- ------------------------------- Quarter 3
Quarter 3 Quarter 4 Quarter 1 Quarter 2
Quarter 3 1994 vs. 1993
--------- --------- --------- ---------
- --------- -------------
(Thousands of dollars)
<S> <C> <C> <C> <C>
<C> <C>
Revenues $41,291 $38,485 $34,173 $35,018
$30,266 (26.7)%
======= ======= ======= =======
======= =======
(Percentage of Revenues)
Revenues:
Product 71.1% 69.6% 68.6% 70.3%
67.1% (30.9)%
Service 28.9 30.4 31.4 29.7
32.9 (16.4)
------- ------- ------- -------
-------
100.0% 100.0% 100.0% 100.0%
100.0% (26.7)
======= ======= ======= =======
=======
Gross Profit:
Product 50.4% 48.0% 49.6% 48.7%
44.4% (39.1)
Service 38.1 37.1 36.2 34.8
30.1 (34.0)
Combined 46.9 44.7 45.4 44.6
39.7 (37.9)
Expenses:
Selling & distribution 27.4 28.1 31.0 31.9
37.3 0.4
Administration & general 7.5 7.3 7.8 7.0
9.3 8.1
Research & development 8.9 9.4 9.0 9.6
13.9 (14.5)
------- ------- ------- -------
-------
Income (loss)
from operations 3.1 (0.1) (2.4) (3.9)
(20.8)
Financial expenses (3.1) (2.4) (3.3) (2.8)
(1.6)
------- ------- ------- -------
-------
Net income (loss) -% (2.5%) (5.7%)
(6.7)% (22.4)
======= ======= ======= =======
=======
</TABLE>
<PAGE>
Revenues
- --------
The following table sets forth revenues by geographic segment for
the quarter
ended January 1, 1994 and for each of the preceding four quarters.
The table
also includes the change in revenues, expressed as a percentage, in
the third
quarter of fiscal 1994 compared to the corresponding period of
fiscal 1993.
<TABLE>
<CAPTION>
Percentage
Fiscal 1993 Fiscal 1994
Change
--------------------
- ------------------------------- Quarter 3
Quarter 3 Quarter 4 Quarter 1 Quarter 2
Quarter 3 1994 vs. 1993
--------- --------- --------- ---------
- --------- -------------
(Thousands of dollars)
<S> <C> <C> <C> <C>
<C> <C>
United States $12,349 $10,972 $ 9,515 $ 9,226
$ 7,480 (39.4)%
United Kingdom 10,224 9,958 9,575 10,719
9,061 (11.4)
Canada 7,954 9,134 5,577 6,338
5,078 (36.2)
Holland/France 5,640 3,736 4,141 3,628
4,024 (28.7)
International markets 5,124 4,685 5,365 5,107
4,623 (9.8)
------- ------- ------- -------
- -------
$41,291 $38,485 $34,173 $35,018
$30,266 (26.7)
======= ======= ======= =======
=======
</TABLE>
Revenues in the third quarter of fiscal 1994 were $30.3 million,
consisting of
$20.3 million of product revenue and $10.0 million of service
revenue. In the
second quarter of fiscal 1994, total revenues were $35.0 million
(product
revenue of $24.6 million and service revenue of $10.4 million) and
in the
third quarter of fiscal 1993, total revenues were $41.3 million
($29.4 million
of product revenue and $11.9 million of service). The decline in
revenues in
the third quarter of fiscal 1994 compared to the second quarter of
fiscal 1994
and the third quarter of fiscal 1993 has occurred primarily in
North America.
The decline in revenues in the third quarter of fiscal 1994
compared to the
second quarter resulted from the decline in revenues from
traditional product
lines which more than offset the growth in the Company's new remote
networking
access products.
The decline in revenues between the third quarters of fiscal 1993
and fiscal
1994 was influenced by changes in the average exchange rates used
to translate
the results of foreign operations to U.S. dollars and also as a
result of the
sale by the Company of its mobile dispatch subsidiary during the
first quarter
of the current fiscal year. On a fully comparable basis, after
adjusting for
the effect of these two items, total revenues declined by 20.5%
during the
third quarter of fiscal 1994 compared to the same quarter a year
ago. The
quarter-over-quarter decrease in reported revenues of 26.7%
included 3.2%
or $1.3 million relating to the strengthening of the U.S. dollar
against
certain European currencies and the Canadian dollar and 3.0% or
$1.2 million
relating to GMSI, the Company's former mobile dispatch subsidiary.
Revenues outside the Company's North American markets (the United
Kingdom,
Holland/France and other international markets), when expressed in
their
domestic currencies, declined by 7.5% in the third quarter of
fiscal 1994
compared to the third quarter of fiscal 1993. The weakening of the
underlying
currencies against the U.S. dollar increased the decline in
revenues in these
markets to 15.6%.
<PAGE>
Revenues in the Company's two North American markets (the United
States and
Canada) were $12.6 million in the third quarter of fiscal 1994,
$15.6 million
in the second quarter of fiscal 1994 and $20.3 million in the third
quarter of
fiscal 1993. The continuing trend in the third quarter of fiscal
1994 to
lower product revenue resulted from declining sales in mature
product lines
which occurred at a faster rate in the third quarter than had been
anticipated.
Gross Profit
- ------------
Gross profit on product revenue (product revenue minus the cost of
product
sales), expressed as a percentage of product revenue was 44.4%
during the
third quarter of fiscal 1994, compared with 48.7% in the second
quarter of
fiscal 1994 and 50.4% in the third quarter of fiscal 1993. The
decline in the
product gross margin between the second and third quarters of
fiscal 1994
occurred primarily as a result of higher adverse manufacturing
volume
variances which are influenced by production levels.
The gross profit on service revenue (service revenues minus service
expenses),
expressed as a percentage of service revenue was 30.1% in the third
quarter of
fiscal 1994, 34.8% in the second quarter of fiscal 1994 and 38.1%
in the third
quarter of fiscal 1993. The gross margin on service revenue has
declined from
the level in the third quarter a year ago due to a decline in
service revenue of
approximately 16% while service expenses during the same period
have declined by
approximately 6%. The Company is examining alternatives to improve
the
efficiency of the service organization.
Operating Expenses
- ------------------
Operating expenses (selling and distribution, administration and
general and
research and development) were $18.3 million in the third quarter
of fiscal
1994, $17.0 million in the second quarter of fiscal 1994 and $18.1
million in
the third quarter of fiscal 1993. Operating expenses increased in
the third
quarter of fiscal 1994 compared to the second quarter of fiscal
1994 primarily
in the area of research and development which increased $0.8
million. The
primary components of the increase in net research and development
costs in
the third quarter were reduced levels of contract engineering for
customers of
$0.3 million, increased net amortization of deferred software
development
costs of $0.3 million and reduced government grants of $0.1
million.
During the third quarter of fiscal 1994, the Company received
grants of $0.2
million under the Canadian federal government's Microelectronics
and Systems
Development Program ("MSDP"). To date, grants totalling
approximately $3.8
million have been received under this program. This funding is
potentially
repayable in installments based on revenues of the Company,
provided certain
conditions are met relating to the commercialization of the
resulting
technology.
The Company is currently examining the actions necessary to reduce
operating
expenses.
<PAGE>
Operating Loss
- --------------
The loss from operations in the third quarter of fiscal 1994 was
$6.3 million.
This loss from operations was greater than the $1.4 million
operating loss in
the second quarter of fiscal 1994 as a result of lower revenues and
higher
operating expenses, primarily in the area of research and
development. In the
third quarter of fiscal 1993, the Company reported income from
operations of
$1.3 million.
Financial Expenses
- ------------------
Interest expense was $1.0 million in the third quarter of fiscal
1994 compared
to $1.2 million in the second quarter of fiscal 1994 and $1.4
million in the
third quarter of fiscal 1993. Interest-bearing debt has been
reduced to $28.6
million at January 1, 1994 from $57.9 million at October 2, 1993.
This
reduction occurred as a result of the retirement of term bank loans
and the
reduced utilization of bank operating lines following the issuance
of common
shares by the Company in the third quarter of fiscal 1994.
Net Income (Loss)
- -----------------
The net loss for the third quarter of fiscal 1994 was $6.8 million
or $0.29
per share. In the third quarter of fiscal 1993 the Company's net
income was at
the break even level. The net loss for the thirty-nine weeks ended
January 1,
1994 was $11.1 million or $0.60 per share compared to a net loss of
$18.5
million or $1.18 per share for the corresponding period in fiscal
1993.
<PAGE>
II - OTHER INFORMATION
- ----------------------
Item 6(a) - Exhibits
- --------------------
Exhibit No. Description
- ----------- -----------
10.1 Underwriting Agreement (Canadian) dated as of
October
20, 1993 among Wood Gundy Inc., Deacon Barclays
de Zoete
Wedd Limited, Gordon Capital Corporation and
Richardson
Greenshields of Canada Limited and the Company.
10.2 Credit Agreement dated as of January 7, 1994
between the
Royal Bank of Canada and the Company.
10.3 Credit Agreement dated as of January 7, 1994
between the
Royal Bank of Canada and Gandalf Canada Ltd.
Item 6(b) - Reports on Form 8-K
- ------------------------------
There were no reports on Form 8-K filed for the quarter ended
January 1, 1994.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the
registrant has duly caused this report to be signed on its behalf
by the
undersigned thereunto duly authorized.
GANDALF TECHNOLOGIES INC.
February 10, 1994 BY: s/BRIAN R.HEDGES
________________________
___________________________________
Date Brian R. Hedges
President
(Chief Executive Officer)
February 10, 1994 BY: s/WALTER R. MACDONALD
________________________
__________________________________
Date Walter R. MacDonald
Vice President, Finance
(Chief Financial Officer)
October 20, 1993
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Brian R. Hedges
President and
Chief Executive Officer
Dear Sirs:
We understand that Gandalf Technologies Inc. (the
"Company") intends to offer (the "Offering") to the public the
Offered Shares (as defined below). To that end , we understand
that the Company has filed the Preliminary Prospectus (as defined
below) in each of the Qualifying Jurisdictions (as defined below)
and will file the Prospectus (as defined below) as soon as
practicable in accordance with the terms of this agreement in each
of the Qualifying Jurisdictions.
OFFER TO PURCHASE
1. (1) Based upon the foregoing and subject to the terms and
conditions set out below, Wood Gundy Inc. ("WGI"), Deacon Barclays
de Zoete Wedd Limited ("DBZW"), Gordon Capital Corporation ("GCC")
and Richardson Greenshields of Canada Limited ("RGC") (collectively
the "Underwriters" and individually an "Underwriter") hereby
severally and not jointly offer to purchase from the Company, as
more particularly described in section 15, and by its acceptance
hereof the Company agrees to allot, issue and sell to the
Underwriters, at the Closing Time (as defined below), 12,000,000
Common Shares (the "Offered Shares") at a price of $4.00 for each
Offered Share, being an aggregate purchase price of $48,000,000.
(2) In this Agreement:
"business day" means a day which is not a Saturday, a
Sunday or a statutory holiday in the Province of
Ontario;
"Closing" means the completion of the issue and sale by
the Company and the purchase by the Underwriters of the
Offered Shares;
<PAGE>
<PAGE>
"Closing Date" means November 5, 1993 or such other date
as the Company and the Underwriters may agree in writing, provided
that in no event shall the Closing Date be later than six weeks
after the date a receipt is issued by the Ontario Securities
Commission for the Prospectus;
" Closing Time" means 8:00 a.m. (Toronto time) on the
Closing Date or such other time on the Closing Date as the Company
and the Underwriters may agree;
" Company's Auditors" means KPMG Peat Marwick Thorne,
the auditors of the Company;
" Material Subsidiaries" means the Subsidiaries
disclosed under the heading "Intercorporate Relationships" in the
Preliminary Prospectus and the Prospectus;
" misrepresentation", " material fact" and " material
change" have the respective meanings ascribed thereto in the
Securities Act (Ontario), except as otherwise expressly provided
herein;
" Preliminary Prospectus" means the preliminary
prospectus of the Company dated September 21, 1993;
" Prospectus" means the (final) prospectus of the
Company to be filed in the Qualifying Jurisdictions in order to
qualify for distribution the Offered Shares;
" Qualifying Jurisdictions" means all of the provinces of
Canada;
" Securities Laws" means, collectively, the applicable
securities laws, regulations and published policy statements of
each of the Qualifying Jurisdictions;
" Securities Regulator" means the applicable securities
commission or regulatory authority in each of the Qualifying
Jurisdictions;
" Subsidiaries" has the meaning ascribed thereto in the
Securities Act (Ontario);
" Supplementary Material" has the meaning ascribed
thereto in section 8;
" this Agreement" means the agreement resulting from
the acceptance by the Company of the offer made by the Underwriters
herein; and
<PAGE>
" to the best of the knowledge, information and belief
of" means (unless otherwise expressly stated) a statement of the
declarant's knowledge of the facts or circumstances to which such
phrase relates after having made due inquiries and investigations
in connection with such facts and circumstances.
(3) Any reference in this Agreement to any section,
subsection, paragraph or subparagraph shall refer to a section,
subsection, paragraph or subparagraph of this Agreement.
(4) All defined terms herein denoted by initial capital
letters and not otherwise defined have the meanings attributed
thereto in the Preliminary Prospectus.
(5) Words importing the singular number only shall include
the plural and vice versa, and words importing the use of any
gender shall include all genders.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2. (1) The Company represents and warrants to each of the
Underwriters, and the Company acknowledges that the Underwriters
are relying upon such representations, warranties and agreements in
entering into this Agreement, that:
(a) Each of the Company and its Material Subsidiaries has
been duly incorporated and organized and is validly subsisting
under the laws of its jurisdiction of incorporation, has all
requisite power and authority and, except where failure to be so
qualified would not in the aggregate have a material adverse
effect on the Company and its Subsidiaries, as a whole, is duly
qualified to carry on its business as now conducted and to own,
lease or operate its properties and assets in each of the
jurisdictions in which it carries on its business or owns, leases
or operates its properties or assets.
(b) The authorized and issued capital of the Company is
as described in the Preliminary Prospectus and all of the issued
Common Shares in the capital of the Company have been duly
authorized and validly issued and are fully paid and
non-assessable.
(c) The Company directly or indirectly owns all of the
outstanding shares in the capital of each of its Subsidiaries;
provided, however, that shares of certain Subsidiaries are
pledged to banks as disclosed in note 9 on page 41 of the
Preliminary Prospectus.
<PAGE>
(d) No person, firm or corporation has, as of the date
hereof, or will have as at the Closing Time, any agreement or
option, or right or privilege (whether preemptive, contractual or
otherwise) capable of becoming an agreement for the purchase,
subscription and issuance of any Common Shares or other
securities of the Company or its Subsidiaries which are not
disclosed in the Preliminary Prospectus.
(e) The Company does not have any Subsidiaries which are
not disclosed in the Preliminary Prospectus other than
Subsidiaries which, on an individual and aggregated basis, do not
have (i) assets, or investments or advances from the Company or
other Subsidiaries, which exceed 10% of the assets of the Company
and its Subsidiaries on a consolidated basis, or (ii) sales and
operating revenues which exceed 10% of the sales and operating
revenues of the Company and its Subsidiaries on a consolidated
basis.
(f) The R-M Trust Company has been duly appointed as
registrar and transfer agent for the Common Shares.
(g) The Company has all requisite corporate power and
authority to: (i) enter into this Agreement; (ii) offer, sell,
issue and deliver the Offered Shares in accordance with the
provisions of this Agreement; and (iii) to carry out all the
terms and provisions hereof to be carried out by it. The
execution and delivery of this Agreement and the performance of
the transactions contemplated hereby has been duly authorized by
all necessary action of the Company and, at the Closing Time,
this Agreement will have been duly executed and delivered by the
Company and will be a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting the
rights of creditors generally and subject to the qualifications
that equitable remedies may be granted in the discretion of a
court of competent jurisdiction and that rights of indemnity and
waiver of contribution may be contrary to public policy.
(h) The execution and delivery of this Agreement by the
Company and the consummation of the transactions contemplated
herein, including, without limitation, the offering, issuance,
sale and delivery in the Qualifying Jurisdictions of the Offered
Shares and the compliance by the Company with the other
provisions of this Agreement: (i) do not require the consent,
approval, authorization, registration or qualification of or with
any governmental or regulatory authority, administrative
tribunal, stock exchange, Securities Regulator or other third
party applicable to the Company or its Subsidiaries, except such
as may be required (and shall be obtained as provided in this
Agreement) under applicable Securities Laws of the Qualifying
Jurisdictions or section 12 hereof; and (ii) not conflict with
nor will any of such events conflict with or constitute a default
under or breach of, or create a state of facts which after notice
or lapse of time, or both, could constitute a default under or
breach of, any of the terms, conditions and provisions of any
<PAGE>
contract, indenture, mortgage, trust deed, loan agreement, note,
lease or other agreement or instrument to which the Company or
its Subsidiaries is a party or by which any of its properties or
assets is or may be contractually bound at the Closing Time or to
which any of the properties or assets of the Company or its
Subsidiaries is subject, or the constating documents, resolutions
or by-laws of the Company or its Subsidiaries or any statute or
regulation or any judgment, decree, order, rule or regulation of
any court or any governmental or regulatory authority,
arbitrator, administrative tribunal, stock exchange or Securities
Regulator which may, in any way, have a material adverse effect
on the condition (financial or otherwise) of the business,
affairs, properties, assets, net worth, capital, results of
operations or business prospects of the Company or its
Subsidiaries.
(i) Except that the loan agreement with The Chase
Manhattan Bank (National Association) ("Chase N.A."), as agent
requires that any proceeds from an equity offering of the Company
be used to pay down outstanding indebtedness under the loan, the
execution and delivery of this Agreement and the consummation of
the transactions contemplated herein will not result in the
creation or imposition of any lien, charge or encumbrance upon
any properties or assets of the Company or its Subsidiaries
pursuant to any contract, indenture, trust deed, mortgage, loan
agreement, note, lease or other agreement or instrument to which
the Company or its Subsidiaries is a party or by which it may be
contractually bound at the Closing Time, or to which any of the
properties or assets of the Company or its Subsidiaries is
subject.
(j) The Company is not in violation of any of its
constating documents, resolutions or by-laws or, except in
connection with loan agreements with Chase N.A., as agent and
Royal Bank of Canada, default in the performance or observance of
any material obligation, agreement, covenant or condition
contained in any contract, indenture, trust deed, mortgage, loan
agreement, note, lease or other agreement or instrument to which
the Company is a party or by which it may be contractually bound
at the Closing Time, or to which any of the properties or assets
of the Company may be subject where such default or violation may
have a material adverse effect on the Company. Except in
connection with loan agreements with Chase N.A., as agent and
Royal Bank of Canada, there exists no state of facts which, after
notice or lapse of time or both, or otherwise, would constitute
a default under or breach of a material obligation, agreement,
covenant or condition of any of such documents where such default
may have a material adverse effect on the Company. All of such
documents are now in good standing and in full force and the
Company is entitled to all of the benefits thereunder.
<PAGE>
(k) Each of the Company and its Subsidiaries possesses
all material certificates, authorizations, permits or licenses
issued by the appropriate governmental or regulatory agencies or
bodies in each of the applicable provinces or countries in order
for it to carry on its business or own, lease or operate its
properties or assets, and none of the Company nor its
Subsidiaries have received any notice of proceedings relating to
the revocation or modification of any such certificate,
authorization, permit or licence which may, singly or in the
aggregate, materially and adversely affect the Company or its
Subsidiaries or any of their properties or assets.
(l) Except as disclosed in the Preliminary Prospectus,
there are no actions, suits, proceedings or inquiries pending or,
to the best of the knowledge, information and belief of the
Company, threatened against or affecting the Company or its
Subsidiaries or any of their properties or assets at law or in
equity or before or by any governmental or regulatory agency or
board, domestic or foreign, which may, in any way, have a
material adverse effect on the condition (financial or otherwise)
of the business, properties, assets, capital, net worth, results
of operations or business prospects of the Company or its
Subsidiaries.
(m) Except as disclosed in the Preliminary Prospectus,
the Company does not have any contingent liabilities which are
material to the Company or its Subsidiaries or their business,
operations, properties or assets.
(n) The Offered Shares have been approved for listing on
The Toronto Stock Exchange ("TSE"), subject to the satisfaction
by the Company of the conditions (the "Listing Conditions") set
out in the letter dated October 7, 1993 from the TSE to Stikeman,
Elliott, counsel to the Company, and, at the Closing Time, the
Company will have satisfied such of the Listing Conditions as
will be possible to satisfy at such time and will use its best
efforts to satisfy any conditions not satisfied at the Closing
Time as soon as practicable after the Closing Time. At the
Closing Time, the definitive form of certificate for the Offered
Shares will be in proper form under the laws of the Province of
Ontario and will comply with the requirements of the TSE.
(o) The Company has not agreed to issue or sell any
securities (as defined in the Securities Act (Ontario)) of the
Company, other than as described in the Preliminary Prospectus.
All Offered Shares to be issued as hereinbefore described have
been duly authorized and conditionally issued and, at the Closing
Time when certificates for the Offered Shares are countersigned
by the Company's transfer agent and registrar and issued,
delivered and paid for, such Offered Shares will be validly
issued as fully paid and non-assessable Common Shares in the
capital of the Company.
<PAGE>
(p) No order, ruling or determination having the effect
of suspending or restricting the offer or sale, or ceasing the
trading, of the Offered Shares or any other securities of the
Company has been issued or made by any court or any governmental
or regulatory authority, arbitrator, administrative tribunal,
stock exchange or Securities Regulator and is continuing in
effect, and no proceedings for that purpose have been instituted
or are pending or, to the best of the knowledge, information and
belief of the Company, contemplated or threatened by any such
authority or under any Securities Laws.
(q) The audited consolidated balance sheets of the
Company as at March 31, 1993 and March 31, 1992 and the
consolidated statements of income and retained earnings and
changes in financial position for the year ended March 31, 1993,
the eight months ended March 31, 1992 and for each of the years
in the three year period ended July 31, 1991 (collectively, the
"Historical Financial Statements"), as set out in the Preliminary
Prospectus, are fairly and, in all material respects, completely
and accurately stated and have been prepared in accordance with
Canadian generally accepted accounting principles.
(r) Except as provided herein, there is no person, firm
or corporation which has been engaged by the Company to act for
the Company and which is entitled to any brokerage or finder's
fee in connection with this Agreement or any of the transactions
contemplated hereunder, and in the event any such person, firm or
corporation establishes a claim for any fee from the
Underwriters, the Company covenants to indemnify and hold
harmless the Underwriters with respect thereto and with respect
to all costs reasonably incurred in the defence thereof.
(s) To the best of the knowledge of the Company, none of
the holders of Common Shares or the directors or officers of the
Company or any associate or affiliate of any of the foregoing
had, has or intends to have any material interest, direct or
indirect, in any material transaction contemplated by this
Agreement or the Preliminary Prospectus or in any proposed
material transaction with the Company which, as the case may be,
materially affects, is material to or will materially affect the
Company or its Subsidiaries, except as and to the extent
disclosed in the Preliminary Prospectus.
(t) The Company will not take any action, directly or
indirectly, to cause or result in, or which might reasonably be
expected to constitute, the stabilization or manipulation of the
price of its securities prior to the date set forth in the notice
contemplated by Section 17 that distribution of the Common Shares
has ceased.
<PAGE>
(u) The Company and its Subsidiaries have timely filed
all necessary tax returns and notices and have paid or made
provision for all applicable taxes of whatever nature for all tax
years to the date hereof to the extent such taxes have become due
or have been alleged to be due; the Company is not aware of any
material tax deficiencies or material interest or penalties
accrued or accruing, or alleged to be accrued or accruing,
thereon with respect to itself or its Subsidiaries which have not
otherwise been provided for by the Company.
(2) The Company represents and agrees, for the benefit of
the Underwriters, to the representations and agreements of the
Company described in Schedule "A" hereto, which is incorporated by
reference in this Agreement.
(3) Each certificate required to be provided in accordance
with the terms of this Agreement and signed by any officer of the
Company and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by
the Company to the Underwriters as to the matters covered thereby.
The Company's obligations as regards the breach of any
representation and warranty of the Company set forth in this
section 2 or in any such certificate or in section 9 or elsewhere
in this Agreement shall be limited to those obligations which are
provided for in section 13.
UNDERWRITERS' FEES
3. In consideration for the Underwriters' services in:
(a) assisting in the preparation of the Preliminary
Prospectus, the Prospectus and of any Supplementary Material;
(b) forming and managing banking, selling or other groups
for the distribution of the Offered Shares;
(c) distributing the Offered Shares both directly and
through other registered dealers and brokers in Canada; and
(d) arranging marketing information meetings; the Company
(out of its general funds) agrees to pay to the Underwriters by
certified cheque or bank draft, at the Closing Time, in the event
that the Offered Shares are purchased by the Underwriters, an
aggregate fee of $2,880,000, being a fee of $0.24 per Offered Share
so purchased.
CLOSING PROCEDURES
<PAGE>
4. (1)The purchase of the Offered Shares shall be completed at
the Closing Time at the offices of Stikeman, Elliott, Suite 5300,
Commerce Court West, Toronto, Ontario M5L 1B9 or at such other
place in Toronto as the Underwriters and the Company may agree. At
the Closing Time, the Company shall issue the Offered Shares to, or
to the order of, WGI, on behalf of the Underwriters, and deliver to
WGI, on behalf of the Underwriters, one or more Common Share
certificate(s) in definitive form representing the Offered Shares,
such Common Share certificate(s) to be registered in the name of
WGI, on behalf of the Underwriters, or in such other name or names
as WGI, on behalf of the Underwriters, shall notify the Company in
writing not less than one (1) whole business day prior to the
Closing Date, against payment by the Underwriters to the Company of
the aggregate purchase price for the Offered Shares in lawful money
of Canada by certified cheque or bank draft at par in Toronto
together with the receipt of WGI, on behalf of the Underwriters,
for such Common Share certificate(s) against delivery of the
Company's receipt for such monies. The Company shall
contemporaneously pay to WGI, on behalf of the Underwriters, the
Underwriters' fees as described in section 3 in connection with the
issue and sale of the Offered Shares, by the Company's certified
cheque or bank draft at par in Toronto against delivery of the
Underwriters' receipt therefor.
(2)Provided notice in writing reasonably satisfactory to the
Company is provided by one or more Underwriters, it is understood
that any one of the Underwriters, individually, may (but shall not
be obliged to) make payment on behalf of any other Underwriter or
Underwriters for all, but not less than all, of the Common Shares
to be purchased by such Underwriter or Underwriters. No such
payment shall relieve such Underwriter or Underwriters from any of
its or their obligations hereunder.
(3)The Company shall make all necessary arrangements for the
exchange on the Closing Date of the Common Share certificate(s),
issued as aforesaid, at the principal offices of The R-M Trust
Company in the cities of Halifax, Montreal, Toronto, Winnipeg,
Calgary and Vancouver for Common Share certificates representing
such number of Common Shares and registered in such names as shall
be designated to The R-M Trust Company by WGI, on behalf of the
Underwriters and any members of the Underwriters' banking, selling
or other groups referred to in paragraph 3(b), not less than three
(3) business days prior to the Closing Date. All such exchanges and
other exchanges necessary to complete the distribution of the
Offered Shares shall be made without cost to the Underwriters or
the members of such Underwriters' banking, selling or other groups.
COMPLIANCE WITH SECURITIES LAWS
5. (1) The Company shall as soon as practicable fulfill all
requirements as are appropriate and obtain receipts for the
Prospectus which under the applicable Securities Laws must be
fulfilled or received in order to qualify the Offered Shares for
distribution in the Qualifying Jurisdictions by the Underwriters
and by any other investment dealers or brokers registered in the
Qualifying Jurisdictions.
<PAGE>
(2) The Offered Shares shall be offered for sale by the
Underwriters to the public in the Qualifying Jurisdictions in
compliance with applicable laws and at the offering price per
Offered Share of $4.00 to be specified on the cover page of the
Prospectus. The Underwriters shall cause similar undertakings to be
contained in any agreements among the members of any banking,
selling or other groups formed for the distribution of the Offered
Shares.
(3) The Underwriters covenant and agree that if they offer
to sell or sell any Offered Shares in jurisdictions other than the
Qualifying Jurisdictions, such offers or sales shall be effected in
accordance and compliance with the applicable laws of such
jurisdictions. The Underwriters shall, and shall use their
reasonable best efforts to cause members of any banking, selling or
other groups (the "selling dealer group") formed for the
distribution of the Offered Shares to, only sell the Offered Shares
in any jurisdiction other than the Qualifying Jurisdictions in full
compliance with all local laws, regulations and policy statements
and in such manner so as not to require the production or
qualification of a prospectus or other offering document in respect
of such sale under the laws of any such jurisdiction or to require
the Company to become registered as an issuer of securities, or to
require the Offered Shares to become registered for distribution
under such laws, regulations and policy statements.
(4) The Underwriters agree, on behalf of themselves and
their United States affiliates, for the benefit of the Company to
comply with the selling restrictions imposed by the laws of the
United States and described in Schedule "A" hereto, which is
incorporated by reference in this Agreement. They also agree to
obtain such an agreement of each member of the selling dealer
group. Notwithstanding the provisions of this Section 5(4), no
Underwriter shall be liable to the Company pursuant to this Section
or Schedule "A" as a result of the violation by another member of
the selling dealer group of this Section 5(4) or Schedule "A" if
the Underwriter first mentioned is not itself in violation.
(5) The Underwriters shall not make use of any "green sheet"
in respect of the Offered Shares or the offering thereof without
the prior approval of the Company, and will comply with the notice
dated July 7, 1989 issued by the Ontario Securities Commission with
respect to the use of "green sheets" and other marketing material
during the waiting period under the Securities Act (Ontario).
DELIVERY OF PROSPECTUS
6. (1) The Company shall deliver to the Underwriters, without
charge, in Toronto, Ontario, contemporaneously with or prior to the
filing of the Prospectus with the Ontario Securities Commission:
(a) a copy of the Prospectus in each of the English and
French language (which French language copy need not be delivered
until the French language version of the Prospectus has been filed
with the Quebec Securities Commission), signed as required by the
Securities Laws;
<PAGE>
(b) a copy of any other document required to be filed by
the Company under the Securities Laws in connection with the
distribution of the Offered Shares in each of the Qualifying
Jurisdictions;
(c) evidence reasonably satisfactory to the Underwriters
that application to list the Offered Shares on the TSE has been
accepted by the TSE, subject to the satisfaction by the Company of
the Listing Conditions;
(d) a comfort letter dated the date of the Prospectus and
addressed by the Company's Auditors to the Underwriters, their
counsel and the directors of the Company, in form and substance
satisfactory to the Underwriters, acting reasonably;
(e) an opinion of the Company's Quebec counsel addressed to
the Underwriters and their counsel in form and substance
satisfactory to the Underwriters, acting reasonably, substantially
to the effect that, except for the financial information appearing
in the Prospectus in the English language under the heading
"Prospectus Summary-Selected Consolidated Financial Information",
the information appearing under the headings "Management's
Discussion and Analysis" and "Auditors' Report" (including the
financial statements referred to therein), the Prospectus printed
in the French language is in all material respects a complete and
proper translation of the Prospectus printed in the English
language and the said English and French language versions of the
Prospectus are not susceptible of any materially different
interpretation with respect to any material matter contained
therein;
(f) an opinion of the Company's Auditors addressed to the
Underwriters and their counsel in form and substance satisfactory
to the Underwriters, acting reasonably, substantially to the effect
that the information under the headings "Prospectus
Summary-Selected Consolidated Financial Information", the
information appearing under the headings "Management's Discussion
and Analysis" and "Auditors' Report" (including the financial
statements referred to therein), in the French version of the
Prospectus are, in all material respects, a complete and proper
translation of the English language version; and
(g) an opinion of the Company's Quebec counsel addressed to
the Underwriters and their counsel, in form and substance
satisfactory to the Underwriters, acting reasonably, with respect
to compliance with the laws of Quebec relating to the use of the
French language in connection with the distribution of the Offered
Shares in Quebec.
<PAGE>
(2) The Company shall co-operate in all respects with the
Underwriters to allow and assist the Underwriters to participate
fully in the preparation of the Prospectus and shall allow the
Underwriters to conduct all "due diligence" investigations which
the Underwriters may reasonably require to fulfil the Underwriters'
obligations as underwriters and to enable the Underwriters
responsibly to execute any certificate required to be executed by
the Underwriters in such documentation.
(3) The Company shall cause to be delivered to the
Underwriters, without charge, as soon as possible following the
time of issuance of a receipt in the Province of Ontario for the
Prospectus and in any event not later than 9:00 a.m. (Toronto time)
on November 1, 1993, in the cities of Toronto and Montreal, such
numbers of commercial copies of the Prospectus, in both the English
and French languages, as the Underwriters shall reasonably request
(and in respect of which they have provided the Company with
reasonable advance written notice). The Company shall similarly
cause to be delivered to the Underwriters commercial copies of any
Supplementary Material required to be delivered to the Underwriters
or to be delivered to purchasers or prospective purchasers of the
Offered Shares in the Qualifying Jurisdictions.
NOTICE OF MATERIAL CHANGE
7. During the period of distribution (which shall be deemed to
have terminated with the giving of notice under section 17(ii) of
this Agreement) of the Offered Shares, the Company shall promptly
notify the Underwriters in writing of:
(a) any material change (actual, anticipated, proposed or
threatened) in any or all of the business, affairs, properties,
assets, capital, net worth, liabilities (contingent or otherwise),
results of operations or business prospects of the Company or its
Subsidiaries;
(b) any change (actual, anticipated, proposed or
threatened) in a material fact contained in the Preliminary
Prospectus, the Prospectus or any Supplementary Material;
(c) any change in applicable laws materially affecting or
which
may materially affect the business, affairs, properties, assets,
capital, net worth, liabilities (contingent or otherwise), results
of operations or business prospects of the Company or its
Subsidiaries or the Offered Shares or the distribution thereof,
which change is or may be of such a nature as to render any
statement in the Preliminary Prospectus, the Prospectus or any
Supplementary Material misleading or untrue or result in a
misrepresentation therein or which would otherwise require an
amendment to the Preliminary Prospectus, the Prospectus or the
Supplementary Material under the Securities Laws; and
<PAGE>
(d) any material fact which becomes known which, pursuant
to the Securities Laws, would have been required to be stated in
the Preliminary Prospectus, the Prospectus or any Supplementary
Material had it been known by the Company at or prior to the
respective date hereof.
In any such case, the Company shall promptly and, in any event
within applicable time limitations under the Securities Laws,
comply with all legal requirements necessary to comply with the
Securities Laws applicable to continued distribution of the Offered
Shares in the Qualifying Jurisdictions as contemplated in section
5. The Company shall in good faith discuss with the Underwriters
any change in circumstances (actual, anticipated, proposed or
threatened) which is of such a nature that there is reasonable
doubt whether notice need be given to the Underwriters pursuant to
this section 7.
SUPPLEMENTARY MATERIAL
8. The Company shall also deliver to the Underwriters and their
counsel duly signed copies of any amendments or supplements to the
Preliminary Prospectus or the Prospectus or other documents
required to be filed by the Company under the Securities Laws
(collectively, the "Supplementary Material"), together with copies
of any other documents required to be filed with the Supplementary
Material. The Company shall cooperate in all respects with the
Underwriters to allow and assist the Underwriters to participate
fully in the preparation of any Supplementary Material and shall
allow the Underwriters to conduct all "due diligence"
investigations which the Underwriters may request to fulfill the
Underwriters' obligations as underwriters and to enable the
Underwriters to responsibly execute any certificate required to be
executed by the Underwriters in the Supplementary Material. The
provisions of section 6 shall apply, with any changes required by
the context, to any Supplementary Material of which copies are,
under the applicable Securities Laws, required to be delivered to
any purchaser or prospective purchaser of the Offered Shares.
REPRESENTATIONS AND WARRANTIES REGARDING PROSPECTUS
9. The delivery to the Underwriters of the Preliminary
Prospectus, the Prospectus or any Supplementary Material shall
constitute the representation and warranty of the Company to the
Underwriters that, at the time of such delivery, the information
and statements contained therein (except information and statements
relating solely to, or provided by, the Underwriters):
(a) are true and correct in all material respects;
(b) constitute full, true and plain disclosure of all
material facts relating to the Company and the Offered Shares;
(c) contain no misrepresentation; and
<PAGE>
(d) comply in all material respects with the Securities
Laws.
Such delivery shall constitute the Company's consent to the use of
the Preliminary Prospectus, the Prospectus and the Supplementary
Material by the Underwriters for the purpose of offering and
selling the Offered Shares in the Qualifying Jurisdictions in
accordance with the Securities Laws as contemplated in this
Agreement.
COVENANTS OF THE COMPANY
10. The Company covenants and agrees with each of the Underwriters
that the Company:
(a) will advise the Underwriters, promptly after receiving
notice thereof, of the time when the Prospectus or any
Supplementary Material has been filed and receipts therefor have
been obtained and will provide evidence satisfactory to the
Underwriters of each such filing and issuance of receipts;
(b) will advise the Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of: (i) the issuance by any
court or by any governmental or regulatory authority, arbitrator,
administrative tribunal, stock exchange or Securities Regulator of
any judgment, decree, order, rule or regulation suspending or
preventing the use of the Preliminary Prospectus, the Prospectus or
any Supplementary Material; (ii) the suspension of the
qualification of the Offered Shares for offering or sale in any of
the Qualifying Jurisdictions; (iii) the institution, proposal,
threat or contemplation of any proceeding in connection with the
matters referred to in (i) or (ii) above; or (iv) any request made
by any Securities Regulator for an amendment or supplement to the
Preliminary Prospectus, the Prospectus or for additional
information. The Company will use its reasonable best efforts to
prevent the issuance of any such judgment, decree, order, rule or
regulation and, if any such judgment, decree, order, rule or
regulation is issued, to obtain the withdrawal thereof as quickly
as possible;
(c) will apply the net proceeds from the sale of the
Offered Shares as set forth under the headings "Prospectus Summary
- - Use of Proceeds" and "Use of Proceeds" in the Prospectus;
<PAGE>
(d) will not, directly or indirectly, without the prior
written consent of the Underwriters, issue, offer, sell, grant any
option to purchase or otherwise dispose of (or agree to or publicly
announce any issue, offer, sale, grant of any option to purchase or
other disposition) any Common Shares or any securities convertible
into, or exchangeable or exercisable for, Common Shares for a
period of 120 days after the Closing Date, except for the sale of
the Offered Shares pursuant to this Agreement, the granting of
options to purchase Common Shares pursuant to the Company's stock
option plans or the issue of Common Shares pursuant to the
Company's employee share purchase plan to an aggregate maximum of
500,000 Common Shares, or the issue of Common Shares pursuant to
the exercise of existing rights, options, warrants or debentures
disclosed in the Prospectus; and
(e) will, prior to filing the Prospectus in the Qualifying
Jurisdictions, deliver to the Underwriters a certificate, dated the
date the Prospectus is filed with the Ontario Securities
Commission, of the Chief Executive Officer and the Chief Financial
Officer on behalf of the Company, and not in their personal
capacities, to the effect that the representations and warranties
of the Company in the Agreement are true and correct as if made on
and as of the date of the certificate except that, in place of any
exceptions currently in section 2 of the Agreement in connection
with the Company being in breach of financial covenants in any loan
agreements, the certificate will provide a representation and
warranty that the Company is not in breach of any covenants of the
loan agreements or will have obtained a waiver from the applicable
banking institution.
EXPENSES
11. The Company agrees to pay all of its costs, fees, and expenses
incidental to the performance of its obligations under this
Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to section 16,
including, without limitation, all costs, fees and expenses
incidental to: (i) the printing or other production of documents
with respect to the transactions contemplated by this Agreement,
including all costs of printing the Preliminary Prospectus, the
Prospectus and any Supplementary Material; (ii) all reasonable
arrangements relating to the delivery to the Underwriters of copies
of the foregoing documents; (iii) the organizing and holding of the
information meetings, including the food, travel and accommodation
expenses of the Underwriters; (iv) the fees and disbursements of
the counsel, the accountants and any other experts or advisors
retained by the Company; (v) the preparation, issuance and delivery
to the Underwriters of any certificates evidencing the Offered
Shares, including all transfer agent's, sub-transfer agent's,
registrar's and sub-registrar's fees; (vi) the qualification of the
Offered Shares under the Securities Laws of the Qualifying
Jurisdictions, including the payment of any filing fees to the
Securities Regulators; and (vii) the listing fees for the Offered
Shares on the TSE. In addition, if the Agreement resulting from
the acceptance of this offer is terminated prior to the Closing
Time by the Company for any reason other than default of the
Underwriters, the Company shall assume and be responsible for the
reasonable fees and disbursements of the Underwriters' counsel and
the reasonable out-of-pocket expenses incurred by the Underwriters
in connection with the offering of the Offered Shares.
<PAGE>
CONDITIONS OF CLOSING
12. The obligations of the Underwriters to purchase and pay for
the Offered Shares shall be subject, in the Underwriters'
reasonable discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof
and as of the Closing Date as if made on and as of the Closing
Date, to the accuracy of the statements of the officers of the
Company and others made pursuant to the provisions of this section
12, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) The Underwriters shall have received favourable legal
opinions, dated the Closing Date, from the Company's counsel,
Stikeman, Elliott, substantially in the form of Schedule "B" hereto
and the Underwriters' counsel, Fasken Campbell Godfrey, in form and
substance reasonably satisfactory to them and as to such matters as
may be reasonably required by them; it being understood that such
counsel may rely: (i) to the extent appropriate in the
circumstances, as to matters of fact, on certificates of the
Company executed on its behalf under corporate seal by any two
officers of the Company acceptable to the Underwriters, acting
reasonably, and on certificates of public officials; (ii) on the
opinions of local counsel (signed copies of which shall be
addressed to and delivered to the Underwriters and their counsel)
reasonably acceptable to the Underwriters' counsel as to the
qualification of the Offered Shares for offering and sale, as to
other matters in the Qualifying Jurisdictions applicable to the
offering and sale of the Offered Shares and as to matters in
paragraphs 1 and 2 of the draft opinion in Schedule "B"; and (iii)
as to matters of fact not independently established, on
certificates of the Company's Auditors and certificates of the
Company's registrar and transfer agent; and that the Underwriters'
counsel may rely on the opinion of the Company's counsel as to
matters which relate specifically to the Company. The Company
agrees to use its reasonable best efforts to cause Stikeman,
Elliott, and the Underwriters agree to use their reasonable best
efforts to cause Fasken Campbell Godfrey, to provide the respective
opinion hereinbefore provided for.
(b) the Underwriters shall have received at the Closing
Time a favourable legal opinion, dated the Closing Date from the
Company's U.S. counsel, in form and substance satisfactory to the
Underwriters' counsel, acting reasonably, with respect to the sale
of the Offered Shares by the Underwriters in the United States.
<PAGE>
(c) an opinion of Quebec counsel to the Company, addressed
to the Company and the Underwriters, in form and substance
satisfactory to the Underwriters, acting reasonably, with respect
to compliance with the laws of Quebec relating to the use of the
official language in connection with the sale of the Offered Shares
and that the French language version of the certificate for the
Common Shares is in all material respects a complete and accurate
translation of the English language version thereof, and that such
versions are not susceptible of any materially different
interpretation with respect to any material matter contained
therein.
(d) Each of the Underwriters and counsel to the
Underwriters shall have received from the Company's Auditors a
letter dated the Closing Date in form and substance satisfactory to
the Underwriters, acting reasonably, to the effect that, in all
material respects, as of the date of such letter (or, with respect
to matters involving changes or developments since the respective
dates as of which specified Financial Information (as defined
below) is given in the Prospectus, as of a date not more than two
(2) business days prior to the date of the Closing Date), the
conclusions and findings of the Company's Auditors with respect to
the financial information disclosed in the Prospectus,
including the financial statements of the Company and such other
financial information as the Underwriters shall reasonably
identify, (collectively, the "Financial Information") shall be
confirmed. References to the Prospectus in this paragraph (d) shall
include any Supplementary Material at the date of such letter.
(e) Incumbency certificates, dated the Closing Date,
including specimen signatures of the Chief Executive Officer, the
Chief Financial Officer and any other relevant signing officer of
the Company.
(f) The Underwriters shall have received a certificate,
dated the Closing Date, of the Chief Executive Officer and the
Chief Financial Officer on behalf of the Company, and not in their
personal capacities, to the effect that, to the best of their
knowledge, information and belief:
(i) (A) the representations and warranties of the
Company in this Agreement are true and correct as if made on and
as of the Closing Time; (B) the Prospectus, as amended or
supplemented as of the Closing Time, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; and
(C) the Company has performed all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time;
(ii) receipts have been issued by the appropriate
Securities Regulators for the Prospectus and no judgment, decree,
order, rule or regulation suspending or preventing the use of the
Prospectus or any Supplementary Material has been issued, and no
proceedings for that purpose have been instituted, proposed,
threatened or contemplated, by any court or by any governmental
or regulatory authority, arbitrator, administrative tribunal,
stock exchange or Securities Regulator;
<PAGE>
(iii) the constating documents and by-laws of the
Company attached to the certificate are full, true, correct and
complete copies of all constating documents and by-laws of the
Company in effect on the date of such certificate, unamended;
(iv) the minutes or other records of various
proceedings and actions of the Company's board of directors
attached to the certificate relating to the Offered Shares and
the Prospectus, including the Historical Financial Statements
included therein, are full, true and correct copies thereof and
have not been modified or rescinded as of the date thereof;
(v) subsequent to the respective dates as of which
information is given in the Prospectus, neither the Company nor
any of its Subsidiaries has sustained any material loss or
interference with its businesses, properties or assets, whether
or not covered by insurance, or from any labour dispute or any
judicial, governmental or regulatory proceeding, and there has
not been any development which may, in any way, have a material
adverse effect on the condition (financial or otherwise) of the
business, properties, assets, capital, net worth, results of
operations or business prospects of the Company or its
Subsidiaries; and
(vi) subsequent to the respective dates as of which
information is given in the Prospectus, no transaction out of the
ordinary course of business of a nature material to the Company
or its Subsidiaries has been entered into by the Company or its
Subsidiaries or has been approved by the management or board of
directors of the Company or its Subsidiaries, as the case may be;
(g) The Offered Shares shall have been, subject to the
satisfaction by the Company of the Listing Conditions, approved for
listing and posting for trading on the TSE at the end of the
business day immediately preceding the Closing Date, subject only
to the official notices of issuance of the Offered Shares.
(h) The Underwriters shall have received such other
certificates, statutory declarations, opinions, agreements or
materials in form and substance satisfactory to the Underwriters as
the Underwriters may reasonably request.
<PAGE>
INDEMNIFICATION AND CONTRIBUTION
13. (1) The Company shall indemnify and save harmless each of the
Underwriters, and each of the directors, officers, employees and
agents of the Underwriters (with respect to an Underwriter, the
"Underwriter's Personnel" and with respect to all Underwriters, the
"Underwriters' Personnel") against any losses (other than loss of
profits), claims, costs, damages, expenses or liabilities to which
the Underwriters or the Underwriters' Personnel may become subject,
including counsel fees, caused by or out of, based on or resulting
from:
(a) any untrue statement or alleged untrue statement made
by the Company in sections 2 or 9 or in any certificate delivered
to the Underwriters pursuant to this Agreement;
(b) any untrue statement or alleged untrue statement of any
material fact (except information or a statement relating solely to
the Underwriters or any of them and except any order, enquiry,
investigation or proceeding based solely or primarily on activities
or alleged activities of the Underwriters or any of them and/or
members of the banking, selling or other groups formed by them)
contained in: (i) the Preliminary Prospectus, the Prospectus or any
Supplementary Material, or any amendment or supplement thereto; or
(ii) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any
Qualifying Jurisdiction in order to qualify the Offered Shares
under the Securities Laws thereof or filed with any securities
exchange (each, an "Application");
(c) the omission or alleged omission to state in the
Preliminary Prospectus, Prospectus or Supplementary Material, or
any amendment or supplement thereto, or any Application, a material
fact required to be stated therein or necessary to make the
statements therein not misleading;
(d) the Company not complying with any requirement of the
applicable Securities Laws; or
(e) any order, ruling or determination having the effect of
suspending or restricting the offer or sale, or ceasing the
trading, of the Offered Shares or any other securities of the
Company has been issued or made by any court or any governmental or
regulatory authority, arbitrator, administrative tribunal, stock
exchange or Securities Regulator, or proceedings for that purpose
have been instituted or are pending by any such court or authority
or under any Securities Laws.
As used herein, "Indemnified Parties" collectively means the
Underwriters and the Underwriters' Personnel, and "Indemnified
Party" means any of them.
<PAGE>
(2)Neither the Company nor any Indemnified Party shall settle
or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect
of which indemnification may be sought hereunder (whether or not
the Underwriters or any Underwriters' Personnel is a party to such
claim, action, suit or proceeding) unless the other has consented
in writing thereto, such consent not to be unreasonably withheld,
or such settlement, compromise or consent includes an unconditional
release of the other from all liability arising out of such claim,
action, suit or proceeding.
(3) Promptly after receipt by an Indemnified Party of notice
of the commencement of any claim, action, suit or proceeding in
respect of which it may be entitled to indemnity by the Company,
such Indemnified Party will, if a claim, action, suit or proceeding
in respect thereof may be made against the Company, notify the
Company of the commencement thereof, but the omission so to notify
the Company will not relieve the Company from any liability which
it may have to any Indemnified Party otherwise than under this
section 13 provided that such omission to so notify the Company
does not materially adversely affect any defences the Company may
have to such claim, action, suit or proceeding. In case any such
claim, action, suit or proceeding is brought against any
Indemnified Party, and such Indemnified Party notifies the Company
of the commencement thereof, the Company will be entitled (but not
required) to participate therein and assume the defence thereof,
provided, however, that such defence shall be through legal counsel
satisfactory to such Indemnified Party, acting reasonably. If the
Company elects to participate in or assume the defence of such
claim, action, suit or proceeding, the Indemnified Party shall have
the right to participate in the defence of such claim, action, suit
or proceeding and have separate counsel at its own expense;
provided however, that if the defendants in any such claim, action,
suit or proceeding include both the Indemnified Party and the
Company and the Indemnified Party shall have been advised by such
Indemnified Party's counsel that representation of both parties by
the same counsel would be inappropriate due to actual or potential
differing interests between them, the Company shall not have the
right to direct the defence of such action on behalf of such
Indemnified Party and such Indemnified Party shall have the right
to select separate counsel to defend such claim, action, suit or
proceeding on behalf of such Indemnified Party or Indemnified
Parties and, in such case, the Company shall bear the reasonable
fees, costs and expenses of such separate counsel, provided that
the Company shall not be obliged under this paragraph (3) to pay
the fees, costs and expenses of more than one legal counsel in any
one jurisdiction acting as counsel on behalf of one or more
Indemnified Parties. If the Company does not elect to participate
in or assume the defence of such claim, action, suit or proceeding,
the Indemnified Party shall have the right to retain counsel and
the Company shall bear the reasonable fees, costs and expenses of
such counsel.
<PAGE>
(4)If the indemnity provided for in the preceding paragraphs
of this section 13 is unavailable or insufficient to hold harmless
the Indemnified Parties in respect of any losses, claims, costs,
damages, expenses or liabilities flowing out of or related to a
claim, action, suit or proceeding, then, in order to provide for
just and equitable contribution, the Company shall contribute to
the amount paid or payable by such Indemnified Party as a result of
such losses, claims, costs, damages, expenses or liabilities in
such proportion as is appropriate to reflect: (i) the relative
benefits received by the Indemnified Party on the one hand and the
Company on the other from the offering of the Offered Shares; or
(ii) if the allocation provided by the foregoing (i) is not
permitted by applicable law, not only such relative benefits but
also the relative fault of the Indemnified Party on the one hand
and the Company on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such
losses, claims, costs, damages, expenses or liabilities. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering of the Offered
Shares (after deducting the fees payable to the Underwriters but
before deducting issue expenses) received by the Company bear to
the total fees received by the Underwriters in connection
therewith. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied
by the Company or the Underwriters, the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission, and any other equitable
considerations appropriate in the circumstances. Notwithstanding
any other provision of this subsection (4), the Indemnified Party
shall not be obligated to make contributions hereunder that in the
aggregate exceed the fees paid to the Underwriters under this
Agreement, less the aggregate amount of any losses, claims, costs,
damages, expenses or liabilities that the Indemnified Party has
otherwise been required to pay in respect of the same or any
substantially similar claim, action, suit or proceeding and no
person who committed a fraudulent misrepresentation shall be
entitled to contribution from any person who did not commit a
fraudulent misrepresentation. For purposes of this subsection (4),
each of the Underwriters' Personnel shall have the same rights to
contribution as the Underwriters, and each director of the Company
and each officer of the Company who signed the Prospectus shall
have the same rights to contribution as the Company. The rights to
contribution provided in this subsection (4) shall be in addition
to and not in derogation of any right to contribution which the
Underwriters may have by statute or otherwise at law.
(5)The rights of indemnity contained in this section 13 shall
not enure to the benefit of an Underwriter or any of such
Underwriter's Personnel if the Company has complied with the
provisions of section 8 and the person asserting any claim, action,
suit or proceeding contemplated by this section 13 was not sent a
copy of the Preliminary Prospectus, the Prospectus or any
Supplementary Material which corrects any untrue statement or
information, misrepresentation or omission which is the basis of
such claim, action, suit or proceeding and which is required under
the Securities Laws to be sent to such person by such Underwriter.
<PAGE>
(6)If the Underwriters have reason to believe that a claim for
contribution may arise, they shall give the Company notice thereof
in writing as soon as reasonably possible, but failure to notify
the Company shall not relieve the Company of any obligation it may
have to the Underwriters under this section 13.
(7)The Company hereby waives its right to recover contribution
from the Underwriters or any of their respective directors,
officers, employees or agents with respect to any liability of the
Company by reason of or arising out of any misrepresentation
contained in the Preliminary Prospectus, the Prospectus or any
Supplementary Material; provided, however, that such waiver shall
not apply in respect of liability caused or incurred by reason of
or arising out of (i) any misrepresentation which is based upon or
results from information relating solely to the Underwriters
contained in such document; (ii) any information provided in
writing to the Company by the Underwriters; or (iii) any failure by
the Underwriters or members of their banking, selling or other
groups, if any, to send to prospective purchasers of the Offered
Shares any document which the Company is required to provide to
such prospective purchasers and which it has provided to the
Underwriters to send to such prospective purchasers.
(8)To the extent that any Indemnified Party is not a party to
this Agreement, the Underwriters shall obtain and hold the rights
and benefits of this section 13 in trust for and on behalf of such
Indemnified Party.
SURVIVAL
14. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, its
officers and the Underwriters set forth in this Agreement shall
survive the Closing Date and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the
Company, the Underwriters or any of their respective directors,
officers, agents or advisors; (ii) delivery of and payment for the
Offered Shares; and (iii) any subsequent disposition by the
Underwriters of the Offered Shares.
OBLIGATIONS OF THE UNDERWRITERS
15. (1) Subject to the terms hereof, the obligations of the
Underwriters to purchase the Offered Shares at the Closing Time
shall be several and not joint and their respective obligations and
rights in this regard shall be in the following percentages:
WGI 35%
DBZW 30%
GCC 20%
RGC 15%
100%
<PAGE>
If one or more of the Underwriters should default in its or their
obligation to purchase its or their respective percentage of the
Offered Shares, the other Underwriter or Underwriters shall have
the right, subject to compliance with applicable law, but not the
obligation, at its or their option, to severally purchase, on a pro
rata basis between themselves or in such other proportions as they
may agree upon, all but not less than all of the Offered Shares,
which the defaulting Underwriter(s) failed or refused to purchase.
If the non-defaulting Underwriter(s) elect(s) not to exercise such
right, the Company shall have the right, subject to compliance with
applicable law, but not the obligation, at its option, to arrange
for one or more substitute Underwriter(s) to purchase that portion
of the defaulting Underwriter(s)' Offered Shares which it or they
have failed to or refused to purchase. If the Company does not
arrange for a substitute Underwriter(s), the non-defaulting
Underwriter(s) shall be entitled by notice to the Company to
terminate this Agreement without liability on the part of the
non-defaulting Underwriter(s) or the Company (on submission of
reasonable evidence of its or their own ability to purchase its or
their own percentage of the Offered Shares, unless the termination
is in accordance with any other termination provision in this
Agreement). Nothing in this section 15 shall require the Company
to sell less than all of the Offered Shares to relieve any
defaulting Underwriter from liability in respect of its default
hereunder to the Company or to any non-defaulting Underwriter.
(2) Unless WGI is a defaulting Underwriter under this
section 15, the Company shall be entitled to act, and shall act, on
any notice, waiver, extension or communication given by or on
behalf of the Underwriters by WGI which shall represent the
Underwriters and which shall have the authority to bind the
Underwriters in respect of all matters hereunder, except in respect
of any settlement under section 13, any agreement referred to under
section 15 or any matter referred to under sections 16 or 19. WGI
agrees to use its reasonable best efforts to consult fully with the
other Underwriters with respect to any such notice, waiver,
extension or other communication.
TERMINATION
16. (1) In addition to any other remedies which may be available
to the Underwriters, any Underwriter shall be entitled, at such
Underwriter's sole discretion, to terminate and cancel, without any
liability on such Underwriter's part, such Underwriter's
obligations under this Agreement, by notice to the Company given at
any time during the period of this Agreement and up to and
including the Closing Time, in the event that if, at or prior to
the Closing Time:
<PAGE>
(a) any inquiry, investigation or other proceeding should
be undertaken, threatened or announced or any order, ruling or
determination should be issued by any court or any governmental or
regulatory authority, arbitrator, administrative tribunal, stock
exchange or Securities Regulator (except for any such inquiry,
investigation, other proceeding or order, ruling or determination
based upon the activities or the alleged activities of the
Underwriters or their banking, selling or other group members, if
any, and not of the Company) which, in the sole opinion of the
Underwriters (or any of them), acting reasonably, prevents or
operates to prevent or materially and adversely restrict trading in
the Offered Shares, or which materially and adversely affects the
marketability of the Offered Shares;
(b) there shall occur any material change or change in a
material fact such as is contemplated in section 7 which, in the
sole opinion of the Underwriters (or any of them), acting
reasonably, would be expected to have a material adverse effect on
the market price or value of the Offered Shares;
(c) there should develop, occur or come into effect or
existence any event, action, state, condition or major financial
occurrence of national or international consequence or any action,
government regulation, inquiry or other occurrence of any nature
whatsoever which, in the reasonable opinion of the Underwriters (or
any of them), materially and adversely affects or will materially
and adversely affect the financial markets or the business,
operations or affairs of the Company or the marketability of the
Offered Shares;
(d) the state of financial markets is such that, in the
reasonable opinion of the Underwriters (or any or them), the
Offered Shares cannot be marketed profitably; or
(e) the Company or its Subsidiaries shall have sustained
any material loss or interference with its businesses or properties
or there shall have been any material adverse change, or any
development involving a prospective material adverse change
including, without limitation, a change in the management or
control of the Company or the condition (financial or otherwise) of
the business, affairs, properties, assets, net worth, capital,
results of operations or business prospects of the Company except,
in each case, as described in the Preliminary Prospectus or, once
filed with a Securities Regulator, the Prospectus.
<PAGE>
(2) The rights of termination contained in this section 16
may be exercised by any one or more of the Underwriters and are in
addition to any other rights or remedies the Underwriters or any of
them may have in respect of any default, act or failure to act or
non-compliance by the Company in respect of any of the matters
contemplated by this Agreement or otherwise. In the event of any
such termination pursuant to paragraph (1)(a), (b), (c), (d) or (e)
of this section 16, there shall be no further liability on the part
of the Company to such Underwriter except in respect of any
liability which may have arisen or may thereafter arise under
sections 5, 9, 11 or 13. A notice of termination given by an
Underwriter under this section 16 shall not be binding upon any
other Underwriter.
(3) In the event that one or more but not all of the
Underwriters shall exercise the right of termination herein, the
others shall have the right, but shall not be obligated, to
purchase all of the Offered Shares which would otherwise have been
purchased by the Underwriter which has so terminated. Nothing in
this section 16 shall oblige the Company to sell to the
Underwriters less than all of the Offered Shares.
POST CLOSING COVENANTS OF THE UNDERWRITERS
17. The Underwriters shall after the Closing Time: (i) use their
best efforts to terminate, and to cause the members of the
Underwriters' banking, selling or other groups to terminate,
distribution of the Offered Shares as promptly as possible; (ii)
give prompt written notice to the Company when, in the opinion of
the Underwriters, they and the members of such Underwriters'
banking, selling or other groups have ceased distribution of the
Offered Shares and of the total proceeds realized from such
distribution in the respective Qualifying Jurisdictions in which
much information is or may be required by the appropriate
Securities Regulators; and (iii) as soon as is practicable in the
circumstances give to the Company a statement as to the
distribution of the Offered Shares for the purpose of assisting in
the listing of the Offered Shares on the TSE.
<PAGE>
NOTICES
18. Unless herein otherwise expressly provided, any notice,
request, direction, consent, waiver, extension, agreement or other
communication required or permitted to the given hereunder shall be
in writing and shall be delivered by personal delivery to an
officer of the party to whom notice is given or shall be sent by
commercial courier or by facsimile to the attention of the
individuals noted below, in each case at the following address or
facsimile number, as the case may be:
(a) Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Brian R. Hedges
Facsimile: (613) 727-0617
with a copy to:
(b) Stikeman, Elliott
Barristers & Solicitors
Suite 5300
Commerce Court West
Toronto, Ontario
M5L 1B9
Attention: Mihkel E. Voore
Facsimile: (416) 947-0866
<PAGE>
and in the case of notice to the Underwriters:
(c) Wood Gundy Inc.
BCE Place
161 Bay Street, 6th Floor
Toronto, Ontario
M5J 2S8
Attention: Douglas G. Cunningham
Facsimile: (416) 594-7470
(d) Deacon Barclays de Zoete Wedd Limited
304 Bay Street
Toronto, Ontario
M5H 2P2
Attention: Peter A. Mackenzie
Facsimile: (416) 350-3375
(e) Gordon Capital Corporation
Box 67, Suite 5300
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1E7
Attention: Robert Cross
Facsimile: (416) 369-9498
(f) Richardson Greenshields of
Canada Limited
313 Second Avenue
Ottawa, Ontario
K1S 2J1
Attention: Graham C. MacMillan
Facsimile: (613) 565-4800
with a copy to:
(g) Fasken Campbell Godfrey
Barristers and Solicitors
P.O. Box 20
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1N6
Attention: Cathy Singer
Facsimile: (416) 362-2381
The Company and the Underwriters may change their respective
addresses for notice, by notice given in the manner aforesaid, with
any such notification to take effect at the time of receipt.
<PAGE>
TERMS AND CONDITIONS
19. All terms and conditions of this Agreement shall be construed
as conditions and any breach or failure by the Company to comply
with any of such terms and conditions shall entitle the
Underwriters to terminate their obligations to purchase the Offered
Shares by written notice to that effect given to the Company prior
to the Closing Time. It is understood that the Underwriters may
waive, in whole or in part, or extend the time for compliance with,
any of such terms and conditions without prejudice to their rights
in respect of any other of such terms and conditions or any other
or subsequent breach or non-compliance, provided that to be binding
on the Underwriters any such waiver or extension must be in writing
and signed by the Underwriters.
SUCCESSORS
20. This Agreement shall enure to the benefit of, and shall be
binding upon, the Underwriters, the Company, and their respective
successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof
being intended to be and being for the sole and exclusive benefit
of such persons and for the benefit of no other person except that
the indemnities of the Company contained in section 13 shall also
be for the benefit of all officers, directors, employees and agents
of the Underwriters.
APPLICABLE LAW
21. The validity and interpretation of this Agreement, and the
terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the Province of Ontario
and the federal laws of Canada applicable therein.
COUNTERPARTS
22. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
TIME OF ESSENCE
23. Time shall be of the essence of this Agreement.
<PAGE>
If the foregoing is in accordance with your
understanding and agreed to by you, please signify your acceptance
by signing in the space provided therefor below and return this
letter to us whereupon this letter as so accepted shall constitute
a binding agreement among us in accordance with the foregoing.
Yours very truly,
WOOD GUNDY Inc. DEACON BARCLAYS DE ZOETE
WEDD Limited
By: s/DOUGLAS G. CUNNINGHAM By: s/PETER A. MACKENZIE
GORDON CAPITAL CORPORATION Richardson Greenshields
of Canada Limited
By: s/ROBERT CROSS By: s/GRAHAM C. MACMILLAN
Accepted this 20th day of October, 1993.
GANDALF TECHNOLOGIES INC.
By: s/B.R. HEDGES
s/W.MACDONALD
<PAGE>
SCHEDULE A
United States Selling Restrictions
1. (a)For the purposes of this Schedule, the following
terms shall have the meanings indicated:
(i) "Directed Selling Efforts" means "Directed Selling
Efforts" as that term is defined in Regulation S. Without limiting
the foregoing, but for greater clarity in this Agreement, it means,
subject to the exclusions from the definition of "directed selling
efforts" in Regulation S, any activity undertaken for the purpose
of, or that could reasonably be expected to have the effect of,
conditioning the market in the United States for any of the Offered
Shares and includes the placement of any advertisement in a
publication with a general circulation in the United States that
refers to the offering of any of the Offered Shares;
(ii) "Regulation S" means Regulation S adopted by the SEC
under the U.S. Securities Act;
(iii) "SEC" means the United States Securities and Exchange
Commission;
(iv) "Selling Dealer Group" means the dealers and brokers
other than the Underwriters who participate in the offer and sale
of the Offered Shares pursuant to the Underwriting Agreement;
(v) "Substantial U.S. Market Interest" means "substantial
U.S. market interest" as defined in Regulation S;
(vi) "United States" means the United States of America, its
territories and possessions, any state of the United States, and
the District of Columbia;
(vii) "U.S. Exchange Act" means the United States Securities
Exchange Act of 1934, as amended; and
(viii) "U.S. Securities Act" means the United States
Securities Act of 1933, as amended.
2. Each Underwriter acknowledges that the Offered Shares
have not and will not be registered under the U.S. Securities Act
and that any sale of the Offered Shares by the Underwriters will be
made in one or more private placements under the U.S. Securities
Act or pursuant to Regulation S.
3. Each Underwriter shall cause each purchaser in the
United States (a "Purchaser") to execute a subscription agreement
in the form attached as Exhibit I hereto.
<PAGE>
4. Each Underwriter agrees that neither it nor any of its
affiliates nor any person acting on its behalf or on behalf of its
affiliates will:
(a) except to the extent permitted by Section 3 of
this Schedule, (i) offer to sell, or make any solicitation of an
offer to buy, any Offered Shares to any person in the United
States, or (ii) make any sale of Offered Shares to any purchaser
unless, at the time the buy order was originated, the purchaser was
outside the United States, or the seller and any person acting on
its behalf reasonably believe that such purchaser was outside the
United States;
(b) make any Directed Selling Efforts in the United
States with respect to the Offered Shares;
(c) offer or sell, or solicit any offer to buy, by any
form of general solicitation or general advertising (as those terms
are used in Regulation D under the 1933 Act), including
advertisements, articles, notices or other communications published
in any newspaper, magazine or similar media or broadcast over radio
or television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising, or in any
manner involving a public offering within the meaning of Section
4(2) of the 1933 Act, any of the Offered Shares.
5. The Underwriters have not entered, and will not enter,
into any contractual arrangement without the prior written consent
of the Company with respect to the distribution of the Offered
Shares, except (i) with their affiliates or (ii) with members of
the Selling Dealer Group in accordance with this Schedule "A".
6. The Company:
(i) represents that it is a "foreign issuer" within the
meaning of Regulation S and reasonably believes that there is no
Substantial U.S. Market Interest in the Common Shares of the
Company;
(ii) represents that it is not, and agrees to use its best
efforts not to become at any time prior to the expiration of three
years after the Closing, an "investment company" as defined in the
United States Investment Company Act of 1940, as amended;
(iii) represents and agrees that neither it nor any of its
affiliates has taken or will take any action which would cause the
exemptions afforded by Regulation S to be unavailable for the offer
and sale of the Offered Shares pursuant to the Underwriting
Agreement or which would constitute a violation of Rule 10b-6 or
Rule 10b-7 of the SEC under the U.S. Exchange Act;
<PAGE>
(iv) represents and agrees that none of the Company, its
affiliates or any person acting on its or their behalf has offered
or will offer to sell the Offered Shares by means of any form of
general solicitation or general advertising (as those terms are
used in Regulation D under the U.S. Securities Act) or in any
manner involving a public offering within the meaning of Section
4(2) of the U.S. Securities Act; and
(v) represents and agrees that none of the Company, its
affiliates or any person acting on its or their behalf has engaged
or will engage in any Directed Selling Efforts in the United States
with respect to the Offered Shares within the meaning of Regulation
S.
<PAGE>
EXHIBIT I
FORM OF U.S.PURCHASER'S LETTER
_________________________________, 1993
Gandalf Technologies Inc.
130 colonnade Road South
Nepean, Ontario
CANADA K2E 7M4
Gandalf Technologies Inc.
-------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of common
shares (THE "COMMON SHARES") of Gandalf Technologies Inc. (the
"Corporation"), we confirm and agree as follows:
(1) We are authorized to consummate the purchase of
Common Shares.
(2) We understand that the Common Shares have not been
and will not be registered under the U.S. Securities Act of 1933,
as amended (the "U.S. Securities Act") and that the sale
contemplated hereby is being made in reliance on a private
placement exemption to institutional accredited investors.
(3) We have received a copy, for our information only,
of the Canadian Prospectus dated _____________, 1993 and a U.S.
covering memorandum (the "Canadian Prospectus") relating to the
offering in Canada of the Common Shares and have had access to
such additional information, if any, concerning the Corporation
as we have considered necessary in connection with our investment
decision to acquire the Common Shares.
(4) We have such knowledge and experience in financial
and business matters as to be capable of evaluating the merits
and risks of our investment in Common Shares and we are able to
bear the economic risks of such investment.
(5) We are an institutional "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the U.S.
Securities Act and we are acquiring Common Shares for our own
account or for the account of an institutional "accredited
investor" as to which we exercise sole investment discretion, and
not with a view to any resale, distribution or other disposition
of Common Shares in violation of the United States securities
laws.
(6) We are purchasing Common Shares for our own
account having an aggregate purchase price of at least
<PAGE>
U.S. $250,000 or for one or more accounts as to which we exercise
sole investment discretion and each such account is purchasing
Common Shares having such an aggregate purchase price.
(7) We acknowledge that we have not purchased Common
Shares as a result of any general solicitation or general
advertising, including advertisements, articles, notices or other
communication published in any newspaper, magazine or similar
media or broadcast over radio or television, or any seminar or
meeting whose attendees have been invited by general solicitation
or general advertising.
(8) We agree that if we decide to offer, sell or
otherwise transfer any Common Shares, we will not offer, sell or
otherwise transfer any of such Common Shares (other than pursuant
to an effective registration statement under the U.S. Securities
Act), directly or indirectly, unless:
(a) the sale is to the Corporation; or
--
(b) (i) the sale is to an "accredited investor"
within the meaning of Rule 501(a)(1), (2),
(3) or (7) under the U.S. Securities Act and
is of a number of Common Shares having an
aggregate market value at the time of such
sale of not less than U.S. $250,000, (ii) a
purchaser's letter containing
representations, warranties and agreements
substantially similar to those contained in
this purchaser's letter (except that such
purchaser's letter need not contain the
representation set forth in paragraph (3)
above), and satisfactory to the U.S.
placement agent and the Corporation, is
executed by the purchaser and delivered to
the U.S. placement agent and the Corporation
prior to the sale and (iii) all offers or
solicitations in connection with the sale are
arranged and conducted solely by the U.S.
placement agent or the Corporation; or
--
(c) the sale is made outside the United States in
compliance with the requirements of Rule 904
of Regulation S under the U.S. Securities Act
and in compliance with applicable local laws
and regulations; or
--
(d) the sale is made pursuant to an exemption
from registration under the U.S. Securities
Act provided by Rule 144 thereunder, if
applicable; or
--
<PAGE>
(e) the Common Shares are sold in a transaction
that does not require registration under the
U.S. Securities Act or any applicable United
States state laws and regulations governing
the offer and sale of securities, and we have
therefore furnished to the U.S. placement
agent and the Corporation an opinion of
counsel of recognized standing reasonably
satisfactory to the U.S. placement agent and
the Corporation.
(9) We understand and acknowledge that upon the
original issuance thereof, and until such time as the same is no
longer required under applicable requirements of the U.S.
Securities Act or applicable state laws, the certificates issued in
exchange therefor or in substitution thereof, shall bear the
following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED(THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES,
AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY. (A) TO THE CORPORATION,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT,
(C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF APPLICABLE, OR (D) IN COMPLIANCE
WITH CERTAIN OTHER PROCEDURES SATISFACTORY TO THE
CORPORATION. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH
WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED
FROM THE R-M TRUST COMPANY OR MELLON SECURITIES
TRUST COMPANY UPON DELIVERY OF THIS CERTIFICATE
AND A DULY EXECUTED DECLARATION, IN A FORM
SATISFACTORY TO SUCH TRANSFER AGENT AND THE
CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT;
provided, that if Common Shares are being sold under paragraph
(8)(c) above, the legend may be removed by providing a
declaration to The R-M Trust Company or Mellon Securities Trust
Company, as registrar and transfer agent, to the following effect
(or as the Corporation may prescribe from time to time):
<PAGE>
"The undersigned (A) acknowledges that the sale of
the securities to which this declaration relates
is being made in reliance on Rule 904 of
Regulation S under the United States Securities
Act of 1933 and (B) certifies that (1) the offer
of such securities was not made to a person in the
United States and either (a) at the time the buy
order was originated, the buyer was outside the
United States, or the seller and any person acting
on its behalf reasonably believe that the buyer
was outside the united States or (b) the
transaction was executed on or through the
facilities of The Toronto Stock Exchange and
neither the seller nor any person acting on its
behalf knows that the transaction has been
prearranged with a buyer in the United Stats and
(2) none of the seller, any affiliate of the
seller or any person acting on their behalf
engaged in any directed selling efforts in
connection with the offer and sale of such
securities. Terms used herein have the meanings
given to them by Regulation S."
(10) We consent to the Corporation making a notation
on its records or giving instructions to any transfer agent of
Commons Shares in order to implement the restrictions on transfer
set forth and described herein.
We acknowledge that the representations and warranties
and agreements contained herein are made by us with the intent
that they may be relied upon by you and by the U.S. placement
agent, in determining our eligibility or (if applicable ) the
eligibility of others on whose behalf we are contracting
hereunder to purchase Common Shares. We further agree that by
accepting Common Shares we shall be representing and warranting
that the foregoing representations and warranties are true as at
the closing time with the same force and effect as if they had
been made by us at the closing time and that they shall survive
the purchase by us of Common Shares and shall continue in full
force and effect notwithstanding any subsequent disposition by us
of such Common Shares.
<PAGE>
You and the U.S. placement agent are irrevocably
authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
---------------------------
Name of Purchaser
Dated:
By: ----------------------
Name:
Title:
<PAGE>
_________________, 1993
The R-M Trust Company
Mellon Securities Trust Company
Re: Transfer of Common Shares of Gandalf
Technologies Inc. bearing a U.S. Securities
Act Legend
Dear Sires:
Enclosed herewith as Schedule A, you will find the
Instructions for the Transfer of Common Shares bearing a U.S.
Securities Act Legend as set forth herein (the "Instructions") to
be followed by you, as co-transfer agent and co-registrar of the
Common Shares of Gandalf Technologies Inc., in connection with
transfers of Common Shares bearing such U.S. Securities Act
legends.
Kindly complete the attached acknowledgement in
duplicate and return same to each of Gandalf Technologies Inc.
and the undersigned to confirm that you will observe the
Instructions in connection with transfers of Common Shares
bearing such U.S. Securities Act legends.
Yours very truly,
WOOD GUNDY INC.
By:
____________________________
Encls.
<PAGE>
SCHEDULE B
[Opinion of Stikeman, Elliott]
________________, 1993
Wood Gundy Inc. Deacon Barclays de Zoete
BCE Place Wedd Limited
161 Bay Street, 6th Floor 304 Bay Street
Toronto, Ontario Toronto, Ontario
M5J 2S8 M5H 2P2
Gordon Capital Corporation Richardson Greenshields of
Box 67, Suite 5300 Canada Limited
Toronto Dominion Bank Tower 313 Second Avenue
Toronto-Dominion Centre Ottawa, Ontario
Toronto, Ontario K1S 2J1
M5K 1E7
Fasken Campbell Godfrey
Barristers and Solicitors
P.O. Box 20
Toronto Dominion Bank Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1N6
Gandalf Technologies Inc.
We have acted as counsel to Gandalf Technologies Inc. (the
"Corporation") in connection with the issuance and sale by the
Corporation and the purchase by Wood Gundy Inc., Deacon Barclays de
Zoete Wedd Limited, Gordon Capital Corporation and Richardson
Greenshields of Canada Limited (collectively, the "Underwriters")
of 12,000,000 Common Shares of the Corporation (the "Offered
Shares"), pursuant to the terms and subject to the conditions of an
agreement (the "Underwriting Agreement") dated October 20, 1993
between the Underwriters and the Corporation. All capitalized terms
used herein and not otherwise defined herein shall have the
meanings ascribed thereto in the Underwriting Agreement.
As counsel for the Corporation and jointly with Fasken
Campbell Godfrey, counsel for the Underwriters, we participated in
the preparation of the English language versions of the preliminary
prospectus of the Corporation dated September 21, 1993 and the
(final) prospectus (the "Prospectus") of the Corporation dated
_____________, 1993 prepared in connection with the offering of
the Offered Shares to the public in all of the provinces of Canada.
As such counsel, we also settled the Underwriting Agreement with
Fasken Campbell Godfrey.
<PAGE>
We have examined such statutes, public and corporate records
of the Corporation and such documents and certificates of officers
of the Corporation and others and considered such questions of law
as we have considered relevant and necessary as a basis for the
opinions expressed herein. In particular, we have relied, as to
certain matters of fact, upon certificates of officers of the
Corporation, of the The R-M Trust Company (the "Trust Company"), of
public officials, a letter dated ____________________, 1993 from
The Toronto Stock Exchange and of the auditors of the Corporation,
KPMG Peat Marwick Thorne, copies of which have been delivered to
you. In all such examinations we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to
us as originals, the conformity to authentic original documents of
all documents submitted to us as certified or photostatic copies or
facsimiles and the authenticity of the originals of such documents
and facsimiles. In rendering our opinion in paragraph 5 below, we
have relied, insofar as such opinion relates to the Trust Company,
solely upon certificates of the Trust Company, copies of which have
been delivered to you. In rendering the opinion set forth in
paragraph 6 below, insofar as such opinion relates to the
Underwriting Agreement constituting valid and binding obligations
of the Corporation, we have assumed that such agreement constitutes
a valid and binding obligation of the parties thereto other than
the Corporation, enforceable in accordance with its terms, subject
to the exceptions set out in paragraph 7 below.
We are qualified to practise law in the Province of Ontario
and to express legal opinions only with respect to the laws of the
Province of Ontario and the federal laws of Canada applicable
therein. The opinions expressed below are to be construed in
accordance with such laws in effect on the date hereof. We have
not made an examination of the laws of any jurisdiction other than
Canada and the Province of Ontario and we do not express or imply
any opinion with respect to the laws of any foreign jurisdiction.
Insofar as our opinions relate to matters governed by laws other
than the laws of the Province of Ontario or the federal laws of
Canada applicable therein, we have relied upon the opinions of
local counsel in each applicable jurisdiction as to the laws of
each such jurisdiction, copies of which have been delivered to you.
Such opinions are in form satisfactory to us and we are of the
opinion that both you and we are entitled to rely thereon.
To the extent that any of the opinions of local counsel
referred to above upon which we are relying is based upon any
assumption or is made subject to any limitation or qualification,
our opinions given in reliance thereon are also based upon such
assumptions and are subject to such limitations or qualifications.
Based and relying upon and subject to the foregoing, we are of
the opinion that:
<PAGE>
1. Each of the Corporation and its subsidiaries which are
incorporated in Canada, the United States and the United Kingdom
(the "Subsidiaries") is validly subsisting under the laws of its
jurisdiction of incorporation.
2. Each of the Corporation and its Subsidiaries has all requisite
corporate power and authority to carry on its business as now
conducted and to own or lease its properties. No general
registration, license, consent or other authorization is required
by any of the Corporation or its Subsidiaries to carry on its
business in the jurisdictions in which it carries on business.
3. The authorized capital of the Corporation consists of an
unlimited number of Common Shares, of which _________________
Common Shares are issued and outstanding as fully paid and
non-assessable.
4. The Corporation has all requisite corporate power and
authority to authorize, execute and deliver, and to carry out its
obligations under, the Underwriting Agreement.
5. All necessary corporate action has been taken by the
Corporation validly to issue the Offered Shares to the Underwriters
and the Offered Shares have been duly and validly issued as fully
paid and non-assessable. A single definitive share certificate
representing the Offered Shares has been duly certified by the
Trust Company and registered in the name of and delivered to Wood
Gundy Inc., on behalf of the Underwriters.
6. All necessary corporate action has been taken by the
Corporation to authorize the execution and delivery by the
Corporation of, and the performance by the Corporation of its
obligations under the Underwriting Agreement, and the Underwriting
Agreement has been duly executed and delivered by the Corporation
and constitutes a legal, valid and binding obligation of the
Corporation, enforceable in accordance with its terms, except:
(a) that enforcement thereof may be limited by bankruptcy,
insolvency and other laws affecting the enforcement of creditors'
rights generally;
(b) that specific performance, injunction and other
equitable remedies may only be granted in the discretion of a court
of competent jurisdiction; and
(c) that rights to indemnity, contribution and waiver of
contribution under the Underwriting Agreement may be limited under
applicable law.
<PAGE>
7. The execution and delivery of the Underwriting Agreement, the
fulfilment of the terms thereof and the issuance and sale of the
Offered Shares by the Corporation pursuant to the Underwriting
Agreement do not and will not contravene any applicable law of
Canada or of the Province of Ontario and do not and will not result
in a breach of, and do not and will not create a state of facts
which, after notice or lapse of time or both, will result in a
breach of, and do not and will not conflict with, any of the terms,
conditions or provisions of the constating documents or by-laws of
the Corporation or any resolutions of the directors or shareholders
of the Corporation or any of the trust indenture dated
______________________, 1993 between the Company and The R-M Trust
Company and a loan agreement, as amended, between the Company and
The Royal Bank of Canada.
8. No consent, approval, authorization or order of any court or
governmental agency or body or regulatory authority is required for
the consummation by the Corporation of the transactions
contemplated by the Underwriting Agreement, other than those that
have been obtained on or prior to the date hereof.
9. To our knowledge, other than as described in Appendix A
hereto, there is no action, proceeding, litigation or investigation
pending or threatened against or affecting the Corporation, at law
or in equity or before or by any federal, provincial, state,
municipal or other governmental department, commission, board or
agency, domestic or foreign, which in any way would have a material
adverse effect upon the Corporation or the consummation of the
transactions described in the Underwriting Agreement.
10. The form and terms of the share certificate representing the
Common Shares have been duly approved and adopted by the directors
of the Corporation and comply with all legal requirements relating
thereto.
11. The attributes of the Common Shares are consistent with the
description thereof in the Prospectus under the heading
"Description of Share Capital".
12. The Toronto Stock Exchange has conditionally approved the
listing and posting for trading of the Common Shares subject to the
Corporation fulfilling all of the requirements of such exchange on
or before ___________________, 1993.
13. The Trust Company at its principal offices in
_________________________ has been duly appointed transfer agent
and registrar of the Common Shares.
14. All necessary documents have been filed, all requisite
proceedings have been taken and all other legal requirements have
been fulfilled under the laws of the Qualifying Jurisdictions to
qualify the issuance and sale of the Offered Shares to the public
in each of the Qualifying Jurisdictions through registrants
registered under applicable legislation and who have complied with
the relevant provisions of such applicable legislation.
<PAGE>
15. The provisions of the Pension Benefits Act (Ontario) and the
Regulation thereunder would not, subject to compliance with the
prudent investment criteria contained therein and the general
investment provisions thereof, preclude the funds of a pension plan
registered thereunder from being invested in the Common Shares at
the date hereof, provided that the Common Shares are within a
category of investment specifically permitted and for which
guidelines are established in the statement of investment policies
and goals for such plan filed under the Act and provided further
that such investment complies with such guidelines.
16. The provisions of the Loan and Trust Corporations Act
(Ontario) and the Regulation thereunder would not, subject to
compliance with the prudent investment standards and the general
investment provisions thereof, preclude the funds received as
deposits under section 155 of such Act by loan corporations and
trust corporations registered under such Act from being invested in
the Common Shares at the date hereof without resorting to the
provisions of subsection 166(1) of such Act.
17. The provisions of an Act respecting insurance (Quebec) do not,
subject to compliance with the prudent investment standards and the
general investment provisions of such Act, preclude an investment
in the Common Shares at the date hereof by an insurer governed by
such Act, other than a mutual association or professional
corporation.
18. The provisions of the Supplemental Pension Plans Act (Quebec)
do not, subject to compliance with the general investment
provisions of such Act, preclude the assets of a pension plan
registered pursuant thereto from being invested in the Common
Shares at the date hereof; provided, however, that where an
investment policy has been established and adopted for such pension
plan in accordance with such Act, an investment in Common Shares is
also made in accordance with such investment policy.
19. The provisions of the Trust and Loan Companies Act (Canada)
would not, subject to compliance with the prudent investment and
lending policies, standards and procedures required to be
established pursuant to that Act, preclude the funds of companies
regulated under such Act from being invested.
20. The provisions of the Insurance Companies Act (Canada) would
not, subject to the prudent investment and lending policies,
standards and procedures required to be established pursuant to
that Act and in the case of foreign companies (as defined in that
Act) subject to any restriction contained in the trust deed
creating the trust in respect of such assets, preclude the funds of
companies (as defined in that Act) or the assets or foreign
companies (as defined in the Act) required to be vested in trust,
from being invested.
<PAGE>
21. The provisions of An Act respecting trust companies and
savings companies (Quebec) would not preclude an investment at the
date hereof in the Common Shares by a Quebec company as defined
under such Act (other than a trust company as defined under such
Act with respect to funds (except deposits) such trust company
administers for other persons unless otherwise provided in the
instrument creating the administration), subject to compliance with
the general investment provisions of such Act and subject to the
specific provisions of Division VI of Chapter 15 of such Act
applicable to a Quebec company.
22. The Common Shares are, as of the date hereof, qualified
investments under the Income Tax Act (Canada) for a trust governed
by a registered retirement savings plan, registered retirement
income fund or deferred profit sharing plan (as such terms are
defined in such Act) registered under such Act.
Yours truly,
Royal Bank of Canada
L.James Blattman Business Banking Centre
Senior Account Manager 90 Sparks Street, P.O. Box 746, Station B
Advanced Technology Ottawa, Ontario K1P 5T6
January 7, l994 Transit 01196
Fax: (613) 564-4527
Toll Free: 1-800-267-0305
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
Dear Sirs:
Royal Bank of Canada (the "Bank") is pleased to offer Gandalf
Technologies Inc. (the "Borrower") the following credit facilities
(the "Credit Facility"), which, upon your acceptance shall
supersede and cancel the credit facilities provided to the Borrower
in our letter agreement of September 16, 1993. The Credit Facility
shall be governed by the following terms and conditions:
1. Definitions:
The definitions attached hereto in Schedule "A" are
incorporated in this agreement by reference as if set out in full
herein and unless otherwise provided, all accounting terms herein
shall be interpreted in accordance with GAAP.
2. Credit Facility:
The Credit Facility is available in the following segments
as follows:
Segment 1
Letters of Credit in Canadian or US Dollars ("L/Cs");
Segment 2
Foreign exchange forward contracts ("FEF Contracts").
Segment 3
(a) Royal Bank U.S. Base Rate based loans in US
Dollars ("RBUSBR Loans"),
(b) Royal Bank Prime based loans in Canadian Dollars
("RBP Loans"),
(c) Libor based loans in US Dollars ("Libor Loans"),
(d) Banker's Acceptances in Canadian Dollars
<PAGE>
("B/As"), and
(e) Letters of Credit in Canadian or US Dollars
("L/Cs").
Each use of the Credit Facility by way of any of the
foregoing methods is referred to as a "Borrowing". The face amount
of each Borrowing outstanding shall be used to determine the amount
of Borrowings outstanding under the Credit Facility at any time
with the exception that the amount of Borrowings ascribed to FEF
Contracts shall be determined by the Bank, in its sole discretion,
from time to time and advised to the Borrower upon request.
3. Amount:
The amount available under the Credit Facility (the "Amount")
shall not exceed:
Segment 1 $1,350,000 or the Equivalent Amount in US Dollars
Segment 2 $6,500,000 or the Equivalent Amount in US Dollars
Segment 3 the lesser of:
(a) US $4,500,000 or the Equivalent Amount in
Canadian Dollars
(b) the Margin Requirement
4. Purpose:
The Borrower shall use the Credit Facility for the purpose of
accommodating:
Segment 1 L/C requirements
Segment 2 Foreign exchange hedging activities
Segment 3 General operating requirements.
5. Availability:
Borrowings under the Credit Facility are available on any
Business Day through the Branch of Account.
During the term of the Credit Facility, the Borrower may
borrow, repay and reborrow hereunder at any time, unless otherwise
provided.
FEF Contracts may not have maturities exceeding one year.
After the Maturity Date, the Credit Facility shall convert
to a demand facility, the Bank may cancel any undrawn portion of
the Amount at any time and all Borrowings outstanding shall be due
and payable on demand by the Bank.
<PAGE>
6. Interest Rates and Fees:
(a) The interest rates applicable to the Credit Facility
shall be RBP, RBUSBR, Libor or RBPAF, as applicable, plus an
interest component (the "Fluctuating Interest Component") which
shall be determined by the profitability of the Borrower during its
previous fiscal quarter(s). The Fluctuating Interest Component
shall be set on a quarterly basis in accordance with the following
schedule, effective on the first day of the third month following
the end of such fiscal quarter, subject to receipt of the
information stipulated in Section 23 (d) (ii), failing which the
Borrower shall thereafter be conclusively deemed to have incurred
a net loss during such previous fiscal quarter.
Fluctuating Interest Component:
No. of
Consecutive
Profitable RBP RBUSBR Libor
Quarters Loans Loans Loans B/A's
one or less 1.375% 1.375% 2.375% 1.375%
two 1.00% 1.00% 2.00% 1.00%
three .75% .75% 1.75% .75%
four or more .50% .50% 1.25% .50%
(b) L/C fees to be quoted by the Bank at time of issue of
each L/C.
7. Calculation and Payment of Interest and Fees:
(a) RBP and RBUSBR Loans:
The Borrower shall pay interest on each RBP Loan in
Canadian Dollars and interest on each RBUSBR Loan in US Dollars
monthly in arrears on the first Business Day following the 24th of
each month. Such interest will accrue and be computed daily on the
daily closing balance on the basis of a year of 365 days. Any
change in RBP or RBUSBR shall be effective as of the opening of
business on the day such change takes place.
(b) Libor Loans:
The Borrower shall pay interest on each Libor Loan in
U.S. Dollars in arrears on each Libor Interest Date. Such
interest will accrue and be computed daily on the basis of a year
of 360 days.
(c) B/As:
The Borrower shall pay acceptance fees in Canadian
Dollars at the rates provided for above in advance on the date of
issue of each B/A. Acceptance fees shall be calculated on the face
amount of the B/A issued and based upon the number of days in
the term thereof and a year of 365 days.
(d) L/C Fees:
The Borrower shall pay an L/C fee on the date of
issuance of such L/C in the currency in which such L/C is issued.
Such fee shall be calculated on the face amount of the L/C issued
and based on the number of days in the term thereof and a year
of 365 days.
<PAGE>
(e) Operation of Account Fee:
The Borrower shall pay fees of $100 and US$100 payable
monthly in arrears on the first day of each month to compensate the
Bank for the expense of revolving the Borrower's accounts.
(f) Standby Fee:
A standby fee equal to 3/16 of 1% per annum calculated
on the unused portion of Segment 3 is payable monthly in arrears
within the first five business days of each month.
(g) Arrangement fee:
An arrangement fee of $20,000 is payable upon
acceptance of this agreement. The arrangement fee is
non-refundable and will be deemed to have been earned by the Bank
upon acceptance of this offer, to compensate for time, effort and
expense incurred by the Bank to approve these facilities.
(h) Monitoring Fee:
The Borrower shall pay a fee of $250. monthly in
arrears on the first day of each month to compensate the Bank for
the cost of monitoring, reviewing and analyzing financial reports
of the Borrower and its Material Subsidiaries.
(i) Interest Act (Canada):
The annual rates of interest or fees to which the
rates calculated in accordance with this Agreement are equivalent,
are the rates so calculated multiplied by the actual number of
days in the calendar year in which such calculation is made
and divided by 365 or, in the case of Libor Loans, 360.
8. Time and Place of Payment:
Payments of principal, interest, fees and all other amounts
payable by the Borrower pursuant to this Agreement shall be paid at
the Branch of Account in immediately available funds in Canadian
Dollars except as otherwise herein provided. Each payment under
this Agreement shall be made for value 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 next following such day and all interest
and other fees shall continue to accrue until payment. Interest
and fees payable under this Agreement are payable both before and
after any or all of default, demand and judgment.
<PAGE>
9. Withholding Taxes:
All payments required under this Credit Facility shall be
made free and clear of and without any withholding on account of
any taxes or other charges of any nature or kind whatsoever. If
any such taxes or charges are required to be withheld from any
payment made hereunder, the Borrower shall pay an additional amount
such that the net amount received by the Bank shall be equal to the
amount which would have been received if no such withholding were
required to be made.
10. Exchange Rate Fluctuations:
If, in the sole determination of the Bank, due to exchange
rate fluctuations or for any other reason, the value of Borrowings
outstanding under the Credit Facility, when converted to Canadian
Dollars, exceeds the Amount as of the 25th day of any month, the
Borrower shall either repay or otherwise retire the outstanding
Borrowings to the extent of the amount of such excess, or
shall secure the amount of such excess in a manner which is
satisfactory to the Bank.
11. Repayment:
Borrowings are repayable on the later of the Maturity Date or
the date of any demand by the Bank, provided that on or prior to
the Maturity Date the Bank may demand repayment pursuant to Section
24 hereof, and in such event, Borrowings shall be payable upon such
demand.
After the Maturity Date, all Borrowings made hereunder shall
be due and payable on demand by the Bank.
Upon any demand by the Bank hereunder, the Borrower shall
pay all amounts outstanding hereunder including, without
limitation, an amount equal to the aggregate of the face amounts of
all B/As and L/Cs and the amount advised by the Bank, pursuant to
Section 2 hereof, with respect to FEF Contracts which are unmatured
or unexpired, which amount shall be held by the Bank as collateral
security for the Borrower's obligations to the Bank with respect
thereto. With respect to such unmatured or unexpired B/As and L/Cs
and FEF Contracts, the Borrower will have the further obligation to
execute such security documents as the Bank may reasonably require.
12. Conversion:
The Borrower may convert a Borrowing into another basis of
Borrowing provided that no Event of Default has occurred and is
continuing and that the conditions for borrowing by way of such
instruments are fulfilled. Libor Loans may only be converted on
the last day of the relevant Libor Interest Period, B/As may only
be converted on their respective maturity dates and L/Cs may only
be converted on their expiry dates or such earlier date as agreed
by the Borrower, Bank and the beneficiary thereof.
13. Prepayment:
Libor Loans may only be prepaid on the last day of the
relevant Libor Interest Period and B/As may only be prepaid on
their respective maturity dates.
<PAGE>
14. Evidence of Indebtedness:
The Bank shall open and maintain at the Branch of Account
accounts and records evidencing the Borrowings made available to
the Borrower by the Bank under this Agreement. The Bank shall
record the principal amount of each Borrowing, the payment of
principal and interest and all other amounts owing to the Bank.
The Bank's accounts and records constitute, in the absence of
manifest error, conclusive evidence of the indebtedness of the
Borrower to the Bank.
The Borrower authorizes and directs the Bank to automatically
debit any bank account of the Borrower for all amounts payable by
the Borrower to the Bank including, without limitation, the
repayment of all amounts due under this Agreement and all charges
for the keeping of such bank account.
This provision shall be interpreted as a separate contract
between the parties, independent of all other terms of this
Agreement and shall remain in full force and effect notwithstanding
that this Agreement shall have otherwise ceased to have any force
or effect.
15. Operating Account:
Pursuant to a central banking offset agreement dated on or
about April 1, 1993 between the Borrower, Gandalf Canada Ltd.
("GCL") and the Bank, the Bank shall establish an account in each
of Canadian Dollars and US Dollars (each a "Group Account"). If
the balance in a Group Account:
(a) is a credit, the Bank may apply at any time in its
discretion, the amount of such credit or any part thereof, rounded
to the nearest $100,000, or US$100,000, as applicable as a
repayment of Borrowings outstanding under Segment 3 hereunder, or
(b) is a debit, the Bank shall, provided that Borrowings
under Segment 3 hereunder are available, make available a Borrowing
by way of an RBP or RBUSBR Loan in an amount, rounded to the
nearest $100,000 or US$100,000, as applicable, as required to
place the affected Group Account at not less the balance set
out in this paragraph.
In either instance, a minimum net credit balance of $100,000
or US$100,000, as applicable as adjusted from time to time will be
maintained in each Group Account.
16. Libor Loan Conditions:
The Borrower may borrow by way of Libor Loan subject to the
following conditions:
(a) Libor Loans shall be made in minimum amounts of
US$1,000,000, as applicable or larger whole multiples of US
$100,000, as applicable;
(b) the Borrower may select the Libor Interest Period
applicable to any Libor Loan and shall notify the Bank of such
Libor Interest Period when giving notice pursuant to Schedule "B";
<PAGE>
(c) if the Borrower fails to select and to notify the Bank
of the Libor Interest Period applicable to any Libor Loan, the
Borrower shall be deemed to have selected a 3 month Libor
Interest Period;
(d) the Borrower shall indemnify the Bank against any
loss, cost or expense (including without limitation, any loss
incurred by the Bank in liquidating or redeploying deposits
acquired to fund or maintain any Libor Loan) incurred by the Bank
as a result of:
(i) repayments, prepayments, conversions or
rollovers of a Libor Loan other than on the last day of the Libor
Interest Period applicable to such Libor Loan, or
(ii) failure to draw down a Libor Loan on the
requested date;
(e) if the Bank determines, which determination is final,
conclusive and binding upon the Borrower, that:
(i) adequate and fair means do not exist for
ascertaining the rate of interest on a Libor Loan,
(ii) the making or the continuance of a Libor Loan
has become impracticable by reason of circumstances which
materially and adversely affect the London interbank market,
(iii) deposits in US Dollars, as applicable, are not
available to the Bank in the London interbank market in sufficient
amounts in the ordinary course of business for the applicable Libor
Interest Period to make or maintain a Libor Loan during such Libor
Interest Period, or
(iv) the cost to the Bank of making or maintaining a
Libor Loan does not accurately reflect the effective cost to
the Bank thereof and if the costs to the Bank are increased or the
income receivable by the Bank is reduced in respect of a Libor
Loan,then the Bank shall promptly notify the Borrower of such
determination and the Borrower shall, prior to the next Interest
Determination Date, notify the Bank as to the basis of Borrowing it
has selected in substitution for such Libor Loan. If the Borrower
has not so notified the Bank, such Libor Loan will automatically be
converted into an RBUSBR Loan on the expiry of the then current
Libor Interest Period.
17. B/A Conditions:
The Borrower may borrow by way of B/A subject to the
following conditions:
<APGE>
(a) B/As shall be issued and mature on a Business Day and
shall be issued in minimum face amounts of $100,000 for terms of
not less than 30 and not more than 365 days with each issue being
for an aggregate face amount of $500,000 or such larger amount
as is a whole multiple of $100,000;
(b) the Bank may, in its sole discretion, refuse to accept
the Borrower's drafts or limit the amount of any B/A issued at any
time;
(c) the Borrower shall, by no later than 12:00 (noon) on
the day on which a B/A becomes payable, pay to the Bank at the
Branch of Account an amount equal to the face amount of such B/A;
(d) if any maturing B/A is paid by the Bank with its own
funds, then as of the date of such payment, the B/A will be deemed
to be converted into an RBP Loan hereunder in the face amount of
such B/A;
(e) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the B/A
Undertaking, the terms hereof shall govern.
18. L/C Conditions:
The Borrower may borrow by way of L/C subject to the
following conditions:
(a) the Bank may, in its sole discretion, refuse to issue
L/Cs at any time;
(b) each L/C shall expire on a Business Day and shall have
a term of not more than 365 days;
(c) prior to the issue of an L/C, the Borrower shall
execute a duly authorized application with respect thereto in form
and substance satisfactory to the Bank, and each L/C shall be
governed by the terms and conditions of the relevant application
for such instrument;
(d) the Borrower shall, by no later than 12:00 (noon) on
any day on which a drawing is made under an L/C, pay to the Bank at
the Branch of Account an amount equal to the face amount of
such drawing, and if the Borrower fails to make such payment,
the face amount of such drawing shall be converted, at the
option of the Bank into a loan with interest at either RBP or
RBUSBR;
(e) an L/C can only be revoked prior to its expiry date
with consent of the Borrower, Bank and the beneficiary thereof;
(f) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the
application for L/C, the terms thereof shall govern.
<PAGE>
19. Increased Costs:
If, in the reasonable opinion of the Bank, the Bank is now or
hereafter becomes subject to, or there is a change in:
(a) any reserve, special deposit, deposit insurance, or
similar requirement against assets of, or deposits in or for the
account of, or credit extended by, or any acquisition of funds
by, the Bank,
(b) any reserve, special deposit, or similar requirement
with respect to all or any of the Borrowings or the undrawn portion
of all or any part of the Credit Facility,
(c) taxation of, or the basis of, taxation of any payments
due to the Bank hereunder (except for taxes on the overall net
income of the Bank) or taxation on reserves or deemed reserves with
respect to all or any part of the Credit Facility,
(d) any requirement relating to capital adequacy, or
(e) any other condition imposed by Applicable Law or any
interpretation of Applicable Law by an entity charged with the
administration thereof or any other condition with which
financial institutions operating in Canada are accustomed to
comply or have generally complied, whether or not having the
force of law, and the result of any of the foregoing, in the
sole determination of the Bank, is to increase the cost to, or to
reduce any amount received or receivable by, the Bank hereunder, or
to reduce the Bank's effective return hereunder to a level below
that which the Bank could have otherwise achieved (using any
reasonable averaging and attribution method), the Bank shall
determine that amount of money which shall compensate it for such
increase in cost or reduction in income or reduction in rate of
return on the Bank's capital, and the Borrower shall pay to the
Bank upon demand such amount in respect of such increased cost or
reduction as the Bank may determine to be required to compensate
the Bank. The Bank's determination of such increased cost or
reduction shall be conclusive absent manifest error.
20. Illegality:
If the introduction of or any change in Applicable Law makes
it unlawful, or prohibited for the Bank, in its sole opinion, to
perform its obligations under this Agreement, the Bank may, by
written notice to the Borrower, terminate its obligations under
this Agreement, and the Borrower shall prepay the Borrowings
immediately or at the end of such period as the Bank may agree,
together with all interest and fees which have accrued to the date
of payment.
21. Conditions Precedent to Disbursement:
(a) The obligation of the Bank to make available any
Borrowing is subject to and conditional upon the receipt in form
and substance satisfactory to the Bank, of:
<PAGE>
(i) a duly executed copy of this Agreement;
(ii) the following documents (the "Security
Documents"):
(a) a general security agreement (the "GSA") on
the Bank's standard form signed by the Borrower and representing a
first charge on all assets of the Borrower other than real estate
and purchase money security interests ("PMSIs"),save for PMSIs over
the Borrower's inventory;
(b) a general assignment of debts on the Bank's
standard form signed by the Borrower;
(c) assignment by the Borrower of all of its
shares in Gandalf Systems Corporation ("GSC"), Gandalf Digital
Communications Ltd. ("GDCL") and GCL;
(d) assignment by the Borrower of all patents,
trademarks and licenses;
(e) a general assignment of leases signed by the
Borrower covering 130 Colonnade Rd. S. and 40 Concourse Gate, both
in Nepean, Ontario;
(f) a general security agreement on the Bank's
standard form signed by GSC and representing a first charge on all
assets of GSC other than real estate;
(g) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of not less than US
$4,500,000 plus interest and fees, signed by GSC;
(h) assignment by GSC of all of its shares in
Infotron Systems Limited and Infotron Systems International
Limited;
(i) assignment by GSC of all patents, trademarks,
copyrights and licenses;
(j) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of $3,000,000 plus
interest and fees signed by GCL;
(k) a guarantee & postponement of claim on the
Bank's standard form in the principal amount of not less than US
$4,500,000 plus interest and fees signed by GCL;
(l) a general security agreement on the Bank's
standard form signed by GCL and representing a second charge on all
assets of GCL other than real estate and PMSIs over GCL's
inventory;
<PAGE>
(m) a general assignment of debts on the Bank's
standard form signed by GCL;
(n) a general hypothecation signed by the Borrower
with respect to any Liquid Collateral Security;
(o) assignment of insurance policies
covering inventory of GSC; all of which shall have been duly
registered in all appropriate jurisdictions in order to perfect and
maintain the security created by the Security Documents;
(iii) a duly executed B/A Undertaking; and
(iv) a review of all documentation by legal counsel
to the Bank; and
(v) such other documents as the Bank may
reasonably request.
22. Representations and Warranties of the Borrower:
The Borrower represents and warrants to the Bank, which
representations and warranties are repeated as of the time of each
Borrowing and as of the time at which each payment of interest or
fees is due hereunder, that:
(a) the Borrower is a corporation validly incorporated and
existing under the laws of Ontario and are duly registered or
qualified to carry on business in all jurisdictions where the
nature of its properties, assets or business makes such
registration or qualification necessary or desirable;
(b) the execution and delivery of this Agreement and the
Security Documents have been duly authorized by all necessary
actions and do not (i) violate any law, regulation or rule by which
the Borrower is bound, (ii) violate any provision of its
constating documents, by-laws or any unanimous shareholders'
agreement to which it is subject, (iii) result in a breach of,
or a default under, any agreement or instrument to which
either it is a party or by which it or any of its properties
or assets may be bound or affected, or (iv) result in the
creation of any encumbrance on any of its properties or
assets, except as contemplated herein;
(c) its most recent audited, consolidated financial
statements are correct and complete in all material respects;
(d) no Event of Default has occurred and no event has
occurred which constitutes, or which with giving of notice, lapse
of time or the occurrence of any other condition would constitute
a default having a material adverse effect on its financial
condition under or in respect of any agreement, undertaking or
instrument to which the Borrower or any of its properties or
assets may be subject;
<PAGE>
(e) it is in compliance with all Applicable Laws,
including, without limitation, those dealing with the environment;
(f) the Borrower has filed all material income tax returns
which were required to be filed, paid or made provision for payment
of all material taxes (including interest and penalties) which
are due and payable, and provided adequate reserves for
payment of any tax, the payment of which is being contested;
(g) no consent, approval, order, authorization, licence,
exemption or designation of or by any governmental body or person
is required in connection with the execution, delivery and
performance of this Agreement or the Security Documents or the
transactions contemplated hereby on behalf of the Borrower and
no registration, qualification, designation, declaration or
filing with any governmental body is necessary to enable or
empower either of them to perform their respective obligations
under this Agreement, except such as have been made or
obtained, which are in full force and effect.
The representations and warranties made in this Section shall
continue in effect until payment and performance of all debts,
liabilities and obligations under this Agreement.
23. Covenants:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings under
the Credit Facility after the Maturity Date, the Borrower covenants
and agrees with the Bank, while this Agreement is in effect or any
Borrowings are outstanding:
(a) to maintain as at the end of any fiscal quarter
Tangible Net Worth on a consolidated basis of not less than US
$60,000,000 minus any Allowable Reduction,
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.50:1 as at the end of any fiscal quarter;
(c) not to permit its Total Liabilities to Tangible Net
Worth Ratio on a consolidated basis to exceed .90:1 as at the end
of any fiscal quarter;
(d) to provide the Bank with the following:
(i) an aged list of accounts receivable owned by
GSC within 15 Business Days of the end of each month,
accompanied by a certificate of the Borrower and GSC;
(ii) quarterly consolidated and non-consolidated
unaudited financial statements within 45 days of the end of each
fiscal quarter, accompanied by a certificate in the form of
Schedule "C" hereto; and
<PAGE>
(iii) quarterly consolidated analysis of bookings,
billings and backlog within 45 days of the end of each fiscal
quarter, and
(iv) annual consolidated audited financial
statements of each of the Borrower and GSC within 90 days of each
fiscal year end,
(v) details of securities pledged as Liquid
Collateral Security determined in accordance with Schedule D
each of the above financial statements to be accompanied by a
certificate in form satisfactory to the Bank.
(e) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which, with notice
or lapse of time or both, would constitute an Event of Default;
(f) not to do anything to affect the ranking of this debt.
(g) to maintain its corporate existence as a validly
existing corporate entity;
(h) to provide the Bank with access to its business and
records as may be requested from time to time including, without
limitation, its annual financial forecasts and plans;
(i) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by companies
carrying on similar business in similar locations against all
risks, including but not limited to business interruption, with
loss payable to the Bank as loss payee or mortgagee, as the case
may be;
(j) to file all income tax returns which are to be filed
from time to time, to pay or make provision for payment of all
taxes (including interest and penalties) and Potential Preferred
Claims which are or will become due and payable and to provide
adequate reserves for the payment of any tax, the payment of
which is being contested;
(k) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to hold the
Bank harmless for any costs or expenses which it incurs for
any environment-related liabilities which exist now or in the
future with respect to the Borrower's property;
(l) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or other
encumbrance affecting any of its properties, assets or other
rights, without the prior written consent of the Bank;
<PAGE>
(m) during any fiscal year of the Borrower, not to sell,
transfer, convey, lease, assign or otherwise dispose of any part of
its undertaking, property, assets or rights with an aggregate
value exceeding $5,000,000, other than inventory in the
ordinary course of business and on commercially reasonable
terms, without the prior written consent of the Bank;
(n) not to change its name or merge, amalgamate,
consolidate or otherwise enter into any other form of business
combination with any other person without the prior written consent
of the Bank, such consent not to be unreasonably withheld.
(o) not to make any capital expenditures in any fiscal
year of the Guarantor except those as may be set out in the
Guarantor's operating budgets as provided to the Bank from time to
time, plus an allowance of 20%, without the Bank's prior written
consent;
(p) not to directly or indirectly, guarantee or otherwise
provide for on a direct or indirect contingent basis, the payment
of any monies or performance of any obligations by any third
party, other than wholly owned Subsidiaries, for an amount in
excess of $5,000,000 in the aggregate, except as may be
consented to in writing by the Bank from time to time;
(q) To refrain from making any principal repayments on the
Convertible Subordinated Debenture.
(r) to make best efforts to arrange an operating facility
for GSC with a US lender, in replacement of Segment 3 hereunder.
24. Events of Default:
During the Term Period if any one or more of the following
events has occurred and is continuing:
(a) the non-payment when due of principal, interest, fees
or any other amounts due under this Agreement;
(b) the breach by the Borrower or its Affiliates of any
provision of this Agreement or any other agreement with the Bank or
any of the Bank's Subsidiaries;
(c) the default by the Borrower or its Affiliates under
any obligation to repay borrowed money in excess of $1,000,000,
other than amounts due under this Agreement, or in the
performance or observance of any agreement or condition in
respect of such borrowed money where, as a result of such
default, the maturity of such obligation is accelerated;
(d) if any representation or warranty made or deemed to
have been made herein shall be false or inaccurate in any
materially adverse respect;
<PAGE>
(e) if in the opinion of the Bank there is a material
adverse change in the financial condition, ownership or operation
of the Borrower or any of its Material Subsidiaries;
(f) if proceedings for the bankruptcy, receivership,
dissolution, liquidation, winding-up, reorganization or
readjustment of debt of the Borrower or its Affiliates or for the
suspension of the operations of the Borrower or its Affiliates are
commenced, unless such proceedings are being actively and
diligently contested in good faith;
(g) if the Borrower or any of its Affiliates is insolvent,
or is adjudged or declared bankrupt or insolvent, or makes an
assignment for the benefit of its creditors, or petitions or
applies to any tribunal for the appointment of a receiver or
trustee for it or for any substantial part of its property, or
commences any proceedings relating to it under any
reorganization, arrangement, readjustment of debt,
dissolution, liquidation or other similar proceeding under
Applicable Law, or by any act or failure to act indicates its
consent to, approval of, or acquiescence in, any such
proceeding for it or any substantial part of its property, or
suffers the appointment of any receiver or trustee;
(h) if the Borrower should incur a loss exceeding US
$5,000,000, excluding restructuring charges to an aggregate maximum
of $2,000,000 during the Term Period, in any fiscal quarter.
then in such event the ability of the Borrower to make further
Borrowings under the Credit Facility shall immediately terminate
and the Bank may, by written notice to the Borrower, declare the
Borrowings outstanding hereunder to be immediately due and payable.
After the Maturity Date, nothing in this Agreement shall be
construed to affect or limit in any way the right of the Bank to
terminate its commitment and demand all Borrowings under the Credit
Facility.
25. Expenses:
The Borrower shall pay the reasonable fees (including,
without limitation, all documentation fees charged by the Bank for
use of its internal legal counsel) and expenses incurred by the
Bank in connection with the preparation, negotiation, documentation
and operation of the Credit Facility and the Security Documents,
including the enforcement of the Bank's rights under the Credit
Facility whether or not any amounts are advanced hereunder.
26. Indemnity:
The Borrower shall indemnify the Bank from and against all
losses, damages, expenses and liabilities (including legal fees on
a solicitor and client basis) which the Bank sustains or incurs as
a consequence of any breach by the Borrower under any of the
provisions of this Agreement or of any document or instrument
delivered in connection hereunder.
<PAGE>
27. Limit on Rate of Interest:
The Borrower shall not be obliged to pay any interest under
or in connection with this Agreement to the extent such interest
exceeds the effective annual rate of interest on the credit
advanced hereunder that would be lawfully permitted under the
Criminal Code. For purposes of this section, "interest" and
"credit advanced" have the meanings ascribed to such terms in the
Criminal Code, and the "effective annual rate of interest" shall be
calculated in accordance with generally accepted actuarial
practices and principles.
28. Judgment Currency:
If for the purpose of obtaining judgment in any court in any
jurisdiction with respect to this Agreement, it is necessary to
convert into the currency of such jurisdiction (the "Judgment
Currency") any amount due hereunder in any currency other than the
Judgment Currency, then such conversion shall be made at the rate
of exchange prevailing on the Business Day before the day on which
judgment is given. For this purpose "rate of exchange" means the
rate at which the Bank will, on the relevant date, sell such
currency in Toronto, Ontario against the Judgment Currency.
In the event that there is a change in the rate of exchange
prevailing between the Business Day before the day on which the
judgment is given and the date of payment of the amount due, the
Borrower will, on the date of payment, pay such additional amounts
(if any) or be entitled to receive reimbursement of such amount, if
any, as may be necessary to ensure that the amount paid on such
date is the amount in the Judgment Currency which, when converted
at the rate of exchange prevailing on the date of payment, is the
amount then due under this Agreement in such other currency. Any
additional amount due from the Borrower under this Section will be
due as a separate debt and shall not be affect by judgment being
obtained for any other sums due under or in respect of this
Agreement.
<PAGE>
29. Notices:
Any notice or demand hereunder shall be given in writing by
telecopier or letter, in each case addressed to an officer of the
receiving party. A telecopier communication shall be deemed
received on the date of transmission provided such transmission is
received prior to 5:00 p.m. on a day on which the receiving party's
office is open for normal business, and otherwise on the next such
day. A letter shall be deemed received when hand-delivered to the
receiving party, at the address shown herein or at such other
address as the receiving party may notify the other from time to
time. Each party shall be bound by any notice given hereunder and
entitled to act in accordance therewith, unless otherwise agreed.
The addresses of the parties for the purpose hereof shall be:
as to the Borrower:
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 727-0617
as to the Bank:
Royal Bank of Canada
90 Sparks Street
Ottawa, Ontario K1P 5T6
Attention: Senior Account Manager, Advanced Technology
Telecopier: (613) 564-4527
or such other address for delivery as each party from time to
time may notify the other as aforesaid.
<PAGE>
30. Assignment:
This Agreement shall be binding upon and enure to the benefit
of the Bank and the Borrower and their respective successors and
permitted assigns. The Borrower cannot assign or transfer all or
any of its rights and obligations hereunder without the prior
written consent of the Bank.
31. Set-Off:
The Bank is authorized (but not obligated), at any time and
without notice, to apply any credit balance (whether or not then
due) to which the Borrower is then beneficially entitled on any
account (in any currency) at any branch or office of the Bank in or
towards satisfaction of the obligations and liabilities of the
Borrower due to the Bank under this Agreement. For that purpose,
the Bank is authorized to use all or any part of any such credit
balance to buy such other currencies as may be necessary to effect
such application.
32. Waivers and Amendments:
No failure to exercise and no delay in exercising on the part
of the Bank, any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude any other right, power or
privilege. No amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Borrower from
any provision of this Agreement will in any event be effective
unless it is in writing signed by the Borrower and the Bank, and
then the amendment, modification, waiver or consent will be
effective only in the specific instance, for the specific purpose
and for the specific length of time for which it is given by the
Bank.
<PAGE>
33. Counterparts:
This Agreement may be executed in any number of counterparts,
each of which when executed and delivered is an original but all of
which taken together constitute one and the same instrument, and
any party may execute this Agreement by signing any counterpart of
it.
34. Further Assurances:
The Borrower shall from time to time promptly upon the
request of the Bank take such action and execute and deliver such
further documents, as shall be reasonably required in order to
fully perform the terms of, and to carry out the intention of, this
Agreement.
35. Severability:
If any provision of this Agreement is or becomes prohibited
or unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate, affect or impair any of the
remaining provisions hereof or invalidate or render unenforceable
the provision concerned in any other jurisdiction.
36. Governing Law and Submission to Jurisdiction:
This Agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and of Canada
applicable therein. The Borrower irrevocably submits to the
non-exclusive jurisdiction of the courts of such Province and
acknowledges the competence of such courts and irrevocably agrees
to be bound by a judgment of any such court.
37. Periodic Review:
The Credit Facility is subject to an annual review by the
Bank on or before the Maturity Date. The Bank may, in its sole
discretion, terminate the Credit Facility following such annual
review without limiting or affecting the Bank's rights pursuant to
Section 24 hereof.
38. Whole Agreement:
This Agreement and any agreements delivered pursuant to or
referred to in this Agreement constitute the whole and entire
agreement between the parties in respect of the Credit Facility,
and cancel and supersede any prior written or verbal agreements
including undertakings, declarations or representations made with
respect thereto.
39. Effective Date:
Except as otherwise provided in this Agreement, the date on
which this Agreement becomes effective is the date the offer is
accepted by the Borrower.
<PAGE>
40. Expiry Date:
This offer is open for acceptance until close of business at
the Branch of Account on January 21 , 1994 unless extended in
writing by the Bank.
Please acknowledge your acceptance of the above terms and
conditions by signing the attached copy of this letter in the space
provided below and returning it to the undersigned.
Yours truly,
s/L.J.BLATTMAN
ORIGINAL SIGNED BY
L.J.BLATTMAN
We acknowledge and accept the terms and conditions of this
Agreement on the 21st day of January, 1994.
THE BORROWER:
GANDALF TECHNOLOGIES INC.
By: s/W.R. MACDONALD
Name/Title: WALTER MACDONALD, VP FINANCE
By: s/B.R. HEDGES
Name/Title: BRIAN HEDGES, PRESIDENT
<PAGE>
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Technologies Inc. as Borrower and Royal Bank
of Canada as the Bank.
DEFINITIONS:
"Affiliate" of a person means any person which directly or
indirectly, controls or is controlled by or is under common control
with such first mentioned person, and for the purposes of this
definition, "control" (including with correlative meanings the
terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management and
policies of any person, whether through the ownership of shares or
by contract or otherwise, and without restricting the above, one
corporate body shall be deemed to be affiliated with another
corporate body if one of them is the Subsidiary of the other or
both are Subsidiaries of the same corporate body;
"Agreement" means collectively this agreement and all schedules
attached hereto;
"Allowable Reduction" means the amount, not exceeding $2,000,000
in aggregate, expended by the Borrower to restructure between April
1, l993 and March 31, l994.
"Applicable Law" means, in respect of any person, property,
transaction or event, all present or future applicable laws,
statutes, regulations, treaties, judgments and decrees and (whether
or not having the force of law) all applicable official directives,
rules, guidelines, orders and policies of any governmental body
having jurisdiction;
"B/A Undertaking" means the Bank's standard form of undertaking in
respect of bankers acceptances issued by borrowers and accepted by
the Bank;
"Branch of Account" means the Bank's branch at 90 Sparks Street,
Ottawa, Ontario;
"Business Day" means a day, excluding Saturday, Sunday, and any
other day which shall be in the City of Toronto, Ontario a legal
holiday or a day on which banking institutions are closed and, with
respect to a Libor Loan, "Business Day" means a day with the
foregoing characteristics which is also a day on which dealings in
US Dollar deposits by and between leading banks in the London
interbank market may be conducted;
"Canadian Dollars" and the symbols "Cdn$" and "$" each means
lawful money of Canada;
<PAGE>
"Convertible Subordinated Debenture" means the Cdn $30,000,000
8.5% convertible subordinated debenture due November 10, 2002
issued by the Borrower;
"Current Ratio" of a person means the ratio of that person's
current assets to that person's current liabilities, net of cash on
hand;
"Equivalent Amount" determines the amount of availability only
and means on any date, the amount of Canadian Dollars required to
convert from Canadian Dollars to U.S. Dollars at the rate of 1.30
Canadian Dollars for 1.00 US$; The Equivalent amount will be
amended by the Bank from time to time to reflect changes in the
rate of exchange and such amendments will be advised to the
Borrower in writing.
"Event of Default" means each of the events listed in the section
entitled "Events of Default";
"GAAP" means generally accepted accounting principles in effect
from time to time in Canada applied in a consistent manner from
period to period;
"Good Accounts Receivable" means US based trade receivables owing
to GSC excluding without duplication:
(a) those outstanding more than 90 days after the billing
date,
(b) those between GSC and any Affiliate
(c) those subject to any mortgage, charge, assignment,
lien, security interest or other encumbrance ranking in priority to
or equal to that granted to the Bank pursuant to this
Agreement,
(d) those subject to any claim or assertion of a right of
set-off on the part of the account debtor to the extent of such
claim or assertion,
(e) those which would be required to be treated as bad or
doubtful accounts in accordance with GAAP including, without
limitation, those outstanding from entities which are bankrupt,
insolvent or which have suspended operations, and
(f) those subject to a contractual right on the part of
the account debtor to refuse payment either in whole or in part;
"Interest Determination Date" means, with respect to a Libor Loan,
the date which is 2 Business Days prior to the first day of
theLibor Interest Period applicable to such Libor Loan;
<PAGE>
"Letter of Credit" or "L/C" each means a documentary credit
issued by the Bank on behalf of the Borrower for the purpose of
providing security to a third party that the Borrower will perform
a contractual obligation owed to such third party;
"Libor" means, with respect to each Libor Interest Period
applicable to a Libor Loan, the annual rate of interest (rounded
upwards, if necessary, to the nearest whole multiple of one
sixteenth of one percent (1/16th%)), at which the Bank, in
accordance with its normal practice, would be prepared to offer to
leading banks in the London interbank market for delivery on the
first day of such Libor Interest Period and for a period equal to
such Libor Interest Period, deposits in US Dollars of amounts
comparable to such Libor Loan to be outstanding during such Libor
Interest Period, at or about 10:00 a.m. (Toronto time) on the
Interest Determination Date;
"Libor Interest Date" means, with respect to any Libor Loan, the
last day of each Libor Interest Period and, if the Borrower selects
a Libor Interest Period longer than 3 months, the Libor Interest
Date shall be the date falling every 3 months after the beginning
of such Libor Interest Period as well as the last day of such Libor
Interest Period;
"Libor Interest Period" means, with respect to any Libor Loan, a
period (subject to availability) of approximately 1 month (or
longer whole multiples of 1 month to and including 12 months as
selected by the Borrower and notified to the Bank) commencing with
the date on which such Libor Loan is made, the date on which
another method of Borrowing is converted to such Libor Loan or the
last day of the immediately prior Libor Interest Period;
"Liquid Collateral Security" means the liquid collateral security
determined in accordance with Schedule "D";
"Margin Requirement" means the total amount of Borrowings
available under this Agreement, which amount may not exceed 75% of
Good Accounts Receivable;
"Material Subsidiary" means any Subsidiary of the Borrower now or
hereinafter located in Canada, the United States, the United
Kingdom, France or the Netherlands, as well as any Subsidiary of
the Borrower which is identified as being a Material Subsidiary by
the Bank in writing to the Borrower from time to time and
"Material Subsidiaries" means any such Subsidiaries of the
Borrower;
"Maturity Date" means July 31, 1994;
<PAGE>
"Potential Preferred Claims" means amounts accrued or owing for
wages, vacation pay, employee benefits or pensions, municipal tax,
corporate tax, sales tax, Canadian goods and services tax, source
deductions and remittances (including income tax, Canada Pension
Plan and unemployment insurance obligations), Government royalties,
purchase money security interests and any other statutory preferred
claims as well as the aggregate of the next three months rent
payments for each rental property of the Borrower;
"Royal Bank Prime" (in this Agreement, "RBP") means the annual
rate of interest announced by the Bank from time to time as being
a reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans made in Canada;
"Royal Bank Prime Acceptance Fee" (in this Agreement, "RBPAF")
means the annual rate announced by the Bank from time to time as
being a reference rate then in effect for determining fees on
Canadian Dollar bankers' acceptances accepted by the Bank in
Canada;
"Royal Bank US Base Rate" (in this Agreement, "RBUSBR") means the
annual rate of interest announced by the Bank from time to time as
being a reference rate then in effect for determining interest
rates on US Dollar commercial loans made in Canada;
"Subsidiary" of a person means (i) any corporation of which the
person and/or any one or more of its Affiliates, holds, directly or
beneficially, other than by way of security only, securities to
which are attached more than 50% of the votes that may be cast to
elect directors of such corporation, or (ii) a corporation of which
such person has through operation of law or otherwise, the ability
to elect or cause the election of a majority of the directors of
such corporation and "Subsidiaries" of such person mean all such
corporations;
"Tangible Net Worth" of a person means its shareholders' equity
plus, but not in duplication, the amount of the Convertible
Subordinated Debenture less the aggregate of its goodwill, deferred
income taxes, deferred software costs and other assets (all as
defined and set out on the person's audited annual financial
statements), that the Bank deems to be intangible. For the purpose
of calculating shareholders' equity, items on the balance sheet of
the relevant person under the heading "foreign exchange translation
amount" shall be deemed to be zero;
"Term Period" means the period of time from the date of this
Agreement to and including the Maturity Date;
"Total Liabilities" of any person means all liabilities appearing
on the balance sheet of that person, net of cash on hand;
<PAGE>
"Total Liabilities to Tangible Net Worth Ratio" of a person means
the ratio of that person's Total Liabilities to that person's
Tangible Net Worth;
"US Dollars" and "US$" each means lawful money of the United
States of America in same day immediately available funds or, if
such funds are not available, the form of money of the United
States of America that is customarily used in the settlement of
international banking transactions on the day payment is due
hereunder.
<PAGE>
SCHEDULE "B"
Schedule "B" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Technologies Inc. as Borrower and Royal Bank
of Canada as the Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on the day
of drawdown or conversion
Cdn$ or US$10,000,000,
up to and including the Amount by 12:00 (noon) 1 Business
Day prior to drawdown or
conversion
B/As
Amount Prior Notice
Under Cdn$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$10,000,000 up to and
including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the
Equivalent Amount in Pounds
Sterling by 10:00 a.m. on the Interest
Determination Date
US$10,000,000 up to and including
the Amount or the Equivalent
Amount in Pounds Sterling by 10:00 a.m. 1 Business Day
prior to the Interest
Determination Date
<PAGE>
SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 4th day of January,
1994 between Gandalf Technologies Inc. as Borrower and Royal Bank
of Canada as the Bank.
OFFICER'S COMPLIANCE CERTIFICATE
We, ___________________________________, of the City of
__________________ and the City of _______________________,
respectively in the Province of Ontario, and hereby certify as
follows:
1. That we are the [office] and [office], respectively of
Gandalf Technologies Inc. (the "Borrower")
2. That we have read the provisions of the letter agreement (the
"Agreement") dated January 7, 1994 between the Borrower and Royal
Bank of Canada (the "Bank") which are relevant to this compliance
certificate and have made such examination or investigation as is
reasonably necessary to enable us to express an informed opinion on
the matters contained in this certificate. Terms defined in the
Agreement have the same meanings where used in this certificate.
As of the date of this certificate:
(a) the representations and warranties contained in the
Agreement are true and correct;
(b) no Event of Default or event which would with lapse of
time or the happening of some further condition constitute an Event
of Default has occurred and is continuing; and
(c) the covenants contained in the Agreement have not been
breached and during the next fiscal quarter of the Borrower
there is no reason to believe that any of such covenants will
be breached.
3. The attached report of aged accounts receivable owned by
Gandalf Systems Corporation is complete and accurate in all
material respects.
DATED this _______ day of _________________, 19__.
By: ____________________________________
Name/
Title: ____________________________________
By: ____________________________________
Name/
Title: ____________________________________
<PAGE>
SCHEDULE "D"
Schedule "D" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Technologies Inc. as Borrower and Royal Bank
of Canada as the Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE LOANING
VALUE
A. Canada Savings Bonds, and Savings 100% of par value
Bonds redeemable at par issued by
Provincial Governments; Province
of British Columbia Parity Bonds
redeemable at par and fully
guaranteed by the Province of British
Columbia, issued in the names of
Provincial Crown Corporations.
B. Government of Canada or Government 95% of market value
of Canada guaranteed bonds and
Treasury Bills except as indicated
in (a) above.
(c) Provincial Government or Provincial 95% of market value
Government guaranteed bonds and
Treasury Bills except as indicated
in (a) above.
(d) Bankers acceptances or similar 95% of market value
investments effectively assigned
to the Bank. ________________
= LIQUID
COLLATERAL
SECURITY
Royal Bank of Canada
L. James Blattman Business Banking Centre
Senior Account Manager 90 Sparks Street, P.O. Box 746, Station B
Advanced Technology Ottawa, Ontario K1P 5T6
January 7, l994 Transit 01196
Fax: (613) 564-4527
Toll Free: 1-800-267-0305
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
Dear Sirs:
Royal Bank of Canada (the "Bank") is pleased to offer Gandalf
Canada Ltd. (the "Borrower") a revolving operating facility (the
"Credit Facility"), guaranteed by Gandalf Technologies Inc. (the
"Guarantor"), which, upon your acceptance shall supersede and
cancel the credit facilities outlined in our letter agreement of
September 16, 1993. The Credit Facility shall be governed by the
following terms and conditions:
1. Definitions:
The definitions attached hereto in Schedule "A" are
incorporated in this agreement by reference as if set out in full
herein and unless otherwise provided, all accounting terms herein
shall be interpreted in accordance with GAAP.
2. Amount:
The amount available under the Credit Facility (the "Amount")
shall not exceed the lesser of:
(i) $15,000,000, and
(ii) the Margin Requirement,
or the Equivalent Amount in US Dollars or Pounds Sterling.
3. Credit Facility:
The Credit Facility is available as follows:
(i) Royal Bank Prime based loans in Canadian Dollars ("RBP
Loans"),
(ii) Royal Bank US Base Rate based loans in US Dollars
("RBUSBR Loans"),
<PAGE>
(iii) Libor based loans in US Dollars or Pounds Sterling
("Libor Loans"),
(iv) Bankers' Acceptances in Canadian Dollars ("B/As"), and
(v) Letters of Credit in Canadian or US Dollars ("L/Cs").
Each use of the Credit Facility by way of any of the
foregoing methods and each rollover is referred to as a
"Borrowing". The face amount of each Borrowing outstanding shall be
used to determine the amount of Borrowings outstanding under the
Credit Facility at any time.
4. Purpose:
The Borrower shall use the Credit Facility for the purpose of
financing its general operating requirements, including, without
limitation, the financing of receivables, inventory and current
operating expenditures.
5. Availability:
Borrowings under the Credit Facility are available on any
Business Day through the Branch of Account, subject to the notice
provisions set out in Schedule "B".
During the term of the Credit Facility, the Borrower may
borrow, repay and reborrow hereunder at any time, unless otherwise
provided.
After the Maturity Date, the Credit Facility shall convert to
a demand facility, the Bank may cancel any undrawn portion of the
Amount at any time and all Borrowings outstanding shall be due and
payable on demand by the Bank.
6. Interest Rates and Fees:
The following rates and fees shall apply:
(a) The interest rates applicable to the Credit Facility
shall be RBP, RBUSBR, Libor or RBPAF, as applicable, plus an
interest component (the "Fluctuating Interest Component") which
shall be determined by the profitability of the Guarantor during
its previous fiscal quarter(s). The Fluctuating Interest Component
shall be set on a quarterly basis, in accordance with the following
schedule, effective on the first day of the third month following
the end of such fiscal quarter, subject to receipt of the
information stipulated in Section 24 (d) (i), failing which, the
Guarantor shall thereafter be conclusively deemed to have incurred
a net loss during such previous fiscal quarter.
<PAGE>
Fluctuating Interest Component:
No. of
Consecutive
Profitable RBP RBUSBR Libor
Quarters Loans Loans Loans B/A's
one or less 1.375% 1.375% 2.375% 1. 375%
two 1.00% 1.00% 2.00% 1.00%
three .75% .75% 1.75% .75%
four or more .50% .50% 1.25% .50%
(b) L/C fees to be quoted by the Bank at time of issue of
each L/C.
7. Calculation and Payment of Interest and Fees:
(a) RBP and RBUSBR Loans:
The Borrower shall pay interest on each RBP Loan in
Canadian Dollars and interest on each RBUSBR Loan in US Dollars
monthly in arrears on the first Business Day following the 24th of
each month. Such interest will accrue and be computed daily on the
daily closing balance on the basis of a year of 365 days. Any
change in RBP or RBUSBR shall be effective as of the opening of
business on the day such change takes place.
(b) Libor Loans:
The Borrower shall pay interest on each Libor Loan in
the currency in which such Libor Loan was made in arrears on each
Libor Interest Date. Such interest will accrue and be computed
daily on the basis of a year of 360 days.
(c) B/As:
The Borrower shall pay acceptance fees in Canadian
Dollars at the rates provided for above in advance on the date of
issue of each B/A. Acceptance fees shall be calculated on the face
amount of the B/A issued and based upon the number of days in the
term thereof and a year of 365 days.
(d) L/C Fees:
The Borrower shall pay an L/C fee on the date of
issuance of such L/C in the currency in which such L/C is issued.
Such fee shall be calculated on the face amount of the L/C issued
and based on the number of days in the term thereof and a year of
365 days.
(e) Operation of Account Fee:
The Borrower shall pay fees of $100 and US$100 payable
monthly in arrears on the first day of each month to compensate the
Bank for the expense of revolving the Borrower's accounts.
(f) Standby Fee:
A standby fee equal to 3/16 of 1% per annum calculated
on the unused portion of the Credit Facility is payable monthly in
arrears within the first five business days of each month.
<PAGE>
(g) Interest Act (Canada):
The annual rates of interest or fees to which the
rates calculated in accordance with this Agreement are equivalent,
are the rates so calculated multiplied by the actual number of days
in the calendar year in which such calculation is made and divided
by 365 or, in the case of Libor Loans, 360.
8. Time and Place of Payment:
Payments of principal, interest, fees and all other amounts
payable by the Borrower pursuant to this Agreement shall be paid at
the Branch of Account in immediately available funds in Canadian
Dollars except as otherwise herein provided. Each payment under
this Agreement shall be made for value 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 next following such day and all interest
and other fees shall continue to accrue until payment. Interest
and fees payable under this Agreement are payable both before and
after any or all of default, demand and judgment.
9. Withholding Taxes:
All payments required under this Credit Facility shall be
made free and clear of and without any withholding on account of
any taxes or other charges of any nature or kind whatsoever.
If any such taxes or charges are required to be withheld from any
payment made hereunder, the Borrower shall pay an additional amount
such that the net amount received by the Bank shall be equal to the
amount which would have been received if no such withholding were
required to be made.
10. Exchange Rate Fluctuations:
If, in the sole determination of the Bank, due to exchange
rate fluctuations or for any other reason, the value of Borrowings
outstanding under the Credit Facility, when converted to
Canadian Dollars, exceeds the Amount as of the 25th day of any
month, the Borrower shall either repay or otherwise retire the
outstanding Borrowings to the extent of the amount of such excess,
or shall secure the amount of such excess in a manner which is
satisfactory to the Bank.
11. Repayment:
Borrowings are repayable on the later of the Maturity Date or
the date of any demand by the Bank, provided that on or prior to
the Maturity Date the Bank may demand repayment pursuant to Section
25 hereof, and in such event, Borrowings shall be payable upon such
demand.
After the Maturity Date, all Borrowings made hereunder shall
be due and payable on demand by the Bank.
<PAGE>
Upon any demand by the Bank hereunder, the Borrower shall pay
all amounts outstanding hereunder including, without limitation, an
amount equal to the aggregate of the face amounts of all B/As and
L/Cs which are unmatured or unexpired, which amount shall be held
by the Bank as collateral security for the Borrower's obligations
to the Bank with respect thereto. With respect to such unmatured
or unexpired B/As and L/Cs, the Borrower will have the further
obligation to execute such security documents as the Bank may
require.
12. Conversion:
The Borrower may convert a Borrowing into another basis of
Borrowing provided that no Event of Default has occurred and is
continuing and that the conditions for borrowing by way of such
instruments are fulfilled. Libor Loans may only be converted on
the last day of the relevant Libor Interest Period, B/As may only
be converted on their respective maturity dates and L/Cs may only
be converted on their expiry dates or such earlier date as agreed
by the Borrower, Bank and the beneficiary thereof.
13. Prepayment:
Libor Loans may only be prepaid on the last day of the
relevant Libor Interest Period and B/As may only be prepaid on
their respective maturity dates.
14. Evidence of Indebtedness:
The Bank shall open and maintain at the Branch of Account
accounts and records evidencing the Borrowings made available to
the Borrower by the Bank under this Agreement. The Bank shall
record the principal amount of each Borrowing, the payment of
principal and interest and all other amounts owing to the Bank.
The Bank's accounts and records constitute, in the absence of
manifest error, conclusive evidence of the indebtedness of the
Borrower to the Bank.
The Borrower authorizes and directs the Bank to automatically
debit any bank account of the Borrower for all amounts payable by
the Borrower to the Bank including, without limitation, the
repayment of all amounts due under this Agreement and all charges
for the keeping of such bank account.
This provision shall be interpreted as a separate contract
between the parties, independent of all other terms of this
Agreement and shall remain in full force and effect notwithstanding
that this Agreement shall have otherwise ceased to have any force
or effect.
15. Operating Account:
Pursuant to a central banking offset agreement dated on or
about April 1, 1993 between the Borrower, the Guarantor and the
Bank, the Bank shall establish an account in each of Canadian
Dollars and US Dollars (each a "Group Account"). If the balance in
a Group Account:
<PAGE>
(a) is a credit, the Bank may apply at any time in its
discretion, the amount of such credit or any part thereof, rounded
to the nearest $100,000, or US$100,000, as applicable as a
repayment of Borrowings outstanding hereunder, or
(b) is a debit, the Bank shall, provided that Borrowings
hereunder are available, make available a Borrowing by way of an
RBP or RBUSBR Loan in an amount, rounded to the nearest $100,000 or
US$100,000, as applicable, as required to place the affected Group
Account at not less the balance set out in this paragraph.
In either instance, a minimum net credit balance of $100,000
or US$100,000, as applicable as adjusted from time to time will be
maintained in each Group Account.
16. Libor Loan Conditions:
The Borrower may borrow by way of Libor Loan subject to the
following conditions:
(a) Libor Loans shall be made in minimum amounts of
US$1,000,000 or 500,000 pds.stlg., as applicable or larger whole multiples
of US $100,000 or 100,000 pds.stlg., as applicable;
(b) the Borrower may select the Libor Interest Period
applicable to any Libor Loan and shall notify the Bank of such
Libor Interest Period when giving notice pursuant to
Schedule "B";
(c) if the Borrower fails to select and to notify the Bank
of the Libor Interest Period applicable to any Libor Loan, the
Borrower shall be deemed to have selected a 3 month Libor Interest
Period;
(d) the Borrower shall indemnify the Bank against any
loss, cost or expense (including without limitation, any loss
incurred by the Bank in liquidating or redeploying deposits
acquired to fund or maintain any Libor Loan) incurred by the Bank
as a result of:
(i) repayments, prepayments, conversions or
rollovers of a Libor Loan other than on the last day of the Libor
Interest Period applicable to such Libor Loan, or
(ii) failure to draw down a Libor Loan on the
requested date;
(e) if the Bank determines, which determination is final,
conclusive and binding upon the Borrower, that:
(i) adequate and fair means do not exist for
ascertaining the rate of interest on a Libor Loan,
<PAGE>
(ii) the making or the continuance of a Libor Loan
has become impracticable by reason of circumstances which
materially and adversely affect the London interbank market,
(iii) deposits in US Dollars or Pounds Sterling, as
applicable, are not available to the Bank in the London interbank
market in sufficient amounts in the ordinary course of business for
the applicable Libor Interest Period to make or maintain a Libor
Loan during such Libor Interest Period, or
(iv) the cost to the Bank of making or maintaining a
Libor Loan does not accurately reflect the effective cost to the
Bank thereof and if the costs to the Bank are increased or the
income receivable by the Bank is reduced in respect of a Libor
Loan, then the Bank shall promptly notify the Borrower of such
determination and the Borrower shall, prior to the next Interest
Determination Date, notify the Bank as to the basis of Borrowing it
has selected in substitution for such Libor Loan. If the Borrower
has not so notified the Bank, such Libor Loan will automatically be
converted into an RBUSBR Loan on the expiry of the then current
Libor Interest Period.
17. B/A Conditions:
The Borrower may borrow by way of B/A subject to the
following conditions:
(a) B/As shall be issued and mature on a Business Day and
shall be issued in minimum face amounts of $100,000 for terms of
not less than 30 and not more than 365 days with each issue being
for an aggregate face amount of $500,000 or such larger amount as
is a whole multiple of $100,000;
(b) the Bank may, in its sole discretion, refuse to accept
the Borrower's drafts or limit the amount of any B/A issued at any
time;
(c) the Borrower shall, by no later than 12:00 (noon) on
the day on which a B/A becomes payable, pay to the Bank at the
Branch of Account an amount equal to the face amount of such B/A;
(d) if any maturing B/A is paid by the Bank with its own
funds, then as of the date of such payment, the B/A will be deemed
to be converted into an RBP Loan hereunder in the face amount of
such B/A;
(e) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the B/A
Undertaking, the terms hereof shall govern.
<PAGE>
18. L/C Conditions:
The Borrower may borrow by way of L/C subject to the
following conditions:
(a) the Bank may, in its sole discretion, refuse to issue
L/Cs at any time;
(b) each L/C shall expire on a Business Day and shall have
a term of not more than 365 days;
(c) prior to the issue of an L/C, the Borrower shall
execute a duly authorized application with respect thereto in form
and substance satisfactory to the Bank, and each L/C shall be
governed by the terms and conditions of the relevant application
for such instrument;
(d) the Borrower shall, by no later than 12:00 (noon) on
any day on which a drawing is made under an L/C, pay to the Bank at
the Branch of Account an amount equal to the face amount of such
drawing, and if the Borrower fails to make such payment, the face
amount of such drawing shall be converted into either an RBP or
RBUSBR Loan hereunder at the option of the Bank;
(e) an L/C can only be revoked prior to its expiry date
with consent of the Borrower, Bank and the beneficiary thereof;
(f) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms of the
application for L/C, the terms thereof shall govern.
19. Increased Costs:
If, in the reasonable opinion of the Bank, the Bank is now or
hereafter becomes subject to, or there is a change in:
(a) any reserve, special deposit, deposit insurance, or
similar requirement against assets of, or deposits in or for the
account of, or credit extended by, or any acquisition of funds by,
the Bank,
(b) any reserve, special deposit, or similar requirement
with respect to all or any of the Borrowings or the undrawn portion
of all or any part of the Credit Facility,
(c) taxation of, or the basis of, taxation of any payments
due to the Bank hereunder (except for taxes on the overall net
income of the Bank) or taxation on reserves or deemed reserves with
respect to all or any part of the Credit Facility,
(d) any requirement relating to capital adequacy, or
<PAGE>
(e) any other condition imposed by Applicable Law or any
interpretation of Applicable Law by an entity charged with the
administration thereof or any other condition with which financial
institutions operating in Canada are accustomed to comply or have
generally complied, whether or not having the force of law, and the
result of any of the foregoing, in the sole determination of the
Bank, is to increase the cost to, or to reduce any amount received
or receivable by, the Bank hereunder, or to reduce the Bank's
effective return hereunder to a level below that which the Bank
could have otherwise achieved (using any reasonable averaging and
attribution method), the Bank shall determine that amount of money
which shall compensate it for such increase in cost or reduction in
income or reduction in rate of return on the Bank's capital, and
the Borrower shall pay to the Bank upon demand such amount in
respect of such increased cost or reduction as the Bank may
determine to be required to compensate the Bank. The Bank's
determination of such increased cost or reduction shall be
conclusive absent manifest error.
20. Illegality:
If the introduction of or any change in Applicable Law makes
it unlawful, or prohibited for the Bank, in its sole opinion, to
perform its obligations under this Agreement, the Bank may, by
written notice to the Borrower, terminate its obligations under
this Agreement, and the Borrower shall prepay the Borrowings
immediately or at the end of such period as the Bank may agree,
together with all interest and fees which have accrued to the date
of payment.
21. Conditions Precedent to Disbursement:
(a) The obligation of the Bank to make available any
Borrowing is subject to and conditional upon the receipt in form
and substance satisfactory to the Bank, of:
(i) a duly executed copy of this Agreement;
(ii) a review of all documentation by legal counsel
to the Bank;
(iii) the following documents (the "Security
Documents"):
(a) guarantee and postponement of claim on
the Bank's standard form in the principal amount of $15,000,000
plus interest and fees signed by the Guarantor,
(b) general security agreement on the Bank's
standard form signed by the Borrower and representing a first
charge on all assets of the Borrower other than real estate and
purchase money security interests ("PMSIs"), save for PMSIs over
the Borrower's inventory,
(c) security under Section 427 of the Bank
Act covering all inventory of the Borrower,
<PAGE>
(d) general security agreement on the Bank's
standard form signed by the Guarantor and representing a first
charge on all assets of the Guarantor other than real estate and
purchase money security interests ("PMSIs"), save for PMSIs over
the Guarantor's inventory,
(e) assignment of insurance policies covering
inventory of the Borrower all of which shall have been duly
registered in all appropriate jurisdictions in order to perfect and
maintain the security created by the Security Documents;
(iv) a duly executed B/A Undertaking; and
(v) such other documents as the Bank may reasonably
request.
22. Representations and Warranties of the Borrower and Guarantor:
The Borrower and Guarantor each represents and warrants to
the Bank, which representations and warranties are repeated as of
the time of each Borrowing or conversion and as of the time at
which each payment of interest or fees is due hereunder, that:
(a) the Borrower and Guarantor are corporations validly
incorporated and existing under the laws of Ontario and are duly
registered or qualified to carry on business in all jurisdictions
where the nature of their properties, assets or business makes such
registration or qualification necessary or desirable;
(b) the execution and delivery of this Agreement and the
Security Documents have been duly authorized by all necessary
actions and do not (i) violate any law, regulation or rule by which
the Borrower and Guarantor is bound, (ii) violate any provision of
their constating documents, by-laws or any unanimous shareholders'
agreement to which either of them is subject, (iii) result in a
breach of, or a default under, any agreement or instrument to which
any of them is a party or by which they or any of their properties
or assets may be bound or affected, or (iv) result in the creation
of any encumbrance on any of their properties or assets except as
contemplated herein;
(c) the Guarantor's most recent audited, consolidated
financial statements are correct and complete in all material
respects and the Borrower's and Guarantor's most recent annual
financial statement are correct and complete in all material
respects;
<PAGE>
(d) no Event of Default has occurred and no event has
occurred which constitutes, or which with giving of notice, lapse
of time or the occurrence of any other condition would constitute
a default having a material adverse effect on their financial
condition under or in respect of any agreement, undertaking or
instrument to which the Borrower and Guarantor or any of their
properties or assets may be subject;
(e) they are in compliance with all Applicable Laws,
including, without limitation, those dealing with the environment;
(f) the Borrower and Guarantor have filed all material
income tax returns which were required to be filed, paid or made
provision for payment of all material taxes (including interest and
penalties) which are due and payable, and provided adequate
reserves for payment of any tax, the payment of which is being
contested;
(g) no consent, approval, order, authorization, licence,
exemption or designation of or by any governmental body or person
is required in connection with the execution, delivery and
performance of this Agreement or the Security Documents or the
transactions contemplated hereby on behalf of the Borrower and
Guarantor and no registration, qualification, designation,
declaration or filing with any governmental body is necessary to
enable or empower either of them to perform their respective
obligations under this Agreement or the Security Documents, except
such as have been made or obtained, which are in full force and
effect.
The representations and warranties made in this Section shall
continue in effect until payment and performance of all debts,
liabilities and obligations under this Agreement.
23. Covenants of the Borrower:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings under
the Credit Facility after the Maturity Date, the Borrower covenants
and agrees with the Bank, while this Agreement is in effect or any
Borrowings are outstanding:
(a) to maintain its corporate existence as a validly
existing corporate entity;
(b) to provide the Bank with the following:
(i) quarterly, unaudited financial statements within
45 days of the end of each fiscal quarter accompanied by a
certificate in the form of Schedule "C" executed by two officers of
the Borrower, one of whom shall be its chief financial officer;
(ii) annual audited financial statements within 90
days of each fiscal year end;
<PAGE>
(iii) an aged list of its accounts receivable and a
report of inventory owned by the Borrower within 15 Business Days
of the end of each month, accompanied by a certificate of the
Borrower; and
(iv) details of securities pledged as Liquid
Collateral Security determined in accordance with Schedule "D";
(c) to provide the Bank with access to its business and
records as may be requested from time to time including, without
limitation, its annual financial forecasts and plans;
(d) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which, with notice
or lapse of time or both, would constitute an Event of Default;
(e) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by companies
carrying on similar business in similar locations against all
risks, including but not limited to business interruption, with
loss payable to the Bank as loss payee or mortgagee, as the case
may be;
(f) to file all income tax returns which are to be filed
from time to time, to pay or make provision for payment of all
taxes (including interest and penalties) and Potential Preferred
Claims which are or will become due and payable and to provide
adequate reserves for the payment of any tax, the payment of which
is being contested;
(g) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to hold the Bank
harmless for any costs or expenses which it incurs for any
environment-related liabilities which exist now or in the future
with respect to the Borrower's property;
(h) not to directly or indirectly, guarantee or otherwise
provide for on a direct or indirect contingent basis, the payment
of any monies or performance of any obligations by any third party
for an amount in excess of $5,000,000 in the aggregate, except as
may be consented to in writing by the Bank from time to time;
(i) not to do anything to affect the ranking of this debt;
(j) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or other
encumbrance affecting any of its properties, assets or other
rights, without the prior written consent of the Bank;
(k) during any fiscal year of the Borrower, not to sell,
transfer, convey, lease, assign or otherwise dispose of any part of
its undertaking, property, assets or rights with an aggregate value
exceeding $5,000,000, other than inventory in the ordinary course
of business and on commercially reasonable terms, without the prior
written consent of the Bank;
<PAGE>
(l) not to change its name or merge, amalgamate,
consolidate or otherwise enter into any other form of business
combination with any other person without the prior written consent
of the Bank, such consent not to be unreasonably withheld.
24. Covenants of the Guarantor:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings under
the Credit Facility after the Maturity Date, the Guarantor
covenants and agrees with the Bank, while this Agreement is in
effect or any Borrowings are outstanding:
(a) to maintain as at the end of any fiscal quarter
Tangible Net Worth on a consolidated basis of not less than US$
60,000,000. minus any Allowable Reduction.
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.50:1 as at the end of any fiscal quarter.
(c) not to permit its Total Liabilities to Tangible Net
Worth Ratio on a consolidated basis to exceed .90:1 as at the end
of any fiscal quarter.
(d) to provide the Bank with the following:
(i ) quarterly consolidated and non-consolidated
unaudited financial statements within 45 days of the end of each
fiscal quarter, and
(ii) quarterly consolidated analysis of bookings,
billings and backlog, within 45 days of the end of each fiscal
quarter, and
(iii) annual consolidated audited financial statements
within 90 days of each fiscal year end, each of the above financial
statements to be accompanied by a certificate in form satisfactory
to the Bank.
(e) to maintain its corporate existence as a validly
existing corporate entity;
(f) to provide the Bank with access to its business and
records as may be requested from time to time including, without
limitation, its annual financial forecasts and plans;
(g) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which, with notice
or lapse of time or both, would constitute an Event of Default;
<PAGE>
(h) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by companies
carrying on similar business in similar locations against all
risks, including but not limited to business interruption, with
loss payable to the Bank as loss payee or mortgagee, as the case
may be;
(i) to file all income tax returns which are to be filed
from time to time, to pay or make provision for payment of all
taxes (including interest and penalties) and Potential Preferred
Claims which are or will become due and payable and to provide
adequate reserves for the payment of any tax, the payment of which
is being contested;
(j) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to hold the Bank
harmless for any costs or expenses which it incurs for any
environment-related liabilities which exist now or in the future
with respect to the Guarantor's property;
(k) not to make any capital expenditures in any fiscal
year of the Guarantor except those as may be set out in the
Guarantor's operating budgets as provided to the Bank from time to
time, plus an allowance of 20%, without the Bank's prior written
consent;
(l) not to directly or indirectly, guarantee or otherwise
provide for on a direct or indirect contingent basis, the payment
of any monies or performance of any obligations by any third party,
other than wholly owned Subsidiaries, for an amount in excess of
$5,000,000 in the aggregate, except as may be consented to in
writing by the Bank from time to time;
(m) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or other
encumbrance affecting any of its properties, assets or other
rights, without the prior written consent of the Bank;
(n) during any fiscal year of the Guarantor, not to sell,
transfer, convey, lease, assign or otherwise dispose of any part of
its undertaking, property, assets or rights with an aggregate value
exceeding $5,000,000, other than inventory in the ordinary course
of business and on commercially reasonable terms, without the prior
written consent of the Bank;
(o) not to change its name or merge, amalgamate,
consolidate or otherwise enter into any other form of business
combination with any other person without the prior written consent
of the Bank, such consent not to be unreasonably withheld.
(p) To refrain from making any principal repayments on the
Convertible Subordinated Debenture.
25. Events of Default:
During the Term Period if any one or more of the following
events has occurred and is continuing:
<PAGE>
(a) the non-payment when due of principal, interest, fees
or any other amounts due under this Agreement;
(b) the breach by the Borrower or Guarantor or any of
their respective Affiliates of any provision of this Agreement or
any other agreement with the Bank or any of the Bank's
Subsidiaries;
(c) the default by the Borrower or Guarantor or any of
their respective Affiliates under any obligation to repay borrowed
money in excess of $1,000,000, other than amounts due under this
Agreement, or in the performance or observance of any agreement or
condition in respect of such borrowed money where, as a result of
such default, the maturity of such obligation is accelerated;
(d) if any representation or warranty made or deemed to
have been made herein shall be false or inaccurate in any
materially adverse respect;
(e) if in the opinion of the Bank there is a material
adverse change in the financial condition, ownership or operation
of the Borrower or the Guarantor or any of its Material
Subsidiaries;
(f) if proceedings for the bankruptcy, receivership,
dissolution, liquidation, winding-up, reorganization or
readjustment of debt of the Borrower or Guarantor or any of their
respective Affiliates or for the suspension of the operations of
the Borrower or Guarantor or any of their respective Affiliates are
commenced, unless such proceedings are being actively and
diligently contested in good faith;
(g) if the Borrower or Guarantor or any of their
respective Affiliates is insolvent, or is adjudged or declared
bankrupt or insolvent, or makes an assignment for the benefit
of its creditors, or petitions or applies to any tribunal for the
appointment of a receiver or trustee for it or for any substantial
part of its property, or commences any proceedings relating to it
under any reorganization, arrangement, readjustment of debt,
dissolution, liquidation or other similar proceeding under
Applicable Law, or by any act or failure to act indicates its
consent to, approval of, or acquiescence in, any such proceeding
for it or any substantial part of its property, or suffers the
appointment of any receiver or trustee;
(h) if the Guarantor should incur a loss exceeding US
$5,000,000, excluding restructuring charges to an aggregate maximum
of $2,000,000 during the Term Period, in any fiscal quarter.
then in such event the ability of the Borrower to make further
Borrowings under the Credit Facility shall immediately terminate
and the Bank may, by written notice to the Borrower, declare the
Borrowings outstanding hereunder to be immediately due and payable.
<PAGE>
After the Maturity Date, nothing in this Agreement shall be
construed to affect or limit in any way the right of the Bank to
terminate its commitment and demand all Borrowings under the Credit
Facility.
26. Expenses:
The Borrower shall pay the reasonable fees (including,
without limitation, all documentation fees charged by the Bank for
use of its internal legal counsel) and expenses incurred by the
Bank in connection with the preparation, negotiation, documentation
and operation of the Credit Facility and the Security Documents,
including the enforcement of the Bank's rights under the Credit
Facility whether or not any amounts are advanced hereunder.
27. Indemnity:
The Borrower shall indemnify the Bank from and against all
losses, damages, expenses and liabilities (including legal fees on
a solicitor and client basis) which the Bank sustains or incurs as
a consequence of any breach by the Borrower under any of the
provisions of this Agreement or of any document or instrument
delivered in connection hereunder.
28. Limit on Rate of Interest:
The Borrower shall not be obliged to pay any interest under
or in connection with this Agreement to the extent such interest
exceeds the effective annual rate of interest on the credit
advanced hereunder that would be lawfully permitted under the
Criminal Code. For purposes of this section, "interest" and
"credit advanced" have the meanings ascribed to such terms in the
Criminal Code, and the "effective annual rate of interest" shall be
calculated in accordance with generally accepted actuarial
practices and principles.
29. Judgment Currency:
If for the purpose of obtaining judgment in any court in any
jurisdiction with respect to this Agreement, it is necessary to
convert into the currency of such jurisdiction (the "Judgment
Currency") any amount due hereunder in any currency other than the
Judgment Currency, then such conversion shall be made at the rate
of exchange prevailing on the Business Day before the day on which
judgment is given. For this purpose "rate of exchange" means the
rate at which the Bank will, on the relevant date, sell such
currency in Toronto, Ontario, against the Judgment Currency.
In the event that there is a change in the rate of exchange
prevailing between the Business Day before the day on which the
judgment is given and the date of payment of the amount
due, the Borrower will, on the date of payment, pay such additional
amounts (if any) or be entitled to receive reimbursement of such
amount if any, as may be necessary to ensure that the amount paid
on such date is the amount in the Judgment Currency which, when
converted at the rate of exchange prevailing on the date of
payment, is the amount then due under this Agreement in such other
currency. Any additional amount due from the Borrower under this
Section will be due as a separate debt and shall not be affect by
judgment being obtained for any other sums due under or in respect
of this Agreement.
<PAGE>
30. Notices:
Any notice or demand hereunder shall be given in writing by
telecopier or letter, in each case addressed to an officer of the
receiving party. A telecopier communication shall be deemed
received on the date of transmission provided such transmission is
received prior to 5:00 p.m. on a day on which the receiving party's
office is open for normal business, and otherwise on the next such
day. A letter shall be deemed received when hand-delivered to the
receiving party, at the address shown herein or at such other
address as the receiving party may notify the other from time to
time. Each party shall be bound by any notice given hereunder and
entitled to act in accordance therewith, unless otherwise agreed.
Th addresses of the parties for the purpose hereof shall be:
as to the Borrower:
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 727-0617
as to the Guarantor:
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 727-0617
as to the Bank:
Royal Bank of Canada
90 Sparks Street
Ottawa, Ontario K1P 5T6
Attention: Senior Account Manager, Advanced Technology
Telecopier: (613) 564-4527
or such other address for delivery as each party from time to
time may notify the other as aforesaid.
31. Assignment:
This Agreement shall be binding upon and enure to the benefit
of the Bank and the Borrower and their respective successors and
permitted assigns. The Borrower cannot assign or transfer all or
any of its rights and obligations hereunder without the prior
written consent of the Bank.
<PAGE>
32. Set-Off:
The Bank is authorized (but not obligated), at any time and
without notice, to apply any credit balance (whether or not then
due) to which the Borrower is then beneficially entitled on any
account (in any currency) at any branch or office of the Bank in or
towards satisfaction of the obligations and liabilities of the
Borrower due to the Bank under this Agreement. For that purpose,
the Bank is authorized to use all or any part of any such credit
balance to buy such other currencies as may be necessary to effect
such application.
33. Waivers and Amendments:
No failure to exercise and no delay in exercising on the part
of the Bank, any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude any other right, power or
privilege. No amendment, modification or waiver of any provision
of this Agreement or consent to any departure by the Borrower from
any provision of this Agreement will in any event be effective
unless it is in writing signed by the Borrower and the Bank, and
then the amendment, modification, waiver or consent will be
effective only in the specific instance, for the specific purpose
and for the specific length of time for which it is given by the
Bank.
34. Counterparts:
This Agreement may be executed in any number of counterparts,
each of which when executed and delivered is an original but all of
which taken together constitute one and the same instrument, and
any party may execute this Agreement by signing any counterpart of
it.
35. Further Assurances:
The Borrower shall from time to time promptly upon the
request of the Bank take such action and execute and deliver such
further documents, as shall be reasonably required in order to
fully perform the terms of, and to carry out the intention of, this
Agreement.
36. Severability:
If any provision of this Agreement is or becomes prohibited
or unenforceable in any jurisdiction, such prohibition or
unenforceability shall not invalidate, affect or impair any of the
remaining provisions hereof or invalidate or render unenforceable
the provision concerned in any other jurisdiction.
37. Governing Law and Submission to Jurisdiction:
This Agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and of Canada
applicable therein. The Borrower irrevocably submits to the
non-exclusive jurisdiction of the courts of such Province and
acknowledges the competence of such courts and irrevocably agrees
to be bound by a judgment of any such court.
<PAGE>
38. Periodic Review:
The Credit Facility is subject to an annual review by the
Bank on or before the Maturity Date. The Bank may, in its sole
discretion, terminate the Credit Facility following such annual
review without limiting or affecting the Bank's rights pursuant to
Section 25 hereof.
39. Whole Agreement:
This Agreement and any agreements delivered pursuant to or
referred to in this Agreement constitute the whole and entire
agreement between the parties in respect of the Credit Facility,
and cancel and supersede any prior written or verbal agreements
including undertakings, declarations or representations made with
respect thereto.
40. Effective Date:
Except as otherwise provided in this Agreement, the date on
which this Agreement becomes effective is the date the offer is
accepted by the Borrower and the Guarantor.
41. Expiry Date:
This offer is open for acceptance until close of business at
the Branch of Account on January 21, 1994 unless extended in
writing by the Bank.
<PAGE>
Please acknowledge your acceptance of the above terms and
conditions by signing the attached copy of this letter in the space
provided below and returning it to the undersigned.
Yours truly,
s/L.J.BLATTMAN
ORIGINAL SIGNED BY L.J. BLATTMAN
We acknowledge and accept the terms and conditions of this
Agreement as of the 21st day of January, 1994.
GANDALF CANADA LTD.
Per: s/W.R. MACDONALD, VP FINANCE
Per: s/B.R. HEDGES
Date: JANUARY 21, 1994
GANDALF TECHNOLOGIES INC.
Per: s/W.R. MACDONALD, VP FINANCE
Per: s/B.R. HEDGES
Date: JANUARY 21, 1994
<PAGE>
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
DEFINITIONS
"Affiliate" of a person means any person which directly or
indirectly, controls or is controlled by or is under common control
with such first mentioned person, and for the purposes of this
definition, "control" (including with correlative meanings the
terms "controlled by" and "under common control with") means the
power to direct or cause the direction of the management and
policies of any person, whether through the ownership of shares or
by contract or otherwise, and without restricting the above, one
corporate body shall be deemed to be affiliated with another
corporate body if one of them is the Subsidiary of the other or
both are Subsidiaries of the same corporate body;
"Agreement" means collectively this agreement and all schedules
attached hereto;
"Allowable Reduction" means the amount, not exceeding $2,000,000 in
aggregate, expended by the Guarantor to restructure between October
1, l993 and March 31, l994.
"Applicable Law" means, in respect of any person, property,
transaction or event, all present or future applicable laws,
statutes, regulations, treaties, judgments and decrees and (whether
or not having the force of law) all applicable official directives,
rules, guidelines, orders and policies of any governmental body
having jurisdiction;
"B/A Undertaking" means the Bank's standard form of undertaking in
respect of bankers acceptances issued by borrowers and accepted by
the Bank;
"Branch of Account" means the Bank's branch at 90 Sparks Street,
Ottawa, Ontario;
"Business Day" means a day, excluding Saturday, Sunday, and any
other day which shall be in the City of Toronto, Ontario a legal
holiday or a day on which banking institutions are closed and, with
respect to a Libor Loan, "Business Day" means a day with the
foregoing characteristics which is also a day on which dealings in
US Dollar or Pounds Sterling, as applicable, deposits by and
between leading banks in the London interbank market may be
conducted;
<PAGE>
"Canadian Dollars" and the symbols "Cdn$" and "$" each means lawful
money of Canada;
"Convertible Subordinated Debenture" means the Cdn $30,000,000 8.5%
convertible subordinated debenture due November 10, 2002 issued by
the Guarantor;
"Current Ratio" of a person means the ratio of that person's
current assets to that person's current liabilities, net of cash on
hand;
"Equivalent Amount" determines the amount of availability only and
means on any date, the amount of Canadian Dollars required to
convert from Canadian Dollars to: U.S. Dollars at the rate of 1.30
Canadian Dollars for 1.00 US$; Pounds Sterling at the rate of 1.90
Canadian Dollars for 1 Pound Sterling.
The Equivalent amount will be amended by the Bank from time to time
to reflect changes in the rate of exchange and such amendments will
be advised to the Borrower in writing.
"Event of Default" means each of the events listed in the section
entitled "Events of Default";
"GAAP" means generally accepted accounting principles in effect
from time to time in Canada applied in a consistent manner from
period to period;
"Good Accounts Receivable" means all accounts receivable of the
Borrower excluding without duplication:
(a) those outstanding more than 90 days after the billing date,
(b) those between the Borrower and any Affiliate of the
Borrower,
(c) those subject to any mortgage, charge, assignment, lien,
security interest or other encumbrance ranking in priority to or
equal to that granted to the Bank pursuant to this Agreement,
(d) those subject to any claim or assertion of a right of
set-off on the part of the account debtor to the extent of such
claim or assertion,
(e) those which would be required to be treated as bad or
doubtful accounts in accordance with GAAP including, without
limitation, those outstanding from entities which are bankrupt,
insolvent or which have suspended operations, and
(f) those subject to a contractual right on the part of the
account debtor to refuse payment either in whole or in part;
<PAGE>
"Interest Determination Date" means, with respect to a Libor Loan,
the date which is 2 Business Days prior to the first day of the
Libor Interest Period applicable to such Libor Loan;
"Inventory" means inventory of the Borrower not subject to any
mortgage, charge, lien, consignment, title retention arrangement,
security interest or other encumbrance ranking in priority
to or equal to that granted to the Bank pursuant to this Agreement;
"Letter of Credit" or "L/C" each means a documentary credit issued
by the Bank on behalf of the Borrower for the purpose of providing
security to a third party that the Borrower will perform a
contractual obligation owed to such third party;
"Libor" means, with respect to each Libor Interest Period
applicable to a Libor Loan, the annual rate of interest (rounded
upwards, if necessary, to the nearest whole multiple of one
sixteenth of one percent (1/16th%)), at which the Bank, in
accordance with its normal practice, would be prepared to offer to
leading banks in the London interbank market for delivery on the
first day of such Libor Interest Period and for a period equal to
such Libor Interest Period, deposits in US Dollars or Pounds
Sterling of amounts comparable to such Libor Loan to be outstanding
during such Libor Interest Period, at or about 10:00 a.m. (Toronto
time) on the Interest Determination Date;
"Libor Interest Date" means, with respect to any Libor Loan, the
last day of each Libor Interest Period and, if the Borrower selects
a Libor Interest Period longer than 3 months, the Libor Interest
Date shall be the date falling every 3 months after the beginning
of such Libor Interest Period as well as the last day of such Libor
Interest Period;
"Libor Interest Period" means, with respect to any Libor Loan, a
period (subject to availability) of approximately 1 month (or
longer whole multiples of 1 month to and including 12 months as
selected by the Borrower and notified to the Bank) commencing with
the date on which such Libor Loan is made, the date on which
another method of Borrowing is converted to such Libor Loan or
the last day of the immediately prior Libor Interest Period;
"Liquid Collateral Security" means the liquid collateral security
determined in accordance with Schedule "D";
"Margin Requirement" means the total amount of Borrowings available
under this Agreement, which amount may not exceed the sum of (i)
75% of Good Accounts Receivable from account debtors resident in
Canada, (ii) to a maximum value of $8,000,000, 50% of the book
value of the Inventory located in the Province of Ontario and (iii)
Liquid Collateral Security;
<PAGE>
"Material Subsidiary" means, with respect to the Guarantor, any
Subsidiary of the Guarantor now or hereinafter located in Canada,
the United States, the United Kingdom, France or the Netherlands
as well as any Subsidiary of the Guarantor which is identified as
being a Material Subsidiary by the Bank in writing to the Guarantor
from time to time and "Material Subsidiaries" means any such
Subsidiaries of the Guarantor;
"Maturity Date" means July 31, 1994;
"Potential Preferred Claims" means amounts accrued or owing for
wages, vacation pay, employee benefits or pensions, municipal tax,
corporate tax, sales tax, Canadian goods and services tax, source
deductions and remittances (including income tax, Canada Pension
Plan and unemployment insurance obligations), Government royalties,
purchase money security interests and any other statutory preferred
claims as well as the aggregate of the next three months rent
payments for each rental property of the Borrower;
"Pounds Sterling" and "character symbol" and "GBP" each means lawful money of
the United Kingdom;
"Royal Bank Prime" (in this Agreement, "RBP") means the annual rate
of interest announced by the Bank from time to time as being a
reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans made in Canada;
"Royal Bank Prime Acceptance Fee" (in this Agreement, "RBPAF")
means the annual rate announced by the Bank from time to time as
being a reference rate then in effect for determining fees on
Canadian Dollar bankers' acceptances accepted by the Bank in
Canada;
"Royal Bank US Base Rate" (in this Agreement, "RBUSBR") means the
annual rate of interest announced by the Bank from time to time as
being a reference rate then in effect for determining interest
rates on US Dollar commercial loans made in Canada;
"Subsidiary" of a person means (i) any corporation of which the
person and/or one or more of its Affiliates, holds, directly or
beneficially, other than by way of security only, securities to
which are attached more than 50% of the votes that may be cast to
elect directors of such corporation, or (ii) a corporation of which
such person has through operation of law or otherwise, the ability
to elect or cause the election of a majority of the directors of
such corporation and "Subsidiaries" of such person mean all such
corporations;
<PAGE>
"Tangible Net Worth" of a person means its shareholders' equity
plus, but not in duplication, the amount of the Convertible
Subordinated Debenture less the aggregate of its goodwill, deferred
income taxes, deferred software costs and other assets (all as
defined and set out on the person's audited annual financial
statements), that the Bank deems to be intangible. For the purpose
of calculating shareholders' equity, items on the balance sheet of
the relevant person under the heading "foreign exchange translation
amount" shall be deemed to be zero;
"Term Period" means the period of time from the date of this
Agreement to and including the Maturity Date;
"Total Liabilities" of any person means all liabilities appearing
on the balance sheet of that person, net of cash on hand;
"Total Liabilities to Tangible Net Worth Ratio" of a person means
the ratio of that person's Total Liabilities to that person's
Tangible Net Worth;
"US Dollars" and "US$" each means lawful money of the United States
of America in same day immediately available funds or, if such
funds are not available, the form of money of the United
States of America that is customarily used in the settlement of
international banking transactions on the day payment is due
hereunder.
<PAGE>
SCHEDULE "B"
Schedule "B" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$ or US$10,000,000,
up to and including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
B/As
Amount Prior Notice
Under Cdn$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$10,000,000 up to and
including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the
Equivalent Amount in Pounds
Sterling by 10:00 a.m. on the
Interest Determination Date
US$10,000,000 up to and including
the Amount or the Equivalent
Amount in Pounds Sterling by 10:00 a.m. 1 Business Day
prior to the Interest
Determination Date
<PAGE> SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
OFFICER'S COMPLIANCE CERTIFICATE
We, ___________________________________, of the City of
__________________ and the City of _______________________,
respectively in the Province of Ontario, and hereby certify as
follows:
1. That we are the [office] and [office], respectively of the
Guarantor, and we have been designated by the Borrower to sign this
compliance certificate on behalf of the Borrower.
2. That we have read the provisions of the letter agreement (the
"Agreement") dated January 7, 1994 between the Borrower and
Guarantor and Royal Bank of Canada (the "Bank") which are relevant
to this compliance certificate and have made such examination or
investigation as is reasonably necessary to enable us to express an
informed opinion on the matters contained in this certificate.
Terms defined in the Agreement have the same meanings where used in
this certificate. As of the date of this certificate:
(a) the representations and warranties contained in the
Agreement are true and correct;
(b) no Event of Default or event which would with lapse of time
or the happening of some further condition constitute an Event of
Default has occurred and is continuing; and
(c) the covenants contained in the Agreement have not been
breached and during the next fiscal quarter of the Borrower and
Guarantor there is no reason to believe that any of such covenants
will be breached.
3. The attached report of the Borrower of aged accounts receivable
by debtor and amount and inventory by net book value is complete
and accurate in all material respects.
DATED this _______ day of _________________, 19__.
By:____________________________________
Name/
Title: ____________________________________
By:____________________________________
Name/
Title: ____________________________________
<PAGE>
SCHEDULE "D"
Schedule "D" to the Agreement dated as of the 7th day of January,
1994 between Gandalf Canada Ltd. as Borrower and Gandalf
Technologies Inc. as Guarantor and Royal Bank of Canada as the
Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE LOANING
VALUE
A. Canada Savings Bonds, and Savings 100% of par value
Bonds redeemable at par issued by
Provincial Governments; Province of
British Columbia Parity Bonds redeemable
at par and fully guaranteed by the
Province of British Columbia, issued in
the names of Provincial Crown Corporations.
B. Government of Canada or Government 95% of market value
of Canada guaranteed bonds and Treasury
Bills except as indicated in (a) above.
(c) Provincial Government or Provincial 95% of market value
Government guaranteed bonds and Treasury
Bills except as indicated in (a) above.
(d) Bankers acceptances or similar 95% of market value
investments effectively assigned to the
Bank. ________________
= LIQUID
COLLATERAL
SECURITY
