<PAGE
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 July 1, 1995 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 filed 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 July 31, 1995 was
39,282,307.
<PAGE>
GANDALF TECHNOLOGIES INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - 3
Consolidated Statement of Income - 4
Consolidated Statement of Changes in
Financial Position - 5
Consolidated Statement of Shareholders' Equity - 6
Notes to Consolidated Financial Statements - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations - 11
PART II OTHER INFORMATION 16
SIGNATURE PAGE 16
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Thousands of U.S. dollars)
<TABLE>
<CAPTION>
<C> <S> <S>
July 1 March 31
1995 1995
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 11,342 $ 11,817
Accounts receivable 26,223 26,880
Inventories (note 1) 14,900 15,230
Other 2,096 2,268
-------- --------
Total current assets 54,561 56,195
Fixed assets (note 2) 18,211 18,619
Goodwill, net of amortization of $3,008
(March 31, 1995: $2,952) 3,406 3,462
Other assets 2,785 3,232
-------- --------
Total assets $ 78,963 $ 81,508
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank operating lines (note 3) $ 4,266 $ 5,854
Accounts payable and accrued liabilities (note 4) 19,992 21,369
Deferred revenue 7,721 7,758
Current portion of long-term debt 250 157
-------- --------
Total current liabilities 32,229 35,138
Long-term debt 2,149 1,877
8.5% convertible debentures, due 2002 (note 5) 4,055 10,051
Shareholders' equity:
Capital stock:
Common shares, 38,934,289 issued and
outstanding (March 31, 1995: 35,238,064) 97,775 91,644
Retained earnings (deficit) (52,298) (52,364)
Cumulative translation adjustment (4,947) (4,838)
-------- --------
Total shareholders' equity 40,530 34,442
-------- --------
Total liabilities and shareholders' equity $ 78,963 $ 81,508
======== ========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Thousands of U.S. dollars except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
July 1
--------------------
1995 1994
-------- --------
<C> <S> <S>
Revenues:
Product $ 19,414 $ 20,745
Service 9,236 8,973
-------- --------
28,650 29,718
Operating expenses:
Cost of product sales 9,663 10,896
Service expenses 5,869 5,871
Sales and marketing 8,198 8,742
Administration and general 2,071 1,929
Research and development 2,595 2,413
Restructuring costs (note 6) - 685
-------- --------
Income (loss) from operations 254 (818)
Interest expense (206) (798)
Interest income and foreign exchange 18 57
-------- --------
Net income (loss) for the period $ 66 $ (1,559)
======== ========
Basic earnings (loss) per share (note 7) $ - $ (0.06)
======== ========
Weighted average number of
shares outstanding (thousands) 37,642 28,072
======== ========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(Unaudited)
(Thousands of U.S. dollars)
<TABLE>
<CAPTION>
13 Weeks Ended
July 1
--------------------
1995 1994
-------- --------
<C> <S> <S>
Operating activities:
Cash provided by (applied to) operations (note 8) $ 1,576 $ (514)
Increase in operating working capital (note 9) (202) (2,170)
-------- --------
Cash provided by (applied to) operating activities 1,374 (2,684)
-------- --------
Financing activities:
Issue of capital stock 6,423 -
Conversion of 8.5% convertible debentures (note 5) (6,197) -
Other 302 (265)
-------- --------
Cash provided by (applied to) financing activities 528 (265)
-------- --------
Investing activities:
Proceeds on disposal of investment - 1,263
Purchase of fixed assets (674) (674)
Other (34) 1
-------- --------
Cash provided by (applied to) investing activities (708) 590
-------- --------
Effect of exchange rate changes on cash balances (81) 69
-------- --------
Increase (decrease) in cash position in the period 1,113 (2,290)
Cash position at beginning of period 5,963 (5,239)
-------- --------
Cash position at end of period $ 7,076 $ (7,529)
======== ========
Cash position is comprised of:
Cash and cash equivalents $ 11,342 $ 5,641
Bank operating lines (4,266) (13,170)
-------- -------
$ 7,076 $ (7,529)
======== ========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Thousands of U.S. dollars)
<TABLE>
<CAPTION>
13 Weeks Ended
July 1
----------------------------------------------------
1995 1994
------------------------- -------------------------
Shares Dollars Shares Dollars
--------- --------- --------- ---------
<C> <S> <S> <S> <S>
Capital Stock:
Consisting of an unlimited
number of common shares
authorized, without par value
Balance at beginning of period 35,238,064 $ 91,644 28,072,333 $ 79,811
Issued:
On conversion of debentures (note 5) 3,613,592 5,905 - -
On exercise of stock options 82,633 226 - -
---------- --------- ---------- ---------
Balance at end of period 38,934,289 $ 97,775 28,072,333 $ 79,811
========== ========= ========== =========
Retained Earnings (Deficit):
Balance at beginning of period $ (52,364) $ (53,770)
Net income (loss) 66 (1,559)
--------- ---------
Balance at end of period $ (52,298) $ (55,329)
========= =========
Cumulative Translation Adjustment:
Balance at beginning of period $ (4,838) $ (6,932)
Adjustment arising on translation of
foreign subsidiaries' financial
statements to U.S. dollars 776 438
Adjustment relating to subsidiary loans
designated as long-term investments (885) 303
--------- ---------
Balance at end of period $ (4,947) $ (6,191)
========= =========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
All amounts are stated in U.S. dollars unless otherwise
indicated. C$ refers to Canadian dollars. Tabular amounts
are in thousands except per share data.
1. INVENTORIES
<TABLE>
<CAPTION>
July 1 March 31
1995 1995
-------- --------
<C> <S> <S>
Raw materials $ 3,673 $ 3,336
Work-in-process 4,505 4,591
Finished goods 6,722 7,303
-------- --------
$ 14,900 $ 15,230
======== ========
</TABLE>
2. FIXED ASSETS
<TABLE>
<CAPTION>
July 1 March 31
1995 1995
-------- --------
<C> <S> <S>
Cost:
Land $ 228 $ 232
Buildings 4,716 4,725
Equipment 56,904 55,879
Leasehold improvements 1,962 1,930
--------- --------
63,810 62,766
Accumulated depreciation 45,599 44,147
-------- --------
Net book value $ 18,211 $ 18,619
======== ========
</TABLE>
3. BANK OPERATING LINES
The Company's authorized bank operating lines at July 1, 1995
totalled $19.0 million. At that time, there was sufficient
margin available to borrow $14.8 million and $4.3 million was
being utilized. Cash and short-term deposits held as of that
date represented a further $11.3 million of available cash
resources, and cash and unused credit lines totalled $21.8
million. Cash and unused credit lines at March 31, 1995 were
$20.8 million. The authorized lines include two committed
credit facilities with a Canadian chartered bank and a demand
facility with a bank in the United Kingdom. They are secured
by certain of the accounts receivable, inventories and other
assets of the Company and bear interest at rates ranging from
0.5% to 2.5% above the respective banks' prime or base rates.
<PAGE>
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
July 1 March 31
1995 1995
-------- --------
<C> <S> <S>
Trade accounts payable $ 6,695 $ 7,341
Payroll, commissions and related taxes 3,832 4,072
Accrued restructuring charges 2,626 3,033
Other payables 5,162 5,266
Income and other taxes payable 1,677 1,657
-------- --------
$ 19,992 $ 21,369
======== ========
</TABLE>
5. 8.5% CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
Shares Issued
Aggregate Principal Amount % Upon Conversion
---------------------------------------------------------------------- ---------------
<C> <S> <S> <S> <S>
Balance at March 31, 1994 C$ 30,000 $ 21,681 100%
Converted during the year (15,939) (11,533) (53%) 6,782,519
Impact of foreign exchange - (97) -
----------------------------------------------------------------------
Balance at March 31, 1995 C$ 14,061 $ 10,051 47%
Converted during the quarter (8,492) (6,197) (28%) 3,613,592
Impact of foreign exchange 201
----------------------------------------------------------------------
Balance at July 1, 1995 C$ 5,569 $ 4,055 19%
======================================================================
</TABLE>
In November 1992 the Company issued 8.5% convertible debentures
with an aggregate principal amount of C$30.0 million which
mature in November 2002. At any time prior to maturity they
are convertible into common shares of the Company at the option
of the holder at a conversion price of C$2.35 (approximately
$1.71) which would yield 425.53 common shares for each C$1,000
(approximately $728) of principal amount of debentures held.
During the fourth quarter of fiscal 1995 approximately 53% of
the original amount of debentures were converted into common
shares.
During the first quarter of fiscal 1996 debentures with an
aggregate principal amount of $6,197,000 were converted into
3,613,592 common shares. The resulting increase in capital
stock of $5,905,000 was determined as the sum of the principal
amount of the debentures converted ($6,197,000) plus interest
accrued to the date of conversion ($95,000), net of the pro
rata share of the associated unamortized deferred financing
costs ($387,000).
At July 1, 1995 approximately 19% of the original principal
amount of debentures remained outstanding which, if converted,
would result in a maximum of 2,369,787 additional common shares
being issued. The remaining outstanding debentures represent
an unsecured direct obligation of the Company. After November
10, 1995 any outstanding debentures are redeemable by the
Company provided that for the 20 trading days ending with the
fifth trading day preceding the date on which the notice of
redemption is first given, the weighted average market price at
which the shares have traded on the TSE and NASDAQ is not less
than 125% of the conversion price.
<PAGE>
6. RESTRUCTURING COSTS
Restructuring costs of $0.7 million during the first quarter of
fiscal 1995 represented severance costs associated with the
elimination of approximately 70 positions at the end of the
first quarter in connection with an internal functional
realignment.
7. EARNINGS PER SHARE
Basic earnings (loss) per share figures are presented on the
consolidated statement of income. These figures are calculated
using the monthly weighted average number of common shares
outstanding during the period. Fully diluted earnings per
share information has not been presented as potential
conversions are anti-dilutive.
For the first quarter of fiscal 1996 adjusted earnings per
share is not materially different from the basic earnings per
share figure. The calculation assumes that the conversion of
debentures, which occurred during the first quarter of fiscal
1996, had occurred at the beginning of the quarter.
8. CASH PROVIDED BY OPERATIONS
Cash provided by (applied to) operations is computed as
follows:
<TABLE>
<CAPITON>
13 Weeks Ended
July 1
---------------------
1995 1994
-------- --------
<C> <S> <S>
Income (loss) from operations $ 254 $ (818)
Depreciation and amortization 1,497 1,210
Interest paid (193) (757)
Interest income and foreign exchange 18 57
Other - (206)
-------- --------
$ 1,576 $ (514)
======== ========
</TABLE>
9. INCREASE IN OPERATING WORKING CAPITAL
The increase in operating working capital is computed as
follows:
<TABLE>
<CAPTION>
13 Weeks Ended
July 1
---------------------
1995 1994
-------- --------
<C> <S> <S>
Accounts receivable $ 657 $ (420)
Inventories 330 1,768
Prepaid expenses 172 (141)
Accounts payable and accrued liabilities (1,302) (4,001)
Income taxes payable 20 178
Deferred revenue (37) 69
Foreign currency equity adjustment (42) 377
-------- --------
$ (202) $ (2,170)
======== ========
<PAGE
10. UNITED STATES ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in
Canada ("Canadian GAAP") which in the case of the Company
differ in the following material respects from those generally
accepted in the United States ("U.S. GAAP").
(a) Under U.S. GAAP, financing and investing activities not
involving a receipt or outlay of cash are excluded from
the consolidated statement of changes in financial
position. Accordingly, the following financing
activities would not be presented in the consolidated
statement of changes in financial position for the 13
weeks ended July 1, 1995 but would be shown
supplementally.
</TABLE>
<TABLE>
<CAPTION>
<C> <S>
Conversion of 8.5% convertible debentures $ (6,197)
Issue of capital stock on conversion of debentures $ 6,197
(b) Under U.S. GAAP, bank operating lines would not be
included as a component of the cash position presented in
the consolidated statement of changes in financial
position. The change in bank operating lines would be
presented as a financing activity and would therefore be
included in the determination of the increase or
decrease in cash position in the period.
(c) U.S. GAAP requires the calculation of primary earnings
per share. This figure is not materially different from
the basic earnings per share figure calculated under
Canadian GAAP.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
------------
The consolidated financial statements for the first quarter ended July
1, 1995, 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. Note 10 to the consolidated financial
statements describes the impact, in the case of the Company, of
differences between accounting principles generally accepted in Canada
and the United States. All amounts are stated in U.S. dollars unless
otherwise indicated. C$ refers to Canadian dollars. References to
years are to fiscal years ended March 31.
Results of Operations - First Quarter Ended July 1, 1995
--------------------------------------------------------
The following table sets forth items derived from the quarterly
consolidated statements of income as a percentage of revenues for the
quarter ended July 1, 1995 and for each of the preceding four
quarters. The column in the table entitled "Percentage Change Quarter
1, 1996 vs 1995" represents the percentage change, either favourable
or (unfavourable), in the dollar amount of such items for the first
quarter of 1996 compared with the first quarter of 1995.
</TABLE>
<TABLE>
<CAPTION>
Percentage
Fiscal 1995 Fiscal 1996 Change
------------------------------------------ ----------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1996 vs. 1995
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
<C> <S> <S> <S> <S> <S> <S>
Revenues $29,718 $30,660 $29,751 $30,382 $28,650 (3.6)%
======= ======= ======= ======= ======= =======
(Percentage of Revenues)
Revenues:
Product 69.8% 71.0% 68.4% 68.9% 67.8% (6.4)%
Service 30.2 29.0 31.6 31.1 32.2 2.9
------- ------- ------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% (3.6
======= ======= ======= ======= =======
Gross Profit:
Product 47.5% 49.0% 47.7% 47.6% 50.2% (1.0)
Service 34.6 35.6 38.7 37.0 36.5 8.5
Combined 43.6 45.1 44.8 44.3 45.8 1.3
Expenses:
Sales & marketing 29.4 26.1 26.4 28.1 28.6 6.2
Administration & general 6.5 6.2 6.6 5.7 7.2 (7.4)
Research & development 8.1 8.4 8.9 8.4 9.1 (7.5)
Restructuring costs 2.3 - - - -
------- ------- ------- ------- -------
Income(loss)from operations (2.7) 4.4 2.9 2.1 0.9
Gain on sale of portfolio
investment - - 6.8 - -
Interest expense (2.7) (2.7) (2.7) (1.8) (0.7)
Interest income and foreign
exchange 0.2 0.3 0.2 0.4 -
------- ------- ------- ------- -------
Net income (loss) (5.2%) 2.0% 7.2% 0.7% 0.2%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Revenues
--------
The following table sets forth revenues by geographic segment
for the quarter ended July 1, 1995 and for each of the
preceding four quarters. The table also includes the change
in revenues, expressed as a percentage, in the first quarter
of 1996 compared to the corresponding period of 1995.
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Percentage
Fiscal 1995 Fiscal 1996 Change
------------------------------------------ ----------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1996 vs. 1995
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
United States $ 8,205 $ 8,085 $ 8,309 $ 7,948 $ 7,892 (3.8)%
Canada 5,736 6,184 5,434 5,119 5,185 (9.6)
United Kingdom 8,927 10,186 8,648 10,178 8,407 (5.8)
Holland/France 4,040 3,358 4,379 3,995 4,643 14.9
International markets 2,810 2,847 2,981 3,142 2,523 (10.2)
------- ------- ------- ------- -------
$29,718 $30,660 $29,751 $30,382 $28,650 (3.6)
======= ======= ======= ======= =======
</TABLE>
In the first quarter of 1996 total revenues were $28.7
million representing a decrease of 3.6% from total revenues
of $29.7 million reported in the first quarter of 1995.
After adjusting for the impact of changes in foreign currency
exchange rates over the last twelve months, particularily the
strengthening of certain European currencies against the U.S.
dollar, total revenues declined 7.8% in the first quarter of
fiscal 1996 compared to the first quarter a year ago.
Product revenues for the first quarter of 1996 were $19.4
million. In the first quarter of 1995 such revenues were
$20.7 million. The 6.4% decline in product revenues in the
first quarter of 1996 compared to the first quarter a year
ago is due to a decrease in demand for the Company's
traditional products which has more than offset the growth in
more recently introduced products.
Revenues in the North American market (United States and
Canada) were $13.1 million in the first quarter of 1996, 6.2%
lower than the first quarter of 1995. The Company's European
direct sales markets (United Kingdom, Holland and France)
reported revenues expressed in U.S. dollars of $13.0 million
in the first quarter of 1996, essentially unchanged from the
first quarter of 1995. When expressed in their domestic
currencies, revenues in these markets declined 8.5% in the
first quarter of 1996 compared to the first quarter of 1995.
Revenues in the Company's other international markets were
$2.5 million in the first quarter of 1996 compared to $2.8
million in the first quarter a year ago.
<PAGE>
Gross Profit
------------
Gross margin on product revenues (product revenues minus the
cost of product sales expressed as a percentage of product
revenues) was 50.2% in the first quarter of 1996 compared
with 47.5% in the first quarter of 1995. In general, the
combined effect of lower manufacturing costs following
restructuring actions taken in the fourth quarter of 1994 and
the first quarter of 1995 and a more favourable product mix,
has resulted in an improvement in the gross margin earned on
product revenues. However, quarterly fluctuations, such as
the improvement in the gross margin on product revenues in
the first quarter of 1996 compared to the four quarters of
1995 may not be indicative of a trend in future performance.
The gross margin on service revenues (service revenues less
service expenses expressed as a percentage of service
revenues) was 36.5% in the first quarter of 1996 and 34.6% in
the first quarter a year ago. The improvement in the service
margin in the first quarter of 1996 compared to the first
quarter of 1995 resulted from higher service revenues in the
first quarter of 1996 compared to the corresponding period a
year ago.
The combined gross profit (combined revenues minus cost of
product sales and service expenses) was $13.1 million in the
first quarter of 1996, essentially unchanged from the $13.0
million reported in the first quarter of 1995.
Operating Expenses
------------------
Operating expenses (sales and marketing, administration and
general, and research and development) were $12.9 in the
first quarter of 1996, compared to $13.1 million reported in
the first quarter a year ago. The decrease in operating
expenses occurred as a result of lower sales and marketing
expenses in the first quarter of 1996 compared to the first
quarter a year ago as a consequence of the functional
realignment which took place at the end of the first quarter
of 1995.
Restructuring costs of $0.7 million during the first quarter
of 1995 represented severance costs associated with the
elimination of approximately 70 additional positions at the
end of the first quarter in connection with an internal
functional realignment.
Since 1991, the Company has received funding of approximately
$1.4 million and $2.6 million respectively under two projects
approved through the Canadian federal government's
Microelectronics and Systems Development Program ("MSDP").
The amount that is potentially repayable is calculated
without interest as a royalty on revenues earned in the 10
years following the project completion date and is limited to
the amount of funding received.
The first MSDP project was completed on March 31, 1995 and
the Company began accruing the corresponding royalty at the
beginning of the current fiscal year. The royalty for this
project is 2% of consolidated gross revenues from the
resulting products. The second MSDP project is expected to be
completed during fiscal 1996 and the Company will commence
accruing the corresponding royalty at that time. The royalty
for this project is 1% of the Canadian subsidiary's total
product revenues. The royalty payments are due annually
between three and six months after the anniversary of the
project completion date. The Company expects that the funding
will be fully repaid within three to five years.
<PAGE>
Income from Operations
----------------------
The Company reported income from operations of $0.3 million
on revenues of $28.7 million for the first quarter of 1996.
For the first quarter of 1995 the Company reported a loss
from operations of $0.8 million on revenues of $29.7 million.
Interest Expense
----------------
Interest expense for the first quarter of 1996 was $0.2
million compared with $0.8 million in the first quarter of
1995. The decrease in interest expense occurred primarily as
a result of the conversion to common shares of 8.5%
convertible debentures during the fourth quarter of 1995 and
the first quarter of 1996. The Company's obligation to pay
interest is limited only to those debentures which are
outstanding as of the semi-annual interest payment dates on
May 10 and November 10 each year. Lower utilization of bank
operating lines in the first quarter of 1996 compared to the
first quarter a year ago also contributed to the year-over-
year decrease in interest expense.
Net Income
----------
Net income for the first quarter of 1996 was $0.1 million, or
breakeven on a per share basis, versus a net loss of $1.6
million or $0.06 per share in the first quarter a year ago.
Liquidity and Capital Resources
-------------------------------
The Company recorded positive cash flow of $1.1 million during
the first quarter of 1996. During the twelve month period
since July 1, 1994 (represented by the final three quarters of
1995 and the first quarter of 1996) the Company has reported
positive cash flow of $14.6 million of which $13.2 million has
been provided by operating activities. At July 1, 1995 the
net cash position (cash and cash equivalents net of bank
operating lines) was $7.1 million compared with a net cash
position of $6.0 million at March 31, 1995 and net bank
borrowings (bank operating lines net of cash and cash
equivalents) of $7.5 million at July 1, 1994.
Cash provided by operating activities in the first quarter of
1996 was $1.4 million. Negative cash flow from operating
activities in the first quarter of 1995 was $2.7 million
inclusive of $2.3 million in payments for restructuring costs
which had been accrued in the fourth quarter of 1994.
At July 1, 1995, the Company's authorized bank operating
lines totalled $19.0 million. This included $15.4 million
from two committed credit facilities with a Canadian
chartered bank bearing interest at the bank's prime rate plus
0.5%. The additional authorized amount of $3.6 million
related to a demand facility with a bank in the United
Kingdom. The interest rate varies depending on borrowing
levels and ranges from 2.0% to 2.5% above the bank's base
rate.
The bank operating lines are secured by certain of the
accounts receivable, inventories and other assets of the
Company. The amount available for borrowing at any time
under the facilities is based on margin formulas relating to
levels of accounts receivable, inventories and other bank
<PAGE
covenants. Under such formulas, $14.8 million was available
to the Company at July 1, 1995 and $4.3 million was being
utilized. Cash and cash equivalents held as of that date
represented a further $11.3 million of cash resources
available to the Company. Cash and unused credit lines
totalled $21.8 million at July 1, 1995, compared to $20.8
million at March 31, 1995 and $7.8 million at July 1, 1994.
During the fourth quarter of 1995 and the first quarter of
1996 approximately 81% of the original principal amount of
the 8.5% convertible debentures, issued in November 1992,
were converted to common shares of the Company in accordance
with the terms of the debentures. At July 1, 1995
approximately 19% of the original principal amount of
debentures remained outstanding which, if converted, would
result in a maximum of 2,369,787 additional common shares
being issued. The remaining outstanding debentures represent
an unsecured direct obligation of the Company. After
November 10, 1995 any outstanding debentures are redeemable
by the Company provided that for the 20 trading days ending
with the fifth trading day preceding the date on which the
notice of redemption is first given, the weighted average
market price at which the shares have traded on the TSE and
NASDAQ is not less than 125% of the conversion price. At the
end of the first quarter of 1996 the closing price of the
Company's common shares on the Toronto Stock Exchange
represented more than 500% of the conversion price.
The Company believes that its current financial base together
with available credit facilities provides sufficient
financial resources to meet its short-term operating
requirements. The Company anticipates that its long-term
cash requirements will be satisfied through future operating
cash flows and the conversion or refinancing of term debt,
the majority of which relates to the remaining outstanding
debentures which it is anticipated will be converted to
common shares during the 1996 fiscal year either at the
option of the debenture holders on or before November 10,
1995 or as a result of redemption by the Company after
November 10, 1995.
<PAGE>
II - OTHER INFORMATION
----------------------
Item 6(a) - Exhibits
--------------------
10.11 Consulting Agreement, dated as of March 1, 1995
between Thomas Vassiliades and the Company.
10.12 Credit Agreement, dated as of May 30, 1995,
between the Royal Bank of Canada and the Company.
10.13 Credit Agreement, dated as of May 30, 1995,
between the Royal Bank of Canada and Gandalf Canada
Limited/Gandalf Technologies Inc.
Item 6(b) - Report on Form 8-K
------------------------------
There were no reports on Form 8-K filed for the quarter ended
July 1, 1995.
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.
August 10, 1995 s/T.A. VASSILIADES
----------------------- ------------------
Date Thomas A. Vassiliades
Chairman, President and Chief
Executive Officer
August 10, 1995 s/W.R. MACDONALD
---------------------- ----------------
Date Walter R. MacDonald
Vice President, Finance
and Chief Financial Officer
<PAGE>
THIS AGREEMENT made as of the 1st day of March 1995.
BETWEEN:
GANDALF TECHNOLOGIES INC., a corporation duly
incorporated under the laws of Ontario having
its head office at the City of Nepean, in the
Province of Ontario
(the "Employer")
AND
THOMAS A. VASSILIADES, of the City of Malvern,
Pennsylvania
(the "Executive")
WHEREAS:
1. The Employer is engaged in the development, manufacture
and distribution of network infrastructure equipment
and services.
2. The Employer and the Executive have agreed to enter
into an employment relationship for their mutual
benefit;
THIS AGREEMENT witnesses that the parties have agreed that
the terms and conditions of the relationship shall be as
follows:
1. Duties
The Employer appoints the Executive to undertake the duties
and exercise the powers as President and Chief Executive
Officer of the Employer as may be requested of the Executive
by the Board of Directors of the Employer and in the other
offices to which he may be appointed by the subsidiary
companies of the Employer provided always that such other
offices shall be in an officer capacity consistent with the
Executive's position as Chief Executive Officer of the
Employer. The Executive accepts the office, on the terms
and conditions set forth in this agreement. The parties
further agree that effective May 1, 1995, the Executive will
be appointed to the additional office of Chairman of the
Board.
<PAGE>
2. Term
The appointment shall commence with effect from May 1, 1995
and shall continue for twenty-four months.
3. Compensation
(1) The salary of the Executive for his services shall be
at annual the rate of U.S. $200,000 which shall be paid
in equal installments at the same intervals as other
officers of the Employer are paid. The salary may be
increased at the discretion of the Employer.
(2) In addition to the fixed remuneration, the Executive
may receive from the Employer a bonus payment equal to
50% of the fixed remuneration for his services for each
year during the period of his employment. Payment of
such bonus shall be based on the performance criteria
agreed to by the Executive and the Employer.
4. Benefits
(1) Automobile. The Executive shall be provided with use
of a luxury class Employer owned or leased automobile
to be selected by the Executive.
(2) Expenses. It is understood and agreed that the
Executive will incur expenses in connection with his
duties under this agreement. The Employer will
reimburse the Executive for any expenses provided that
the Executive provides to the Employer an itemized
written account and receipts acceptable to the Employer
within thirty days after they have been incurred.
Allowable expenses shall include reasonable costs for
furnished accommodation in Ottawa (consistent with his
current living arrangements), weekly round-trip air
travel (including ground transportation) to
Philadelphia, and financial counselling in connection
with this agreement. To the extent that such
reimbursement results in a taxable benefit to the
Executive, the Employer will gross up payments in
amounts sufficient to pay the incremental taxes.
(3) Benefit Plans. The Executive shall participate in all
benefit plans which the Employer provides to its
employees.
(4) Club Fees. Recognizing the extra requirement for
customer entertainment by the Executive, the Employer
will provide for initiation and annual dues payments
for one health or luncheon club.
(5) The Employer shall reimburse the Executive for any
Canadian income taxes payable on his income from the
Employer that are in excess of actual U.S. Federal
income taxes on such income excluding income taxes
relating to gains realized by the Executive before,
during or after the term of this agreement that relate
<PAGE>
to the options to purchase its Shares granted by the
Employer to the Executive.
(6) The Employer shall on the 6th day of April, 1995 grant
the Executive options, under the Employer's Stock
Option Plan for Executives and Directors, to purchase
800,000 Common Shares in the capital stock of the
Employer. The said options shall each vest in twelve
equal consecutive monthly installments commencing on
the date of grant. Notwithstanding anything herein
contained to the contrary, if the Executive voluntarily
resigns his employment or is dismissed for cause prior
to the expiration of this agreement the following shall
apply:
(a) If the executive has been employed for more than
eighteen months but less than twenty-four months,
he will forfeit 200,000 unexercised options or pay
the corporation an amount equal to the gain, if
any, realized by the Executive from the sale of
Shares acquired by the exercise of such options;
(b) If the Executive has been employed for less than
eighteen months, he will forfeit 300,000
unexercised options or pay the corporation an
amount equal to the gain, if any, realized by the
Executive from the sale of Shares acquired by the
exercise of such options.
Any amount payable to the Corporation by the executive
pursuant to this clause shall be paid within 60 days of
the Termination of the executives employment.
5. Authority
(1) The Executive shall have, subject always to the general
or specific instructions and directions of the Board of
Directors of the Employer, full power and authority to
manage and direct the business and affairs of the
Employer (except only the matters and duties as by law
must be transacted or performed by the Board of
Directors or by the shareholders of the Employer in
general meeting), including power and authority to
enter into contracts, engagements or commitments of
every nature or kind in the name of and on behalf of
the Employer and to engage and employ and to dismiss
all managers and other employees and agents of the
Employer.
(2) The Executive shall conform to all lawful instructions
and directions given to him by the Board of Directors
of the Employer, and obey and carry out the by-laws of
the Employer.
<PAGE>
6. Service
(1) The Executive, throughout the term of his appointment,
shall devote his full time and attention to the
business and affairs of the Employer and its
subsidiaries and shall not, without the consent in
writing of the Board of Directors of the Employer
undertake any other business or occupation or become a
director, officer, employee or agent of any other
company, firm or individual. For greater certainty
this paragraph is not meant to preclude the Executive
from pursuing any other non-conflicting and non-
competing business activities which are primarily
passive in nature or from serving on other boards of
directors so long as such directorships are disclosed
fully to the Employer's Board of Directors.
(2) The Executive shall well and faithfully serve the
Employer and its subsidiaries and use his best efforts
to promote the interests thereof and shall not disclose
the private affairs or trade secrets of the Employer
and its subsidiaries to any person other than the
Directors and other employees of the Employer or for
any purposes other than those of the Employer any
information he may acquire in relation to the
Employer's business.
7. Non-competition
(1) The Executive further agrees that, during employment
pursuant to this agreement and for a period of six
months following termination of employment, however
caused, he will not hire or take away or cause to be
hired or taken away any employee of the Employer or,
following termination of the Executive's employment,
any employee who was in the employ of the Employer
during the six months preceding termination.
8. Confidential Information
(1) The Executive acknowledges that as the Chief Executive
Officer and in any other position as the Executive may
hold, the Executive will acquire information about
certain matters and things which are confidential to
the Employer, and which information is the exclusive
property of the Employer, including:
(a) product design and manufacturing information;
(b) names and addresses, buying habits and preferences
of present customers of the Employer, as well as
prospective customers;
(c) pricing and sales policies, techniques and
concepts; and
(d) other confidential information of a proprietary
nature concerning the business operations or
financing of the Employer.
<PAGE>
(2) The Executive acknowledges the information as referred
to in paragraph 8(1) could be used to the detriment of
the Employer. Accordingly, the Executive undertakes
not to disclose same to any third party either during
the term of his employment except as may be necessary
in the proper discharge of his employment under this
agreement, or after the term of his employment, however
caused, except with the written permission of an
officer of the Employer.
(3) The Executive acknowledges and agrees that without
prejudice to any other rights of the Employer, in the
event of his violation or attempted violation of any of
the covenants contained in paragraphs 7 and 8 of this
agreement, an injunction or any other like remedy shall
be the only effective remedy to protect the Employer's
rights and property as set out in paragraphs 7 and 8,
and that an interim injunction may be granted
immediately on the commencement of any suit.
(4) The Executive understands and agrees that the Employer
has a material interest in preserving the relationship
it has developed with its customers against impairment
by competitive activities of a former employee.
Accordingly, the Executive agrees that the restrictions
and covenants contained in paragraph 7 and those
contained in paragraph 8 of this agreement and the
Executive's agreement to it by his execution of this
agreement, are of the essence to this agreement and
constitute a material inducement to the Employer to
enter into this agreement and to employ the Executive,
and that the Employer would not enter into this
agreement absent such inducement. Furthermore, a claim
or cause of action by the Executive against the
Employer whether predicated on this agreement or
otherwise, shall not constitute a defence to the
enforcement by the Employer of the covenants or
restrictions provided, however, that if any provision
shall be held to be illegal, invalid or unenforceable
in any jurisdiction, the decision shall not affect any
other covenant or provision of this agreement or the
application of any other covenant or provision.
9. Vacation
The Executive shall be entitled during each year to five
weeks' paid vacation. Upon termination of his employment,
the Executive shall be paid for any unused vacation days
based on his annual salary. U.S. statutory holidays may be
substituted for Canadian statutory holidays should the
Executive wish to do so.
10. Termination of Employment
(I) The parties understand and agree that this agreement
may be terminated in the following manner in the
specified circumstances:
<PAGE>
(a) By the Employer, in its absolute discretion,
without any notice or pay in lieu thereof, for
cause. For the purposes of this agreement, cause
includes the following:
(i) any willful material breach of the provisions
of this agreement;
(ii) any conduct of the Executive which in the
reasonable opinion of the Employer may bring
himself or the Employer into disrepute;
(iii) the commission of an act of bankruptcy by
the Executive;
(iv) conviction of the Executive of a criminal
offence;
(v) any mental or physical disability or illness
which results in the Executive being unable
to substantially perform his duties for a
continuous period of 150 days or for periods
aggregating 180 days, in any period of 365
days.
Failure by the Employer to rely on the provision
of this paragraph in any given instance or
instances, shall not constitute a precedent or be
deemed a waiver.
(b) By the Employer in its absolute discretion and for
any reason. Provided that if the employment of
the Executive is terminated without cause prior to
April 1, 1997, the Employer will pay the
Executive, as termination pay, the sum of U.S.
$300,000 in two equal instalments of $150,000 on
the date of termination and on the 1st anniversary
date of termination. Provided further that the
Employer shall give the Executive 90 days written
notice if termination is for any reason other than
for cause although the Employer may excuse the
Executive from his duties during the 90 day
period.
(c) By the Executive upon giving the Employer 90 days
notice in writing and subject to all applicable
provisions of this agreement.
(2) The parties understand and agree that the giving of
notice or the payment of pay in lieu of notice by the
Employer to the Executive on termination of the
Executive's employment shall not prevent the Employer
from alleging cause for the termination.
(3) On termination of employment the Executive shall
immediately resign all offices held (including
directorships) in the company and save as provided in
this agreement, the Executive shall not be entitled to
receive any severance payment or compensation for loss
of office or otherwise by reason of the resignation. If
the Executive fails to resign as mentioned the Employer
is irrevocably authorized to appoint some person in his
<PAGE>
name and on his behalf to sign any documents or do any
things necessary or requisite to give effect to it.
11. Death of Executive
Notwithstanding anything to the contrary in this agreement,
in the event of the death of the Executive during the term
hereof, the salary of the Executive shall continue to be
paid to his estate for a period of 6 months from the date of
death and the spouse of the Executive shall continue during
such period to receive such of the benefits referred to in
Section 4 of this agreement as are applicable.
12. Employer's Property
The Executive acknowledges that all items of any and every
nature or kind created or used by the Executive pursuant to
the Executive's employment under this agreement, or
furnished by the Employer to the Executive, and all
equipment, automobiles, credit cards, books, records,
reports, files, manuals, literature, confidential
information or other materials shall remain and be
considered the exclusive property of the Employer at all
times and shall be surrendered to the Employer, in good
condition, promptly on the termination of the Executive's
employment irrespective of the time, manner or cause of the
termination.
13. Assignment of Rights
The rights which accrue to the Employer under this agreement
shall pass to its successors or assigns resulting from an
amalgamation, merger or other reorganization to which the
Employer is a party or resulting from the transfer of a
substantial portion of the Employer's assets or undertaking
to another legal entity. The rights of the Executive under
this agreement are not assignable or transferable in any
manner.
14. Notices
(1) Any notice required or permitted to be given to the
Executive shall be sufficiently given if delivered to
the Executive personally or if mailed by registered
mail to the Executive's address last known to the
Employer.
(2) Any notice required or permitted to be given to the
Employer shall be sufficiently given if mailed by
registered mail to the Employer's Head Office at its
address last known to the Executive.
<PAGE>
15. Severability
In the event that any provision or part of this agreement
shall be deemed void or invalid by a court of competent
jurisdiction, the remaining provisions or parts shall be and
remain in full force and effect.
16. Entire Agreement
This contract constitutes the entire agreement between the
parties with respect to the employment and appointment of
the Executive by the Employer subsequent to May 1, 1995 and
any and all previous agreements, written or oral, express or
implied, between the parties or on their behalf, relating to
employment and appointment of the Executive by the Employer
for such period are terminated and cancelled and each of the
parties releases and forever discharges the other of and
from all manner of actions, causes of action, claims and
demands whatsoever, under or in respect of any such previous
agreement. For greater certainty the parties acknowledge
that nothing herein is intended to affect the terms of the
Executive's appointment by the Employer prior to May 1,
1995.
17. Modification of Agreement
Any modification to this agreement must be in writing and
signed by the parties or it shall have no effect and shall
be void.
18. Headings
The headings used in this agreement are for convenience only
and are not to be construed in any way as additions to or
limitations of the covenants and agreements contained in it.
<PAGE>
19. Governing law
This agreement shall be construed in accordance with the
laws of the Province of Ontario.
IN WITNESS WHEREOF this agreement has been executed by the
parties to it, the day, month and year first written above.
SIGNED, SEALED AND DELIVERED )
in the presence of: ) GANDALF TECHNOLOGIES INC.
)
) Per: S/CHARLES GARDNER
)
)
) Per: S/ROBERT KEITH
)
)
)
)
) S/Thomas A. Vassiliades
<PAGE>
Royal Bank of Canada
90 Sparks Street
Ottaw, Ontario
KlP 5T6
May 30, 1995
Private & Confidential
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
Dear Sir:
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 November 8, 1994. 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:
(1) Letters of Credit in Canadian or US
Dollars ("L/C's").
(2) Foreign exchange forward contracts ("FEF
Contracts").
<PAGE>
(a) Royal Bank US 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 ("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(s):
(1) $1,350,000 or the Equivalent Amount in US
Dollars.
(2) $6,750,000 or the Equivalent Amount in US
Dollars.
(3) The lesser of:
US $4,500,000 or the Equivalent Amount in
Canadian Dollars, the Margin Requirement.
4. Purpose:
The Borrower shall use the Credit Facility for the
purpose of accommodating:
(a) L/C requirements.
(b) Foreign exchange hedging activities.
(c) 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.
<PAGE>
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:
(1) L/C fees to be quoted by the Bank at time of issue
of each L/C.
(a) Royal Bank Prime ("RBP") plus 1/2%.
(b) Royal Bank US Base Rate ("RBUSBR") plus 1/2%.
(c) Libor ("Libor") plus 1 1/4%.
(d) Royal Bank Prime Acceptance Fees ("RBPAF")
plus 1/2%.
(e) 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 US 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) 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.
(h) 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
<PAGE>
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.
<PAGE>
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,
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
<PAGE>
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";
(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
<PAGE>
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.
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;
<PAGE>
(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.
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
<PAGE>
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) 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;
<PAGE>
(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 patents, trademarks,
copyrights and licenses;
(i) 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;
(j) 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;
(k) 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;
(l) a general assignment of debts on the Bank's
standard form signed by GCL;
(m) a general hypothecation signed by the Borrower
with respect to any Liquid Collateral Security;
(n) 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;
(i) a duly executed B/A Undertaking; and
(ii) a review of all documentation by legal counsel
to the Bank; and
(iii)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:
<PAGE>
(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;
(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.
<PAGE>
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 $40,000,000;
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.60:1 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;
(iii) quarterly consolidated analysis of bookings,
billings and backlog within 45 days of the end of each
fiscal quarter;
(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;
<PAGE>
(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;
(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 C$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 C$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;
<PAGE>
(s) to refrain from making investments in, or acquiring
the shares of, any third party exceeding US $3,000,000
in aggregate in any fiscal year without the prior
written consent of the Bank such consent not to be
unreasonably held. This provision does not extend to
existing Affiliates.
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;
(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;
<PAGE>
(h) if the Borrower should incur a loss exceeding US
$5,000,000 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.
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
<PAGE>
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.
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
<PAGE>
Attention: Senior 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.
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.
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.
<PAGE>
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.
40. Expiry Date:
This offer is open for acceptance until close of
business at the Branch of Account on June 15, 1995
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
We acknowledge and accept the terms and conditions of
this Agreement on the 30th day of May, 1995.
THE BORROWER:
GANDALF TECHNOLOGIES INC.
By: S/W. MACDONALD
Name/Title: V.P. FINANCE AND CFO
By: S/M. RENNIE
Name/Title: DIRECTOR OF FINANCE
<PAGE>
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 30th day
of May, 1995 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;
"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$", "C$" and "$"
each means lawful money of Canada;
"Convertible Subordinated Debenture" means the Cdn
$30,000,000 8.5% convertible subordinated debenture due
November 10, 2002 issued by the Borrower;
"Current Ratio" of a person means the ratio of that
person's current assets to that person's current
liabilities, net of cash on hand;
<PAGE>
SCHEDULE "A" (CONT'D.)
"Equivalent Amount" determines the amount of
availability only and means on any date, the amount of
Canadian Dollars required to convert from Canadian
Dollars to US Dollars at the rate of 1.35 Canadian
Dollars for 1.00 US$;
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";
"GCL Margin Surplus" means the amount, if any, by which
the calculated Margin Requirement exceeds actual
Borrowings.
"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 the Libor Interest Period applicable to
such Libor Loan;
"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;
<PAGE>
SCHEDULE "A" (CONT'D.)
"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 plus the
GCL Margin Surplus.
"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 June 30, 1996;
"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;
<PAGE>
SCHEDULE "A" (CONT'D.)
"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 (all as defined and set out on the person's
audited annual financial statements), and other assets
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$" each means lawful money of the
United States of America in same day immediately
available funds or, if such funds are not available, the
form of money of the United States of America that is
customarily used in the settlement of international
banking transactions on the day payment is due
hereunder.
<PAGE>
SCHEDULE "B"
Schedule "B" to the Agreement dated as of the 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower and Royal Bank of Canada as the Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on
the day of drawdown
or conversion
Cdn$ or US$10,000,000, by 12:00 (noon) 1 Business
up to and including the Day prior to drawdow
Amount 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 by 12:00 (noon) 1 Business
including the Amount Day prior to drawdown or
conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the by 10:00 a.m. on the
Equivalent Amount in Interest Determination
Pounds Sterling Date
US$10,000,000 up to by 10:00 a.m. 1 Business
and including Day prior to the the
Amount or the Equivalent Determination Date
Amount in Pounds Sterling
SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 30th day
of May, 1995 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 May 30, 1995 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 as well as similar
reports submitted to the Bank within the past fiscal
quarter, are complete and accurate in all material
respects.
DATED this _______ day of _________________, 19__.
By: ____________________________________
Name/
Title: ____________________________________
By: ____________________________________
Name/
Title: ____________________________________
SCHEDULE "D"
Schedule "D" to the Agreement dated as of the 30th day
of May, 1995 between Gandalf Technologies Inc. as
Borrower and Royal Bank of Canada as the Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE LOANING
VALUE
(g) Canada Savings Bonds, 100% of par value
and Savings 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.
(h) Government of Canada or 95% of par value
Government of Canada guaranteed
bonds and Treasury Bills except
as indicated in (a) above.
(c) Provincial Government or 95% of par value
Provincial 95% of market value
Government guaranteed bonds and
Treasury Bills except as indicated
in (a) above.
(d) Bankers acceptances or 95% of par value
similar investments effectively
assigned to the Bank.
-------------------
= LIQUID COLLATERAL
SECURITY
<PAGE>
Royal Bank of Canada
90 Sparks Street
Ottawa, Ontario
K1P 5T6
May 30, 1995
Private & Confidential
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 November 8,
1994. 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:
(a) $15,000,000, and
(b) the Margin Requirement,
or the Equivalent Amount in US Dollars
or Pounds Sterling.
<PAGE>
3. Credit Facility:
The Credit Facility is available as follows:
(a) Royal Bank Prime based loans in Canadian
Dollars ("RBP Loans"),
(b) Royal Bank US Base Rate based loans in
US Dollars ("RBUSBR Loans"),
(c) Libor based loans in US Dollars or Pounds
Sterling ("Libor Loans"),
(d) Bankers' Acceptances in Canadian Dollars
("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 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) Royal Bank Prime ("RBP") plus 1/2%.
(b) Royal Bank US Base Rate ("RBUSBR") plus 1/2%.
(c) Libor ("Libor") plus 1 1/4%.
(d) Royal Bank Prime Acceptance Fees ("RBPAF")
plus 1/2%.
(e) L/C fees to be quoted by the Bank at time of
issue of each L/C.
<PAGE
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.
(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.
<PAGE>
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.
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
<PAGE>
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 Pounds Sterling 500,000, as applicable or
larger whole multiples of US $100,000 or Pounds Sterling
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";
(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 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
<PAGE>
(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.
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
<PAGE>
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
(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,
<PAGE>
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,
(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;
<PAGE>
(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;
(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:
<PAGE>
(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;
(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 C$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 C$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;
(m) to refrain from making investments in, or acquiring
the shares of, any third party exceeding US $3,000,000 in
aggregate in any fiscal year without the prior written
consent of the Bank such consent not to be unreasonably
withheld. This provision does not extend to existing
Affiliates.
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 $40,000,000;
(b) not to permit its Current Ratio on a consolidated
basis to be less than 1.60:1 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;
(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
<PAGE>
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 C$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 C$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;
(q) to refrain from making investments in, or acquiring
the shares of, any third party exceeding US $3,000,000 in
aggregate in any fiscal year without the prior written
consent of the Bank such consent not to be unreasonably
withheld. This provision does not extend to existing
Affiliates.
25. 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;
<PAGE>
(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 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.
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
<PAGE>
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.
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
<PAGE>
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 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 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.
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.
<PAGE>
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.
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
<PAGE>
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 June 15, 1995 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
We acknowledge and accept the terms and conditions of this
Agreement.
GANDALF CANADA LTD. GANDALF TECHNOLOGIES INC.
Per: S/W. MACDONALD Per: S/W. MACDONALD
VP FINANCE GTI VP FINANCE GTI
Per: S/M. RENNIE Per: S/M. RENNIE
Date: May 30, 1995 Date: May 30, 1995
<PAGE>
SCHEDULE "A"
Schedule "A" to the Agreement dated as of the 30th day of
May, 1995 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;
"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;
"Canadian Dollars" and the symbols "Cdn$", "C$" and "$"
each means lawful money of Canada;
"Convertible Subordinated Debenture" means the Cdn
$30,000,000 8.5% convertible subordinated debenture due
November 10, 2002 issued by the Guarantor;
"Current Ratio" of a person means the ratio of that
person's current assets to that person's current
<PAGE>
SCHEDULE "A" (CONT'D.)
"Equivalent Amount" determines the amount of availability
only and means on any date, the amount of Canadian Dollars
required to convert from Canadian Dollars to: US Dollars
at the rate of 1.35 Canadian Dollars for 1.00 US$; 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";
"GTI Margin Surplus" means the amount, if any, by which
the calculated Margin Requirement exceeds actual
Borrowings.
"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.
"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;
<PAGE>
SCHEDULE "A" (CONT'D.)
"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 C$8,000,000, 50% of the book value of the
Inventory located in the Province of Ontario and (iii)
Liquid Collateral Security (iv) the GTI Margin Surplus.
"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 June 30, 1996;
"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 "GBP" each means lawful money of the
United Kingdom;
<PAGE>
SCHEDULE "A" (CONT'D.)
"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;
"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 (all as defined and set out on the person's audited
annual financial statements), and other assets 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 30th day of
May, 1995 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, by 12:00 (noon) 1 Business
up to and including the Day prior to drawdow
Amount 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 by 12:00 (noon) 1 Business
including the Amount Day prior to drawdown or
conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the by 10:00 a.m. on the
Equivalent Amount in Interest Determination
Pounds Sterling Date
US$10,000,000 up to by 10:00 a.m. 1 Business
and including Day prior to the the
Amount or the Equivalent Determination Date
Amount in Pounds Sterling
<PAGE>
SCHEDULE "C"
Schedule "C" to the Agreement dated as of the 30th day of
May, 1995 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 May 30, 1995 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 aged accounts receivable owned
by Gandalf Canada Ltd. as well as similar reports
submitted to the Bank within the past fiscal quarter, are
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 30th day of
May, 1995 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
(g) Canada Savings Bonds, 100% of par value
and Savings 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.
(h) Government of Canada or 95% of par value
Government of Canada guaranteed
bonds and Treasury Bills except
as indicated in (a) above.
(c) Provincial Government or 95% of par value
Provincial 95% of market value
Government guaranteed bonds and
Treasury Bills except as indicated
in (a) above.
(d) Bankers acceptances or 95% of par value
similar investments effectively
assigned to the Bank.
-------------------
= LIQUID COLLATERAL
SECURITY
