<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 June 29, 1996 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) 274-6500
---------------
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, 1996 was
43,295,857.
<PAGE>
GANDALF TECHNOLOGIES INC.
INDEX
Page No
--------
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets- 3
Consolidated Statements of Income - 4
Consolidated Statements of Changes in
Financial Position - 5
Consolidated Statements of Shareholders Equity - 6
Notes to Consolidated Financial Statements - 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations - 12
PART II OTHER INFORMATION 21
SIGNATURE PAGE 21
<PAGE>
<TABLE>
<CAPTION>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of US dollars)
June 29 March 31
1996 1996
-------- --------
<C> <S> <S>
ASSETS
Current assets:
Cash and cash equivalents $ 10,478 $ 13,602
Accounts receivable 22,231 28,694
Inventories (note 2) 16,906 13,491
Other 1,556 1,867
-------- --------
Total current assets 51,171 57,654
Fixed assets (note 3) 14,455 16,253
Goodwill, net of amortization of $3,225
(March 31, 1996: $3,172) 3,189 3,242
Other assets 2,175 2,226
-------- --------
Total assets $ 70,990 $ 79,375
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 5) $ 21,202 $ 21,755
Deferred revenue 6,036 6,178
Current portion of long-term debt 417 360
-------- --------
Total current liabilities 27,655 28,293
Long-term debt 2,527 2,496
Shareholders equity:
Capital stock:
Common shares, 43,264,941 issued and
outstanding (March 31, 1996: 42,939,523) (note 6) 55,364 54,198
Retained earnings (deficit) (note 6) (8,720) 260
Cumulative translation adjustment (5,836) (5,872)
-------- --------
Total shareholders equity 40,808 48,586
-------- --------
Total liabilities and shareholders equity $ 70,990 $ 79,375
======== ========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Thousands of US dollars except per share amounts)
13 Weeks Ended
June 29
--------------------
1996 1995
-------- --------
<C> <S> <S>
Revenues:
Product $ 10,917 $ 19,414
Service 7,420 9,236
-------- --------
18,337 28,650
Operating expenses:
Cost of product sales 6,431 9,663
Service expenses 5,307 5,869
Sales and marketing 7,294 8,198
Administration and general 2,278 2,071
Research and development 3,004 2,595
Restructuring costs (note 7) 3,010 -
-------- --------
Income (loss) from operations (8,987) 254
Interest expense (47) (206)
Interest income and foreign exchange 54 18
-------- --------
Net income (loss) for the period $ (8,980) $ 66
======== ========
Basic earnings (loss) per share (note 8) $ (0.21) $ -
======== ========
Weighted average number of
shares outstanding (thousands) 43,083 37,642
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(See accompanying notes to consolidated financial statements)
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(Unaudited)
(Thousands of US dollars)
13 Weeks Ended
June 29
--------------------
1996 1995
-------- --------
<C> <S> <S>
Operating activities:
Cash provided by (applied to) operations (note 9) $ (6,458) $ 1,576
Decrease (increase) in operating working capital (note 10) 2,693 (202)
-------- --------
Cash provided by (applied to) operating activities (3,765) 1,374
-------- --------
Financing activities:
Issue of capital stock 1,166 6,423
Conversion of debentures (note 11) - (6,197)
Other 92 302
-------- --------
Cash provided by financing activities 1,258 528
-------- --------
Investing activities:
Purchase of fixed assets (610) (674)
Other 15 (34)
-------- --------
Cash applied to investing activities (595) (708)
-------- --------
Effect of exchange rate changes on cash balances (22) (81)
-------- --------
Increase (decrease) in cash position in the period (3,124) 1,113
Cash position at beginning of period 13,602 5,963
-------- --------
Cash position at end of period $ 10,478 $ 7,076
======== ========
Cash position is comprised of cash and cash
equivalents net of any borrowings under bank
operating lines.
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)
(Thousands of US dollars)
13 Weeks Ended
June 29
-------------------------------------------------
1996 1995
------------------------ ---------------------
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 (note 6) 42,939,523 $ 54,198 35,238,064 $ 91,644
Issued:
On conversion of debentures (note 11) - - 3,613,592 5,905
On exercise of stock options 325,418 1,166 82,633 226
---------- --------- ---------- ---------
Balance at end of period 43,264,941 $ 55,364 38,934,289 $ 97,775
========== ========= ========== =========
Retained Earnings (Deficit):
Balance at beginning of period (note 6) $ 260 $ (52,364)
Net income (loss) (8,980) 66
--------- ---------
Balance at end of period $ (8,720) $ (52,298)
========= =========
Cumulative Translation Adjustment:
Balance at beginning of period $ (5,872) $ (4,838)
Adjustment arising on translation of
foreign subsidiaries financial
statements to US dollars (110) 776
Adjustment relating to subsidiary loans
designated as long-term investments 146 (885)
--------- ---------
Balance at end of period $ (5,836) $ (4,947)
========= =========
(See accompanying notes to consolidated financial statements)
</TABLE>
<PAGE>
GANDALF TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
All amounts are stated in US dollars unless otherwise
indicated. C$ refers to Canadian dollars. Tabular amounts
are in thousands except per share data. References to years
are to fiscal years ending March 31.
1. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements for the first quarter of
the 1997 fiscal year which ended June 29, 1996, are unaudited
and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial
position and operating results for the interim period.
2. INVENTORIES
<TABLE>
<CAPTION>
June 29 March 31
1996 1996
-------- --------
<C> <S> <S>
Raw materials $ 3,675 $ 2,905
Work-in-process 4,400 3,821
Finished goods 8,831 6,765
-------- --------
$ 16,906 $ 13,491
======== ========
</TABLE>
3. FIXED ASSETS
<TABLE>
<CAPTION>
June 29 March 31
1996 1996
-------- --------
<C> <S> <S>
Cost:
Land $ 222 $ 218
Buildings 3,298 4,627
Equipment 58,984 58,336
Leasehold improvements 1,945 1,966
--------- --------
64,449 65,147
Accumulated depreciation 49,994 48,894
-------- --------
Net book value $ 14,455 $ 16,253
======== ========
</TABLE>
4. BANK OPERATING LINES
The Company's authorized bank operating lines at June 29, 1996
totaled $20.2 million. At that time, based on margin formulas,
$13.8 million was available to, but not utilized by, the
Company. Cash and cash equivalents held as of that date
represented a further $10.5 million of available cash
resources, and cash and unused credit lines totaled $24.3
million. The authorized lines are secured by certain of the
accounts receivable, inventories and other assets of the
Company and bear interest at the bank s prime rate plus 0.5%
to 1.5%.
<PAGE>
<TABLE>
<CAPTION>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<C> <S> <S>
June 29 March 31
1996 1996
-------- --------
Trade accounts payable $ 9,047 $ 7,376
Payroll, commissions and related taxes 2,811 3,873
Accrued restructuring charges 3,373 2,747
Other payables 4,698 6,434
Income and other taxes payable 1,273 1,325
-------- --------
$ 21,202 $ 21,755
======== ========
</TABLE>
6. REDUCTION IN STATED CAPITAL
On August 10, 1995, during the second fiscal quarter of 1996,
the shareholders of the Company passed a special resolution
authorizing a reduction in statutory stated capital in respect
of the common shares by $52,364,000. This resulted in a
corresponding reduction in the accumulated deficit as shown on
the consolidated balance sheets and the consolidated
statements of shareholders' equity.
7. RESTRUCTURING COSTS
Over the past several years the Company has undertaken
significant restructuring activities in order to reposition the
Company in line with its strategy, reduce costs and improve
competitiveness. The size of the Company's workforce is
currently less than 700 employees, approximately one-third the
level of five years ago.
Restructuring charges of $3.0 million recorded in the first
quarter of 1997 included a write down following a review of
the net carrying amount of the Company's manufacturing
facilities in which it was determined, in conjunction with the
decision to enter into an agreement with a third party to
provide the Company with a high-volume manufacturing
capability, that the net carrying amount exceeded the
estimated net recoverable amount. Restructuring charges also
included provisions for future lease costs on sales offices
made redundant in connection with changing the Company s sales
distribution model from direct sales to multiple channels of
distribution including: national resellers, operating
telephone companies, Internet service providers, OEMs, system
partners and corporate accounts.
<PAGE>
8. EARNINGS PER SHARE
Basic earnings (loss) per share figures are presented on the
consolidated statements 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 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 1996,
had occurred at the beginning of the quarter.
9. CASH PROVIDED BY OPERATIONS
Cash provided by (applied to) operations is computed as follows:
<TABLE>
<CAPTION>
13 Weeks Ended
June 29
---------------------
1996 1995
-------- --------
<C> <S> <S>
Income (loss) from operations $ (8,987) $ 254
Depreciation and amortization 1,152 1,497
Writedowns not involving an outlay of cash 1,370 -
Interest paid (47) (193)
Interest income and foreign exchange 159 18
Other (105) -
-------- --------
$ (6,458) $ 1,576
======== ========
</TABLE>
<PAGE>
10. DECREASE IN OPERATING WORKING CAPITAL
The decrease (increase) in operating working capital is computed as follows:
<TABLE>
<CAPTION>
13 Weeks Ended
June 29
---------------------
1996 1995
-------- --------
<C> <S> <S>
Accounts receivable $ 6,463 $ 657
Inventories (3,415) 330
Prepaid expenses 311 172
Accounts payable and accrued liabilities (501) (1,302)
Income taxes payable (52) 20
Deferred revenue (142) (37)
Foreign currency equity adjustment 29 (42)
-------- --------
$ 2,693 $ (202)
======== ========
</TABLE>
<TABLE>
<CAPTION>
11. CONVERTIBLE DEBENTURES
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 year (14,061) (10,336) (47) 5,983,372
Impact of foreign exchange - 285 -
- ----------------------------------------------------------------------
Balance at March 31, 1996 C$ - $ - -
======================================================================
</TABLE>
<PAGE>
In November 1992 the Company issued 8.5% convertible
debentures with an aggregate principal amount of C$30.0
million which were due to mature in November 2002. At any
time prior to maturity they were convertible into common
shares of the Company at the option of the holder at a
conversion price of C$2.35 (approximately $1.72) which would
yield 425.53 common shares for each C$1,000 (approximately
$732) of principal amount of debentures held. During 1995
debentures with an aggregate principal amount of $11,533,000
were converted into 6,782,519 common shares.
During the first quarter of 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). During the second and third quarters of 1996 all
remaining debentures were converted into 2,369,780 common
shares.
12. 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 (US GAAP).
(a) Under US GAAP, financing and investing activities not
involving a receipt or outlay of cash are excluded
from the consolidated statements 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 first quarter of 1996 but would be
shown supplementally.
Conversion of debentures $ (6,197)
Issue of capital stock on conversion of
debentures $ 6,197
(b) Under US GAAP, bank operating lines would not be
included as a component of the cash position presented
in the consolidated statements 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) Reductions in stated capital and deficit as described
in note 6 do not fall within the definition of a
quasi-reorganization under US GAAP and, accordingly,
under US GAAP, capital stock and retained earnings
(deficit) would not each be reduced by $52,364,000.
(d) US 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 June 29, 1996, 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 12 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 US dollars unless otherwise
indicated. References to years are to fiscal years ending
March 31.
Factors That May Affect Future Financial Performance
- ----------------------------------------------------
The Company's quarterly and annual operating results are affected
by various trends and factors including, but not limited to,
competition, the Company's success in developing, introducing and
gaining market acceptance for new products, the timing of orders
from customers, the levels of inventory held by resellers and
distributors, as well as factors such as changes in general
economic conditions or conditions in the specific markets for the
Company's products, government regulation, tariffing of carrier
services, and industry consolidation.
The networking industry is intensely competitive and subject to
rapid change. As the market for the Company's products continues
to develop, additional competitors are expected to enter the
market and competition is anticipated to intensify. This may
result in price reductions and margin erosion. Many of the
Company' s current and potential competitors have larger
technical staffs, more established and larger marketing and sales
organizations, and significantly greater financial resources than
does the Company. The Company also competes with other data
networking vendors for access to distribution channels.
The Company's success is substantially dependent upon its ability
to manage changes in its operations. Over the past several years
the Company has undertaken significant restructuring activities
in order to reposition the Company in line with its strategy,
reduce costs and improve competitiveness. During the past year,
examples of such changes included the establishment of new
marketing and distribution channels, the restructuring of
international operations and the outsourcing of the delivery of
field service maintenance. In addition, the successful
establishment and implementation of relationships with strategic
partners and distributors is critical to the future success of
the Company. During the past year, the Company has changed the
way it distributes its products by establishing multi-tiered
distribution channels and entering into agreements with several
large resellers and distributors in North America, Europe and the
Asia Pacific region. These new distribution channels, while
viewed by the Company as critical to its future success, also
bring additional new risks. These include less predictability
regarding product demand and ordering patterns, reduced gross
margins on sales to indirect channels and the time associated
with reseller training and increasing awareness for the Company's
products.
<PAGE>
The Company's quarterly operating results fluctuate as a result
of a number of factors including pricing, distributor ordering
patterns, product returns and reserves, product mix, as well as
the timing of new product announcements and introductions by the
Company and its competitors. The Company's revenues are
difficult to predict due to shipment patterns. A substantial
portion of the Company s expenses are fixed, and consequently any
significant fluctuations in revenue will impact earnings.
Products are generally shipped as orders are received, and
accordingly, the Company operates with a relatively small
backlog. As a result, sales in any quarter are dependent on
orders booked and shipped in that quarter. A high percentage of
the Company's revenues are typically earned in the third month of
each fiscal quarter and tend to be concentrated in the latter
half of that month. Accordingly, quarterly financial results
will be difficult to predict prior to the end of the quarter and
a shortfall in shipments at the end of any particular quarter may
cause the results of that quarter to fall significantly short of
anticipated levels.
At the end of each quarter, the Company's distributors typically
hold significant inventories of the Company s products. The
Company has established reserves for returns based on experience.
New channel relationships introduce additional uncertainty in
this area. Setting reserves involves making judgments about
future competitive conditions, product acceptance and other
factors which by their nature involve uncertainties at the time
the reserves are established.
Statements included in this Quarterly Report on Form 10-Q which
are not historical facts, including statements about the
Company's beliefs and strategies, are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995 that involve risks and uncertainties and are not
guarantees of future performance. The risks described herein and
in the Company's other filings with the Securities and Exchange
Commission could affect the Company's future results and could
cause such results to differ materially from estimates expressed
in any forward-looking statement included herein.
<PAGE>
Results of Operations - First Quarter Ended June 29, 1996
- ---------------------------------------------------------
The Company experienced a significant decline in product revenues
in the first quarter of 1997 attributed to difficulties
experienced in implementing its new distribution model which has
been underway for some period of time. The Company previously
concluded it was necessary to accelerate the implementation of
the new sales distribution infrastructure in the first quarter.
The Company did not anticipate that accelerating the
implementation of the new distribution model in the first quarter
would adversely impact revenues. Service revenues also declined
in the first quarter of 1997, representing a continuation of a
trend in recent quarters. This decline has occurred as a result
of lower revenues on products which the Company has traditionally
derived the majority of its service revenues.
The Company has been working through a period of transition for
the past two years focusing on improving elements such as time-
to-market, product support and quality while managing significant
changes in its product lines. During this transitionary period,
remote access products have increased from 25% of product
revenues in 1994 to close to two-thirds of product revenues in
the most recent fiscal year ended March 31, 1996. Changing the
sales distribution model from direct to indirect has always been
considered a necessary and significant next step in the Company's
recovery plan in order to increase the sales volume from indirect
channels. The Company shifted and acquired resources and skills
supporting an historically direct sales model to one of multiple
channels of distribution including: national resellers, operating
telephone companies, Internet service providers, OEMs, system
partners and corporate accounts. The Company continues to expand
its support to these distribution channels through marketing
programs, increased training, seminars, on-site representatives,
brand recognition and distributor and reseller incentive
programs. While accelerating implementation of the new
distribution model adversely impacted revenues in the first
quarter, the Company believes the anticipated benefits of the
model and related programs supporting the channels will occur in
later quarters.
<PAGE>
The following table sets forth items derived from the
quarterly consolidated statements of income as a percentage of
revenues for the quarter ended June 29, 1996 and for each of
the preceding four quarters. The column in the table entitled
"Percentage Change Quarter 1, 1997 vs 1996 " represents the
percentage change, either favourable or (unfavourable), in the
dollar amount of such items for the first quarter of 1997
compared with the first quarter of 1996.
<TABLE>
<CAPTION>
Percentage
Fiscal 1996 Fiscal 1997 Change
------------------------------------------ ----------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1997 vs. 1996
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
<C> <S> <S> <S> <S> <S> <S>
Revenues $28,650 $27,357 $28,171 $32,355 $18,337 (36.0)%
======= ======= ======= ======= ======= =======
(Percentage of revenues)
Revenues:
Product 67.8% 67.3% 68.6% 68.6% 59.5% (43.8)%
Service 32.2 32.7 31.4 31.4 40.5 (19.7)
------- ------- ------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% (36.0)
======= ======= ======= ======= =======
Gross Margin:
Product 50.2% 53.4% 52.5% 51.8% 41.1% (54.0)
Service 36.5 34.0 31.1 26.6 28.5 (37.2)
Combined 45.8 47.1 45.8 45.3 36.0 (49.7)
Expenses:
Sales & marketing 28.6 28.0 28.0 25.3 39.8 11.0
Administration & general 7.2 7.8 7.5 5.4 12.4 (10.0)
Research & development 9.1 10.4 10.3 9.9 16.4 (15.8)
Restructuring costs - - - 4.7 16.4
------- ------- ------- ------- -------
Income(loss)from operations 0.9 0.9 - - (49.0)
Interest expense (0.7) (0.5) (0.4) (0.1) (0.3)
Interest income and foreign
exchange - (0.3) 0.7 0.3 0.3
------- ------- ------- ------- -------
Net income (loss) 0.2% 0.1% 0.3% 0.2% (49.0)%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Revenues
- --------
The following table sets forth product and service revenues by
geographic segment for the quarter ended June 29, 1996 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 1997 compared to the corresponding period of
1996.
<TABLE>
<CAPTION>
Percentage
Fiscal 1996 Fiscal 1997 Change
------------------------------------------ ----------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1997 vs. 1996
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
<C> <S> <S> <S> <S> <S> <S>
Product Revenues:
United States $ 5,733 $ 6,243 $ 6,361 $ 6,432 $ 2,669 (53.5)%
Canada 3,438 3,642 3,474 4,479 1,408 (59.0)
United Kingdom 4,905 3,783 4,361 5,491 2,676 (45.4)
Holland/France 2,853 2,272 3,428 3,791 2,516 (11.8)
Other 2,485 2,461 1,702 3,742 1,648 (33.7)
------- ------- ------- ------- -------
$19,414 $18,401 $19,326 $23,935 $10,917 (43.8)%
======= ======= ======= ======= =======
Service Revenues:
United States $ 2,159 $ 2,078 $ 1,962 $ 1,790 $ 1,526 (29.3)%
Canada 1,747 1,598 1,690 1,607 1,316 (24.7)
United Kingdom 3,502 3,445 3,074 3,083 2,810 (19.8)
Holland/France 1,828 1,835 2,119 1,940 1,768 (3.3)
------- ------- ------- ------- -------
$ 9,236 $ 8,956 $ 8,845 $ 8,420 $ 7,420 (19.7)%
======= ======= ======= ======= =======
</TABLE>
<PAGE>
The following table sets forth, for the thirteen weeks ended June
29, 1996 and for each of the two preceding full fiscal years,
product revenues by geographic segment and product group
expressed as a percentage of total product revenues. These
amounts have been calculated assuming constant rates of exchange
in the translation of foreign currency amounts to US dollars.
Remote access products primarily include internetworking products
sold under the names Gandalf Xpressway (TM), XpressStack (TM) and
XpressConnnect (TM). Remote access products represent a subset
of the Company s total LAN internetworking product line. The
other three product groups shown below represent traditional
product areas for the Company which include wide area networking
(WAN) backbone products; modems, multiplexers and local
connectivity products; and other products which primarily
represent third party products.
<TABLE>
<CAPTION>
Modems/
Multiplexers/
Remote WAN Local
Years ending March 31 Access Backbone Connectivity Other Total
- -------------------- ------- --------- ------------- ------- -------
<C> <S> <S> <S> <S> <S>
1997: (Quarter 1)
United States 19% 1% 5% -% 25%
Canada 8 - 5 - 13
United Kingdom 13 2 8 2 25
Holland/France 15 1 4 2 22
Other 8 5 2 - 15
--- --- --- --- ---
63% 9% 24% 4% 100%
=== === === === ===
1996:
United States 25% 1% 5% 1% 32%
Canada 12 1 4 1 18
United Kingdom 11 2 7 3 23
Holland/France 9 1 2 2 14
Other 8 3 2 - 13
--- --- --- --- ---
65% 8% 20% 7% 100%
=== === === === ===
1995:
United States 15% 1% 8% 4% 28%
Canada 9 2 7 1 19
United Kingdom 12 3 9 4 28
Holland/France 6 1 3 1 11
Other 7 3 2 2 14
--- --- --- --- ---
49% 10% 29% 12% 100%
=== === === === ===
</TABLE>
<PAGE>
Gross Margin
- ------------
The gross margin on product revenues was 41% in the first quarter
of 1997 compared to 50% in the first quarter a year ago. The
gross margin on product revenues in the first quarter of 1997 was
adversely impacted by lower sales volumes during the quarter,
resulting in fixed manufacturing costs representing a larger
percentage of product revenues.
The gross margin on service revenues (service revenues less
service expenses expressed as a percentage of service revenues)
was 28.5% during the first quarter of 1997 compared to 36.5% in
the same period a year ago. The decrease in service margin has
occurred as a result of the continuing decline in service
revenues which has more than offset the decrease in service
expenses. Service expenses declined 9.6% in the first quarter of
1997 compared with the first quarter of 1996, as result of the
outsourcing to partners for the delivery of field service
maintenance, which has occurred since the end of the third
quarter of 1996.
Operating Expenses
- ------------------
Expenses for sales and marketing, administration and general, and
research and development totaled $12.6 million in the first
quarter of 1997, compared to $12.9 million in the first quarter
of 1996. In aggregate, these expenses declined primarily due to
reduced variable sales expenses in the first quarter of 1997
compared to the first quarter a year ago, on lower product
revenues. The reduction in operating expenses due to lower sales
expenses was partially offset by higher spending on research and
development.
Restructuring charges of $3.0 million recorded in the first
quarter of 1997 included a write down following a review of
the net carrying amount of the Company's manufacturing
facilities in which it was determined, in conjunction with the
decision to enter into an agreement with a third party to
provide the Company with a high-volume manufacturing
capability, that the net carrying amount exceeded the
estimated net recoverable amount. Restructuring charges also
included provisions for future lease costs on sales offices
made redundant in connection with changing the Company's sales
distribution model from direct sales to multiple channels of
distribution including: national resellers, operating
telephone companies, Internet service providers, OEMs, system
partners and corporate accounts.
<PAGE>
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). While the repayment terms of
the two projects differ slightly, both are tied to future sales,
with the liability to repay the funding arising from product
revenues earned following both the commercialization of the
resulting technology and the completion of the MSDP project. The
amount that is potentially repayable is calculated without
interest as a royalty on revenues earned in the ten years
following the project completion date and is limited to the
amount of funding received.
The Company commenced accruing royalties during 1996 upon
completion of each project and expects that the funding will be
fully repaid within three to five years. At June 29, 1996,
$900,000 had been accrued related to these projects.
Operating Loss
- --------------
The Company reported a loss from operations, inclusive of
restructuring charges, of $9.0 million for the first quarter of
1997 on revenues of $18.3 million. The loss from operations,
before restructuring charges was $6.0 million. For the first
quarter of 1996 the income from operations was $254,000 on
revenues of $28.7 million.
Net Loss
- --------
The net loss for the first quarter of 1997 was $9.0 million or
$0.21 per share. The net loss before restructuring charges was
$6.0 million or $0.14 per share. Net income for the first
quarter of 1996 was $66,000, or break-even on a per share basis.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's current ratio was 1.9:1 at June 29, 1996 compared
to 2.0:1 at March 31, 1996. Inventories were $16.9 million at
June 29, 1996 versus $13.5 million at the end of the previous
quarter. Lower than anticipated product revenues during the
first quarter of fiscal 1997 resulted in the increase in
inventory levels and the Company has adjusted planned production
levels accordingly for the second quarter of fiscal 1997.
Accounts receivable were $22.2 million at June 29, 1996 compared
to $28.7 million at March 31, 1996. The decline in accounts
receivable occurred as a result of lower product revenues in the
first quarter of fiscal 1997 compared with the fourth quarter of
fiscal 1996.
The Company recorded negative cash flow of $3.1 million during
the first quarter of 1997. At June 29, 1996, the net cash
position (cash and cash equivalents net of bank operating lines)
was $10.5 million compared to $13.6 million at March 31, 1996.
At the end of the first quarter of 1996, the net cash position
was $7.1 million. The decrease in cash during the first quarter
of 1997 occurred as a result of negative cash flow from operating
activities of $3.8 million arising from the net loss for the
period. The Company anticipates that the net loss reported for
the first quarter of 1997 will also impact cash flow in the
second quarter, primarily due to the lower level of accounts
receivable at June 29, 1996.
At June 29, 1996 the Company's authorized bank operating lines
totaled $20.2 million under two committed credit facilities
provided by a Canadian chartered bank which bear interest at the
bank's prime rate plus 0.5% to 1.5%. The authorized amount
includes $15.9 million under the Company's primary facility which
was recently renewed until June 30, 1997. Any borrowings under
the credit agreements are secured by certain of the accounts
receivable, inventories and other assets of the Company. The
amount available for borrowing at any time is based on margin
formulas relating to levels of accounts receivable, inventories
and other bank covenants. The Company obtained a waiver from the
bank in July 1996 of a technical default under one of the credit
agreements at June 29, 1996 which occurred as a result of the
reported net loss for the first quarter of 1997 exceeding the
maximum permitted quarterly net loss amount under the agreement.
The Company is in full compliance with all other terms of its
bank credit agreements.
Based on the margin formulas, $13.8 million was available to, but
not utilized by, the Company at June 29, 1996. Cash and cash
equivalents held as of that date represented a further $10.5
million of cash resources available to the Company. Cash and
unused credit lines totaled $24.3 million at June 29, 1996.
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 currently anticipates that its long-term cash
requirements will be satisfied through future operating cash
flows.
<PAGE>
II - OTHER INFORMATION
- ----------------------
Item 6(a) - Exhibits
- --------------------
10.11 Credit Agreement dated as of June 11, 1996 between
the Royal Bank of Canada and the Company.
Item 6(b) - Report on Form 8-K
- ------------------------------
There were no reports on Form 8-K filed for the quarter ended
June 29, 1996.
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 1, 1996 s/T.A. VASSILIADES
- ----------------------- ------------------
Date Thomas A. Vassiliades
Chairman, President
and Chief Executive Officer
August 1, 1996 s/W.R. MACDONALD
- ---------------------- ----------------
Date Walter R. MacDonald
Vice President, Finance
and Chief Financial Officer
June 11, 1996
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 May 30, 1995. 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:
<PAGE>
(1) Foreign exchange forward contracts (FEF Contracts).
(2) (a) Royal Bank US Base Rate based loans in US
Dollars ( RBUSBR Loans),
(a) Royal Bank Prime based loans in Canadian Dollars
(RBP Loans),
(b) Libor based loans in US Dollars (Libor Loans),
(c) Bankers Acceptances in Canadian Dollars (B/As),
and
(d) 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) $6,750,000 or the Equivalent Amount in US
Dollars.
(2) The lesser of:
(a) US$16,500,000 or the Equivalent Amount in Canadian
Dollars,
(b) the Margin Requirement.
4. Purpose:
The Borrower shall use the Credit Facility for the purpose
of accommodating:
(1) Foreign exchange hedging activities.
(2) 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:
(a) Royal Bank Prime (RBP) plus 1/4%.
(b) Royal Bank US Base Rate (RBUSBR) plus 1/4%.
(c) Libor (Libor) plus 1%.
(d) Royal Bank Prime Acceptance Fees (RBPAF) plus
1/4%.
(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 (2) 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.
(h) Financial Tests Fee:
The Borrower shall pay a fee if it fails to meet any
of the Financial Tests as at the end of any fiscal
quarter, as determined by the Bank based on the
Borrower s financial statements in respect of the
affected fiscal quarter. Such fee shall be calculated
at the rate of 1/4% per annum on the daily average
aggregate principal amount outstanding under Segment
(2) of this Agreement during the affected fiscal
quarter and shall be in addition to any other interest
and fees payable to the Bank hereunder.
Such fees shall be paid quarterly in arrears in
respect of the affected fiscal quarter, no later than
five business days following receipt by the Bank of
the Borrower s quarterly financial statements.
8. Time and Place of Payment:
Payments of principal, interest, fees and all other
amounts payable by the Borrower pursuant to this Agreement
shall be paid at the Branch of Account in immediately
available funds in Canadian Dollars except as otherwise
herein provided. Each payment under this Agreement shall
be made for value on the day such payment is due, provided
that if any such day is not a Business Day such payment
shall be deemed for all purposes of this Agreement to be
due on the Business Day next following such day and all
interest and other fees shall continue to accrue until
payment. Interest and fees payable under this Agreement
are payable both before and after any or all of default,
demand and judgment.
<PAGE>
9. Withholding Taxes:
All payments required under this Credit Facility shall be
made free and clear of and without any withholding on
account of any taxes or other charges of any nature or
kind whatsoever. If any such taxes or charges are
required to be withheld from any payment made hereunder,
the Borrower shall pay an additional amount such that the
net amount received by the Bank shall be equal to the
amount which would have been received if no such
withholding were required to be made.
10. Exchange Rate Fluctuations:
If, in the sole determination of the Bank, due to exchange
rate fluctuations or for any other reason, the value of
Borrowings outstanding under the Credit Facility, when
converted to Canadian Dollars, exceeds the Amount as of
the 25th day of any month, the Borrower shall either repay
or otherwise retire the outstanding Borrowings to the
extent of the amount of such excess, or shall secure the
amount of such excess in a manner which is satisfactory to
the Bank.
11. Repayment:
Borrowings are repayable on the later of the Maturity Date
or the date of any demand by the Bank, provided that on or
prior to the Maturity Date the Bank may demand repayment
pursuant to Section 24 hereof, and in such event,
Borrowings shall be payable upon such demand.
After the Maturity Date, all Borrowings made hereunder
shall be due and payable on demand by the Bank.
Upon any demand by the Bank hereunder, the Borrower shall
pay all amounts outstanding hereunder including, without
limitation, an amount equal to the aggregate of the face
amounts of all B/As and L/Cs and the amount advised by the
Bank, pursuant to Section 2 hereof, with respect to FEF
Contracts which are unmatured or unexpired, which amount
shall be held by the Bank as collateral security for the
Borrower s obligations to the Bank with respect thereto.
With respect to such unmatured or unexpired B/As and L/Cs
and FEF Contracts, the Borrower will have the further
obligation to execute such security documents as the Bank
may reasonably require.
<PAGE>
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 Banks 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:
<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 under Segment (2) hereunder, or
(b) is a debit, the Bank shall, provided that Borrowings
under Segment (2) hereunder are available, make
available a Borrowing by way of an RBP or RBUSBR Loan
in an amount, rounded to the nearest $100,000 or
US$100,000, as applicable, as required to place the
affected Group Account at not less the balance set out
in this paragraph.
In either instance, a minimum net credit balance of
$100,000 or US$100,000, as applicable as adjusted from
time to time will be maintained in each Group Account.
16. Libor Loan Conditions:
The Borrower may borrow by way of Libor Loan subject to
the following conditions:
(a) Libor Loans shall be made in minimum amounts of
US$1,000,000, as applicable or larger whole multiples
of US$100,000, as applicable;
(b) the Borrower may select the Libor Interest Period
applicable to any Libor Loan and shall notify the Bank
of such Libor Interest Period when giving notice
pursuant to Schedule B ;
(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;
<PAGE>
(e) if the Bank determines, which determination is final,
conclusive and binding upon the Borrower, that:
(i) adequate and fair means do not exist for
ascertaining the rate of interest on a Libor Loan,
(ii) the making or the continuance of a Libor Loan has
become impracticable by reason of circumstances
which materially and adversely affect the London
interbank market,
(iii) deposits in US Dollars, as applicable, are not
available to the Bank in the London interbank
market in sufficient amounts in the ordinary
course of business for the applicable Libor
Interest Period to make or maintain a Libor Loan
during such Libor Interest Period, or
(iv) the cost to the Bank of making or maintaining a
Libor Loan does not accurately reflect the
effective cost to the Bank thereof and if the
costs to the Bank are increased or the income
receivable by the Bank is reduced in respect of a
Libor Loan,
then the Bank shall promptly notify the Borrower of such
determination and the Borrower shall, prior to the next
Interest Determination Date, notify the Bank as to the
basis of Borrowing it has selected in substitution for
such Libor Loan. If the Borrower has not so notified the
Bank, such Libor Loan will automatically be converted into
an RBUSBR Loan on the expiry of the then current Libor
Interest Period.
17. B/A Conditions:
The Borrower may borrow by way of B/A subject to the
following conditions:
(a) B/As shall be issued and mature on a Business Day and
shall be issued in minimum face amounts of $100,000
for terms of not less than 30 and not more than 365
days with each issue being for an aggregate face
amount of $500,000 or such larger amount as is a whole
multiple of $100,000;
(b) the Bank may, in its sole discretion, refuse to accept
the Borrower s drafts or limit the amount of any B/A
issued at any time;
(c) the Borrower shall, by no later than 12:00 (noon) on
the day on which a B/A becomes payable, pay to the
Bank at the Branch of Account an amount equal to the
face amount of such B/A;
(d) if any maturing B/A is paid by the Bank with its own
funds, then as of the date of such payment, the B/A
will be deemed to be converted into an RBP Loan
hereunder in the face amount of such B/A;
(e) in the event that there is any inconsistency at any
time between the terms of this Agreement and the terms
of the B/A Undertaking, the terms hereof shall govern.
<PAGE>
18. L/C Conditions:
The Borrower may borrow by way of L/C subject to the
following conditions:
(a) the Bank may, in its sole discretion, refuse to issue
L/Cs at any time;
(b) each L/C shall expire on a Business Day and shall have
a term of not more than 365 days;
(c) prior to the issue of an L/C, the Borrower shall
execute a duly authorized application with respect
thereto in form and substance satisfactory to the
Bank, and each L/C shall be governed by the terms and
conditions of the relevant application for such
instrument;
(d) the Borrower shall, by no later than 12:00 (noon) on
any day on which a drawing is made under an L/C, pay
to the Bank at the Branch of Account an amount equal
to the face amount of such drawing, and if the
Borrower fails to make such payment, the face amount
of such drawing shall be converted, 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,
<PAGE>
and the result of any of the foregoing, in the sole
determination of the Bank, is to increase the cost to, or
to reduce any amount received or receivable by, the Bank
hereunder, or to reduce the Bank's effective return
hereunder to a level below that which the Bank could have
otherwise achieved (using any reasonable averaging and
attribution method), the Bank shall determine that amount
of money which shall compensate it for such increase in
cost or reduction in income or reduction in rate of return
on the Bank's capital, and the Borrower shall pay to the
Bank upon demand such amount in respect of such increased
cost or reduction as the Bank may determine to be required
to compensate the Bank. The Bank's determination of such
increased cost or reduction shall be conclusive absent
manifest error.
20. Illegality:
If the introduction of or any change in Applicable Law
makes it unlawful, or prohibited for the Bank, in its sole
opinion, to perform its obligations under this Agreement,
the Bank may, by written notice to the Borrower, terminate
its obligations under this Agreement, and the Borrower
shall prepay the Borrowings immediately or at the end of
such period as the Bank may agree, together with all
interest and fees which have accrued to the date of
payment.
21. Conditions Precedent to Disbursement:
(a) The obligation of the Bank to make available any
Borrowing is subject to and conditional upon the
receipt in form and substance satisfactory to the
Bank, of:
(i) a duly executed copy of this Agreement;
(ii) 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 Borrowers 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;
<PAGE>
(d) assignment by the Borrower of all patents,
trademarks and licenses;
(e) a general assignment of leases signed by the
Borrower covering 130 Colonnade Rd. S. and 40
Concourse Gate, both in Nepean, Ontario;
(f) a general security agreement on the Bank's
standard form signed by GSC and representing
a first charge on all assets of GSC other
than real estate;
(g) a guarantee & postponement of claim on the
Bank's standard form in the principal amount
of not less than US $16,500,000 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 $15,000,000 plus interest
and fees signed by GCL;
(k) a general security agreement on the Bank's
standard form signed by GCL and representing
a first 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;
(iii) a duly executed B/A Undertaking; and
(iv) a review of all documentation by legal counsel to
the Bank; and
(v) confirmation in writing from GCL acknowledging
cancellation of its credit facility dated May 30,
1995 with the Bank for C$15,000,000; and
(vi) such other documents as the Bank may reasonably
request.
<PAGE>
22. Representations and Warranties of the Borrower:
The Borrower represents and warrants to the Bank, which
representations and warranties are repeated as of the time
of each Borrowing and as of the time at which each payment
of interest or fees is due hereunder, that:
(a) the Borrower is a corporation validly incorporated and
existing under the laws of Ontario and are duly
registered or qualified to carry on business in all
jurisdictions where the nature of its properties,
assets or business makes such registration or
qualification necessary or desirable;
(b) the execution and delivery of this Agreement and the
Security Documents have been duly authorized by all
necessary actions and do not (i) violate any law,
regulation or rule by which the Borrower is bound,
(ii) violate any provision of its constating
documents, by-laws or any unanimous shareholders
agreement to which it is subject, (iii) result in a
breach of, or a default under, any agreement or
instrument to which either it is a party or by which
it or any of its properties or assets may be bound or
affected, or (iv) result in the creation of any
encumbrance on any of its properties or assets, except
as contemplated herein;
(c) its most recent audited, consolidated financial
statements are correct and complete in all material
respects;
(d) no Event of Default has occurred and no event has
occurred which constitutes, or which with giving of
notice, lapse of time or the occurrence of any other
condition would constitute a default having a material
adverse effect on its financial condition under or in
respect of any agreement, undertaking or instrument to
which the Borrower or any of its properties or assets
may be subject;
(e) it is in compliance with all Applicable Laws,
including, without limitation, those dealing with the
environment;
<PAGE>
(f) the Borrower has filed all material income tax returns
which were required to be filed, paid or made
provision for payment of all material taxes (including
interest and penalties) which are due and payable, and
provided adequate reserves for payment of any tax, the
payment of which is being contested;
(g) no consent, approval, order, authorization, licence,
exemption or designation of or by any governmental
body or person is required in connection with the
execution, delivery and performance of this Agreement
or the Security Documents or the transactions
contemplated hereby on behalf of the Borrower and no
registration, qualification, designation, declaration
or filing with any governmental body is necessary to
enable or empower either of them to perform their
respective obligations under this Agreement, except
such as have been made or obtained, which are in full
force and effect.
The representations and warranties made in this Section
shall continue in effect until payment and performance of
all debts, liabilities and obligations under this
Agreement.
23. Covenants:
Without affecting or limiting in any way the right of the
Bank to terminate its commitment and demand all Borrowings
under the Credit Facility after the Maturity Date, the
Borrower covenants and agrees with the Bank, while this
Agreement is in effect or any Borrowings are outstanding:
(a) to maintain as at the end of any fiscal quarter
Tangible Net Worth on a consolidated basis of not less
than US $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, accompanied by a
certificate in the form of Schedule C
hereto;
(ii) quarterly consolidated analysis of bookings,
billings and backlog within 45 days of the end of
each fiscal quarter;
(iii) annual consolidated audited financial statements
of the Borrower within 90 days of each fiscal year
end;
(iv) 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.
<PAGE>
(e) to give the Bank prompt notice upon acquiring
knowledge of any Event of Default or any event which,
with notice or lapse of time or both, would constitute
an Event of Default;
(f) not to do anything to affect the ranking of this debt;
(g) to maintain its corporate existence as a validly
existing corporate entity;
(h) to provide the Bank with access to its business and
records as may be requested from time to time
including, without limitation, its annual financial
forecasts and plans;
(i) to insure and to keep insured with insurers acceptable
to the Bank all properties customarily insured by
companies carrying on similar business in similar
locations against all risks, including but not limited
to business interruption, with loss payable to the
Bank as loss payee or mortgagee, as the case may be;
(j) to file all income tax returns which are to be filed
from time to time, to pay or make provision for
payment of all taxes (including interest and
penalties) and Potential Preferred Claims which are or
will become due and payable and to provide adequate
reserves for the payment of any tax, the payment of
which is being contested;
(k) to comply with all Applicable Laws including, without
limitation, those dealing with the environment and to
hold the Bank harmless for any costs or expenses which
it incurs for any environment-related liabilities
which exist now or in the future with respect to the
Borrower s property;
(l) not to grant, create, assume or suffer to exist any
mortgage, charge, lien, pledge, security interest or
other encumbrance affecting any of its properties,
assets or other rights, without the prior written
consent of the Bank;
(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 US
$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;
<PAGE>
(o) not to make any capital expenditures in any fiscal
year of the Borrower except those as may be set out in
the Borrower'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 US
$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 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;
<PAGE>
(f) if proceedings for the bankruptcy, receivership,
dissolution, liquidation, winding-up, reorganization
or readjustment of debt of the Borrower or its
Affiliates or for the suspension of the operations of
the Borrower or its Affiliates are commenced, unless
such proceedings are being actively and diligently
contested in good faith;
(g) if the Borrower or any of its Affiliates is insolvent,
or is adjudged or declared bankrupt or insolvent, or
makes an assignment for the benefit of its creditors,
or petitions or applies to any tribunal for the
appointment of a receiver or trustee for it or for any
substantial part of its property, or commences any
proceedings relating to it under any reorganization,
arrangement, readjustment of debt, dissolution,
liquidation or other similar proceeding under
Applicable Law, or by any act or failure to act
indicates its consent to, approval of, or acquiescence
in, any such proceeding for it or any substantial part
of its property, or suffers the appointment of any
receiver or trustee;
(h) if the Borrower should incur a loss exceeding US
$5,000,000 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 Banks 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.
<PAGE>
28. Judgment Currency:
If for the purpose of obtaining judgment in any court in
any jurisdiction with respect to this Agreement, it is
necessary to convert into the currency of such
jurisdiction (the Judgment Currency) any amount due
hereunder in any currency other than the Judgment
Currency, then such conversion shall be made at the rate
of exchange prevailing on the Business Day before the day
on which judgment is given. For this purpose rate of
exchange means the rate at which the Bank will, on the
relevant date, sell such currency in Toronto, Ontario
against the Judgment Currency.
In the event that there is a change in the rate of
exchange prevailing between the Business Day before the
day on which the judgment is given and the date of payment
of the amount due, the Borrower will, on the date of
payment, pay such additional amounts (if any) or be
entitled to receive reimbursement of such amount, if any,
as may be necessary to ensure that the amount paid on such
date is the amount in the Judgment Currency which, when
converted at the rate of exchange prevailing on the date
of payment, is the amount then due under this Agreement in
such other currency. Any additional amount due from the
Borrower under this Section will be due as a separate debt
and shall not be affect by judgment being obtained for any
other sums due under or in respect of this Agreement.
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:
<PAGE>
as to the Borrower:
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario K2E 7M4
Attention: Vice-President, Finance
Telecopier: (613) 274-6505
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.
30. Assignment:
This Agreement shall be binding upon and enure to the
benefit of the Bank and the Borrower and their respective
successors and permitted assigns. The Borrower cannot
assign or transfer all or any of its rights and
obligations hereunder without the prior written consent of
the Bank.
31. Set-Off:
The Bank is authorized (but not obligated), at any time
and without notice, to apply any credit balance (whether
or not then due) to which the Borrower is then
beneficially entitled on any account (in any currency) at
any branch or office of the Bank in or towards
satisfaction of the obligations and liabilities of the
Borrower due to the Bank under this Agreement. For that
purpose, the Bank is authorized to use all or any part of
any such credit balance to buy such other currencies as
may be necessary to effect such application.
32. Waivers and Amendments:
No failure to exercise and no delay in exercising on the
part of the Bank, any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude
any other right, power or privilege. No amendment,
modification or waiver of any provision of this Agreement
or consent to any departure by the Borrower from any
provision of this Agreement will in any event be effective
unless it is in writing signed by the Borrower and the
Bank, and then the amendment, modification, waiver or
consent will be effective only in the specific instance,
for the specific purpose and for the specific length of
time for which it is given by the Bank.
<PAGE>
33. Counterparts:
This Agreement may be executed in any number of
counterparts, each of which when executed and delivered is
an original but all of which taken together constitute one
and the same instrument, and any party may execute this
Agreement by signing any counterpart of it.
34. Further Assurances:
The Borrower shall from time to time promptly upon the
request of the Bank take such action and execute and
deliver such further documents, as shall be reasonably
required in order to fully perform the terms of, and to
carry out the intention of, this Agreement.
35. Severability:
If any provision of this Agreement is or becomes
prohibited or unenforceable in any jurisdiction, such
prohibition or unenforceability shall not invalidate,
affect or impair any of the remaining provisions hereof or
invalidate or render unenforceable the provision concerned
in any other jurisdiction.
36. Governing Law and Submission to Jurisdiction:
This Agreement shall be construed in accordance with and
governed by the laws of the Province of Ontario and of
Canada applicable therein. The Borrower irrevocably
submits to the non-exclusive jurisdiction of the courts of
such Province and acknowledges the competence of such
courts and irrevocably agrees to be bound by a judgment of
any such court.
37. Periodic Review:
The Credit Facility is subject to an annual review by the
Bank on or before the Maturity Date. The Bank may, in its
sole discretion, terminate the Credit Facility following
such annual review without limiting or affecting the Bank
s rights pursuant to Section 24 hereof.
38. Whole Agreement:
This Agreement and any agreements delivered pursuant to or
referred to in this Agreement constitute the whole and
entire agreement between the parties in respect of the
Credit Facility, and cancel and supersede any prior
written or verbal agreements including undertakings,
declarations or representations made with respect thereto.
<PAGE>
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 30, 1996 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 on the 11th day of June, 1996.
THE BORROWER:
GANDALF TECHNOLOGIES INC.
By: s/W.R. MACDONALD
----------------
Name/Title: Walter R. MacDonald
Vice President, Finance
and Chief Financial Officer
By: s/M. RENNIE
------------------
Name/Title Michael Rennie
Director of Finance
<PAGE>
SCHEDULE A
Schedule A to the Agreement dated as of the 11th day of June,
1996 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;
<PAGE>
Current Ratio of a person means the ratio of that person's
current assets to that person's current liabilities, net of bank
loans against cash on hand;
Equivalent Amount determines the amount of availability only
and means on any date, the amount of Canadian Dollars required to
convert from Canadian Dollars to 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;
<PAGE>
SCHEDULE A (CONTD.)
Event of Default means each of the events listed in the
section entitled Events of Default;
Financial Tests mean:
(a)A current ratio of 2.7:1 or higher;
(b)A ratio of total liabilities to Tangible Net Worth of not
greater than .5:1;
GAAP means generally accepted accounting principles in effect
from time to time in Canada applied in a consistent manner from
period to period;
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;
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;
<PAGE>
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 the aggregate of trade accounts receivable of
GTI, GCL and GSC each as reported in their unaudited non-
consolidated financial statements as at the end of the most
recent fiscal quarter, (ii) to a maximum of US $8,000,000, 50% of
the book value of inventory owned by GCL and located in the
Province of Ontario and (iii) Liquid Collateral Security;
<PAGE>
SCHEDULE A (CONT D.)
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, 1997;
Potential Preferred Claims means amounts accrued or owing
for wages, vacation pay, employee benefits or pensions, municipal
tax, corporate tax, sales tax, Canadian goods and services tax,
source deductions and remittances (including income tax, Canada
Pension Plan and unemployment insurance obligations), Government
royalties, purchase money security interests and any other
statutory preferred claims as well as the aggregate of the next
three months rent payments for each rental property of the
Borrower;
Royal Bank Prime (in this Agreement,RBP) means the annual
rate of interest announced by the Bank from time to time as being
a reference rate then in effect for determining interest rates on
Canadian Dollar commercial loans made in Canada;
Royal Bank Prime Acceptance Fee (in this Agreement,RBPAF)
means the annual rate announced by the Bank from time to time as
being a reference rate then in effect for determining fees on
Canadian Dollar bankers acceptances accepted by the Bank in
Canada;
Royal Bank US Base Rate(in this Agreement,RBUSBR) means the
annual rate of interest announced by the Bank from time to time
as being a reference rate then in effect for determining interest
rates on US Dollar commercial loans made in Canada;
Subsidiary of a person means (i) any corporation of which
the person and/or any one or more of its Affiliates, holds,
directly or beneficially, other than by way of security only,
securities to which are attached more than 50% of the votes that
may be cast to elect directors of such corporation, or (ii) a
corporation of which such person has through operation of law or
otherwise, the ability to elect or cause the election of a
majority of the directors of such corporation and
Subsidiaries of such person mean all such corporations;
Tangible Net Worth of a person means its shareholders
equity 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;
<PAGE>
SCHEDULE A (CONT D.)
Total Liabilities of any person means all liabilities
appearing on the balance sheet of that person, net of bank loans
against 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 11th day of June,
1996 between Gandalf Technologies Inc. as Borrower and Royal Bank
of Canada as the Bank.
Notice Requirements for Drawdowns and Conversions
RBP LOANS AND RBUSBR LOANS
Amount: Prior Notice;
Under Cdn$ or US$10,000,000 by 12:00 (noon) on the day
of drawdown or conversion
Cdn$ or US$10,000,000,up to
and including the Amount by 12:00 (noon) 1 Business Day
prior to drawdown or conversion
B/As
Amount Prior Notice
Under Cdn$10,000,000 by 12:00 (noon) on the day of
drawdown or conversion
Cdn$10,000,000 up to and
including the Amount by 12:00 (noon) 1 Business
Day prior to drawdown or
conversion
Libor Loans
Amount Prior Notice
Under US$10,000,000 or the by 10:00am on the Interest
Equivalent Amount in Pounds Determination Date
Sterling
US$10,000,000 up to and by 10:00am 1 Business Day
including the Amount or the prior to the Interest
Equivalent Amount in Pounds Determination Date
Sterling
<PAGE>
SCHEDULE C
Schedule C to the Agreement dated as of the 11th day of June,
1996 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 June 11, 1996 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.
<PAGE>
SCHEDULE D
Schedule D to the Agreement dated as of the 11th day of June, 1996
between Gandalf Technologies Inc. as Borrower and Royal Bank of Canada
as the Bank.
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY
LIQUID COLLATERAL SECURITY APPLICABLE
LOANING VALUE
(7) 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. 95% of market value
(8)Government of Canada or Government
of Canada guaranteed bonds and Treasury
Bills except as indicated in (a)
above. 95% of market value
(c)Provincial Government or Provincial
Government guaranteed bonds and Treasury
Bills except as indicated in
(a) above 95% of market value.
(d)Bankers acceptances or similar
investments effectively
assigned to the Bank. LIQUID
COLLATERAL
SECURITY
