<PAGE>
[Scotia LOGO]
P.O. Box 247, St. Catharines, Ontario L2R 6T3
January 20, 1999.
Fantom Technologies Inc.
1110 Hansler Road
Welland, Ontario
L3B 5Sl
Dear Sirs:
We are pleased to confirm that subject to acceptance by you, The Bank of
Nova Scotia (the "Bank") will make available to Fantom Technologies Inc. (the
"Borrower"), credit facilities on the terms and conditions set out in the
attached Terms and Conditions Sheet and Schedule "A".
If the arrangements set out in this letter, and in the attached Terms and
Conditions Sheet and Schedule "A" (collectively the "Commitment Letter") are
acceptable to you, please sign the enclosed copy of this letter in the space
indicated below and return the letter to us by the close of business on February
12, 1999, after which date this offer will lapse.
This Commitment Letter replaces all previous commitments issued by the Bank
to the Borrower.
Yours very truly,
/s/ R.W. Jeffery
Manager
The arrangements set out above and in the attached Terms and Conditions
Sheet and Schedule "A" (collectively the "Commitment Letter") are hereby
acknowledged and accepted by:
FANTOM TECHNOLOGIES INC.
Name
By: /s/ Stephen Doorey & Allen Millman
--------------------------------------
Title:
Date: 1/29/99
<PAGE>
Page 1
TERMS AND CONDITIONS
CREDIT NUMBER: 01 AUTHORIZED AMOUNT: $15,000,000
--------------------------------------------------------------------------------
TYPE
Revolving - Operating
PURPOSE
General operating requirements
CURRENCY
Canadian dollars and/or U.S. dollar equivalent thereof.
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by
Agreement re Operating Credit Line and/or Bankers' Acceptances in Canadian
dollars (in minimum amounts of $500,000 and in multiples of $100,000 and
having terms of maturity of 30 to 180 days without grace) and/or by way of
direct advances evidenced by Demand Promissory Notes for U.S. Funds.
INTEREST RATE/FEES
At Borrower's option:
(CAD dollars) The Bank's Prime Lending Rate# from time to time, with
interest payable monthly.
(U.S. dollars) The Bank's U.S. Dollar Base Rate# in Canada, from time to
time, with interest payable monthly.
(U.S. dollars) The Bank's London Interbank Offer Rate (LIBOR), plus 3/4%#
per annum, for periods of 1, 2, 3, 6 or 12 months, the rate to be
established at 12:00 noon (London time) two (2) business days prior to each
drawdown or rollover (Interest Adjustment Date) with interest payable
monthly in arrears.
(Bankers' Acceptances) The Bank's Corporate Bankers' Acceptance Fee#,
(subject to revision at any time), subject to a minimum fee of $500 per
transaction, payable at the time of each acceptance.
#NOTE: Interest rate spread as outlined above, will be amended each quarter
on January 1st,,April 1st, July 1st and October 1st, based on the
Borrower's consolidated Debt: Tangible Net Worth (TNW) position as
determined by the Borrower's quarterly consolidated financial
statements 3 months prior (for example, pricing as at January 1st
will be based on the quarterly financial statement as at September
30th) based on the following pricing grid:
<PAGE>
Page 2
<TABLE>
<CAPTION>
Debt: TNW Level Pricing
--------------- -------
<S> <C>
2.0:1 or below Prime/BRCAN/CORPBA/LIBOR + 3/4%
2.1:1 - 2.5:1 Prime + 1/4%/BRCAN + 1/4%/CORPBA + 1/4%/LIBOR + 1%
2.6:1 - 3.0:1 Prime + 1/2%/BRCAN + 1/2%/CORPBA + 1/2%/LIBOR + 1 1/4%
3.1:1 - 3.5:1 Prime + 3/4%/BRCAN + 3/4%/CORPBA + 3/4%/LIBOR + 1 1/2%
Over 3.5:1 Prime + 1%/BRCAN + 1%/CORPBA + 1%/LIBOR + 1 3/4%
</TABLE>
DRAWDOWN
Direct advances are to be made in minimum multiples of $100,000.
REPAYMENT
Advances are repayable on demand.
SPECIFIC SECURITY
The following security, evidenced by documents in form satisfactory to
the Bank and registered or recorded as required by the Bank to the extent not
already obtained, is to be provided prior to any advances or availment being
made under the Credit:
Bankers' Acceptance Agreement.
Agreement re Operating Credit Line.
CREDIT NUMBER 02 AUTHORIZED AMOUNT: $4,000,000
--------------------------------------------------------------------------------
TYPE
Revolving Term
PURPOSE
To assist with capital expenditures
CURRENCY
Canadian and/or U.S. dollar equivalent thereof.
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by Term
Promissory Notes and/or Bankers' Acceptances in Canadian dollars (in minimum
amounts of $500,000 and in multiples of $100,000 and having terms of maturity
of 30 to 180 days without grace) and/or Lease Agreements and/or Conditional
Sales Contracts, with appropriate supporting documentation.
<PAGE>
Page 3
INTEREST RATE
At Borrower's option:
Direct Advances
---------------
(CAD Dollars) The Bank's Prime Lending Rate from time to time, plus 1/2%#
per annum with interest payable monthly.
(U.S. Dollars) The Bank's U.S. Dollar Base Rate in Canada, from time to
time, plus 1/2%# per annum with interest payable monthly.
(U.S. Dollars) The Bank's London Interbank Offer Rate (LIBOR), plus 1
1/4%# per annum, for periods of 1, 2, 3, 6 or 12 months, the rate to be
established at 12:00 noon (London time) two (2) business days prior to each
drawdown or rollover (Interest Adjustment Date) with interest payable at
the end of the LIBOR period or if the period is for more than 3 months,
payable quarterly in arrears.
(Bankers' Acceptances) The Bank's Corporate Bankers' Acceptance Fee,
(subject to revision at any time), plus 1/2%# per annum, subject to a
minimum fee of $500 per transaction, payable at the time of each
acceptance.
# NOTE: Interest rate spread, as outlined above, will be amended each
-------
quarter on January 1st, April 1st, July 1st and October 1st, based
on the Borrower's consolidated Debt: Tangible Net Worth (TNW)
position as determined by the Borrower's quarterly consolidated
financial statements 3 months prior (for example, pricing as at
January 1st will be based on the quarterly financial statement as
at September 30th.) based on the following pricing grid:
<TABLE>
<CAPTION>
Debt: TNW Level Pricing
--------------- -------
<S> <C>
2.0:1 or below Prime + 1/2%/BRCAN + 1/2%/CORPBA + 1/2%/LIBOR + 1 1/4%
2.1:1 - 2.5:1 Prime + 3/4%/BRCAN + 3/4%/CORPBA + 3/4%/LIBOR + 1 1/2%
2.6:1 - 3.0:1 Prime + 1%/BRCAN + 1%/CORPBA + 1%/LIBOR + 1 3/4%
3.1:1 - 3.5:1 Prime + 1 1/4%/BRCAN + 1 1/4%/CORPBA + 1 1/4%/LIBOR + 2%
Over 3.5:1 Prime + 1 1/2%/BRCAN + 1 1/2%/CORPBA + 1 1/2%/LIBOR
+ 2 1/4%
</TABLE>
Lease and/or Conditional Sales Contracts
----------------------------------------
The base payment applicable to each contract will be set on the
commencement date of the contract based upon the Bank's Prime Lending Rate
plus 1% per annum, or the Bank's U.S. Dollar Base Rate in Canada plus 1%
per annum, calculated and payable monthly. The total periodic payment will
be adjusted monthly with changes in the Bank's Prime Lending Rate.
<PAGE>
Page 4
The Borrower has the option to fix the payments for the balance of the term
of the contract provided that the Borrower is not then in default under any
credits. This option must be exercised prior to the commencement of the
last third of the initial term of the contract. Although the fixed rate
will be set on the date notification is received by the Bank, the new rate
will be effective on the next payment due date (provided the next payment
due date is at least 10 days from receipt of the notice). A fee of $200
plus GST per occurrence is payable when this option is exercised. The fixed
rate will be quoted on request/based on Scotia Leasing's Base Rate at the
time the option to fix the rate is exercised plus 1.25% per annum,
calculated and payable monthly.
STANDBY FEE
A Standby Fee of 1/8% per annum on the daily unused portion of the Credit
payable in Canadian dollars, continues to be payable monthly.
REPAYMENT
Direct Advances
---------------
Individual advances are repayable in 36 equal monthly instalments of
principal commencing 30 days after drawdown.
Scotia Lease/Conditional Sales Contracts
----------------------------------------
Leases and/or conditional sales contracts are repayable in accordance with
the terms and conditions of each respective lease or conditional sale
contract as established and agreed to by Scotia Leasing. The maximum term
of any such lease or conditional sale contract shall not exceed 5 years.
Option to Convert to Non-Revolving Term Facility
------------------------------------------------
The Borrower shall have the option up to one year to convert all
outstanding direct advances to a Non-revolving facility based on an overall
5 year term and repayment. The interest rate applicable to Non-Revolving
loans will be based on the Bank's Prime Lending Rate from time to time,
plus 1% per annum with interest payable monthly.
PREPAYMENT
Direct advances
---------------
Provided 2 business days prior written notice has been given to the Bank,
prepayment is permitted without fee, premium, bonus or penalty at any time
in whole or in part.
Prepayments are to be applied against instalments of principal in the
inverse order of their maturities.
<PAGE>
Page 5
Leases/Conditional Sales Contracts
----------------------------------
Contracts are not cancellable, and no prepayments are permitted.
SPECIFIC SECURITY
The following security, evidenced by documents in form satisfactory to the
Bank and registered or recorded as required by the Bank to the extent not
already obtained, is to be provided prior to any advances or availment
being made under the Credit:
Chattel Mortgages/Lease Agreements/Conditional Sales Contracts
covering equipment leased/financed.
Comprehensive General Liability insurance for a minimum of $2,000,000
per occurrence with the Bank recorded as an additional named insured.
All risks insurance covering the replacement value of the equipment
with the Bank recorded as loss payee and additional named insured.
SPECIFIC CONDITION
Until all debts and liabilities under the Credit have been discharged in
full, the following condition will apply in respect of the Credit:
Direct advances under the Credit are limited to 75% of invoice costs.
CREDIT NUMBER 03 AUTHORIZED AMOUNT: $20,000,000
--------------------------------------------------------------------------------
TYPE
Revolving Term - 364 days
PURPOSE
General Operating requirements
CURRENCY
Canadian and/or U.S. dollar equivalent thereof.
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by
Term Promissory Notes and/or Bankers' Acceptances in Canadian dollars (in
minimum amounts of $500,000 and in multiples of $100,000 and having terms
of maturity of 30 to 180 days without grace).
<PAGE>
Page 6
INTEREST RATE AND FEES
At Borrower's option:
(CAD dollars) The Bank's Prime Lending Rate# from time to time, with
interest payable monthly.
(U.S. dollars) The Bank's U.S. Dollar Base Rate# in Canada, from time to
time, with interest payable monthly.
(U.S. dollars) The Bank's London Interbank Offer Rate (LIBOR), plus 3/4%#
per annum, for periods of 1, 2, 3, 6 or 12 months, the rate to be
established at 12:00 noon (London time) two (2) business days prior to each
drawdown or rollover (Interest Adjustment Date) with interest payable
monthly in arrears.
(Bankers' Acceptances) The Bank's Corporate Bankers' Acceptance Fee#,
(subject to revision at any time), subject to a minimum fee of $500 per
transaction, payable at the time of each acceptance.
# NOTE: Interest rate spread, as outlined above, will be amended each
-----
quarter on January 1st, April 1st, July 1st and October 1st, based
on the Borrower's consolidated Debt: Tangible Net Worth (TNW)
position as determined by the Borrower's quarterly consolidated
financial statements 3 months prior (for example, pricing as at
January 1st will be based on the quarterly financial statement as
at September 30th) based on the following pricing grid:
<TABLE>
<CAPTION>
Debt: TNW Level Pricing
--------------- -------
<S> <C>
2.0:1 or below Prime/BRCAN/CORPBA/LIBOR + 3/4%
2.1:1 - 2.5:1 Prime + 1/4%/BRCAN + 1/4%/CORPBA + 1/4%/LIBOR + 1%
2.6:1 - 3.0:1 Prime + 1/2%/BRCAN + 1/2%/CORPBA + 1/2%/LIBOR + 1 1/4%
3.1:1 - 3.5:1 Prime + 3/4%/BRCAN + 3/4%/CORPBA + 3/4%/LIBOR + 1 1/2%
Over 3.5:1 Prime + 1%/BRCAN + 1%/CORPBA + 1%/LIBOR + 1 3/4%
</TABLE>
STANDBY FEE
A Standby Fee of 1/8% per annum on the daily unused portion of the
Credit payable in Canadian dollars, continues to be payable monthly.
REPAYMENT
The credit shall revolve and may be drawn up to 364 days after
acceptance of this Commitment Letter. Upon expiry of the current 364
day term, advances under the credit are repayable in full unless
renewed at the Bank's option.
<PAGE>
Page 7
The Borrower shall have the option to request the Bank annually to extend
the availability period for an additional year. The Borrower will make
each such request before August 31st in each year and the Bank will reply
after completion of the Annual Review.
Option to Convert to Non-Revolving Term Facility
------------------------------------------------
The Borrower shall have the option up to one year to convert all
outstanding direct advances to a Non-revolving facility based on an overall
5 year term and repayment. The interest rate applicable to Non-Revolving
loans will be based on the Bank's Prime Lending Rate from time to time,
plus 3/4% per annum with interest payable monthly. Repayment either
monthly or quarterly.
The Borrower shall have the option to request the Bank annually to extend
the availability period for an additional year. The Borrower will make
each such request before August 31st in each year and the Bank will reply
after completion of the Annual Review. This extension is at the Bank's
option. [If the Revolving Term feature is renewed by the Bank (see
Repayment above), the Option to Convert to a Non-Revolving facility will be
reinstated for a further year inclusive of the 5 year repayment.]
PREPAYMENT (If converted to Non-Revolving Facility)
Prepayment is permitted without fee, premium, bonus or penalty at any time
in whole or in part.
Prepayments are to be applied against installments of principal in the
inverse order of their maturities.
CREDIT NUMBER 04 AUTHORIZED AMOUNT: $20,000,000
--------------------------------------------------------------------------------
TYPE
Non-revolving
PURPOSE
To assist with research and development expenditures.
CURRENCY
Canadian and/or U.S. dollar equivalent thereof.
AVAILMENT
The Borrower may avail the Credit by way of direct advances evidenced by
Term Promissory Notes and/or Bankers' Acceptances in Canadian dollars (in
minimum amounts of $500,000 and in multiples of $100,000 and having terms
of maturity of 30 to 180 days without grace).
<PAGE>
Page 8
DRAWDOWN
The unavailed portion of this Non-Revolving facility is subject to review
at the end of five years (from date of acceptance).
INTEREST RATE AND FEES
At Borrower's option:
(CAD dollars) The Bank's Prime Lending Rate plus 1% per annum# from time to
time, with interest payable monthly.
(U.S. dollars) The Bank's U.S. Dollar Base Rate plus 1% per annum# in
Canada, from time to time, with interest payable monthly.
(U.S. dollars) The Bank's London Interbank Offer Rate (LIBOR), plus 1 3/4%#
per annum, for periods of 1, 2, 3, 6 or 12 months, the rate to be
established at 12:00 noon (London time) two (2) business days prior to each
drawdown or rollover (Interest Adjustment Date) with interest payable
monthly in arrears.
(Bankers' Acceptances) The Bank's Corporate Bankers' Acceptance Fee plus
1%#, (subject to revision at any time), subject to a minimum fee of $500
per transaction, payable at the time of each acceptance.
# NOTE: Interest rate spread, as outlined above, will be amended each
-----
quarter on January 1st, April 1st, July 1st and October 1st, based
on the Borrower's consolidated Debt: Tangible Net Worth (TNW)
position as determined by the Borrower's quarterly consolidated
financial statements 3 months prior (for example, pricing as at
January 1st will be based on the quarterly financial statement as
at September 30th) based on the following pricing grid:
<TABLE>
<CAPTION>
Debt: TNW Level Pricing
--------------- -------
<S> <C>
2.0:1 or below Prime + 1%/BRCAN + 1%/CORPBA + 1%/LIBOR + 1 3/4%
2.1:1 - 2.5:1 Prime + 1 1/4%/BRCAN + 1 1/4%/CORPBA + 1 1/4%/LIBOR + 2%
2.6:1 - 3.0:1 Prime + 1 1/2%/BRCAN + 1 1/2%/CORPBA + 1 1/2%/LIBOR
+ 2 1/4%
3.1:1 - 3.5:1 Prime + 1 3/4%/BRCAN + 1 3/4%/CORPBA + 1 3/4%/LIBOR
+ 2 1/2%
Over 3.5:1 Prime + 2%/BRCAN + 2%/CORPBA + 2%/LIBOR + 2 3/4%
</TABLE>
<PAGE>
Page 9
Fixed Rate Options
------------------
The Borrower has the option available to fix the interest rate for a
maximum period of 8 years, providing the loan balance is $5,000,000 or
more. Subject to availability, rates will be quoted on request. Based on
today's prevailing rates, an indicative rate for a 8 year term would be
7.20%.
or
Subject to availability, and to execution of mutually satisfactory
documentation, based on the Bank's standard International Swap Dealers
Association (ISDA) Master Agreement and Schedule, incorporating all
security held pursuant to this Commitment Letter, the Borrower shall have
the option, available until December 31, 2003 (5 years) to enter into
Interest Rate Swap transactions. The Swap transactions are limited to
Canadian currency, for terms not exceeding 8 years. The aggregate amount of
all outstanding transactions at any one time is not to exceed $20,000,000
Cdn. (Minimum availment $5,000,000 Cdn.).
STANDBY FEE
A Standby Fee of 1/8% per annum on the daily unused portion of the Credit
payable in Canadian dollars, continues to be payable monthly.
REPAYMENT
Advances are to be repaid over an 8 year term. No principal payments are
required in Years 1 and 2, followed by monthly repayment of the original
principal amount as follows:
Year 3: 5%
Year 4: 10%
Year 5: 15%
Year 6: 20%
Year 7: 25%
Year 8: 25%
(Quarterly payments at Borrower's option.)
PREPAYMENT
Floating
--------
Prepayment is permitted without fee, premium, bonus or penalty at any time
in whole or in part.
Prepayments are to be applied against installments of principal in the
inverse order of their maturities.
<PAGE>
Page 10
Fixed
-----
Prepayment of any individual fixed advance in whole is permitted at any
time on payment of an amount equal to the greater of:
i) three months simple interest at the rate applicable to the loan on the
entire principal amount; and
ii) the amount, if any, by which the interest at the rate applicable to
the loan exceeds interest at the prevailing rate at the time of prepayment
calculated on the entire principal amount for the remaining term of the
loan. The "prevailing rate at the time of prepayment" is defined as that
rate at which the Bank would then lend to the Borrower, based on the same
security, for the remaining term of the loan.
Interest Rate Swap
------------------
Any unwinding of a Swap transaction would be subject to the terms and
conditions set out in the Master Agreement.
SPECIFIC CONDITION
Until all debts and liabilities under the Credit have been discharged in
full, the following conditions will apply in respect of the Credit:
Each individual transaction in excess of $5,000,000 requires the
Bank's prior written approval, which will not be unreasonably
withheld. (Borrower to provide details of expenditure such as purpose,
assets to be acquired, benefits to Borrower, long range impact, etc.)
CREDIT NUMBER: 05 AUTHORIZED AMOUNT: $100,000
--------------------------------------------------------------------------------
TYPE
Corporate VISA - Availment, interest rate and repayment as per Cardholder
Agreement.
CREDIT NUMBER: 06
------------------
TYPE
Forward Exchange Contracts, terms up to three years. Daily settlement limit
$10,000,000.
CURRENCY
U.S. dollars
<PAGE>
Page 11
AVAILMENT
Subject to availability and execution of mutually satisfactory
documentation, the Borrower may enter into Forward Exchange Contracts with
the Bank for maximum terms up to three years.
Maximum aggregate Forward Exchange Contracts outstanding at any one time
are not to exceed $203,000,000 USD.
GENERAL FEES, SECURITY TERMS, AND CONDITIONS APPLICABLE TO ALL CREDITS
----------------------------------------------------------------------
FEES
----
In addition to, and not in substitution for the obligations of the Borrower
and the rights of the Bank upon the occurrence of an event of default
herein, the Borrower shall pay to the Bank:
A fee of $250 per month (or such higher amount as may be determined by
the Bank from time to time) for each month or part thereof during
which the Borrower is late in providing the Bank with financial or
other information required herein;
The imposition or collection of these fees does not constitute an express
or implied waiver by the Bank of any event of default or of any of the
terms or conditions of the lending arrangements, security or rights arising
from any default. Fees may be charged to the Borrower's deposit account
when incurred.
GENERAL SECURITY
----------------
The following security, evidenced by documents in form satisfactory to the
Bank and registered or recorded as required by the Bank to the extent not
already obtained, is to be provided prior to any advances or availment
being made under the Credits:
General Assignment of Book Debts.
Security under Section 427 of the Bank Act with appropriate insurance
coverage, loss, if any, payable to the Bank.
General Security Agreement over all present and future personal
property, to incorporate "intellectual property" i.e., the Dual-
Cyclonic technology with appropriate insurance coverage, loss if any,
payable to the Bank.
Updated/revised addendums or schedules will be required from time to
time to enable the Bank to register all newly acquired assets,
including intellectual property, patents, etc.
Collateral Mortgage providing a first fixed charge over 1110 Hansler
Road, Welland, Ontario, with replacement cost fire insurance coverage,
loss, if any, payable to the Bank as mortgagee.
<PAGE>
Page 12
Acknowledged Assignment and Direction To Pay under Export Development
Corporation's (EDC) global insurance policy, loss, if any, payable to
the Bank.
Hypothecation of all common shares of the wholly owned or controlled
subsidiaries detailed below under Guarantees.
Guarantees given by the following (with corporate seals and
resolutions as applicable) in the amounts shown:
NAME AMOUNT
---- ------
Fantom Technologies USA Holdings Inc.# Unlimited
Fantom Technologies Direct Inc.# Unlimited
Fantom Technologies USA Inc.# Unlimited
Fantom Technologies Intellectual Property Inc. Unlimited
# To be Supported By:
General Assignment of Book Debts
General Security Agreement over all present and future personal
property with appropriate insurance coverage, loss if any,
payable to the Bank.
Hypothecation of all common shares in wholly owned or controlled
subsidiaries now owned or to be owned.
GENERAL CONDITIONS
------------------
Until all debts and liabilities under the Credits have been discharged in
full, the following conditions will apply in respect of the Credits:
Combined Operating loans and Bankers' Acceptances under Credit 01 and
Credit 03 are not to exceed at any time the "Borrowing Base" which is
defined as the aggregate of:
75% good quality accounts receivable (inclusive of "Direct Response"
accounts of Fantom Technologies Direct Inc. which are limited to a
maximum allowance of $2,000,000) excluding accounts over 90 days,
accounts due by employees, offsets and inter-company accounts plus
90% of all accounts receivable insured by the Export Development
Corporation or an alternate insurer acceptable to the Bank, less
security interests or charges against current assets held by other
parties and specific payables (i.e. statutory deductions) which have
or may have priority over the Bank's security, plus 30% of net
inventory, less specific payables. Maximum advances against net
inventory are limited to $7,500,000. The quality of uninsured
accounts receivable in excess of $50,000 are to be supported by
Bank/Credit reports satisfactory to the Bank.
<PAGE>
Page 13
Net Inventory is defined as the sum of finished goods, raw materials
and other categories, valued at the lower of cost or market, less
unpaid inventory received from suppliers during the past 30 days.
On a consolidated basis, the ratio of Debt (including deferred taxes)
to Tangible Net Worth (TNW) is not to exceed 2.5:1.
TNW is defined as the sum of share capital, minority interests in
affiliates, earned and contributed surplus and postponed funds less
----
(i) amounts due from officers/affiliates, (ii) investments in
unconsolidated affiliates, and (iii) intangible assets in accordance
with GAAP.
On a consolidated basis, the ratio of current assets to current
liabilities is to be maintained at all times at 1.1:1 or better.
The ratio of EBITDA to interest expenses plus the current portion of
long term debt and capital leases, calculated on a rolling four
quarter basis, is to be maintained at all times at 1.5:1 or better.
No new outside secured debt in excess of $500,000 is to be entered
into by the company or any wholly owned/controlled subsidiaries
without the Bank's prior written consent. The wholly owned/controlled
subsidiaries are not to issue common or preferred stock which would
result in the subsidiaries or the Borrower relinquishing control. If
Fantom Technologies Inc. disposes of any part of its interest in a
wholly owned/controlled subsidiary through a public offering, the
proceeds of such offering will be used to pay any advances under
Credit No. 4 unless otherwise agreed to by the Bank.
Net proceeds in excess of $1,000,000 in aggregate from the sale of any
capital assets (if not securing advances under Credit #2) are to be
applied against outstanding loans under Credit #4.
No mergers, amalgamations or significant change in the Borrower's line
of business (from home care products/services) are permitted without
the Bank's prior written consent. Consent not to be unreasonably
withheld. Subject to annual review.
Investments in and/or advances to unconsolidated affiliates or
unconsolidated subsidiaries are not in aggregate to exceed $5,000,000
without the Bank's prior written consent. Consent not to be
unreasonably withheld.
<PAGE>
Page 14
Payment of dividends is permitted subject to the conditions outlined
in this Commitment Letter being met both before and after such
payments and upon the Borrower's ability to continue to meet the
conditions during the ensuing year based on the annual financial
statement projections as provided.
The Bank is to be formally advised of any significant change in
ownership of which the Borrower receives formal notification.
At the Borrower's option, Montreal Trust is to be given the
opportunity to be named Transfer Agent for the Borrower's shares.
The Borrower is to provide written authorization for the Borrower and
its Auditors to meet with Bank officials annually to discuss the
Borrower's affairs with the right of the Borrower to be present at
such meeting.
Additional terms and conditions in Schedule A are to apply.
GENERAL BORROWER REPORTING CONDITIONS
-------------------------------------
Until all debts and liabilities under the Credits have been discharged in
full, the Borrower will provide the Bank with the following:
Annual Audited Consolidated Financial Statements of the Borrower
within 120 days of the Borrower's fiscal year end, duly signed.
Annual Prepared Unconsolidated Financial Statements of the Borrower
and the Guarantors within 120 days of the Borrower's fiscal end, duly
signed.
Business Plan and Budget, including financial statement and cash flow
projections covering the ensuing year are to be provided annually in
conjunction with the year end financial statement reporting, to
include Capital Expenditure Program. Annual budget as previously
provided will suffice along with copy of 10K filing.
Quarterly Unaudited Consolidated Interim Financial Statements of the
Borrower, within 60 days of period end.
Borrowing Base Calculation monthly, to include information on
inventory, accounts receivable and accounts payable, within 30 days of
period end.
Aged Listing of Accounts Receivable and Accounts Payable upon request.
Annual Officer's Certificate of the Chief Financial Officer, that the
Borrower has not received notice that it is in default of the terms
and conditions of its licence/technology agreements relative to the
"Dual-Cyclonic" system within 120 days of the Borrower's fiscal year
end.
<PAGE>
Page 15
Listing of existing patents, certified by the Chief Financial Officer,
upon request.
CONFLICTS
---------
If there is any conflict or inconsistency between the provisions of this
Commitment Letter and the provisions of any security or other agreements,
documents or instruments delivered to the Bank in connection herewith, the
provisions of this Commitment letter shall govern and apply.
<PAGE>
Page 16
SCHEDULE A
----------
ADDITIONAL TERMS AND CONDITIONS APPLICABLE
------------------------------------------
TO ALL CREDITS
--------------
(In the event of a conflict, the terms and conditions of any lease
agreement and/or conditional sale contract supersede the terms and
conditions in this Schedule A with regard to such leases and/or
conditional sale contracts).
Calculation and Payment of Interest
-----------------------------------
1. Interest on loans/advances made in Canadian dollars will be calculated on a
daily basis and payable monthly on the 22nd day of each month (unless
otherwise stipulated by the Bank). Interest shall be payable not in advance
on the basis of a calendar year for the actual number of days elapsed both
before and after demand of payment or default and/or judgment.
2. Interest on loans/advances made in U.S. dollars will be calculated on a
daily basis and payable monthly on the 22nd day of each month, (unless
otherwise stipulated by the Bank). Interest shall be payable not in advance
on the basis of a 360 day year for the actual number of days elapsed both
before and after demand of payment or default and/or judgment. The rate of
interest based on a 360 day year is equivalent to a rate based on a
calendar year of 365 days of 365/360 times the rate of interest that
applies to the U.S. dollar loans/advances.
Interest on Overdue Interest
----------------------------
3. Interest on overdue interest shall be calculated at the same rate as
interest on the loans/advances in respect of which interest is overdue, but
shall be compounded monthly and be payable on demand, both before and after
demand and judgment.
Indemnity Provision
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4. Applicable to all U.S. dollar credits. If the introduction of, or any
change in, or in the interpretation of, or any change in its application to
the Borrower of, any law or regulation, or compliance with any guideline
from any central bank or other governmental authority (whether or not
having the force of law) has the effect of increasing the cost to the Bank
of performing its obligations hereunder or otherwise reducing its effective
return hereunder or on its capital allocated in support of the credits,
then the Bank shall give prompt written notice thereof to the Borrower and
upon demand from time to time the Borrower shall compensate the Bank for
such cost or reduction pursuant to a certificate reasonably prepared by the
Bank.
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(a) Prepayment without fee
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In the event of the Borrower becoming liable for such costs, the
Borrower shall have the right to cancel without fee, premium, bonus or
penalty all or any unutilized portion of the affected credit (other
than any portion in respect of which the Borrower has requested
utilization of the credit in which case cancellation may be effected
upon indemnification of the Bank for any reasonable funding breakage
costs incurred by the Bank thereby), and to prepay, without fee or
penalty the outstanding principal balance thereunder other than the
face amount of any document or instrument issued or accepted by the
Bank for the account of the Borrower, such as a Letter of Credit, a
Guarantee or a Bankers' Acceptance.
(b) Prepayment of Fixed Rate Advances
---------------------------------
If any prepayment is made, for any reason, of an advance bearing a
fixed rate of interest, including without limitation a LIBOR advance,
the Borrower shall compensate the Bank for the cost of any early
termination of its funding arrangements in accordance with its normal
practices, such costs to be notified to the Borrower in a certificate
reasonably prepared by the Bank. In the case of any fixed loan under
Credit #4, any such cost shall be reduced by any amount paid to the
Bank in respect thereof under the prepayment section of that credit.
Calculation and Payment of Bankers' Acceptance Fee
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5. The fee for the acceptance of each Bankers' Acceptance will be payable on
the face amount of each Bankers' Acceptance at the time of acceptance of each
draft calculated on the basis of a calendar year for the actual number of days
elapsed from and including the date of acceptance to the due date of the draft.
Calculation and Payment of Standby Fee
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6. Standby fees shall be calculated daily and payable monthly on the basis of a
calendar year for Canadian dollar credits and on the basis of a 360 day year for
U.S. dollar credits from the date of acceptance by the Borrower of this
Commitment Letter.
Environment
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7. The Borrower agrees:
(a) to obey in all material respects all applicable laws and requirements
of any federal, provincial, or any other governmental authority which
are material to the environment and the operation of the business
activities of the Borrower and/or Guarantors taken as a whole;
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(b) to allow the Bank access at all reasonable times upon reasonable prior
notice during nomal business hours to the business premises of the
Borrower and/or Guarantors to monitor and inspect all property and
business activities of the Borrower and Guarantors provided that such
right of access shall be exercised so as not to interfere with the
Borrower's or Guarantors' normal business operations;
(c) to notify the Bank from time to time of any material change in
business activity conducted by the Borrower and/or Guarantors which
involves the use or handling of hazardous materials or wastes and
which increases the environmental liability of the Borrower and/or
Guarantors in any material adverse manner;
(d) to notify the Bank of any proposed change in the use or occupation of
the property of the Borrower and/or Guarantors which increases the
environmental liability of the Borrower or the Guarantor in any
material adverse manner prior to any change occurring;
(e) to provice the Bank with prompt written notice of any environmental
incident which has a material adverse effect on the consolidated
property, equipment, or business activities of the Borrower and its
consolidated subsidiaries taken as a whole and with any other
environmental information reasonably requested by the Bank from time
to time;
(f) to conduct all environmental investigations and remedial activities
which a commercially reasonable person would perform in similar
circumstances to meet its environmental responsibilities imposed by
applicable law; and
(g) to pay for any environmental investigations, assessments or remedial
activities with respect to any property of the Borrower and/or
Guarantors that may be reasonably performed for or by the Bank from
time to time pursuant to its right under subsection (f) above.
If the Borrower notifies the Bank of any specified activity or change or
provides the Bank with any information pursuant to subsections (c), (d), or (e),
or if the Bank receives any environmental information from other sources, the
Bank, in its sole discretion, may decide that an adverse change in the
environmental condition of the Borrower and/or Guarantors or any of the
property, equipment, or business activities of the Borrower and/or Guarantors
has occurred which decision will constitute, in the absence of manifest error,
conclusive evidence of the adverse change. Following this decision being made by
the Bank, the Bank shall notify the Borrower and/or Guarantors of the Bank's
decision concerning the adverse change.
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If the Bank decides or is required to incur expenses in compliance or to
verify the Borrower's and/or Guarantors' compliance with applicable
environmental or other regulations, the Borrower and/or Guarantors shall
indemnify the Bank in respect of any such expenses reasonably incurred,
which will constitute further advances by the Bank to the Borrower under
this Agreement.
Notice of Drawdown/Payments/Prepayments
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8. The Borrower shall give the Bank prior notice of a drawdown, payment or
prepayment of any loan/advance three bank business days when the amount is
$7 million dollars or more.
Initial Drawdown
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9. The right of the Borrower to obtain the initial drawdown under the Credit(s)
is subject to the condition precedent that there shall not have been any
material adverse changes in the consolidated financial condition or the
environmental condition of the Borrower and its consolidated subsidiaries
taken as a whole.
Judgement Currency
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10. The obligation of the Borrower and Guarantors hereunder to make payments in
any currency of payment and account shall not be discharged or satisfied by
any tender or recovery pursuant to any judgement expressed in or converted
into any other currency except to the extent to which such tender or
recovery shall result in the effective receipt by the Bank of the full
amount of such currency of payment and account so payable and accordingly
the obligation of the Borrower and guarantors shall be enforceable as an
alternative or additional cause of action for the purpose of recovery in the
other currency of the amount (if any) by which such effective receipt shall
fall short of the full amount of such currency of payment and account so
payable and shall not be affected by any judgement being obtained for any
other sums due hereunder.
Periodic Review
---------------
11. The obligation of the Bank to make further advances or other accommodation
available under any Credits of the Borrower under which the indebtedness or
liability of the Borrower is payable on demand, is subject to periodic
review and to no material adverse change occurring in the consolidated
financial condition or the environmental condition of the Borrower and its
consolidated subsidiaries taken as a whole.
Evidence of Indebtedness
------------------------
12. The Bank's accounts, books and records constitute, in the absence of
manifest error, prima facie evidence of the advances made under this Credit,
repayments on account thereof and the indebtedness of the Borrower to the
Bank.
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Acceleration
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13. (a) All indebtedness and liability of the Borrower to the Bank payable on
demand, is repayable by the Borrower to the Bank at any time on
demand;
(b) All indebtedness and liability of the Borrower to the Bank not payable
on demand, shall, at the option of the Bank, become immediately due
and payable, the security held by the Bank shall immediately become
enforceable, and the obligation of the Bank to make further advances
or other accommodation available under the Credits shall terminate, if
any one of the following Events of Default occurs and is continuing
and has not been waived:
(i) the Borrower or any guarantor fails to pay when due, whether
on demand or at a fixed payment date, by acceleration or
otherwise, any payment of principal payable to the Bank
under this Commitment Letter;
(ii) The Borrower fails to pay when due any interest, fees,
commissions or other amounts payable to the Bank under this
Commitment Letter and such failure continues for 3 business
days after receipt by the Borrower of notice from the Bank
of such non-payment;
(iii) there is a breach by the Borrower or any guarantor of any
other term or condition contained in this Commitment Letter
or in any other agreement to which the Borrower and/or any
guarantor and the Bank are parties, and such breach
continues unremedied for 30 days after receipt by the
Borrower of Notice from the Bank of such breach;
(iv) any material breach occurs under any security listed in this
Commitment Letter under the headings "Specific Security'' or
"General Security'' or under any other credit, loan or
security agreement to which the Borrower and/or any
guarantor is a party and such breach continues to be
unremedied for 30 days after receipt by the Borrower of
notice from the Bank of each breach;
(v) any bankruptcy, re-organization, compromise, arrangement,
insolvency or liquidation proceedings or other proceedings
for the relief of debtors are instituted by or against the
Borrower or any Material guarantor and, if instituted
against the Borrower or any Material guarantor, are allowed
against or consented to by the Borrower or any guarantor or
are not dismissed or stayed within 60 days after such
institution. A Material guarantor is defined as a guarantor
whose consolidated assets or gross revenues represent more
than 5% of the consolidated assets or gross revenue of the
Borrower and its consolidated subsidiaries;
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(vi) a receiver is appointed over all or any substantial part of
the property of the Borrower and its Consolidated
Subsidiaries taken as a whole or any material judgement or
material order or any material process of any court becomes
enforceable against the Borrower or any Material guarantor
or any property of the Borrower or any Material guarantor or
any creditor takes possession of all or any substantial part
of the property of the Borrower and its consolidated
subsidiaries taken as a whole;
(vii) any course of action is undertaken by the Borrower or any
Material guarantor or with respect to the Borrower or any
Material guarantor which would result in the Borrower's or
Material guarantor's reorganization, amalgamation or merger
with another corporation or the transfer of all or
substantially all of the Borrower's or any Material
guarantor's assets without the Bank's prior written consent;
(viii) any guarantee of indebtedness and liability under the Credit
Line is withdrawn or determined by a court of competent
jurisdiction to be invalid or otherwise rendered
ineffective;
(ix) any material adverse change occurs in the consolidated
financial condition of the Borrower and its consolidated
subsidiaries taken as a whole,
(x) any material adverse change occurs in the environmental
condition of:
(A) the Borrower and its consolidated subsidiaries taken as
a whole; or
(B) the consolidated property, equipment, or business
activities of the Borrower and its consolidated
subsidiaries taken as a whole.
Costs
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14. All reasonable costs, including reasonable legal and appraisal fees
incurred by the Bank relative to security and other documentation and the
enforcement thereof, shall be for the account of the Borrower and may be
charged to the Borrower's deposit account 10 business days after a detailed
invoice thereafter has been provided to the Borrower.
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GENERAL ACCEPTED ACCOUNTING PRINCIPLES
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Where the character or amount of any asset or liability or terms of
revenue or expense is required to be determined, or any consolidation or
other accounting computation is required to be made for the purposes of
this Commitment Letter or any specific or general security document or
other document of instrument issued or accepted by the Bank for the
account of the Borrower, such determination or calculation shall, unless
the parties otherwise agree, be made in accordance with generally accepted
accounting principles applied on a consistent basis. "Generally accepted
accounting principles" means generally accepted accounting principles from
time to time approved by the Canadian Institute of Chartered Accountants,
or any successor institute, including those set out in the Handbook of the
Canadian Institute of Chartered Accountants.
Notice
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Any demand, notice or communication to be made or given hereunder shall be
in writing and may be made or given by personal delivery, by registered
mail or by transmittal by facsimile addressed to the respective parties as
follows:
To the Borrower:
Fantom Technologies Inc.
1110 Hansler Road
Welland, Ontario
L3B 5SI
Attention: Chief Financial Officer
Facsimile: 1-905-734-9955
To the Borrower:
The Bank of Nova Scotia
P.O. Box 247
St. Catharines, Ontario
L2R 6T3
Attention: Manager
Facsimile: 1-905-684-8445
or to such other mailing or facsimile address as any party may from time
to time notify the others in accordance with this provision. Any demand,
notice of communication made or given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery
thereof, or, if made or given by registered mail, on the fifth business
day following deposit thereof in the mail or, if made or given by
facsimile on the first business day following the transmittal thereof. If
the party making or giving such demand, notice or communication knows or
ought reasonably to know of difficulties with the postal system which
might affect the delivery of mail, any such demand, notice or
communication shall not be mailed but shall be made or given by personal
delivery or by facsimile.
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(6) The terms and conditions of the Commitment Letter replace all previous
commitments issued by the Bank to any of you. In the event of any conflict
or inconsistency between the terms and conditions of any prior agreements
between the Bank and any of you and the terms and conditions contained in
the Commitment Letter and the Banking Documentation, the terms and
conditions contained in the Commitment Letter and the Banking Documentation
shall prevail.
The Bank acknowledges that each of you is entering into the Banking
Documentation in reliance upon this agreement.
DATED this 14th day of April, 2000
THE BANK OF NOVA SCOTIA
Per: /s/ R.W. Jeffery
-----------------------------
Authorized Signatory
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SCHEDULE A
Fantom Technologies Inc.
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1. Banker's Acceptances Agreement
2. Agreement re Operating Line of Credit
3. Promissory Note (Credit #2)
4. Promissory Note (Credit #3)
5. Promissory Note (Credit #4)
6. Via Cardholder Agreement
7. General Assignment of Book Debts
8. Application for Credit and Promise to give Bank Act Security
9. Notice of Intention to give Bank Act Security
10. Security under Section 427(1) of the Bank Act
11. Agreement as to Loans and Advances under the Bank Act
12. General Security Agreement
13. Collateral Mortgage over 1110 Hansler Road, Welland, Ontario
14. Acknowledged Assignment and Direction to Pay under Export Development
Corporation's global insurance policy (loss payable to Lender)
15. Hypothecation
16. Power of Attorney to transfer securities
Fantom Technologies Direct, Inc.
--------------------------------
17. Guaranty
18. General Assignment of Book Debts
19. General Security Agreement
20. Hypothecation
21. Power of Attorney to transfer Securities
Fantom Technologies U.S.A. Holdings, Inc.
-----------------------------------------
22. Guaranty Agreement
<PAGE>
TO: FANTOM TECHNOLOGIES INC.
FANTOM TECHNOLOGIES U.S.A. HOLDINGS INC.
FANTOM TECHNOLOGIES DIRECT, INC.
FANTOM TECHNOLOGIES U.S.A. INC.
FANTOM TECHNOLOGIES INTELLECTUAL PROPERTY INC.
RE: Commitment Letter dated January 20, 1999 between The Bank of Nova
Scotia and Fantom Technologies Inc.
--------------------------------------------------------------------------------
Reference is made to the captioned commitment letter (the "Commitment Letter")
and the guarantees, security agreements and other documents entered into by each
of you in favour of The Bank of Nova Scotia (the "Bank") pursuant to the
Commitment Letter, including, without limitation, those agreements listed in the
attached Schedule A (collectively the "Banking Documentation").
The Bank agrees with each of you as follows:
(1) Unless an Event of Default under the Commitment Letter has occurred and is
continuing, the Bank will not contact customers and account debtors or
others with whom you conduct business or have dealings to enforce any
security under the Banking Documentation.
(2) Unless an Event of Default under the Commitment Letter has occurred and is
continuing, the Bank will not require any of you to hold any money received
by you separate and apart from your other monies or in trust for the Bank.
(3) Unless an Event of Default under the Commitment Letter has occurred and is
continuing, the Bank will permit any of you or any of your subsidiaries to
make payments to any of you or your subsidiaries (whether payment of
dividends, payment of intercorporate accounts or otherwise), and will not
prohibit any of you or your subsidiaries from receiving any such payments.
(4) Unless an Event of Default under the Commitment Letter has occurred and is
continuing, the Bank will not act on any power of attorney contained in the
Banking Documentation.
(5) In the event of any conflict or inconsistency between the terms and
conditions of any Banking Documentation and the terms conditions contained
in the Commitment Letter (including without limitation reporting and other
additional obligations, covenants relating to environmental matters,
occurrences or circumstances constituting events of default, enforcement or
the manner of giving notice), the terms and conditions of the Commitment
Letter shall prevail and the conflicting or inconsistent terms and
conditions of the Banking Documentation shall be superceded to the extent
necessary to give full force and effect to the Commitment Letter.
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23. Security Agreement
24. Pledge Agreement
25. Stock Transfer Power
Fantom Technologies U.S.A. Inc.
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26. Guarantee
27. Security Agreement
Fantom Technologies Intellectual Property, Inc.
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28. Guaranty Agreement
29. Security Agreement
