Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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BORROWER:
Spectrum Signal Processing Inc. ("Spectrum" or the "Borrower")
LENDER:
Bank of Montreal ("BMO" or the "Bank")
FACILITIES:
OPERATING LINE: A demand revolving credit facility for up to
Canadian $5,000,000 to provide for ongoing operating/working
capital requirements for the Borrower.
AVAILABILITY: Demand; availability by way of:
o FirstBank Cash Management Account ("FCMA") by way of C$
overdraft; and/or
o Commercial Letters of Credit ("CLC") for terms of up to 364
days available in all major currencies offered by the Bank,
for purposes other than guaranteeing obligations of third
parties, up to an aggregate of C$250,000 outstanding and
issued at any one time. Not available for speculative
purposes, and/or
o MasterCard: for business/expense account purposes, Can &/or
US $, maximum C$ equivalent $170,000 and/or
o Foreign Exchange Forward Contracts ("FEFC"). Major traded
currencies, maximum 1 year and $500,000 at deemed
utilization equal to 10% of face amount of FEFC contract,
not available for speculative purposes. (See Restrictions
below)
o Demand Loan Revolving ("D/L Rev US $"). In US $, in units of
US $50,000, (See Restrictions below) and/or
RESTRICTIONS:
The company will be restricted from accessing any of the
options/facilities which have been specifically highlighted as
Restricted within this Term Sheet until such time as formal
approval has been provided by the Bank for accessing same. In
addition, the Bank will require a 15 day notice period that the
company requests access to amounts in excess of C$ 2.5 million,
but not more than C$ 5.0 million. At that time, the Bank will
review the request and determine whether access to funds between
C$2.5 million and C$5.0 million will be permitted.
REPAYMENT:
OPERATING LINE: Demand, to revolve with ongoing business
activity. Interest to be paid monthly.
INTEREST RATES:
Advances under the Operating Facility shall be subject to the
following interest rate margins:
Availability option Base Rate + Increment
------------------- --------- ---------
FCMA Prime 1.0%
D/L Rev US $ US Base 1.0%
CLC Standard 1.2%
MC Standard N/A
FEFC Market N/A
Other FCMA facility $600/month
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Page 1 of 6
Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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MARGIN
Aggregate advances under this facility are to be maintained, on a
forward margin basis, within:
90% of good quality, assigned trade
accounts receivable of the Borrower
which are: (a) covered by Export
Development Corporation insurance
under Direction to Pay (Form E-6) or
other assigned insurance acceptable
to the Lender, (b) not more than 61
days past due (91 days for
government and quasi government
accounts), and (c) not
contra/off-set/holdback/disputed/inter-company
accounts), plus
75% of good quality, assigned, Canadian domiciled,
trade accounts receivable of the Borrower which
are: (a) not more than 61 days past due (91 days
for government and quasi government accounts), and
(b) not
contra/off-set/holdback/disputed/inter-company
accounts, plus
75% of good quality, assigned, United
States domiciled, trade accounts
receivable of the Borrower which
are: (a) not more than 61 days past
due (91 days for government and
quasi government accounts), and (b)
not
contra/off-set/disputed/inter-company
accounts, (c) Invoiced and owned by
the non-consolidated Borrower, plus
50% of pledged, raw materials and finished inventories
of the Borrower: (a) located in B.C., (b) valued
at the lower of cost or market less prior
statutory claims and $500,000 in estimated BIA
claims, and (c) subject to a maximum inventory
Margin value of $1,000,000.
FEES:
A monthly administration fee in the amount of $1,250 is to
be implemented effective January 1, 2002 and will continue
until cancelled or modified by the Bank. This fee is in
addition to any other fees or charges currently levied by
the Bank. The Bank agrees to re-assess the need for a fee
following receipt and review of the internal financial
statements for the 6 month period ending June 30, 2002.
A transaction fee in the amount of $7,500 will be payable
upon acceptance of this Term Sheet by the company.
REPRESENTATIONS
& WARRANTIES:
Usual, including confirmation of corporate status and
authority, non-violation of law or existing agreements, no
material litigation, satisfactory insurance coverage, and
continued compliance with environmental regulations.
EVENTS OF
DEFAULT:
Usual, including failure to pay principal and interest when
due; representations and warranties materially incorrect;
breach of covenants and security undertakings; judgements in
excess of $100,000 against the Borrower or its subsidiaries
which remain undischarged, unvacated, unbonded or unstayed
for more than 45 days; failure to comply with the terms of
other financing agreements of the Borrower and its
subsidiaries (with notice and cure periods as applicable);
cross-default to material obligations of the Borrower and
its subsidiaries; bankruptcy/insolvency of the Borrower or
any subsidiary; non-compliance with any environmental
regulation imposed by any government or its agency, no
merger/amalgamation without the Bank's prior written
consent.
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Page 2 of 6
Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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COVENANTS:
Usual, including maintenance of insurance; payment of taxes;
compliance with statutes and with environmental standards;
Note: As at the date of this Term Sheet (08 April 2002), Spectrum is in
compliance with the existing covenants, as contained in the Term Sheet dated
July 8, 1998
Financial covenants:
1. Current ratio to be greater than 1.50:1 at any time. To
be tested on a quarterly basis commencing March 31/02.
2. Debt to Tangible Net Worth to be less than 1.1:1 at any
time. To be tested on a quarterly basis commencing
March 31/02.
3. No cash dividends in aggregate more than $1,000 per
annum without the Bank's prior written consent.
4. No further term debt to be incurred, without the Bank's
prior consent, such consent not be unreasonably
withheld.
5. Capital expenditures, including investments, in excess
of US$100,000 over the Capital Expenditure Budget, as
presented to and accepted by the Bank annually, will
require the prior written approval of the Bank.,
commencing with the fiscal year 2002.
6. Spectrum has provided its 2002 Budget dated November
30, 2001, upon which we have based our review. Spectrum
prepares a Rolling Quarterly Forecast, a copy of which
will be made available to the Bank. Spectrum agrees
that it will not be more than US$200,000 per quarter or
US$600,000 in aggregate lower than its quarterly
forecast EBITDA.
REPORTING
REQUIREMENTS:
The Borrower shall deliver to the Bank the following:
1. In-house prepared monthly financial statements of the
Borrower, including a certificate with attendant
calculations, certified by the C.F.O., indicating
compliance with all covenants within 30 days of month
end.
2. Audited annual financial statements of the consolidated
Borrower within 90 days of year end, as well as copies
of all the unconsolidated annual financial statements.
3. Certified, consolidated, aged accounts receivable
listings and aged accounts payable listing is to be
provided in a format approved by the Bank, within 30
days following each month end.
4. Monthly list of inventory to be provided within 30 days
following each month end via form LF 151.
5. Each month, the company will provide a Monthly Revenue
Forecast for either the remainder of the quarter, or
for the next quarter (as appropriate), in a format
approved by the Bank.
6. Copies of all information released to the public in the
form of disclosures, advisories, news releases,
quarterly financial statements, etc.
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Page 3 of 6
Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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7. Annual business plan to be provided to the Bank,
including financial projections, capital expenditure
budget, assumptions, etc. within 60 days following the
commencement of each fiscal year.
8. Any other information as may reasonably be requested by
the Bank from time to time.
OTHER COSTS
The Borrower is responsible for payment of all reasonable
legal and out of pocket expenses of the Bank, including the
costs for the completion of a review of the security
position of the Bank, and any advice required pursuant to
the development of this Term Sheet, or any other Term Sheets
or action plans going forward.
REVIEW
Notwithstanding any other term or condition contained in
this Term Sheet, the Bank reserves its rights of periodic
review and demand.
DEFINITIONS:
When calculating the foregoing financial ratios, U.S.
Generally Accepted Accounting Principals ("GAAP") and the
following definitions are to be applied:
CURRENT RATIO:
Current Ratio is (a) Current Assets divided by (b) Current
Liabilities.
DEBT:
In accordance with generally accepted accounting principles,
all liabilities and/or indebtedness, including any
capitalized lease obligations, the debt portion of preferred
shares as recorded in accordance with US GAAP, and any
contingent obligations recorded in accordance with US GAAP,
but excluding any long-term deferred income taxes, any
subordinated debt.
IN HOUSE
FINANCIAL STATEMENT:
Shall refer to the internally generated financial statement
of the Consolidated Borrower, and shall consist of an income
statement and balance sheet. The income statement will
include, at a minimum, a comparison to Plan for the month
and the year to date, and will specifically break out
depreciation/amortization as well as interest expense. The
balance sheet will also include a comparison to the Plan for
the month in question.
EBITDA:
The consolidated Net Income of Spectrum determined in
accordance with U.S. generally accepted accounting
principles (excluding all dividend & interest income and all
extraordinary, non-recurring and unusual items) plus to the
extent deducted in calculating such net income, amounts for
total interest expense, other financing costs, taxes,
amortization, depreciation and other non-cash expenses.
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Page 4 of 6
Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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SECURITY:
The following description of the security held is
descriptive only.
General assignment of book debts under PPSA in Canada and
UCC in the United States.
Direction to Pay (Form E-6) from Export Development
Corporation.
Section 427 Bank Act Security over all goods and inventories
of the Borrower.
General Security Agreement, duly registered under PPSA,
providing a first fixed and floating charge over all
personal assets and a floating charge over all real property
of the Borrower.
Certified copy of acceptable business and fire insurance
policy with standard mortgage clause and BMO named as loss
payee
As and when Availability option is utilised:
o Indemnities for CLC's
o MC Agreement
FirstBank Lending Agreement.
TO BE OBTAINED:
Any other security as may be reasonably requested by the Bank or its solicitor,
including revisions and modifications to existing security necessitated by the
review of our security, and/or as a result of this Term Sheet.
Page 5 of 6
Term Sheet for Spectrum Signal Processing Inc. Bank of Montreal
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April 8, 2002
Direct Tel: 000-000-0000
Spectrum Signal Processing Inc.
One Spectrum Court
#200 - 0000 Xxxxxxxxxx Xxx
Xxxxxxx, X.X.
V5A-4X1
Attention: Xxxxxx XxXxxxxxx, C.A.
Dear Sir:
Attached please find two original copies of a revised Term Sheet, which will
supercede any previous Term Sheet between the Bank and Spectrum Signal
Processing Inc.
Assuming you are in agreement with the Term Sheet attached, please initial each
of the five pages on one of the two original copies, and return same to the
attention of the undersigned, along with a signed copy of this cover letter as
indicated.
This financing offer is open for acceptance until 4:00 p.m. April 12, 2002, at
which time it will lapse.
Yours truly,
/s/ X. Xxxxxx Darts
X. Xxxxxx Darts
Senior Account Manager
We accept and agree with the Terms and Conditions as detailed in the Term Sheet
dated April 8, 2002.
Spectrum Signal Processing Inc.
Per: /s/ Xxxxxx Xxxxxxxxxx Dated: April 8, 2002
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Per: /s/ Xxxxxx XxXxxxxxx Dated: April 8, 2002
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