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Task #3: Draft a separate debt note for each of the finalist borrowing options, that could be included in WEL's December 31, 2020 financial statements, should that option be selected. Ensure you show all required disclosures.Washago Enterprises Ltd. ("WEL") is a private company that reports under ASPE. The company is financed by 7,400,000 common shares and $46 million in long term debt. WEL is planning to expand its production operations to Western Canada by purchasing an existing facility in Edmonton, then embarking on a major upgrade of it. The total cost of the expansion is estimated to be $40 million. WEL's management team is looking for funding that will serve two purposes: To finance the company's expansion of production into western Canada; and To refinance a bond that was issued several years ago under unfavourable conditions. At the time, WEL's financial condition was much weaker. The lenders were able to demand a significantly higher interest rate than WEL is able to negotiate today. The only concession WEL was able to retain was a partial buyback provision that comes into force on November 1, 2020. Management has been talking to various lenders and has settled on two "finalists". 1. A Bank of Northern Ontario loan facility (see Appendix 1 for the term sheet agreed with the bank) 2. A new private bond issue (see Appendix 2 for a draft of the bond agreement). Despite the interest rate proposed in the draft debenture agreement, the expected yield on the bond will be 7.2%. WEL's discussions with the private lending group initially focused on a "plain vanilla" bond. However, the interest rate that the lending group was demanding, 8.7%, was rejected as a non-starter by WEL management. In order to make the final decision on which of the two finalist borrowings would be more suitable for WEL, you have been asked to do complete several tasks. The CFO has directed you to assume that the decision will be made in time to execute one or the other of the lending facilities by November 1, 2020, and the full amount of each facility would be drawn down on that date. WEL has a December 31 year end.Appendix 1: BNO Loan Facility Term Sheet Term Sheet - Loan Facility This loan facility is made on 2020 between the following parties: Washago Enterprises Ltd. The Bank of Northern Ontario Ltd. 1155 Regent Street 106 Bay Street Sudbury, ON Barrie, ON Canada Canada (Borrower) (Lender) together, the Parties. Background This Term Sheet sets out the commercial terms and conditions pursuant to which the Lender has agreed to provide a loan facility of up to CAD 65 million to the Borrower. Page 1 of 7Status of this Term Sheet Immediately upon execution of this Term Sheet, all the parties acknowledge that they have created legally binding obligations between them in accordance with the agreed terms set out below. Agreed Terms Loan facility Nature and The Lender has agreed to provide the Borrower with an interest-bearing loan facility purpose of the (Facility) for the purpose of providing the Borrower with medium term funding. facility Use of funds The use of funds will be limited to: the Borrower's ordinary course of business expenditures including those associated with the planned expansion into western Canada. For the avoidance of doubt expenditures must be arms-length, owing to unrelated third parties, and expressly exclude any related party transactions, distributions to shareholders, payments of the Borrower's Board and senior management salaries and/or bonuses and the like) approved in writing by the Lender (acting reasonably and in good faith); the repurchase of the Borrower's existing debenture, according to the repurchase terms of the debenture agreement; and the Lender's costs associated with the preparation of this Facility and associated securities. Amount of facility CAD 65 million. Interest Rate Interest will accrue and be paid monthly on the first day of the month, based on the outstanding principal from the date of the relevant advance or advances until the date of repayment at a rate of 7.6% per annum. Pre-conditions to The Lender is not obliged to provide the Facility to the Borrower until: availability of Facility on or before 1 November 2020 (or such later date as the parties may agree in writing), the Lender is satisfied, in its sole discretion, with its due diligence investigations in respect of the assets and liabilities, financial position, profit and loss, operational performance and prospects of the Borrower and the security which the Borrower is able to provide in respect of any moneys advanced under the Facility; the Borrower has granted in favour of the Lender first ranking security in a form acceptable to the Lender (in its absolute discretion) over all assets held by the Borrower); and the Lender has received a certified copy of a resolution of the directors of the Borrower: O confirming the solvency of the Borrower o certifying that as at the date of that resolution, no fact or circumstance has occurred. or in the reasonable opinion of the board of the Borrower, is likely tooccur on or before the date of the first drawdown which has or would have a material adverse effect on the ability of the Borrower to comply with its payment obligations in terms of the Facility o approving the terms and conditions of this Term Sheet; and O authorizing a director or other authorized representative to execute this Term Sheet on behalf of the Borrower. Drawdown Drawdowns are conditional on the Lender's approval which can be withheld in the Lender's procedure discretion (acting reasonably and in good faith) which discretion shall be confined to assessing whether or not the amount provided under the Facility will be used in accordance with the authorized use of the funds set out above and assessing and confirming that the Borrower is not in breach of any of the representations and warranties set out in this Term Sheet. All amounts will be provided in (and must be requested in) CAD in tranches of CAD 10 million, except the last tranche which must represent the balance of the Facility. Prior to drawing down on the Facility, the Borrower must provide the Lender with a written drawdown request: specifying the amount required and the use of those funds; confirming that the Borrower is not in breach of any of the representations and warranties set out in this Term Sheet; and signed by two authorized signatories (one of whom must be the CEO of the Borrower and the other, any of the independent directors of the Borrower). The Borrower must provide any other information which the Lender requires in respect of the proposed draw down (including, without limitation budgets, quotes, estimates, invoices etc. relating to the amount and intended use of those funds) to verify that the purposes of the drawdown is within the approved use of funds for moneys drawn down under the Facility. Repayment Term Any amounts outstanding under the Facility becomes immediately repayable in full on the earlier of: the termination of this Term Sheet (other than termination resulting from the conclusion of a formal agreement), or if a formal agreement was entered into incorporating the provisions of this Term Sheet, the formal agreement; . 7 years from the date of entering into this Term Sheet; the occurrence of an Event of Default (which is not remedied within the time period required to remedy such a default after notice to that effect from the Lender). Amounts outstanding under the Facility may be repaid earlier without any penalty. Set-Off The Lender may set off any amounts payable by the Lender (or a related body corporate of the Lender) in respect of the sale and purchase of the Sale Interest against the moneys owed to the Lender under the Facility. Security The Borrower will procure the grant in favour of the Lender first ranking security in a form acceptable to the Lender over all assets held by the Borrower.Prepayment Option The Borrower may prepay the Facility in whole or in part at any time without premium or penalty, subject to make-whole payments. In the case of any prepayment of the Facility, an amount equal to the excess, if any, of (i) the present value, as of the date of the relevant prepayment, of the respective installments of principal and of interest on the Facility that, but for such prepayment, would have been payable thereunder after such prepayment over (ii) the principal amount of the Facility then being prepaid Negative Pledge Except in relation to proposed asset sales by the Borrower which have been fairly disclosed in writing to the Lender before execution of this Term Sheet, the Borrower undertakes not to, without the Lender's consent (which will not be unreasonably withheld or delayed) to: dispose of any of its major assets; and grant any encumbrances over any of its major assets, including any assets comprising the Sale Interest. Event of Default An event of default will occur where: the Borrower fails to pay any amounts owing under the Facility as and when due; the Borrower fails to perform or observe any obligation under the Facility and does not remedy the failure within 5 Business Days after receipt of a notice; any present or future, or actual, prospective or contingent, indebtedness of the Borrower or members of the Borrower's Group in respect of any financial accommodation is or becomes due and payable or is or becomes capable of being declared due and payable before the due date for payment; any warranty, representation or statement by the Borrower is or becomes false, misleading or incorrect when made or regarded as made under this Term Sheet; . there is a material adverse change in the Borrower's or any member of the Borrower's Group assets, liabilities, financial position or prospects; and other customary events of default relating to the Borrower's solvency, or any member of the Borrower's Group solvency occur. The Borrower will be given 5 Business Days to remedy an event of default for failure to pay an amount owing to the Lender and 10 Business Days to remedy any other default other than insolvency type defaults) Representations The Borrower will represent and warrant (on signing and on again on each drawdown and and Warranties on each day that there remain amounts outstanding under the Facility) that: it has full power and authority to enter into and perform its obligations under the Term Sheet and has taken all necessary action to authorize the execution, delivery and performance of it; . the Term Sheet constitute legal, valid and binding obligations on the Borrower; entry into the Term Sheet does not result in the Borrower contravening any law or its constitution; entry into the Term Sheet does not place the Borrower in breach of a term of any other agreement; no event has occurred which constitutes an Event of Default; it is solvent and able to pay its debts as and when they become due and payable;all information furnished by the Borrower to the Lender in connection with this Term Sheet is true and correct in all respects and there are no other facts or circumstances of which it is aware that would render any such information misleading; the Borrower has not violated any law or agreements which may have a material adverse effect on the business or financial condition of the Borrower or any member of the Borrower's Group; and the Borrower has disclosed to the Lender any information which might reasonably be expected to adversely influence the decision of a lender to make a general corporate borrowings facility available to the Borrower on terms and conditions similar to those contained in this Term Sheet. It is acknowledged that the Lender and members of the Lender's group have not completed their due diligence enquiries and may require additional warranties to be provided by the Borrower in respect of any issues arising out of these inquiries. Indemnity The Borrower will indemnify the Lender for all loss that it suffers occurring as a result of an Event of Default or the Lender exercising its powers as a result of an Event of Default. Guarantee: The Borrower's Guarantor unconditionally and irrevocably guarantees to the Lender the due and punctual performance by the Borrower of its obligations under this Term Sheet. The Borrower's Guarantor waives any rights it has of first requiring the Lender to commence proceeding or enforce any other right against the Borrower or any other person before claiming under this guarantee. The Lender may treat the Borrower's Guarantor as a principal debtor jointly and severally with the Borrower. The guarantee is a continuing security and is not discharged by any one payment. Costs and The costs associated with the preparation of the Facility (including any formal agreements expenses required by the Lender) and associated securities is to be paid by the Borrower by way of a drawdown of funds under the Facility. Otherwise, each party bears its own costs. Confidentiality The parties must keep confidential the terms and conditions of the Facility and will only discuss or disclosure the terms and conditions of that loan facility if required by law or as otherwise authorized by the other party Formal If required by the Lender, the Lender will brief its attorney to prepare formal documents Documents incorporating the provisions set out above and other terms customarily found in a loan facility of this type Governing Law This agreement is governed by and construed in accordance with the laws of Canada. Each party submits to the non-exclusive jurisdiction of the Courts of Canada. Counterparts This Term Sheet may be signed in counterparts which together will constitute one instrument. A party may execute this Term Sheet by signing any counterpart. A party may execute this Term Sheet or any counterpart by facsimile. Binding Nature of This Term Sheet is intended to be a binding legal agreement between the parties which this Term Sheet becomes binding upon execution of this Term Sheet