Strategic Aerospace and Defence Initiative (SADI) Contribution Agreement Template

Schedule 3 - Repayments to the Minister (Conditional)

1. Definitions

For the purposes of Schedule 3 of this Agreement, unless the context or the Agreement indicates otherwise:

"Adjustment Factor"

means the multiplier applied to the Repayment Rate for purposes of calculating the amount of each Annual Repayment Due, determined in accordance with the provisions of paragraph 2.1 of this Schedule.

"Annual Repayment Due"

means the annual repayment payable by the Recipient to the Minister as set out in section 2 of this Schedule.

"Benchmark Year GBR"

means the GBR for the Recipient Fiscal Year which includes the Project Completion Date.

"Gross Business Revenues" or "GBR"

means revenue in the currency reported in the audited consolidated financial statements of the Recipient, as determined in accordance with generally accepted accounting principles applied on a consistent basis.

"Contribution"

means the total amount of the Contribution actually disbursed by the Minister to the Recipient under this Agreement.

"Maximum Amount to be Repaid"

means X.X times the Contribution.

"Project Completion Date"

means (XXX) [insert date].

"Repayment Period"

means the period of time determined in accordance with paragraph 2.2 of this Schedule.

"Repayment Rate"

means that percentage rate calculated as follows, without conversion of the Recipient's revenues into Canadian dollars in the event that the Recipient's revenues are reported in a foreign currency:
$\frac{\mathrm{ITO\; Contribution\; amount}}{(\mathrm{Benchmark\; Year\; GBR\; amount}\times \mathrm{Years\; to\; Repay})}$

"Years to Repay"

means (XX) years.

2. Repayments

The Recipient shall pay the Annual Repayment Due during each year of the Repayment Period in accordance with the following:

2.1 Repayment Calculation

The Annual Repayment Due shall be calculated annually based on the Repayment Rate and year-over-year change in GBR by application of the Adjustment Factor as outlined below.

Repayment Calculation

Annual Growth in Royalty Base		Adjustment Factor	Repayments
less than 0%	→	0	No repayments due
less than 0%	→	0	No repayments due
0% to less than or equal to X%	→	1	Nominal repayment, no adjustment
greater than X% to less than or equal to Y%	→	a	Royalty increased by AA%
greater than Y% to less than or equal to Z%	→	b	Royalty increased by BB%
greater than Z%	→	c	Royalty increased by CC%

The Annual Repayment Due shall be payable in Canadian dollars (CAD).

In the event that the Recipient's revenues are reported in a currency other than Canadian dollars, the Annual Repayment Due shall be calculated as if the amount of the Recipient's reported revenues were a Canadian dollar amount, and there shall be no adjustment made on account of the relative value of the Canadian and non-Canadian currencies.

The Annual Repayment due shall be calculated as follows:

Recipient's Fiscal Year GBR x Repayment Rate x Adjustment Factor

Example:

ITO Contribution = 1.5 million CAD
Benchmark Year GBR = 10 million USD
Years to Repay = 15 years

$\mathrm{Repayment\; Rate}=\frac{\mathrm{ITO\; contribution\; (CAD)}}{(\mathrm{Benchmark\; Year\; GBR\; (USD)}\times \mathrm{Years\; to\; Repay})}=\frac{\mathrm{1.5\; million\; CAD}}{(\mathrm{10\; million\; USD}\times 15)}=1.0\%$

Current Year Sales = 12 million USD
Prior Year Sales = 11 million USD

$\mathrm{Annual\; year-over-year\; Sales\; Growth}=\left(\frac{\mathrm{Current\; Year\; Sales}}{\mathrm{Prior\; Year\; Sales}}\right)-1=\left(\frac{\mathrm{12\; million\; USD}}{\mathrm{11\; million\; USD}}\right)-1=9.1\%$

Assume a 9.1% growth rate generates an adjustment factor of 1.5

2.2 Repayment Period

The Repayment Period will begin on the first day of the Recipient Fiscal Year following the Project Completion Date (as defined in Sub article 3.1 (a)), and will continue for the Years to Repay, or until such time as the Maximum Amount to be Repaid is reached, whichever occurs earlier.

2.3 Repayment Statements and Payments

Notwithstanding any other provisions contained in this Agreement or its Schedules, the Recipient shall provide the Minister with a statement of Gross Business Revenues audited by a third party for the purposes of establishing the Benchmark Year GBR, and thereafter shall provide audited statements of Gross Business Revenues annually within four (4) months following the end of each Recipient Fiscal Year. The annual statement of Gross Business Revenues shall include the Recipient's company name and SADI Project number.

The first Annual Repayment Due shall be payable within four (4) months following the end of the first Recipient Fiscal Year in which the Repayment Period starts. Subsequent Annual Repayment Due shall be paid within four (4) months following the end of the Recipient Fiscal Year in which the repayment accrues for the Years to Repay, or until such time as the Maximum Amount to be Repaid is reached, whichever occurs earlier.

The Annual Repayment Due shall be paid by cheque issued to the order of the Receiver General of Canada, and shall be sent to:

Industry Canada
7th Floor
235 Queen Street
Ottawa Ontario
K1A 0H5
Attn: Director, Program Policy and Management Director.

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2.4 Acquisitions/Mergers and Divestitures

1. In the event of an acquisition/merger or divestiture occurring at any time during the Benchmark Year, the Repayment Rate shall be calculated as if the acquisition/merger or divestiture had taken place on the date immediately preceding the first day of the Benchmark Year notwithstanding the definition of Repayment Rate set out in Section 1.
2. In the event of an acquisition/merger or divestiture affecting the GBR of the Recipient (Company P), the Repayment Rate will be changed so that the impact of the event upon the Annual Repayment Due will be neutral. The changed Repayment Rate becomes the Repayment Rate for the year of the event and future periods, unless there is a subsequent acquisition/merger or divestiture affecting the GBR of the Recipient.

In the case of the Acquisition / Merger with Company A:

FYE = Fiscal year end

$\mathrm{Modified\; Repayment\; Rate}=\frac{{\mathrm{Repayment\; Rate}}_{\mathrm{FYE\; prior\; to\; the\; event}}\times \left({\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}\right)}{({\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}+{\mathrm{GBR}}_{\mathrm{Company\; A:\; FYE\; prior\; to\; the\; event}})}$

Example:

Repayment Rate = 1%

Sales growth for the first year of the acquisition is calculated as follows:

$\mathrm{Sales\; Growth\; (\%)}=(\frac{{\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; of\; acquisition}}}{{\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}}+{\mathrm{GBR}}_{\mathrm{Company\; A:\; FYE\; prior\; to\; the\; event}})-1$

Example:

Modified Repayment Rate = .67%

If the adjustment factor for a 20% annual growth rate is 1.5, then the royalty rate for that year is $.67\%\times 1.5=1\%$ .

$\mathrm{Repayment\; due}=\mathrm{1,800,000}\times 1\%=\mathrm{18,000}$

In the case of the Divestiture within Company P:

FYE = Fiscal year end

$\mathrm{Modified\; Repayment\; Rate}=\frac{{\mathrm{Repayment\; Rate}}_{\mathrm{FYE\; prior\; to\; the\; event}}\times {\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}}{{\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}-{\mathrm{GBR}}_{\mathrm{divested\; sales,\; Company\; P:\; FYE\; prior\; to\; the\; event}}}$

Example:

Repayment Rate = 1%

Sales growth for the first year in which the divestiture takes place is calculated as follows:

$\mathrm{Sales\; Growth\; (\%)}=\frac{\left({\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; of\; divestiture}}\right)}{({\mathrm{GBR}}_{\mathrm{Company\; P:\; FYE\; prior\; to\; the\; event}}-{\mathrm{GBR}}_{\mathrm{divested\; sales,\; Company\; P:\; FYE\; prior\; to\; the\; event}})}-1$

Example:

Modified Repayment Rate = 2%

If the adjustment factor for a 10% annual growth rate is 1.5, then the royalty rate for that year is $2\%\times 1.5=3\%$ .

$\mathrm{Repayment\; due}=\mathrm{550,000}\times 3\%=\mathrm{16,500}$

2.5 Late Payments

Interest shall be payable on any portion of the Annual Repayment Due remaining unpaid, calculated and payable at the Interest Rate, from the date upon which the Annual Repayment Due is due, until payment in full has been received by the Minister. Interest shall be payable in accordance with the foregoing notwithstanding any other remedies available to the Minister in the event of Default by the Recipient under this Agreement.

Whenever any payment date under this section falls on a Saturday, Sunday or statutory holiday, payment will be due on the next day following which is not a Saturday, Sunday or statutory holiday.