Exhibit 10.2


 


OFFER LETTER


 


Information
contained in this document is confidential and should not be disclosed,
copied or discussed with any other person(s) not directly involved with the
proposal without the prior written approval of BMO Bank of Montreal. A formal
commitment by BMO Bank of Montreal will require formal authorization through
BMO Bank of Montreal’s internal credit approval process.


 


	
  Borrower:

  	
   

  	
  Tucows.com Co

  
	
   

  	
   

  	
   

  
	
  Lender:

  	
   

  	
  BMO Bank of Montreal (the
  “Bank”/ “Lender”/ “BMO”)

  
	
   

  	
   

  	
   

  
	
  Existing Credit Facilities:

  
	
   

  	
   

  	
   

  
	
  Credit
  Facility # 1 (Existing)

  	
   

  	
  Demand Loan Non-Revolving,
  Reducing Facility

  
	
   

  	
   

  	
   

  
	
  Amount:

  	
   

  	
  USD 2,103,483.60 (As of
  August 30,2010)

  
	
   

  	
   

  	
   

  
	
  Loan Purpose:

  	
   

  	
  To assist in the acquisition of Innerwise
  Inc. Advanced in July 2007.

  
	
   

  	
   

  	
   

  
	
  Availability:

  	
   

  	
  At the Borrower’s option by way of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a)

  	
  US
  Base Rate based loans; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b)

  	
  LIBOR with terms of 3 or 6 months subject
  to availability of funds. Repayment permitted only on rollover date.

  
	
   

  	
   

  	
   

  
	
  Repayment:

  	
   

  	
  To be repaid in equal monthly payments of
  USD 159,520.15 plus interest.

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  a)

  	
  BMO Bank of Montreal US Base Rate based
  loans: U.S. Base Rate + 1.30% (amended from U.S. Base Rate +1.50%);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b)

  	
  LIBOR
  based loans: LIBOR + 3.25%.

  
	
   

  	
   

  	
   

  
	
  Credit
  Facility # 2 (Existing)

  	
   

  	
  Treasury Risk Management
  Facility

  
	
   

  	
   

  	
   

  
	
  Amount:

  	
   

  	
  USD 3,500,000.00

  
	
   

  	
   

  	
   

  
	
  Loan Purpose:

  	
   

  	
  Settlement risk line to assist with hedging
  USD exposure via Foreign Exchange Forward Contracts and / or Currency
  options. Maximum 18 month contracts at market rates.

  
	
   

  	
   

  	
   

  
	
  Proposed Credit Facilities:

  
	
   

  	
   

  	
   

  
	
  Credit
  Facility # 3 (Proposed)

  	
   

  	
  Operating Demand Loan
  (“ODL”) 

  
	
   

  	
   

  	
   

  
	
  Amount:

  	
   

  	
  USD 1,000,000.00

  
	
   

  	
   

  	
   

  
	
  Loan Purpose:

  	
   

  	
  Operating requirements.

  
	
   

  	
   

  	
   

  
	
  Availability:

  	
   

  	
  To be available in Canadian or US Dollar
  equivalent. Not subject to Margin.

  



 


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  Repayment:

  	
   

  	
  Direct advances are to fluctuate widely
  with periodic clean-up on a minimum annual basis. Interest is payable monthly
  in arrears.

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  BMO Bank of Montreal U.S. Base Rate +1.30%
  payable monthly in arrears.

  
	
   

  	
   

  	
   

  
	
  Facility Fees:

  	
   

  	
  A monthly monitoring fee of $500.00 in
  regards to the provision of the facility. This does not include standard
  transaction charges for account activity.

  
	
   

  	
   

  	
   

  
	
  Credit
  Facility #4 (Proposed)

  	
   

  	
  Demand Loan Non-Revolving,
  Reducing Facility

  
	
   

  	
   

  	
   

  
	
  Amount:

  	
   

  	
  USD 2,000,000.00

  
	
   

  	
   

  	
   

  
	
  Loan Purpose:

  	
   

  	
  To finance repurchase of shares of the
  Borrower.

  
	
   

  	
   

  	
   

  
	
  Availability:

  	
   

  	
  At the Borrower’s option by way of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  a)              US Base Rate
  based loans; and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b)             LIBOR with
  terms of 3 or 6 months subject to availability of funds with minimum draws of
  USD 500,000 and multiples of USD 100,000 thereafter.

  
	
   

  	
   

  	
  Repayment permitted only
  on rollover date.

  
	
   

  	
   

  	
   

  
	
  Repayment:

  	
   

  	
  Amortized over 60 months. Equal monthly
  principal payments plus interest.

  
	
   

  	
   

  	
   

  
	
  Amortization:

  	
   

  	
  60 months.

  
	
   

  	
   

  	
   

  
	
  Interest Rate:

  	
   

  	
  a)              BMO Bank of Montreal US
  Base Rate based loans: U.S. Base Rate + 1.30% (amended from U.S. Base Rate
  +1.50%);

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  b)             LIBOR based loans: LIBOR +
  3.25%.

  
	
   

  	
   

  	
   

  
	
  Standby Fees:

  	
   

  	
  0.20%. Payable on the undrawn available
  aggregate of Facility #4. This fee is payable quarterly in arrears. (Standby
  Fees is waived till first Draw).

  
	
   

  	
   

  	
   

  
	
  Conditions
  Precedent:

  (Specific to Facility# 4)

  	
   

  	
   

  
	
   

  	
   

  	
  1.               Satisfactory due diligence
  review of the Borrower based on most recent interim financial statements of
  the Borrower;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.               Confirmation of compliance
  with all financial covenants based on most recent quarterly financial
  statements;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.               No material adverse change
  in the financial condition or the performance of the Borrower prior to
  advance;

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.               No event of default shall
  be in existence nor shall any Event of Default be created upon advance of the
  Loan (i.e. Borrower must be in compliance with covenants on a pro-forma basis
  after giving effect to the subject financing);

  



 


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  5.               Execution of Promissory
  Notes.

  



 


	
  GENERAL TERMS AND CONDITIONS

  
	
   

  	
   

  	
   

  
	
  Availability:

  	
   

  	
  ODL facility and DLNR
  facility are on a demand basis and may be terminated in whole
  or in part and amounts outstanding there under shall be payable in whole or
  in part upon demand by the Bank, notwithstanding the payment or non-payment
  of principal interest or fees by the Borrower or compliance or non-compliance
  with any undertaking or covenant given to the Bank herein or elsewhere.

  
	
   

  	
   

  	
   

  
	
  Conditions

  Precedent:

  	
   

  	
  1.               Execution and delivery of
  acceptable credit and security documentation which embodies the terms and
  conditions contained herein.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2.               Payment of all fees and
  expenses payable to the Bank including (if required) the payment of Lender’s
  counsel.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3.               There shall not have been
  a Material Adverse change, as determined in the sole discretion of the Bank.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4.               Acceptance by the Borrower
  of the Bank’s Offer Letter.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  5.               Satisfactory legal opinion
  if required.

  
	
   

  	
   

  	
   

  
	
  Representations
  and Warranties:

  	
   

  	
  Those usual and customary for transactions
  of this type, including but not limited to (a) confirmation of corporate
  status and authority, (b) no material adverse change, (c) no
  existing security interests, and (d) compliance with laws including
  environmental laws and regulations and other environmental matters.

  
	
   

  	
   

  	
   

  
	
  Additional
  Mandatory Repayments:

  	
   

  	
  Mandatory repayments shall be required as
  follows:



  A percentage of Annual Excess Cash Flow,
  based on the following schedule, within 120 days of each fiscal year-end
  based on audited year-end financial results:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  % of Annual Excess Cash Flow

  	
   

  	
  Total Funded Debt to EBITDA

  	
   

  
	
   

  	
   

  	
  75%

  	
   

  	
  > 2.50:1.00

  	
   

  
	
   

  	
   

  	
  50%

  	
   

  	
  <2.50:1.00 to > 1.75:1.00

  	
   

  
	
   

  	
   

  	
  25%

  	
   

  	
  <1.75:1.00

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Annual Excess Cash Flow means EBITDA on a
  consolidated basis less all scheduled principal payments on debt, cash taxes
  paid or payable for that period and cash interest expense but before any
  dividend payments. Payments to be applied as permanent reduction to Facility
  #1 and Facility # 4 in inverse order of maturity. Operating Demand Loan
  balances are not subject to cash-flow sweep repayment.

  
	
   

  	
   

  	
   

  
	
  Non-Financial
  Covenants:

  	
   

  	
  Usual, including maintenance of insurance;
  payment of taxes; disposition of major assets; compliance with statutes and
  with environmental standards; Reporting Requirements as set out above;
  notices of default on a timely basis; no material judgments; access to books
  and records; no assumption of additional debt or guarantee obligations by the
  Borrower except for leases and/or purchase money security interests entered
  into with respect to capital expenditures to a maximum of the covenant limits
  hereunder in any consecutive 12-month period; and no payment of dividends.

  



 


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  So Long as the Borrower is indebted to the
  Lender, the Borrower and/or Corporate Guarantors agree that without the prior
  written consent of the Lender acting reasonably.

   

  Amalgamation and Mergers. The Borrower
  and/or Corporate Guarantors shall not amalgamate merge or reorganize with any
  corporation without the prior written consent of the Lender, which consent
  shall not be unreasonably withheld;

   

  Change of Control. There shall
  be no change in control of the Borrower and /or Corporate Guarantors without
  the prior written approval of the Lender which shall not be unreasonably
  withheld. Notwithstanding the foregoing, changes in the ownership of the
  issued and outstanding shares of the company, as the case may be, shall be permitted
  if such changes do not affect the control exercised directly or indirectly on
  the Borrower and/or Corporate Guarantors. While share repurchase is
  permitted, Borrower shall be in compliance with all Financial Covenants pre
  and post share repurchase;

   

  Assets Subject to
  Security. The Borrower and/or Corporate Guarantors shall
  not in any fiscal years, sell, alienate, assign, lease or otherwise dispose
  of any fixed asset, machinery, equipment or immovable property subject to the
  Security unless in the normal course of business;

   

  Negative Pledge. Except for
  permitted encumbrances, the Borrower and/or Corporate Guarantors shall not
  create, assume or permit to exist any, security interest, charge or other
  encumbrances on any of its assets, revenues and on its properties ranking or
  purporting to rank prior to or pari passu with
  or after the Security;

   

  Permitted Debt. The Borrower
  and/or Corporate Guarantors shall not incur any debt other than the Lender’s
  credit facilities. Any renewal, extension or refinancing of the debts
  mentioned in this paragraph will be permitted provided that the principal
  amount of such Debt shall not be increased nor shall the security granted in
  relation thereto be extended to cover additional property or to secure
  additional Debt. The Borrower and/or Guarantors shall not incur any new Debt
  or new operating leases if the Borrower is in breach of its Financial
  Covenants. If any Breach of covenants has occurred and is continuing, The
  Borrower and/or Corporate Guarantors may not incur any new debt including,
  without limitation, Subordinated Debt.

  
	
   

  	
   

  	
   

  
	
  Financial
  Covenants:

  	
   

  	
  At all times, the Borrower will observe and
  maintain the following financial covenants based on the Borrower’s
  consolidated financial statements (to be calculated on a rolling 4-quarter
  basis unless otherwise indicated).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  1. Maximum Senior Funded
  Debt to EBITDA: 2.00:1

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  2. Maximum Total Funded
  Debt to EBITDA: 2.50:1

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  3. Minimum Fixed Charge
  Coverage: 1.25:1

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  4. Maximum Annual Capital
  Expenditures capped at $3,600,000.00 per annum, based on management forecast, and to be reviewed on
  an annual basis. Subject to covenant compliance both before and
  after such expenditures.

  



 


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  Definitions:

  	
   

  	
  EBITDA = Earnings as defined in
  the Company’s consolidated financial statements prepared in accordance with
  Generally Accepted Accounting Principals (GAAP) before cash interest expense
  (i.e. accrued interest gets added back), taxes on earnings, depreciation and
  amortization, but excluding dividend, interest and extraordinary or
  non-recurring other income as set out in the financial statements (such
  latter items to be agreed-upon by BMO).

   

  Senior Funded Debt = the credit
  facilities hereunder and all interest bearing debt not subordinated to the
  credit facilities hereunder. For greater clarity, Senior Funded Debt shall
  include, but not be limited to capital leases, guarantees and PMSI’s but will
  exclude any settlement risk associated with forward contracts.

   

  Total Funded Debt = Senior
  Funded Debt plus sub-debt (if applicable), but excluding investor sub-debt
  where rights of acceleration are prohibited until full repayment of the
  senior debt hereunder, as set out under an inter-creditor agreement with the
  senior debt lenders hereunder, and will also exclude any settlement risk
  associated with forward contracts.

   

  Fixed Charge Coverage
  Ratio = EBITDA less cash taxes paid or payable in that period, less
  unfunded capital expenditures, less unfunded share repurchase and less dividends
  paid, divided by the aggregate of fixed principal repayments and cash
  interest expenses payable in respect of Total Funded Debt.

  
	
   

  	
   

  	
   

  
	
  Fees:

  	
   

  	
  The
  standard application fee of $9,500.00 is now payable to the Bank.

   

  This fee is acknowledged by the Borrower to
  represent reasonable compensation duly earned by the Bank for its time,
  effort and expense in reviewing all documents and information provided by the
  Borrower, in establishing the terms of the financing offer and for
  reservation by the Bank of funds for purposes of providing the credit
  facilities contemplated hereby, and not as a penalty.

  
	
   

  	
   

  	
   

  
	
  Reporting
  Requirements:

  	
   

  	
   

  
	
   

  	
   

  	
  Quarterly (within 45 days
  of quarter end):

   

  Internally prepared quarterly consolidated
  financial statements of the Tucows Inc. (includes Borrower), supported by
  Management Discussion and Analysis including variance analysis providing
  explanations for material variances between actual results and projections
  presented to the Bank. A Borrower signed quarterly compliance certificate will
  confirm all financial covenant positions. Certified aged accounts receivable
  and accounts payable lists are to be provided as part of the quarterly
  reporting package.

   

  Annually (within 120 days
  of fiscal year end):

   

  Audited annual consolidated financial statements
  of Tucows Inc. (includes Borrower), supported by Management Discussion and
  Analysis including variance analysis providing explanations for material
  variances between actual results and projections presented to the Bank.

   

  Annual
  consolidated business plan of Tucows Inc. (includes Borrower), for the next
  fiscal year, comprising of a minimum of a balance sheet, income statement
  operating budget, cash flow statement, capital and/or lease expenditures
  schedule, tax liabilities, and major assumptions utilized to be provided no
  later than 15 days prior to the end of the then current fiscal year.

  



 


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  Security:

  (Already Held)

  	
   

  	
  All security already held by the Bank
  remains in place unaltered.

  
	
   

  	
   

  	
   

  
	
  Security:

  (To be Obtained)

  	
   

  	
  1.               Promissory Notes for each Draw for
  financing for share redemptions.

  
	
   

  	
   

  	
  2.               Executed
  Offer Letter.

   

  3.               Operating
  Demand Loan Agreement.

   

  4.               Necessary LIBOR Agreements.

   

  5.               Letter of
  Acknowledgement Signed by the Borrower acknowledging that the cash-flow sweep
  is waived on a one-time basis and does not set a precedent to future actions
  of the Bank.

   

  6.               Such other documentation as may be
  necessary to establish the Facilities.

  
	
   

  	
   

  	
   

  
	
  Expenses:

  	
   

  	
  All
  reasonable out-of-pocket costs and expenses incurred by the Bank including fees
  and disbursements of legal counsel will be for the account of the Borrower
  after acceptance of an Offer Letter, whether or not the transaction
  contemplated herein is completed.

  
	
   

  	
   

  	
   

  
	
  Acknowledgement

  	
   

  	
  The
  Borrower(s) acknowledges that the Credit Facilities contained herein are
  for use by the Borrower and will be used for the Borrower’s business purposes
  only.

  
	
   

  	
   

  	
   

  
	
  Governing
  Law:

  	
   

  	
  Province
  of Ontario

  
	
   

  	
   

  	
   

  
	
   

  	
  Summary of Terms and
  Conditions is hereby accepted:

  
	
   

  	
   

  
	
   

  	
  TUCOWS.COM CO. (“BORROWER”)

  
	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
  /s/
  Michael Cooperman, Chief Financial Officer of Tucows Inc., September 10, 2010

  	
   

  
	
   

  	
   

  	
   

  	
  Name/Title/Date

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
  /s/
  Reva Kogan, Controller of Tucows Inc., September 10, 2010

  	
   

  
	
   

  	
   

  	
   

  	
  Name/Title/Date

  	
   

  
							



 


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