September 25, 2002
CHL Holdings Corp. and
Interstate National Dealer
Services, Inc.
000 Xxxxx Xxxxxxxx Xxxxxxxxx
000 Xxxxx Xxxxxxxx Xxxxxxxxx
Xxxxxxxxx, X.X. 11553-9340
Attention: Xxxxxxx X. Xxxx,
Chairman and Chief Executive Officer
Re: Term Loan (the "LOAN") for "Going Private" Merger Transaction
Gentlemen:
JPMorgan Chase Bank (the "BANK") is pleased to submit this letter and
the annexed Outline of Certain Conditions and Terms (together this "COMMITMENT
LETTER"), summarizing many of the terms and conditions under which it has
approved the Loan. Among other things, such approval is subject to the
satisfactory completion of the Bank's due diligence with respect to the
Transaction (as defined in the said Outline) and to the execution and delivery
of final documentation for the Loan satisfactory in all respects to the Bank and
its counsel.
The obligation of the Bank to make the Loan is, in addition to the
other conditions set forth in this Commitment Letter, subject to: (i) receipt by
the Bank of (A) the written acceptance of this Commitment Letter, and (B) the
accompanying fee Letter signed by CHL Holdings Corp., Xxxxxxx X. Xxxx and Xxxxx
Xxxx, and (ii) receipt by the Bank of any fees required to be paid at such time
pursuant to such fee letter, by 5 P.M. on September 27, 2002. The Bank may
terminate this Commitment Letter if (i) any matter pertaining to the Loan or the
Transaction has been or is misrepresented by any of the Obligors (as defined in
the said Outline) in any application previously executed and delivered by any of
the Obligors to the Bank with respect to the Loan, or otherwise; (ii) at any
time prior to the initial funding under the Loan, any material adverse change
shall occur with respect to any of the Obligors or with respect to any material
portion of any of the collateral for the Loan, or any other material source of
repayment of the Loan; (iii) in the reasonable opinion of the Bank, any of the
Obligors shall be insolvent or would be rendered insolvent by the Transaction;
(iv) any of the Obligors becomes the subject of any arrangement, bankruptcy,
reorganization, or insolvency proceeding; or (v) there shall be any litigation
determined by the Bank to be potentially material and adverse with respect to
the Transaction.
No statements, agreements, or representations, oral or written, that
may have been made either by the Bank or by any employee, agent, or broker
acting on behalf of the Bank with respect to this Commitment Letter or the Loan,
shall be of any force or effect except to the extent stated in this Commitment
Letter, and all prior agreements and representations with respect to this
Commitment Letter and the Loan are merged herein so that this Commitment Letter
shall
contain the entire agreement with respect to the Loan. This Commitment Letter
may not be (i) changed, except by written agreement signed by the Obligors and
the Bank, or (ii) assigned by the Obligors by agreement, operation of law, or
otherwise, unless the Bank shall consent, in writing, to such assignment. Any
purported assignment without the Bank's written consent shall be ineffective
and, at the Bank's option, result in a termination of the commitment contained
herein and the retention of all fees theretofore paid to the Bank.
By their acceptance hereof, the Obligors hereby agree to indemnify and
hold harmless the Bank, its affiliates and their respective officers, directors,
employees, advisors, and agents (each, an "INDEMNIFIED PERSON") from and against
any and all losses, claims, damages and liabilities to which any such
indemnified person may become subject arising out of or in connection with this
Commitment Letter, the Loan, the use of the proceeds thereof, the Transaction,
any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless or whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
legal or other expenses incurred in connection with investigating or defending
any of the foregoing, provided that the foregoing indemnity will not, as to any
indemnified person, apply to losses, claims, damages, liabilities or related
expenses to the extent they are found by a final, non-appealable judgment of a
court to arise from the gross negligence or willful misconduct of such
indemnified person. No indemnified person shall be liable for any special,
indirect, consequential or punitive damages in connection with this Commitment
Letter, the Loan or the Transaction. The foregoing indemnification provisions
shall remain in full force and effect regardless of whether the Loan closes.
Upon our receiving the Obligors' acceptance of this Commitment Letter,
the aforesaid fee letter and any required fees, we shall authorize our attorneys
to prepare the necessary documentation, the charges for which CHL Holdings
Corp., Xxxxxxx X. Xxxx and Xxxxx Xxxx have, jointly and severally, agreed to
pay, whether or not any or all of this proposed financing is completed. This
Commitment Letter shall expire at 5:00 p.m. on January 15, 2003, if no portion
of the Loan has been funded by then.
THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. This Commitment Letter may
be executed in any number of counterparts, each of which shall be an original,
and all of which, when taken together, shall constitute one agreement. Delivery
of an executed signature page of this Commitment Letter by facsimile
transmission shall be effective as delivery of a manually executed counterpart
hereof.
The items contained and referenced within this Commitment Letter and
such fee letter are for the confidential use of the Obligors and are to be
disclosed only to those parties whom you reasonably deem to have an integral
role in connection with this proposed financing or the Transaction, or who have
been approved by the Bank in its reasonable discretion. We at JPMorgan Chase
Bank are looking forward to working with you on this matter.
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If you have any questions, please do not hesitate to call Xxxxxxx X.
Xxxxxxxxx at (000) 000-0000 or Xxxxxx X. Xxxxxxxxx at (000) 000-0000.
Sincerely,
JPMORGAN CHASE BANK
By: /s/ Xxxxxx X. Xxxxxxxxx
-------------------------
Xxxxxx X. Xxxxxxxxx
Vice President
Accepted and agreed to
this 26th day of September, 2002:
INTERSTATE NATIONAL DEALER SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxx
--------------------------------
CHL HOLDINGS CORP.
By: /s/ Xxxxx X. Xxxx
--------------------------------
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OUTLINE OF CERTAIN CONDITIONS AND TERMS
Obligors: The "OBLIGORS" under the loan documents to be signed at
closing are defined, collectively, as (i) Interstate
National Dealer Services, Inc., a Delaware corporation (the
"BORROWER"), and (ii) CHL Holdings Corp., a Delaware
corporation ("CHL") whose stock will be owned entirely by
Xxxxxxx, Xxxxx and Xxxx Xxxx (the "XXXX FAMILY"), and which
will be merged into the Borrower in connection with the
Transaction, as more particularly described below. The
foregoing assumes that the Borrower will have no direct or
indirect subsidiary at closing other than National Service
Contract Insurance, Inc. ("NATIONAL"), Warranty Direct,
Inc., X-Xxxxxxx.xxx, Inc. and Interstate National Dealer
Services of Florida, Inc. If, in fact, there is one or more
other subsidiaries, then (i) each such other subsidiary
shall guaranty payment of all of the Borrower's and CHL's
obligations to the Bank with respect to the Loan, and (ii)
the Borrower (and any other equity holder) shall pledge all
of their stock or other interests in each such other
subsidiary to the Bank pursuant to documentation
satisfactory to the Bank. With the structure currently
envisioned, upon Merger Effectiveness (defined below) the
Borrower shall be the sole obligor under the note evidencing
the Loan, and CHL shall cease to exist.
Purpose of Loan: The Loan is intended to provide the funds to be paid to
stockholders of the Borrower (other than Xxxx Family
members) in exchange for their stock and to retire stock
options and warrants (including those held by Xxxx Family
members) in connection with a merger transaction under
Delaware law, pursuant to which CHL will be merged into the
Borrower, the Borrower will be the surviving entity and the
Borrower's only remaining stockholders will be Xxxx Family
members (the "MERGER"). The Merger will be effected pursuant
to a merger agreement, certificate of merger (the
"CERTIFICATE") and other documents governing or effectuating
the same (collectively, the "MERGER DOCUMENTS"). (The
Merger, filing of the Certificate, retirement of options and
warrants, payments to option holders and stockholders and
the resulting exclusive ownership and control by the Xxxx
Family is referred to in this Commitment Letter as the
"TRANSACTION").
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Amount of Loan
Funding of Loan: The Bank will initially lend the sum of $18,000,000 to CHL;
CHL having theretofore directed that all of the Loan
proceeds be wired directly to the Paying Agent for the
Transaction (the "PAYING AGENT"). The Loan proceeds will be
held in escrow by the Paying Agent until the filing of the
Certificate in Delaware and the effectiveness of the Merger
under Delaware law ("MERGER EFFECTIVENESS"). During this
escrow period the Bank shall have a perfected first priority
security interest in such Loan proceeds which will
immediately terminate upon Merger Effectiveness.
The Bank will also require that an escrow agreement (or
equivalent) be in place during the pendency of Merger
Effectiveness, pursuant to which the Paying Agent will be
required to refund the full Loan proceeds to CHL, who will
irrevocably direct that they be paid directly to the Bank,
in the event that Merger Effectiveness is not achieved by
5:00 p.m. on the first business day after the delivery of
such Loan proceeds to the Paying Agent. Upon Merger
Effectiveness, all of the obligations of CHL to the Bank
will be assumed by the Borrower, and $5,000,000 of the
original ($18,000,000) Loan will be repaid as set forth
below. At the time of the funding of the Loan (to the Paying
Agent as aforesaid), the Borrower shall have established an
account at the Bank (which the Bank shall be permitted to
block) containing at least $5,000,000, and $5,000,000 will
be applied by the Bank to effect such immediate repayment
upon Merger Effectiveness. Also upon Merger Effectiveness,
the Bank will have a perfected first priority interest in
such account and the monies therein, which security interest
will be discharged when the Bank actually pays to itself the
sum $5,000,000 as contemplated above.
Collateral: (i) A portfolio of marketable securities (which will be held
by a custodian acceptable to the Bank) in one account in the
name of the Borrower. The investment of the pledged
collateral will be managed by MD Sass Investors Services,
Inc., subject to the terms, conditions and investment
parameters specified in a certain document entitled "Exhibit
A, Investment Guidelines Interstate National Dealer
Services, Inc." heretofore presented to the Bank, which
shall remain in full force and effect throughout the term of
the Loan. The Borrower may not substitute another investment
manager without the prior written consent of the Bank, which
consent shall not be unreasonably withheld.
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The value of such pledged investment collateral shall be
determined in accordance with the Bank's standard margin
requirements. At all times, the value of such collateral (as
determined in accordance with the immediately preceding
sentence) must equal or exceed 105% of the total of (x) the
outstanding principal balance of the Loan (but not counting
the $5,000,000 to be repaid upon Merger Effectiveness, as
long as the said $5,000,000 is held in the blocked account
as aforesaid), (y) the Bank's exposure (determined by the
Bank in accordance with its standard procedures) with
respect to the interest rate hedge(s) referred to below, and
(z) the Bank's aggregate exposure with respect to standby
letters of credit heretofore (or hereafter) issued at the
request of the Borrower, independent of this Commitment
Letter.
(ii) A pledge by the Borrower of all of the issued and
outstanding shares of National.
The foregoing collateral grants by the Borrower shall become
effective upon Merger Effectiveness.
Certain Fees: Fees must be paid as and when required under a separate fee
letter of even date herewith.
Interest Rate: The Borrower shall choose between LIBOR plus 175 basis
points (the "APPLICABLE LIBOR RATE") and the Prime Rate
minus 75 basis points (the "APPLICABLE PRIME RATE").
"LIBOR" refers to the Bank's standard reserve adjusted one,
two, three or six -month LIBOR rate, which is subject to
availability and illegality as determined by the Bank in its
sole discretion.
"PRIME RATE" shall mean the rate per annum announced by the
Bank from time to time as its prime rate in effect at its
principal office in New York City; each change in the Prime
Rate shall be effective on the date such change is announced
to become effective.
Provided that (i) no event of default has occurred and is
continuing, (ii) any applicable interest rate swap agreement
has terminated, and (iii) the Borrower has paid all
obligations under any such swap agreement (including any
early termination fees), and other loan documents, the
Borrower shall have a one time right, at the end of any
applicable interest period, to switch the interest rate from
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the Applicable LIBOR Rate to the Applicable Prime Rate, or
vice versa, as applicable.
Required Hedge: The Borrower shall be required to enter into one or more
interest rate swap transactions so that the entire
principal balance of the Loan, at any point in time, shall
carry an effective fixed rate of interest. Any exposure of
the Bank with respect to such swap transactions shall be
secured by all collateral for the Loan.
Maturity: Five years from the date of the funding of the Loan (the
"MATURITY DATE").
Payments: Assuming a full financing of the ($18,000,000) Loan and an
immediate repayment of $5,000,000 upon Merger
Effectiveness, there will be 59 monthly payments of
principal, each in the amount of $108,333, commencing one
month after the date of Merger Effectiveness, followed by a
final (balloon) payment of the entire unpaid principal
balance on the Maturity Date.
Cash Flow Recapture; At the time of the delivery of the annual audited financial
Other Use of Excess statements required for the Borrower Group (defined below)
Cash Flow: (as set forth below) beginning with such statements for the
fiscal year ending October 31, 2003, the Borrower shall
also submit payment to the Bank of an amount equal to 25%
of the Excess Cash Flow (defined below) of the Borrower
Group. Such payments shall be applied against installments
of the Loan in inverse order of maturity. For purposes of
the foregoing, "EXCESS CASH FLOW" shall be defined as net
income for such fiscal year, plus depreciation and
amortization for such year, plus or minus other non-cash
charges or credits for the same year, minus capital
expenditures for such year, minus long-term debt principal
payments for such year. Following the close of each of the
three fiscal years ending October 31, 2003, 2004 and 2005,
up to 75% of the Excess Cash Flow for such year may be
distributed to members of the Xxxx Family who are
stockholders in the Borrower, except that for each of the
first two such years, the aggregate of such payments shall
not exceed $2,000,000, and for the third such year the
aggregate amount thereof may not exceed $1,000,000.
(However, Excess Cash Flow which could have been available
amounts to be distributed to Xxxx Family members but for
the foregoing limitation may be carried
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forward for purposes of determining what can be distributed
to such persons in the following year, but only to and
including the payment to be made on account of the fiscal
year ending October 31, 2005. In no event, however, shall
the aggregate amount of all distributions to Xxxx Family
members exceed $5,000,000 for such three year period.)
Prepayment: If Prime pricing is in effect, there will be no premium
payable but partial prepayments must be in multiples of
$100,000. If LIBOR pricing applies, any prepayment during an
interest period must be accompanied by the Bank's standard
LIBOR indemnification fee (as determined by the Bank in
accordance with its standard procedures), and must also be
in a multiple of $100,000 if it is A partial prepayment. All
partial prepayments of the Loan shall be applied to
installments of principal in inverse order of maturity. All
prepayments shall be accompanied by accrued interest on the
principal amount being prepaid to the date of prepayment. In
the event a prepayment of the Loan occurs after an event of
default has occurred, the applicable prepayment
indemnification fee (as set forth above) will be enforced.
However, when a mandatory prepayment is being made for cash
flow recapture purposes, the Bank will hold such payment as
cash collateral (which will be kept in an interest bearing
account accruing interest at the Bank's standard money
market rate) until the end of the applicable interest
period(s), if necessary to avoid the incurrence of a
prepayment indemnification fee. Amounts prepaid on the Loan
may not be re-borrowed.
Certain Conditions 1. The Bank's receipt of a legal opinion from counsel to
of Lending: each of the Obligors. Among other things, counsel for the
Borrower must opine that (i) the pledges of all collateral
required under this Commitment Letter are duly authorized,
valid, binding and enforceable, and do not violate any laws,
rules or regulations that are material in any way to the
Borrower or the conduct of the Borrower's business, and (ii)
the Transaction has been duly authorized and validly
implemented in accordance with applicable securities and
corporations statutes, rules and regulations.
2. The Bank's receipt of (i) a "fairness opinion" from the
investment bank for the Transaction (or from another entity
acceptable to the Bank) addressed to the board of directors
of the Borrower, which opinion shall provide that
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it may be relied upon by the Bank, and (ii) a second opinion
letter from an investment bank or another entity, (which
bank or other entity is acceptable to the Bank, in the
Bank's sole discretion) addressed to the Bank, which opinion
must conclude that immediately prior to and immediately
after the closing of the Transaction, the Borrower's
assumption of CHL's obligations with respect to the Loan and
the pledges of all collateral required hereunder
(collectively, the "TRANSITION Events"), the Borrower is and
shall remain solvent as measured by each of a balance sheet,
cash flow and capital adequacy test. The Bank hereby
confirms that language substantially the same as is set
forth on Exhibit A hereto will be acceptable for purposes of
the solvency opinion, provided that the assumptions,
exclusions and other parts of such opinion are also
acceptable The Bank further confirms that the firm of Xxxxxx
Xxxxx & Co., Inc. will be acceptable for purposes of the
solvency opinion, absent a material adverse change in such
firm after the date hereof.
3. The Bank shall be satisfied, in its sole discretion, with
results of its due diligence investigation of: (i) all
resolutions of the Borrower's board of directors pertaining
to the Transaction, including, without limitation, those
adopting any "rights plan" or other "poison pill"; (ii) all
Merger Documents and all related documentation including,
without limitation, any provisions therein concerning any
"no shop agreement", "break-up fee" or similar device; (iii)
all proxy materials and other material documentation of any
kind bearing upon the history of all efforts to sell the
Borrower (or to find a merger partner or another disposition
of the Borrower, its stock or its assets) and the effort to
obtain stockholder approval for the Merger; (iv) the
independence of, and deliberative process engaged in by, the
special committee of the Borrower's board of directors
formed to evaluate the proposed plan for the Merger and
recommend its approval by the board; (v) the consideration
given by the said committee to objections from dissident
stockholders; (vi) the independence of counsel and all other
important advisors to the said committee; and (vii) all
other matters bearing directly or indirectly in any material
or potentially material way upon any aspect of the Merger,
the Transaction, the Loan or the Borrower's creditworthiness
with respect thereto, including, without limitation, any
class action or other litigation risk associated with any of
the foregoing.
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4. Upon Merger Effectiveness, there shall be no litigation
(whether or not seeking any injunctive relief) challenging
any aspect of the Transaction, which the Bank determines, in
its sole discretion, to be material or potentially material,
and adverse.
5. The Bank shall approve the identity of the said
investment bank and the Paying Agent. The Bank hereby
approves Xxxx Xxxxx Xxxx Xxxxxx, Incorporated as the former,
and Continental Stock Transfer and Trust Company as to the
latter, subject to the exercise of the Bank's discretion
under paragraph 3 above.
6. The final number of shares subject to being purchased
through the exercise of options and warrants, which options
and warrants are being retired, and the final number of
shares potentially subject to being purchased as part of the
Transaction, and the aggregate cost of the Transaction to
the Borrower (both out-of-pocket expenditures and assumed
indebtedness), must be approved by the Bank, in its sole
discretion.
7. The Bank's receipt of certified copies of all
organizational documents of National and each of the
Obligors, good standing certificates and incumbency
certificates for each such entity, and certificates of
resolutions authorizing the execution, delivery and
performance of all documents pertaining to the Loan and the
Transaction by each of the Obligors.
8. The Bank's receipt of lien searches showing that all
collateral for the Loan and all other assets of the Obligors
and National are free and clear of all liens, except for
immaterial equipment lease encumbrances incurred in the
ordinary course of business and acceptable to the Bank.
9. The Bank's receipt of all documentation concerning its
security interest in the Loan proceeds prior to Merger
Effectiveness and the escrow arrangements involving the
Paying Agent and CHL as set forth above (the "PRE-MERGER
SECURITY DOCUMENTS"), a loan agreement governing the Loan
(the "LOAN AGREEMENT"), a pledge and security agreement
(with respect to the investment property collateral of the
Borrower held by the aforesaid custodian), a control
agreement among the Bank, the Borrower and the said
custodian, a pledge agreement with respect to the shares of
National, together with stock certificates and
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stock powers (with respect to such shares of National), and
all other documentation requested by the Bank consistent
with this Commitment Letter.
10. The Borrower shall warrant (on the basis of reasonable
due diligence and reasonable inferences drawn by the
Borrower), and the Bank shall be satisfied that, the
Borrower will be in compliance with all financial covenants
in the Loan Agreement as of October 31, 2002. (For purposes
of this Commitment Letter, "GAAP" shall mean generally
accepted accounting principles in the United States,
consistently applied.)
11. The Bank shall be satisfied, in its reasonable
discretion, that the Borrower will be solvent within the
meaning of all applicable debtor-creditor and bankruptcy
laws immediately after the effective time of the grant of
all collateral by the Borrower.
12. The Bank's receipt of such of certificates, searches,
opinions and other items as the Bank may request as part of
its due diligence with respect to the Loan and the
Transaction.
13. The Bank's receipt of all third-party consents, waivers
or agreements required by contract, law or otherwise, as
determined by the Bank with respect to the Transaction or
the Loan.
14. The Bank's reasonable determination that all conditions
precedent to the closing under the Merger Documents have
been satisfied, or waived with the Bank's approval.
15. Satisfaction of all other conditions of lending
indicated elsewhere in this Commitment Letter.
Note: All items required under foregoing paragraphs 1, 2, 7,
8, 9, 10, 12 and 13 must be in form and substance
satisfactory to the Bank, in its sole discretion.
Other Terms and Financial Statements: The Loan Agreement shall contain
Conditions ongoing financial reporting obligations of the Obligors
Applicable to including, without limitation, requirements for the delivery
the Loan: of: (i) annual consolidated and consolidating and audited
(by an independent CPA acceptable to the Bank) financial
statements for the Borrower and its subsidiaries (including
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National and hereinafter the "BORROWER GROUP") within 90
days after the end of each of the Borrower's fiscal years;
(ii) quarterly and semiannual management prepared financial
statements (consolidated and consolidating as aforesaid) for
the Borrower Group, within 45 days of the close of each such
period; (iii) upon receipt, copies of all actuarial reports
received by any of the Obligors; and (iv) "no default"
certificates prepared by the auditor in the case of the
annual statements and by management in the case of the
quarterly and semi-annual statements, with calculations
showing compliance with all financial covenants in the Loan
Agreement, which certificates shall accompany the said
annual, quarterly and semi-annual statements referred to
above. All of the foregoing shall be in form and substance
satisfactory to the Bank. The Loan Agreement will also
provide that the Bank will have access to the Borrower
Group's books and records including, without limitation, all
information pertaining to the adequacy of reserves.
Future Guarantors: All future subsidiaries of the Borrower
or National, who are legally permitted to do so, shall be
required to become guarantors of the Loan pursuant to
documentation satisfactory to the Bank in all respects. The
Borrower or National, as applicable, shall be required to
pledge to the Bank all of their stock and other interests in
any such new guarantor, pursuant to documentation
satisfactory to the Bank.
Loan Sales: The Bank reserves the right to sell and assign
the Loan and/or participation or other interests therein to
such banks and other financial institutions as it may
choose, without the consent of any of the Obligors or of
National.
Cross Default: The Loan Agreement shall specify that (i) a
default under any other obligation of any Obligor to the
Bank in any amount, or (ii) a default beyond applicable
periods of notice and grace to any other creditor on account
of an obligation in an aggregate amount in excess of
$250,000, shall constitute a default under the Loan
Agreement.
Late Payment
Charge: If any installment payment on the Loan is not paid within
fifteen (15) days after the date on which it is due, the
Borrower shall pay to the Bank, upon demand, an amount equal
to 3% of such unpaid payment to defray the expenses
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incurred by the Bank in handling and processing such
delinquent payment, and such amount shall be deemed secured
by all applicable collateral.
Default Rate: If the Loan becomes due and payable, whether by acceleration
or otherwise, the Borrower shall pay interest on the
principal balance of the Loan then outstanding at a per
annum rate equal to five (5) percentage points plus the
interest rate then in effect under the note evidencing the
Loan.
Interstate: Interstate National Dealer Services, Inc. shall not be
obligated hereunder prior to the closing of the transactions
contemplated hereby.
Legal Fees; Out of
Pocket Expenses: All expenses of the Bank associated with the proposed
financing including, without limitation, search fees, and
all fees of the Bank's counsel in performing due diligence
and in negotiating and drafting documents for, and the
closing of, the Loan, are for the account of the Obligors,
whether or not the said financing is completed.
Documentation;
Loan Agreement: The Pre-Merger Security Documents, the Loan Agreement, all
notes, control agreements, security agreements, pledge
agreements and other documents with respect to the Loan
shall be satisfactory to the Bank in all respects. The Loan
Agreement will contain representations, warranties and
affirmative and negative covenants, events of default
(including, without limitation, (A) for decisions or orders
directing payment of claims by the Borrower, judgments
against the Borrower (whether or not appealed or bonded) or
settlements of claims against the Borrower outside the
ordinary course of business, in excess of $1,000,000 in the
aggregate, and (B) for material adverse changes with respect
to the Borrower and its subsidiaries, taken as a whole) and
other provisions, (e.g. ERISA provisions, yield maintenance,
capital adequacy, governing law (New York), ongoing matters
indemnities and other indemnities, jury trial waiver) which
are not set forth in this Commitment Letter but, in the
Bank's judgment, are appropriate for transactions of this
type. Affirmative covenants shall include, without
limitation, requirements for immediate notice of litigation
concerning appraisal rights or otherwise pertaining in any
way to the Transaction, as well as customary notice
requirements of other potentially adverse
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developments. The negative covenants shall include, without
limitation, prohibitions (subject to customary exceptions
for transactions of this type and borrowers of this type) on
indebtedness, liens, guaranties, acquisitions, mergers,
asset sales, payment of distributions or dividends (subject
to the aforesaid permitted distributions of Excess Cash Flow
to Xxxx Family members) and changes in control. Such
prohibitions will include, without limitation, any lien
(except in favor of the Bank) of any kind on assets of any
Obligor or National, other than certain liens arising by
operation of law or in connection with equipment lease
transactions, approved in writing by the Bank. The Loan
Agreement will also require that Xxxxxxx Xxxx and Xxxxx Xxxx
remain active in day-to-day management of the Borrower and
National throughout the term of the Loan. The Loan Agreement
will also contain financial covenants which will include,
without limitation the following (all of which shall be
determined on the basis of the consolidated results for the
Borrower Group for each period in question):
Debt Service Coverage Ratio. The Debt Service Coverage Ratio
(defined as the ratio of EBITDA minus Capital Expenditures
over Current Portion of Long-Term Debt plus Interest on
Funded Debt) shall not be (i) less than 1.10x at the end of
any fiscal quarter in fiscal year 2003; (ii) less then 1.25x
at the end of any fiscal quarter to fiscal year 2004; or
(iii) less than 1.50x at the end of any fiscal quarter in
fiscal year 2005, or for any fiscal quarter thereafter. Such
ratio shall be calculated using the trailing four quarters'
results for each component of the numerator, and an
annualized calculation of the most recently completed
quarter for the Interest component in the denominator.
Capital Expenditures. Capital Expenditures may not exceed an
aggregate of $500,000 in any fiscal year.
Net Worth. Net Worth as of October 31, 2002 shall equal or
exceed $19,000,000.
Minimum EBITDA. EBITDA for the fiscal year ending October
31, 2002 shall not be less than $2,300,000.
Note: For purposes of all of the (applicable) foregoing
financial covenants, EBITDA will be calculated by adding
back expenses, which have been recognized in the income
statement in determining earnings, or as
deductions/reductions against Net Worth, and which are
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directly related to the Transaction. All accounting terms
used above (and not defined above) shall have the meanings
assigned to them under GAAP.
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Exhibit A
i) with respect to the Borrower, immediately before and after giving
effect to the Transition Events (a) the fair value of the Borrower's
total assets would exceed the Borrower's total liabilities (including
all contingent liabilities, accounted for in accordance with a fair
estimate of the probability that such liabilities will become actual);
(b) the present fair saleable value of the Borrower's total assets
would be greater than the Borrower's probable liabilities on its debts
as such debts become absolute and mature; (c) the Borrower would be
able to pay all of its debts and other liabilities as they mature; and
(d) the capital remaining in the Borrower after the Transition Events
would not be unreasonably small for the business in which the Borrower
is engaged, as management has indicated it is now conducted and is
proposed to be conducted following consummation of the Transition
Events; and
ii) the value of the aggregate assets of the Borrower will exceed the
total liabilities (including all contingent liabilities valued as set
forth above) of the Borrower plus the stated capital of the Borrower,
both immediately before and after completion of the Transition Events.
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