EXHIBIT (b)(1)
July 12, 2001
Xxxx X. Xxxxx
X. X. Acquisitions, LLC
0000 Xxxxx Xxxxx Xx.
Xxxxxxx, XX 00000
Dear Xxxx:
As a follow-up to our recent conversations, I am pleased to be able to make this
commitment to you and X.X. Acquisitions, LLC. Dubuque Bank & Trust is pleased
as well, to be able to offer financial support for the proposed acquisition of
Eagle Point Software.
LOAN COMMITMENT
Borrower: Eagle Point Software Corporation
Lender: Dubuque Bank & Trust Company ("DB&T")
Guarantor: Xxxx X. & Xxxxxx Xxxxx, unlimited, secured by company stock
and marketable securities held jointly and individually. All
other guarantees given by Xxxx X. Xxxxx and Xxxxxx Xxxxx
shall be subordinate to the Guaranty made in favor of Lender
and shall be in a form acceptable to Lender.
Facility: A.) $6,300,000 Secured Amortizing Line of Credit
B.) $1,500,000 Secured Revolving Line of Credit
Purpose: Proceeds under the Facility will be used to pay the merger
consideration of $6.40 per share to the shareholders and
option holders of Eagle Point Software Corporation.
Maturity: A.) Five (5) years
B.) One (1) year
Amortization: The Amortizing Line of Credit will amortize in annual
installments of principal commencing two (2) year after
Facility closing date and based on a 15-year amortization
schedule, with the balance due at maturity. Monthly
installments of accrued interest shall be commencing one (1)
month after the Facility closing date.
Sweep Feature: Excess cash balances shall be swept daily from collected
funds in the company checking account and applied to
principal balances on the outstanding balances held on the
Revolving Line of Credit, and when paid to zero ($0), then
applied to principal balances outstanding on the Amortizing
Line of Credit. As funds are needed to cover checking
account activities, advances will be made from the
Amortizing Line of Credit up to the $6,300,000 maximum
principal amount minus any principal payments and then from
the Revolving Line of Credit up to the $1,500,000 maximum
principal amount.
Security: First security position on the Borrower owned real estate;
General Business Security Agreement or other instruments or
agreements necessary or appropriate to obtain a first
priority security interest in all of Borrower's assets,
including Xxxxxxxx's intellectual property (e.g. copyrights,
trademarks, patents, etc.) and deposit accounts; Assignment
of Life Insurance on the life of Xxxx X. Xxxxx in the
minimum amount of $2,000,000; guaranty of any affiliate of
Xxxx X. Xxxxx or Xxxxxx Xxxxx, including any entity to which
Borrower stock is transferred in contemplation of the
Purpose of this Loan Commitment; a pledge of marketable
securities owned by Xxxx X. Xxxxx and/or Xxxxxx Xxxxx,
together with possession of certificated shares or an
appropriate Control Agreement for any brokerage or
investment account, including all shares of Eagle Point
Software Corporation.
Interest Rate: A combination of fixed and variable rate pricing will apply
to the Amortizing Line of Credit according to the following
schedule. In addition, pricing for the Revolving Line of
Credit shall follow the Summary Pricing Matrix below. At no
time will the interest rate fall below 7.50% or climb above
10.50% (the collar).
. $4,000,000 fixed at a rate of 9.00%.
. $2,300,000 floating at Wall Street Journal Prime,
announced from time to time plus the applicable margin
described in the Interest Margin section and further
defined in the Summary Pricing Matrix, calculated on an
actual day 360-day basis and payable monthly in arrears.
A collar of 7.50% - 10.50% shall apply.
Interest Margins: The applicable Prime margins shall be the percentage per
annum set forth in the Summary Pricing Matrix below for the
appropriate level. The level shall be determined quarterly
by the Leverage Ratio, defined as Total Liabilities divided
by Tangible Net Worth. Margins at all levels shall be
considered void in the event of a default, at which time the
default rate of 15.00% will be imposed.
Summary Pricing Matrix
Term Loan Level I Level II Level III
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Leverage Ratio *1.0x **1.0 & *2.0x **2.0x
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Prime Margin -1.00% 0.00% 1.00%
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Prepayments: If paid prior to maturity from another lender, Xxxxxxxx
agrees to pay a prepayment penalty equal to the following:
. 3-months interest if paid in years 1-2
. 2-months interest if paid in years 3-4
. 1 months interest if paid in year 5
No prepayment penalty shall be charged if Borrower pays
principal before maturity through the normal course of
business using excess cash flows.
Upfront Xxx: Xxxxxxxx agrees to pay an Upfront Fee of .50% to the Lender
at closing.
* less than
** greater than or equal to
Break-up Fee: Xxxxxxxx agrees to pay a break-up fee equal to $25,000 if
this transaction does not close for any reason other than
those imposed on behalf of the Lender.
Financial Covenants: Financial covenants will include, but not be limited to,
the following:
. Minimum Fixed Charge Coverage (DSCR), defined as
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EBITDA, calculated on a trailing four quarter basis,
divided by the sum of Maturities and Interest Expense
over the same period of 1.50x beginning the fifth
quarter after loan closing and continuing thereafter.
. Maximum Leverage Ratio, defined as Total Liabilities
----------------------
to Tangible Net Worth (Net Worth minus Goodwill &
Amortization). For this purpose, Net Worth will
include the Senior Subordinated Debt not to exceed
$2,250,000 and the Junior Subordinated Debt not to
exceed $750,000. This ratio shall be at or below
3.50:1 from the date of closing to June 30, 2004,
3.0:1 at FYE 2005, 2.5:1 at FYE 2006.
. Maximum Capital Expenditures of $750,000 in any fiscal
----------------------------
year without the prior consent of the Lender.
. Minimum Tangible Net Worth of $5,000,000 at June 30,
--------------------------
2002, $4,000,000 at June 30, 2003, $3,000,000 at June
30, 2004, $3,500,000 at June 30, 2005 and $4,500,000
at June 30, 2006.
. Maximum Owner Compensation, defined as salary, bonus,
--------------------------
dividends (other than Permitted S Corporation
Dividends) and any other compensation, shall not
exceed $150,000 annually without the prior written
consent of Bank.
Permitted S Corporation Dividends will equal the net
income of Borrower for federal income tax purposes
times the maximum effective federal and state combined
tax rates then in effect for an Iowa resident, during
any period in which the Borrower has elected S
Corporation status under the Internal Revenue Code.
Other Covenants: Usual covenants for Facilities and transactions of this type
including, but not limited to:
. Negative Pledge of Assets: The Borrower will not pledge
assets to secure any other indebtedness without the
prior consent of Lender.
. Xxxxxxxx agrees to name Xxxxxx as loss-payee on company
insured assets and maintain that insurance throughout
the term of the loan.
. Borrower shall not make any acquisitions of other
businesses without the prior consent of the Lender,
which consent shall not be unreasonably withheld.
. No dividends shall be paid to any individual in excess
of those outlined under "Maximum Owner Compensation" in
this Commitment Letter.
. All legal, tax and regulatory matters shall be
satisfactory to the Lender.
. No default or potential default shall exist.
. The negotiation of credit and security documents
satisfactory to the Lender.
. Receipt of customary closing documentation, including
the legal opinions of the Borrower and Guarantor's
counsel, acceptable to the Lender
. No material adverse change in the financial condition,
prospects, operations or properties of the Borrower
shall have occurred since the last FYE audited financial
statements or in projections provided to the Lender.
. Agreements shall be received from the Subordinated
Lenders in which they agree to suspend payment of all
principal and interest if the Borrower is out of
compliance on any loan covenant and will remain
suspended until such time Borrower is again in
compliance with said loan covenants or by waiver of the
Lender.
. Properly executed Intercreditor Agreements between the
Lender and any Subordinated Lenders will be provided.
. Lender reserves the right to observe any duly called
board meeting of JB Acquisitions, LLC, Talon Acquisition
Corp and Eagle Point Software Corporation commencing
immediately after the close of this Facility. This right
shall carry no voting authority. The Board may go into
executive session to consider confidential matters
without the Bank's observer present.
Reporting Requirements:
. Annual audited financial statements for the Borrower
within 120 days of FYE.
. Monthly company-prepared financial statements for the
Borrower within 30 days of month-end
. Copy of the Borrowers operating budget for the next
fiscal year no later than 30 days prior to each fiscal
year.
. Such other information and reports reasonably requested
by DB&T. All reports and financial statements will be in
form and scope reasonably acceptable to DB&T, including
comparison to budget and prior comparable period.
. Annual personal financial statements and tax returns for
the guarantors, Xxxx & Xxxxxx Xxxxx.
. Quarterly covenant compliance certificates signed by the
President or Chief Financial Officer within 45 days of
quarter-end.
Assignments & Participations: DB&T will be permitted to sell participations to
others at the Lenders sole discretion.
Fees: The Borrower shall pay all reasonable costs and expenses of
DB&T associated with the preparation, due diligence,
administration and syndication of all documents executed in
connection with the Facility. Fees include, but are not
limited to legal counsel, abstracting and title work,
necessary appraisals and filing fees.
Expiry Date: This commitment letter shall expire on August 1, 2001 if not
accepted by that date.
As a condition of this commitment, Dubuque Bank & Trust requests the opportunity
to meet with you in order to present proposals for other banking services
including Employee Benefit Plans Administration, 401K, DB&T @ Work Program,
personal accounts and our Internet banking program - InBusiness.
We have been pleased to work with you on this exciting new direction for Eagle
Point Software and look forward to supporting you and your company going
forward. We believe there are great benefits to working with the area's largest
independent financial institution. DB&T offers a broad range of financial
services that only a larger bank can, but with the type of personal service and
responsiveness you expect from a community bank.
Thank you again for the opportunity. If you have any questions after reviewing
this commitment, please feel free to call me. I look forward to a long and
mutually beneficial business relationship.
Best regards,
/s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx
Vice President
Commercial Lending
Acceptance of this proposal will be completed by signing below as indicated.
Acknowledged this 12th day of July , 2001
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/s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
