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EXHIBIT 10.38
[BANK OF AMERICA LOGO]
CONFIDENTIAL
08/22/96
Educational Medical, Inc.
0000 Xxxxxxxxxxx Xxxxxxx, #000
Xxxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxxx & Xx. Xxxxx Xxxxxx
Gentlemen:
On behalf of Bank of America, FSB ("Bank" or "Bank of America"), I am
pleased to commit the following terms and conditions of credit. These terms
and conditions are not all-inclusive but generally describe the commitment
offered to you.
1. Borrower
The proposed borrowers are Educational Medical, Inc. and all of its
subsidiaries (hereafter collectively referred to as "EMI").
2. Credit Facilities
a) Revolving Line of Credit for $5 million, with availability not to exceed
80% of eligible accounts receivable (to be defined in the "Loan Documents"
defined below), to be used for general operating needs and working capital.
The Revolving Line of Credit would expire three years from the date of
inception of the facility and would have two one year extension options
beginning in year two at the sole discretion of the bank.
In addition to cash advances, up to $1 million in outstanding Letters of
Credit may also be provided under the Revolving Line of Credit, for the
issuance and maintenance of, or for having caused to be issued and
maintained, standby letters of credit, for approved purposes to be
specified in the Loan Documents. The tenor of the L/Cs shall not extend
beyond the term of the Revolving Line of Credit, nor extend beyond one
year.
b) Acquisition Line of Credit for up $12.5 million, to be used for
acquisitions of additional schools. The Acquisition Line would be limited
to a maximum of $5.0 million during the first year of the facility,
increasing to $7.5 million in the second year, and to $12.5 million in the
third year, provided however that each such increase would be subject to
the absence of any event of default under the Loan Documents and to the
satisfaction of other conditions to be specified in the Loan Documents.
The Acquisition Line of Credit would expire three years from the date of
inception of the facility and would have two one year extension options
beginning in year two at the sole discretion of the bank.
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08/22/96, Page 3
Facilities. The Facility Fees for the second and third year would be due
on the first and second anniversary dates of the closing respectively, and
will be charged only on the incremental increase of the total credit
commitment.
- A L/C fee at the rate of 1.5% per annum, calculated on the basis of 360 days
for actual days elapsed, would be payable monthly on the average undrawn
amounts of all letters of credit, in addition to the amount of any costs or
expenses incurred by Bank in connection with any letter of credit opened.
- Commitment fees on the unused amount of the Credit Facilities, payable
monthly, as follows:
Revolving Line of Credit
Sr. Funded Debt/Adjusted Cash Flow Commitment Fee
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1.5 to 2.0 .375%
1.0 to 1.5 .250%
less than 1.0 .250%
Acquisition Line of Credit
Sr. Funded Debt/Adjusted Cash Flow Commitment Fee
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1.5 to 2.0 .500%
1.0 to 1.5 .375%
less than 1.0 .250%
The commitment fee for the Acquisition Line would be waived for year one, if no
usage occurs. However, if usage occurs under the Acquisition Line during the
first year, the commitment fee will be due for the entire one year period based
on the average unused amount.
See Adjusted Cash Flow and Funded Debt definitions in paragraph 8.
6. Loan Documents
The commitment of the Bank to provide the Credit Facilities is subject to the
negotiation, execution and delivery of all loan, security and other agreements,
notes, guarantees, financing statements and other documentation giving effect to
the terms and conditions hereof as the Bank shall determine to be necessary or
appropriate, together with customary certificates and legal opinions
(collectively, the "Loan Documents"), in form and substance satisfactory to the
Bank. The Loan Documents shall contain conditions precedent, representations
and warranties, covenants, capital adequacy provisions, indemnification
provisions, events of default, provisions for reimbursement of expenses and
other terms and conditions consistent with the terms hereof, portions of which
are described more particularly below, all as shall be satisfactory to the Bank,
as well as other terms and conditions as the Bank shall determine to be
appropriate for this transaction (which may be in addition to or different from
those stated herein). All pre-closing conditions stated in the Loan Documents
must be met prior to funding.
7. Covenants
The following is a partial list of covenants and conditions which would be
included in the Loan Documents. Unless otherwise specified in writing by us,
all financial covenants are to be calculated according to generally accepted
accounting principles consistently applied. Each financial covenant will be
further defined in the Loan Documents.
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- EMI would be required to maintain the following financial ratios, tested
quarterly and pro forma in connection with acquisitions:
- Total Funded Debt/Adjusted Cash Flow of 3.0 times.
Adjusted Cash Flow would be defined more particularly in the Loan
Documents but generally would mean trailing 12-month net income plus
non-cash charges minus capital expenditures (excluding capital
expenditures for acquisitions). Includes the cash flow of schools
acquired, adjusted for non-recurring charges.
Funded Debt would be defined more particularly in the Loan Documents but
generally would mean indebtedness for money borrowed and for guarantees,
and represented by notes payable, bonds, debentures, capitalized lease
obligations, guarantees, letters of credit, etc.
- Maximum Senior Funded Debt (excludes subordinated debt with subordination
provisions satisfactory to Bank)/Adjusted Cash Flow of 2.0 times.
- Fixed Charge Coverage Ratio of 1.75 times: Fixed Charge Coverage Ratio
would be defined more particularly in the Loan Document but generally
would mean EBITDA minus capital expenditures divided by [the sum of
Interest Expense plus Rents plus CMLTD].
- Minimum Net Work of $30 million as of FYE 3/97, $33 million as of FYE
3/98, $35 million as of FYE 3/99. The Minimum Net Worth requirement
would be adjusted by the amount that net equity obtained at closing is
less than or more than $25.5 million.
- Maximum ratio of Total Liabilities: Tangible Net Worth of 2.75 times,
with Tangible Net Worth defined as Book Net Worth minus goodwill and
intangible assets plus seller debt. Seller debt to be unsecured and
subordinate to the Bank and contain blockage and standstill provisions
acceptable to the Bank.
- Restrictions on capital expenditures for purchasing fixed or capital
assets.
- Compliance with Title IV funding terms and conditions required to
maintain eligibility for schools representing in aggregate not less than
80% of the total operating contribution of all of the schools owned by
EMI.
- Limitations on dividends, advances to affiliates, distributions of
capital, etc.
- All of the proceeds (net of no more than $5 million of exiting debt to be
repaid with the Initial Public Offering proceeds) being obtained from the
initial public offering described in Section 8 to be used prior to draws
being available under the Acquisition Line of Credit.
- Bank of America's prior consent required for any acquisition (a) with a
consideration, plus any assumption of liabilities, in excess of $10 million
that does not require use of the Acquisition Line of Credit; (b) of schools
that were unprofitable during the prior 12 months, (c) that would be made
when the availability under the Revolving Line of Credit is less than $3
million (or would be on a pro forma basis) or when an event of default was
in existence under the Loan Documents or would result from such acquisition
or (d) with a consideration, plus any assumption of liabilities, in excess
of $5 million that requires use of the Acquisition Line of Credit.
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- No new indebtedness without Bank's prior consent, except for:
1. trade credit and other operating accruals
2. limited amounts of additional indebtedness for buying fixed or
capital assets
3. limited additional indebtedness for acquisitions: provided
however, that any such indebt3dness must be on terms satisfactory
to the Bank.
- No liens or security interests other than in favor of Bank on any
property except for limited amounts for purchase money security
interests in fixed or capital assets subsequently acquired or purchase
money seller notes on terms satisfactory to the Bank.
- Restrictions and provisions relating to:
- leases
- dividends
- increase in compensation
- change in ownership
- voluntary suspension of business
- payment of taxes
- hazardous wastes
- certain representations and warranties required by Bank
- insurance
- maintenance of business and corporate good standing
- Standard Events of default that will include, among other things:
- failure to pay principal, interest, or other sum due
- loans plus L/Cs being in excess of availability calculations
- material adverse change
- material misrepresentation
- violation of financial covenants or other provisions of the Loan
Documents
- adverse governmental action
- default of other obligations
- false financial information
- voluntary or involuntary bankruptcy
- Reporting requirements that will include, among other things:
- annual CPA-audited financial statements within 120 days after the
end of each fiscal year.
- 10-K and 10-Q reports due within 5 days of filing, 8-K reports
due within 1 day of filing.
- quarterly financial statements within 45 days, to include
separate income statements for each of the schools.
- monthly financial statements within 30 days after the end of such
period.
- a borrowing base certificate to be provided within 45 days after
the end of each quarter, and pro forma in connection with any
acquisition that the Acquisition Line of Credit will be drawn
for.
- quarterly report of compliance and eligibility under Title IV Program
regulations.
8. Conditions and Additional Terms
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Closing of the Credit Facilities will be subject to various conditions
precedent satisfactory to the Bank, including, without limitation, the
following:
* new equity obtained from a public stock offering to be not less than
$22 million, with not more than $5 million of the proceeds used to pay off
existing debt.
* no material adverse change in the operations, financial conditions or
business prospects of EMI, or change in business composition or management
* completion of the Loan Documents
* satisfaction by the Bank that it has obtained a perfected first
priority security interest in all assets of EMI, subject to no liens except
as approved by the Bank
* satisfactory review by the Bank of all litigation, proceedings and
injunctions pending or threatened against EMI
* satisfactory review by the Bank of EMI's compliance with all applicable
laws, including Title IV
* satisfactory review by the Bank of all affiliate transactions
* satisfactory review by the Bank of all material contracts
* receipt of all required shareholder and board of directors authorizations
and third party consents
* satisfactory completion of the Bank's credit and legal due diligence
9. Costs
You agree to reimburse us for the expenses incurred in connection with this
credit commitment, including those incurred after the credit closes.
These expenses may include, without limitation, our legal costs
and costs of preparing Loan Documents (including the allocated costs of
in-house counsel), any filing, search, escrow, and recording fees and other
costs (collectively "closing costs"), and are payable even though the terms
and conditions of this commitment change or the extension of credit is not
consummated.
In order for us to proceed with preparing documentation to this
commitment, Bank must receive a deposit of $35,000, to be used for the
closing costs. Any excess is refundable to you or may be credited to other
costs. In addition, you agree to reimburse Bank for any additional costs
or expenses that exceed the amount of your deposit, including any such
expenses incurred after the credit closes. The Bank to provide an estimate
of legal costs.
10. Disputes. Any disputes between you and us arising prior to closing
concerning the commitment summarized in this letter or the interpretation
of this letter, will be received by binding arbitration, according to the
Commercial Rules of the American Arbitration Association. The loan
documents will contain provisions for reference and arbitration of any
disputes that may arise after the closing of this credit.
This letter is issued solely for the benefit of EMI and the Bank and except
as expressly provided below, no provision hereof shall be deemed to confer
rights on any other person or entity. This letter may not be assigned by EMI
to any other person or entity, but all of the obligations of EMI hereunder
shall be binding upon the successors and assigns of EMI. The Bank shall the
right to assign or sell participations in, its rights under this letter and the
Loan Documents and any such assignee or participant shall, to the extent of its
interest, have all the rights and enjoy all the benefits of Lender hereunder.
This letter, together with the Loan Documents, shall be governed by and
construed in accordance with the laws of the State of Georgia without regard to
the principles of conflicts of laws. This letter may be executed in any number
of separate counterparts, each of which shall, collectively and separately,
constitute one
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agreement. This letter may be amended or modified only in a writing signed by
Bank and EMI. This letter supersedes all understandings and agreement among
the parties in respect of the transactions contemplated hereby, including,
without limitation, those set forth in any proposal letter previously issued by
the Bank with regard to the transaction contemplated hereby.
EMI shall indemnify and hold harmless the Bank and its officers, directors,
employees, agents, advisors, attorneys and affiliates (each an "Indemnified
Party") from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, fees and disbursements of counsel)
which may be incurred by or asserted against any Indemnified Party, in each
case in connection with or arising out of or by reason of any investigation,
litigation or proceeding arising out of, related to or in connection with this
letter and transactions contemplated hereby, except to the extent arising out
of the gross negligence or willful misconduct of any Indemnified Party. The
provisions of this paragraph shall survive any termination of this letter and
the transactions contemplated thereby.
If you wish to accept this commitment, please sign and return a copy of
this letter, accompanied by your check for $15,000, no later than August 23,
1996. If you do not respond by that time, or if yo do respond but the credit
does not close by October 31, 1996 for any reason, this commitment will expire.
Further, if between the time you accept this commitment and the date of
closing, a condition precedent to our extension of credit is not met, or there
is a material adverse change in you financial condition, or your business
composition or management changes, then we have the right to rescind this
commitment.
Thank you for the opportunity to offer this commitment.
Very Truly Yours
Bank of America, FSB
/s/ Xxxxxx X. Xxxxxx, Xx.
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Xxxxxx X. Xxxxxx, Xx.
Vice President
Accepted:
Educational Medical Inc. individually and on behalf of all its subsidiaries
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by: /s/ Xxxxx Xxxxxx
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08/23/96
