August 15, 2000
CONFIDENTIAL
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Mr. Lloyd W. Baldridge, Jr.
VP & Chief Financial Officer
Commissary Operations, Inc.
2629 Eugenia Avenue
Nashville, TN 37211-2118
Dear Lloyd:
We refer to the Term Sheet attached hereto as Exhibit A (the "Term Sheet")
with respect to the proposed financing (the "Financing") to be provided by
Bank of America, N.A. (the "Bank", "we" or "us") to Commissary Operations,
Inc. (the "Borrower" or "you").
In connection with the foregoing and based on our discussions and on the
financial statements, projections and other information furnished to us, the
Bank is pleased to advise the Borrower of its commitment to provide the
Financing upon the terms and conditions set forth or referred to in this
commitment letter and in the Term Sheet.
Various terms essential to the Financing in addition to those set forth in
the Term Sheet, including other definitive business covenants, must still be
developed and agreed upon, and we specifically reserve the right to propose
additional terms. Moreover, the Term Sheet does not purport to include all
of the conditions, covenants, representations, warranties, defaults,
definitions and other terms which would be contained in the definitive
documents for the transaction, all of which must be satisfactory in form and
substance to the Bank and our counsel and to you and your counsel prior to
proceeding with the Financing.
Whether or not the transactions contemplated hereby are consummated, by the
Borrower's acceptance hereof: (a) the Borrower agrees to bear all reasonable
out-of-pocket expenses of the Bank (including costs of the Bank's due
diligence review and all examination costs and expenses, including a per diem
charge of $750 for each field exam auditor) and all fees and disbursements of
the Bank's counsel relating to the preparation of this letter and of the loan
documentation and to the transactions contemplated hereby and thereby, and
(b) the Borrower agrees to indemnify the Bank, its directors, officers and
employees, and to defend and hold the Bank and such other persons harmless,
from and against all losses, claims, damages, liabilities and expenses
(including expenses of litigation and preparation therefor) which the Bank or
such other persons may incur or which may be asserted against the Bank or
such other persons in connection with or arising out of the matters referred
to herein, except for damages resulting from the gross negligence or willful
misconduct of
Commissary Operations, Inc.
August 15, 2000
Page 2
the indemnitee. No such indemnitee shall be liable to the Borrower or any
other entity for any indirect or consequential damages in connection with the
Financing or this commitment letter.
The Bank acknowledges its previous receipt of $62,500 (the "Deposit") as a
deposit against such expenses as are described in the preceding paragraph.
The Deposit has been and may be applied immediately by the Bank against its
expenses and the balance, if any, may be applied against future expenses. In
the event that the Commitment Fee has not been paid, and either (a) the
Borrower declines for any reason to borrow from the Bank, or (b) the
financing transaction contemplated hereby is not consummated for any other
reason whatsoever (other than as a result of the Bank's failure to close in
breach of the terms of this commitment letter), the Bank shall be entitled to
retain the full amount of the Deposit as compensation for administrative
costs incurred and damages sustained, and the Borrower will pay all out of
pocket expenses incurred by the Bank, including legal and examination fees.
In addition to the Deposit, the Borrower agrees to pay to the Bank a
commitment fee (the "Commitment Fee") of $300,000, which, in accordance with
our proposal letter with you dated June 16, 2000, shall be payable on the
earlier of 10 days after the Bank's delivery of this letter to you and the
closing of the Financing contemplated hereby. Notwithstanding the fact that
the Commitment Fee is payable after the date hereof, and whether or not the
Financing closes, the full Commitment Fee shall be fully earned by the Bank
upon the issuance of this commitment letter by the Bank and shall not be
subject to refund or rebate.
This letter shall be of no further effect if we have not received a signed
copy hereof executed by you on or prior to 5:00 p.m. (Atlanta time) on August
21, 2000. In addition, if for whatever reason we have been unable to agree
to definitive credit terms and conditions and enter into a definitive
agreement prior to October 31, 2000, then, except for your obligations
described in the preceding two paragraphs, neither the Bank nor the Borrower
shall have any further obligation with respect to the Financing.
This letter and the Term Sheet, upon acceptance by you, constitute the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior and current understandings and agreements, whether
written or oral, and any modifications or amendments to this letter and the
Term Sheet must be agreed to in writing by all the parties hereto. This
letter may be executed in any number of counterparts, which together shall
constitute one instrument, and shall be governed by and construed in
accordance with the laws (other than the conflict of laws rules) of the State
of Georgia.
Commissary Operations, Inc.
August 15, 2000
Page 3
THE BORROWER AND THE BANK HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS LETTER,
ANY TRANSACTION RELATING HERETO, OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE.
This letter is delivered to the Borrower on the understanding that neither
this letter nor any of its terms or substance shall be disclosed, directly or
indirectly, to any other person except to the Borrower's employees, agents
and advisors who are directly involved in the consideration of this matter,
to such persons as may be necessary in order to consummate the planned
recapitalization of the Borrower, or as may be compelled to be disclosed in
a judicial proceeding or as otherwise required by law. Violation of the
provisions of this paragraph will render the commitment void and without
further effect and the Borrower will forfeit the Deposit.
If the Borrower is in agreement with the foregoing, please sign and return to
us a copy of this commitment letter no later than 5:00 p.m. (Atlanta time) on
August 21, 2000. This commitment letter shall terminate at such time unless
prior thereto we have received a signed copy of this letter.
We look forward to working with you on the Financing.
Very truly yours,
BANK OF AMERICA, N.A.
By: /s/
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Name: Kevin M. Moore
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Title: Senior Vice President
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Accepted and agreed:
COMMISSARY OPERATIONS, INC.
By: /s/
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Name: Lloyd W. Baldridge, Jr.
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Title: Vice President and Chief Financial Officer
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Dated: August 21st, 2000
EXHIBIT A
TERM SHEET
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BORROWER: Commissary Operations, Inc. ("Borrower").
LENDER: Bank of America, N.A. ("Bank").
FACILITY: $30.0 Million Revolving Credit Facility
("Revolver"). A sublimit will be made available
for the issuance of Letters of Credit.
Advances under the Revolver will be limited to: (a)
85% of eligible accounts receivable plus (b) 65% of
eligible non-branded inventory plus (c) 25% of
eligible branded inventory (all inventory shall be
calculated at the lower of cost or market value).
Advances against franchise accounts receivable will
be limited to $7,500,000. Advances against branded
inventory will be limited to $5,000,000.
Standards of eligibility and any applicable
reserves will be established by Bank in accordance
with its customary asset based lending practices.
USE OF PROCEEDS: To finance Borrower's recapitalization and to fund
ongoing working capital requirements.
SECURITY: Perfected first security interest in all Borrower's
existing and hereafter acquired accounts
receivable, inventory, real estate (including the
leasehold interest in the Nashville meat packaging
facility), property, plant, equipment, rolling
stock, trademarks, chattel paper, documents,
instruments, deposit accounts, contract rights,
general intangibles, capital stock of wholly-owned
subsidiaries, and proceeds from disposition of any
of the above.
MINIMUM EXCESS
AVAILABILITY: Borrower to have $1,000,000 excess availability at
closing and $1,000,000 at all times thereafter
(after reserving for amounts necessary to maintain
Borrower's trade payables and tax liabilities
within terms).
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MATURITY: The Revolver will be for an initial term of three
years.
In the event that the Facility is terminated by the
Borrower prior to the end of the original term,
Borrower will pay the Bank a 3% termination fee if
such termination occurs in the first year following
closing, a 1% termination fee if such termination
occurs in the second year following closing, and
$100,000 thereafter. No prepayment penalty would
be due if Borrower refinances the Credit Facility
with another Bank of America subsidiary.
LETTERS OF CREDIT
FACILITIES: The Letters of Credit issued will mature no later
than 5 days prior to the maturity of the Credit
Facility, unless such letters of credit with
maturity dates after the maturity of the Credit
Facility shall be cash secured at maturity.
INTEREST RATE
OPTIONS: On the Revolver, Borrower's option of: (1) Bank of
America Prime lending rate plus one-half percent
(0.50%) or (2) LIBOR plus two and three-quarters
percent (2.75%) per annum. The LIBOR rate shall be
adjusted for FDIC and regulatory reserve
requirements. The LIBOR option will be subject to
restrictions as to total outstanding amounts,
initial amounts and incremental amounts, and
maturity. All interest (as well as the unused line
fee and letter of credit fees set forth herein)
under the Credit Facility shall be calculated on
the basis of a 360 day year for actual days lapsed.
An unused line fee of one-half of one percent
(0.50%) per annum on the unused portion of the
Revolver will be payable monthly in arrears.
In order to reimburse the Bank for the costs of
delays in the collection and clearance of
remittances applied to the loan, interest would be
calculated as if each collection had been received
one business day subsequent to its actual receipt.
COMMITMENT FEE: As set forth in the commitment letter.
CAPITAL STRUCTURE: Borrower shall maintain total stockholders' equity,
in an amount to be mutually agreed on by Borrower
and Bank, at all times from closing through the
maturity of the Credit Facility.
AUDIT FEES: $25,000 per year, plus actual out of pocket
expenses, plus $750 per auditor per day.
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LETTER OF CREDIT
CHARGES: A Letter of Credit fee on a per annum basis equal
to the Revolver LIBOR margin rate (2.75%) on the
stated amount of each Letter of Credit will be due
and payable monthly in arrears, plus a one eighth
of one percent (1/8%) Facing Fee per annum to be
paid to the Bank (or its affiliate) for its own
account. Standard issuance charges and amendment
fees will be due and payable to the Bank upon the
issuance of Letters of Credit.
COVENANTS: The Financing Agreements will contain various
financial, affirmative and negative covenants
typical of this type of transaction including,
without limitation, Borrower's pledge to maintain a
minimum tangible net worth and fixed charge
coverage ratio. Restrictions on distributions,
indebtedness, acquisitions, management fees, etc.
will be acceptable to the Bank. The financial
covenants will be established at levels
satisfactory to Bank and Borrower based on the
Borrower's projections.
OTHER TERMS &
CONDITIONS: Except as otherwise agreed to by the Bank, Borrower
will:
1. Provide the Bank with financial statements for
each of Borrower's accounting periods, within
thirty days of the end of each accounting period.
In submitting financial statements to the Bank,
Borrower would certify compliance with all
representations, warranties, and covenants
contained in the Financing Agreements;
2. Provide the Bank with annual consolidated
audited financial statements and company prepared
consolidating financial statements prepared in
conformance with generally accepted accounting
procedures ("GAAP"), within ninety days of each
fiscal year end, accompanied by certification from
Borrower evidencing compliance with all
representations, warranties, and covenants
contained in the Financing Agreements;
3. Maintain and preserve its corporate existence
and all rights, privileges, franchises and other
authority for the conduct of its business; maintain
its properties and facilities in good order and
repair; maintain insurance with responsible
insurance carriers against such risks and in such
amounts as is customarily carried by similar
businesses, naming the Bank loss payee; and pay and
discharge all taxes, assessments and governmental
charges in a timely manner, except those being
contested in good faith;
4. Provide the Bank with annual financial
projections, prepared on a monthly basis in
accordance with GAAP.
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5. Reimburse the Bank for its reasonable due
diligence, documentation and out of pocket costs
including, but not limited to, reasonable
attorney's fees and field exam fees (including a
per diem charge of $750 per auditor), regardless of
whether or not the transaction closes.
CONDITIONS
PRECEDENT: 1. No material adverse change, in the opinion of
the Bank, in the assets, liabilities, business,
financial condition or results of operations of
Borrower, Shoney's Inc. or Captain D's.
2. All environmental issues or existing
circumstances to be immaterial on the financial
condition of Borrower as determined by the sole
discretion of the Bank.
3. Execution and delivery of documentation
required by the Bank, incorporating such
conditions, covenants and other provisions as the
Bank shall reasonably require. Such documentation
shall include fee mortgages for all owned real
property, a leasehold mortgage on the Nashville
meat packaging facility, surveys, title insurance
policies, security agreements, UCC financing
statements, notation of liens on motor vehicle
titles, landlord waivers, and opinion letters.
4. Borrower shall deposit all funds collected into
blocked accounts controlled by the Bank and all
funds so deposited shall be wire transferred to the
Bank each day for application to the outstanding
revolving loans.
5. Consummation of the recapitalization of
Borrower, Shoney's Inc. and their affiliates on
terms and conditions satisfactory to Bank,
including the closing of Captain D's senior credit
facility and Franchise Finance Corporation of
America's real estate loan, and the buy-back of
debentures and high yield debt, all on terms
acceptable to Bank.
6. The absence of any litigation or proceeding
that in Bank's judgment could reasonably be
expected to have a materially adverse effect on
Borrower, Shoney's Inc., Captain D's or the
Financing.
7. All terms of Borrower's ground lease with
respect to its Nashville, Tennessee facility shall
be satisfactory to Bank.
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