<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
-------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- -------------------------
Commission file number 1-11601
---------------------------
NATIONAL AUTO CREDIT, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 34-1816760
- ------------------------------------ --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
30000 Aurora Road, Solon, Ohio 44139
- -------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (216) 349-1000
-----------------------------
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: 28,502,337 shares as of August 31, 1996.
<PAGE> 2
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets -
July 31, 1996 and January 31, 1996 1
Consolidated Statements of Income - Three
and Six Months Ended July 31, 1996 and 1995 2
Consolidated Statement of Stockholders'
Equity - Six Months Ended July 31, 1996 3
Consolidated Statements of Cash Flows -
Six Months Ended July 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 - 14
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of
Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
<PAGE> 3
National Auto Credit, Inc. and Subsidiaries
Consolidated Balance Sheets
(Thousands of Dollars, Except Per Share Amounts)
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,676 $ 1,665
Installment notes receivable,
net (Note B) 356,042 294,901
Property and equipment, net of
accumulated depreciation of
$5,835 and $4,959, respectively 9,623 9,175
Other assets 13,295 12,480
Assets related to discontinued
operations (Note F) 3,478 24,902
--------- ---------
$ 384,114 $ 343,123
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Dealer holdbacks, net (Notes C and D) $ 74,106 $ 59,875
Self-insurance claims 7,591 12,712
Notes payable 13,354 13,354
Operating debt 27,646 3,546
Deferred and accrued
income taxes 11,416 17,379
Other liabilities 20,479 18,594
--------- ---------
154,592 125,460
--------- ---------
Commitments and Contingencies (Note E) -- --
Stockholders' Equity
Preferred stock - $.05 par value,
authorized 2,000,000 shares,
none issued -- --
Common stock - $.05 par value,
authorized 40,000,000 and 30,000,000
shares, issued 29,800,905 and
27,183,217 shares, respectively 1,490 1,359
Additional paid-in capital 165,196 128,133
Retained earnings, including cumulative
foreign currency translation loss
of $1,218 and $1,349, respectively 74,458 99,793
Treasury stock, at cost, 1,298,568
shares (11,622) (11,622)
--------- ---------
229,522 217,663
--------- ---------
$ 384,114 $ 343,123
========= =========
<FN>
See notes to consolidated financial statements.
</TABLE>
-1-
<PAGE> 4
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Income
(Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- -------------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUE
Interest income $ 13,851 $ 8,864 $ 27,217 $16,410
Fee and other income 1,521 946 3,088 1,667
-------- ------- -------- -------
15,372 9,810 30,305 18,077
COSTS AND EXPENSES
Provision for credit losses 2,373 691 4,389 1,393
Operating 1,103 918 2,240 1,998
General and administrative 1,338 1,624 2,798 2,960
Interest 496 253 828 497
-------- ------- -------- -------
5,310 3,486 10,255 6,848
-------- ------- -------- -------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,062 6,324 20,050 11,229
Provision for income taxes 3,522 2,278 7,218 4,031
-------- ------- -------- -------
INCOME FROM CONTINUING OPERATIONS 6,540 4,046 12,832 7,198
DISCONTINUED OPERATIONS,
NET OF TAX (Note F) (1,402) 215 (1,402) 1,708
-------- ------- -------- -------
NET INCOME $ 5,138 $ 4,261 $ 11,430 $ 8,906
======== ======= ======== =======
EARNINGS (LOSS) PER SHARE
Continuing operations $ .23 $ .14 $ .45 $ .25
Discontinued operations (.05) .01 (.05) .06
-------- ------- -------- -------
Total $ .18 $ .15 $ .40 $ .31
======== ======= ======== =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING (000's) 28,487 28,331 28,483 28,302
======== ======= ======== =======
<FN>
See notes to consolidated financial statements.
</TABLE>
-2-
<PAGE> 5
National Auto Credit, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(In Thousands)
(Unaudited)
Six Months Ended July 31, 1996
<TABLE>
<CAPTION>
Common Stock Foreign
--------------- Additional Currency
Par Paid-In Retained Translation Treasury
Shares Value Capital Earnings Adjustment Stock Total
------ ------- --------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 31, 1996 27,183 $1,359 $128,133 $ 101,142 $ (1,349) $(11,622) $ 217,663
Net income 11,430 11,430
Stock issued under
benefit plans 29 2 301 303
10% Stock dividend 2,589 129 36,762 (36,896) (5)
Foreign currency
translation 131 131
------ ------ -------- --------- -------- -------- ---------
BALANCE,
JULY 31, 1996 29,801 $1,490 $165,196 $ 75,676 $ (1,218) $(11,622) $ 229,522
====== ====== ======== ========= ======== ======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
-3-
<PAGE> 6
National Auto Credit, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,430 $ 8,906
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,675 11,857
Interest income on dealer advances (6,420) (3,719)
Provision for credit losses 4,389 1,393
Deferred income taxes (329) (5,069)
Changes in operating assets and liabilities:
Accounts receivable 1,002 2,426
Current income taxes payable (5,634) 3,386
Other liabilities (1,499) 715
Self-insurance claims (5,121) (10,535)
Other operating assets and liabilities, net 396 3,766
-------- --------
Net cash (used in) provided by operating activities (111) 13,126
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on installment notes receivable 57,448 40,117
Proceeds from sale of rental automobiles 9,270 4,486
Purchase of dealership inventory (471) (9,147)
Advances to dealers and payments of dealer holdbacks (89,911) (49,678)
Other investing activities, net (743) (353)
-------- --------
Net cash used in investing activities (24,407) (14,575)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on operating debt and notes payable 24,100 908
Payments to acquire treasury stock -- (786)
Stock issued under benefit plans 303 1,205
Other financing activities, net 126 22
-------- --------
Net cash provided by financing activities 24,529 1,349
-------- --------
Increase (decrease) in cash and cash equivalents 11 (100)
Cash and cash equivalents at beginning of period 1,665 398
-------- --------
Cash and cash equivalents at end of period $ 1,676 $ 298
======== ========
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 683 $ 548
======== ========
Income taxes paid $ 11,860 $ 7,547
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
-4-
<PAGE> 7
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Summary of Significant Accounting Policies
------------------------------------------
GENERAL:
The accompanying consolidated financial statements include the
accounts of National Auto Credit, Inc. and its subsidiaries (the
"Company").
The unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ended July
31, 1996 are not necessarily indicative of the results that may
be expected for the year ended January 31, 1997. For further
information, refer to the financial statements and footnotes
thereto included in the Company's January 31, 1996 Annual Report
on Form 10-K.
STOCKHOLDERS' EQUITY:
On March 25, 1996, the Company's Board of Directors declared a
10% stock dividend payable on April 30, 1996, to stockholders of
record on April 15, 1996. Earnings per share and weighted
average shares outstanding have been restated to reflect the 10%
stock dividend. In March 1996, the Board of Directors approved
an increase in the authorized common shares from 30,000,000 to
40,000,000 shares.
RECLASSIFICATIONS:
Certain prior period amounts have been reclassified to conform
with the current period presentation.
-5-
<PAGE> 8
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE B - Installment Notes Receivable, Net
---------------------------------
The components of installment notes receivable are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
---------- ----------
(in thousands)
<S> <C> <C>
Gross installment notes receivable $ 423,330 $ 351,312
Unearned income (63,718) (53,833)
Allowance for loan losses (3,570) (2,578)
---------- ----------
Installment notes receivable, net $ 356,042 $ 294,901
========== ==========
</TABLE>
A summary of changes in gross installment notes receivable is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $389,497 $220,078 $351,312 $193,456
Contracts accepted 86,764 81,495 176,234 139,799
Cash collections (40,182) (29,033) (80,190) (54,527)
Charge-offs against:
Dealer holdback (9,492) (3,730) (17,832) (7,653)
Unearned income/allowance (3,257) (1,818) (6,194) (4,083)
-------- -------- -------- --------
Balance, end of period $423,330 $266,992 $423,330 $266,992
======== ======== ======== ========
</TABLE>
Installment notes receivable relate to the indirect consumer
financing of used automobiles. These notes generally have
initial terms ranging from 12 to 60 months with an average
initial term of 36 months and an initial gross amount of $9,300.
At July 31 and January 31, 1996, the average remaining note term
was 23 months. The notes are collateralized by the related
vehicles sold. Installment notes receivable are from customers
residing in all 50 states with no individual state accounting
for more than 10% of total installment notes receivable, except
for North Carolina with 12.9% and Texas with 11.4%.
Changes in the allowance for loan losses, which are provided for
earned but unpaid finance charges on the entire portfolio are as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 3,036 $ 1,271 $ 2,578 $ 1,107
Provision for credit losses 1,139 483 2,144 1,000
Net charge-offs (605) (214) (1,152) (567)
-------- -------- -------- --------
Balance, end of period $ 3,570 $ 1,540 $ 3,570 $ 1,540
======== ======== ======== ========
</TABLE>
-6-
<PAGE> 9
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - Dealer Holdbacks, Net
---------------------
Dealer holdbacks are the amounts payable to member dealers from
the acceptance of retail installment contracts, net of cash
advanced. The dealer holdbacks protect the Company from
potential losses associated with the installment contracts and
are not paid unless substantially all advances including those
on non-performing loans related to a particular dealer have been
recovered. The components of dealer holdbacks are as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
--------- -----------
(in thousands)
<S> <C> <C>
Dealer holdbacks $ 334,621 $ 274,927
Advances (271,453) (222,830)
--------- ---------
63,168 52,097
Dealer advance reserve 10,938 7,778
--------- ---------
Dealer holdbacks, net $ 74,106 $ 59,875
========= =========
</TABLE>
A summary of changes in dealer holdbacks, net, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
----------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 67,064 $ 38,085 $ 59,875 $ 33,816
Additions to holdbacks 67,074 65,650 137,672 110,872
Advances disbursed (51,259) (55,058) (107,489) (93,417)
Charge-offs of non-
performing notes (9,492) (3,730) (17,832) (7,653)
Other 719 1,163 1,880 2,492
-------- -------- -------- --------
Balance, end of period $ 74,106 $ 46,110 $ 74,106 $ 46,110
======== ======== ======== ========
</TABLE>
The accrual of interest income is suspended once a note becomes
120 days contractually past due. These non-performing notes are
charged-off against the related dealer's holdback and then loan
loss reserves, if necessary. At July 31, 1996 and January 31,
1996 respectively, 17.5% and 17.0% of gross installment notes
receivable were non-performing and covered by the net dealer
holdbacks and 1.4% and 1.1% respectively, were covered by
unearned income/allowances for credit losses.
NOTE D - Dealer Advance Reserve
----------------------
The dealer advance reserve is maintained in the event the
holdback of a particular dealer portfolio is not sufficient to
ensure the recovery of any outstanding advances. The Company
assesses fees to dealers for the purpose of supplementing this
reserve. A summary of changes in the dealer advance reserve is
as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- -------------------
1996 1995 1996 1995
-------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Balance, beginning of period $ 9,534 $ 4,104 $ 7,778 $ 2,376
Advance reserve fees 383 1,406 1,335 2,955
Provision for credit losses 1,234 208 2,245 393
Net charge-offs (213) (70) (420) (76)
-------- ------- -------- -------
Balance, end of period $ 10,938 $ 5,648 $ 10,938 $ 5,648
======== ======= ======== =======
</TABLE>
-7-
<PAGE> 10
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE E - Commitments and Contingencies
-----------------------------
In the normal course of its business, the Company is named as
defendant in legal proceedings. It is the policy of the Company
to vigorously defend litigation and/or enter into settlements of
claims where management deems appropriate.
On June 15, 1992, former employees of the Company filed a class
action lawsuit, currently pending in the United States District
Court for the Northern District of California. The complaint
alleges that the Company violated certain sections of the
California Labor Law, including those relating to the payment of
overtime. On June 16, 1995, the court issued a finding as to
partial liability against the Company. Notices and claim forms
were mailed to class members during the period from January
through March 1996. As of September 1, 1996, nearly 400 claim
forms have been returned by class members which are currently
being reviewed by the Company. The Company estimates that
ultimate damages, penalties, interest and attorneys' fees could
range from $3 million to $5 million. The Company paid $1 million
in June 1996 pursuant to an interim order for payment of
plaintiff's attorneys fees and has $2 million accrued at July
31, 1996. The amount of damages, penalties, interest and
attorneys' fees for which the Company may ultimately be held
liable is subject to numerous variables and cannot be more
precisely estimated. Due to these uncertainties, it is at least
reasonably possible that the accrual for these claims will be
further revised in fiscal 1997.
In December 1995, the Company was notified by the U.S.
Department of Labor as to its pending investigation of the
Company's pay practices concerning former employees of the
Company throughout the United States during the period from
February 1993 through September 1995. Since the Department of
Labor's investigation is in its early stages, potential
liability, if any, cannot be estimated by the Company at this
time.
NOTE F - Discontinued Operations
-----------------------
During the first quarter of fiscal 1997, the Company announced
its decision to discontinue dealership operations once its
supply of inventory vehicles from the discontinued rental car
segment is depleted. During the second quarter of fiscal 1997
substantially all remaining vehicles were disposed of and by
August 1996 all dealership locations were closed.
In the third quarter of fiscal 1996, the Company disposed of its
rental fleet business through the sale of certain assets and
through certain leases to a subsidiary of Avis, Inc. All
liabilities related to the discontinued rental car business,
principally, self-insurance claims and deferred taxes, are being
retained by the Company.
-8-
<PAGE> 11
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - Discontinued Operations (cont.)
-----------------------
Accordingly, the assets and operating results of both the rental
car and dealership operations segments for all periods presented
have been restated to reflect discontinuation.
Summarized asset data related to discontinued operations is
as follows:
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
-------- -----------
(in thousands)
<S> <C> <C>
Accounts receivable, net $ 492 $ 1,494
Rental automobiles, net of
accumulated depreciation of
$187 and $10,458, respectively 104 14,403
Dealership inventory 1,681 5,794
Other property and equipment, net 14 419
Other assets 1,187 2,792
-------- --------
$ 3,478 $ 24,902
======== ========
</TABLE>
Summarized results of discontinued operations are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
1996 1995 1996 1995
-------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Revenue $ 3,169 $34,892 $12,871 $76,389
Costs and Expenses:
Cost of goods sold and
operating expenses 3,093 24,740 12,278 54,321
General and administrative 2,267 9,492 2,784 18,675
Interest -- 56 -- 140
-------- ------- ------- -------
Total 5,360 34,288 15,062 73,136
-------- ------- ------- -------
Income (loss) before income taxes (2,191) 604 (2,191) 3,253
Provision (benefit) for income taxes (789) 389 (789) 1,545
-------- ------- ------- -------
Net income (loss) $ (1,402) $ 215 $(1,402) $ 1,708
======== ======= ======= =======
</TABLE>
-9-
<PAGE> 12
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Overview
--------
National Auto Credit, Inc., (the Company) had income from continuing
operations of $6.5 million or $.23 per share for the quarter ended July 31, 1996
as compared to $4.0 million or $.14 per share for the quarter ended July 31,
1995.
Revenue for the quarter ended July 31, 1996 was $15.4 million versus $9.8
million in the second quarter of the prior year. For the six months ended July
31, 1996, income from continuing operations was $12.8 million or $.45 per share,
a 78.3% increase from the $7.2 million or $.25 per share earned in the prior
year.
Revenue and earnings benefited in the first six months of fiscal 1997 from
an increase of $72.0 million in gross installment notes receivable to $423.3
million at July 31, 1996 from $351.3 million at January 31, 1996 and a 58.6%
increase from the $267.0 million at July 31, 1995.
The Company anticipates further increases in revenue and earnings
consistent with the planned growth in the receivables portfolio to $500 million
by the end of this fiscal year.
During the quarter ended July 31, 1996, substantially all of the remaining
rental cars from dealership and rental operations were sold. This completed the
Company's strategic plan to discontinue operation of the non-financial services
related businesses and allows the Company to focus all its resources on the core
financing business.
Continuing Operations
---------------------
Revenue
- -------
Interest and fee income generated by NAC, Inc. ("NAC"), increased 56.7% from
$9.8 million for the quarter ended July 31, 1995 to $15.4 million for the
quarter ended July 31, 1996 and 67.6% from $18.1 million to $30.3 million for
the six month periods then ended. This revenue growth is primarily attributable
to the growth in the gross installment notes receivable portfolio and in NAC's
enrolled dealer base as follows:
<TABLE>
<CAPTION>
Gross Installment Number of
Notes Receivable Number of Enrolled
Balance as of: (in millions) Contracts Dealers
- ---------------- ----------------- ---------- --------
<S> <C> <C> <C>
January 31, 1994 $ 93.2 12,900 900
July 31, 1994 152.2 21,500 1,200
January 31, 1995 193.5 28,400 1,400
July 31, 1995 267.0 40,700 1,900
January 31, 1996 351.3 53,000 2,300
July 31, 1996 423.3 61,700 2,600
</TABLE>
The average annualized yield on the portfolio decreased from 17.1% for the
quarter ended July 31, 1995 to 16.1% for the quarter ended July 31, 1996 and
from 16.8% to 16.6% for the six month periods then ended. This decrease is
primarily attributable to the
-10-
<PAGE> 13
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue (cont.)
- -------
increase in the average initial term of contracts included in the installment
notes receivable portfolio from 34 months at year end to 36 months at July 31,
1996 and contributing to a lesser degree is the increase in non-performing
contracts.
Fee income includes principally warranty commissions and late fees. Revenue
from these sources increased 60.8% and 85.2% for the second quarter and six
month comparative periods primarily due to the benefit of increased contract
volume and the growing size of the portfolio.
To meet management targeted growth projections several initiatives were
undertaken during the quarter including: low cost floor planning for selected
member dealers, the expansion of the field sales staff into new markets
including Raleigh, North Carolina, Phoenix, Arizona and Minneapolis, Minnesota
and the inauguration of the NAC Credit Master Program offering special
benefits to dealers.
Provision for Credit Losses
- ---------------------------
The provision for credit losses was $2.4 million for the three months ended
July 31, 1996 as compared to $.7 million in the prior year. For the six months
ended July 31, 1996 this expense was $4.4 million as compared to $1.4 million a
year ago. The increase in the quarterly and six month period expense is
attributable to the increase in the size and aging of the portfolio.
The provision together with fees contractually charged to member dealers is
added to either the allowance for loan losses or the dealer advance reserve.
Management continually evaluates these allowances for credit losses using a
variety of criteria to determine their adequacy. However, since there is no
precise method for accurately determining losses they could vary from current
estimates.
Non-performing loans as a percent of the gross installment notes receivable
portfolio are expected to increase as the portfolio matures and the average age
of contracts in the portfolio increases. Because the Company provides financing
to sub-prime rated customers, many of whom have limited access to financing
through traditional sources of consumer credit, these percentages are considered
by the Company to be reasonable and also lower than those of its competitors.
The risk of loss to the Company is mitigated by a security interest in the
vehicles sold, dealer holdbacks and loan loss reserves.
-11-
<PAGE> 14
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
- ------------------
Operating expenses were $1.1 million in the second quarter of fiscal 1997
as compared to $.9 in the prior year. Operating expenses as a percent of revenue
for the quarters ended July 31, 1996 and 1995 decreased to 7.2% from 9.4%,
respectively, and for the six month periods then ended decreased to 7.4% from
11.1%.
The percentage breakdown of NAC's operating expenses for the three month
periods ended July 31, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Salaries and benefits 66.9% 68.5%
Professional services 4.0 5.5
Supplies 8.6 8.6
Telephone 6.6 4.5
Travel 1.6 3.8
Advertising 1.1 3.4
Rent and utilities 2.3 2.0
Depreciation 2.2 .7
Operating and licensing fees 3.4 .9
Maintenance 2.8 1.5
Other .5 .6
----- -----
Total 100.0% 100.0%
===== =====
</TABLE>
The decrease in operating expenses as a percent of revenue for both the
quarter and year to date is due to the economy of scale gained from
consolidating all operations at corporate headquarters, the growth of the
portfolio, the development and installation of new data processing systems such
as the Fair, Isaac and Company credit evaluation system and an increase in
dealer fees to offset costs.
General and Administrative
- --------------------------
General and administrative expenses for both the second quarter and six
months ended July 31, 1996 as a percentage of total revenue decreased from
approximately 16% for the same periods in fiscal 1996 to approximately 9% this
fiscal year. This decrease is due to the planned elimination of certain expenses
through the Company's streamlining efforts since the sale of its rental business
as well as the fixed nature of the majority of these expenses and the benefit
derived from increased revenue.
Interest
- --------
Interest expense increased from last year, both for the quarter and six
month periods ended July 31, 1996 as operating debt increased from $10.3 million
at July 31, 1995 to $27.6 million at July 31, 1996, slightly offset by a decline
in the effective borrowing rate from 6.1% for both the quarter and year to date
to 6.0% for the quarter ended July 31, 1996 and 5.9% for the six months then
ended.
-12-
<PAGE> 15
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Taxes
- ------------
The provision for income taxes increased from $2.3 million to $3.5 million
for the quarters ended July 31, 1995 and 1996, and from $4.0 million to $7.2
million for the six months then ended, respectively. This change is directly
attributable to the increase in pre-tax income.
Discontinued Operations
-----------------------
During the first quarter of fiscal 1997, the Company announced its decision
to discontinue dealership operations once the supply of inventory vehicles from
the discontinued rental operations is exhausted. This process was substantially
completed by the end of the second quarter of fiscal 1997.
Revenue from dealership operations decreased to $3.2 million on the sale of
388 units during the second quarter of fiscal 1997 versus $17.1 million on the
sale of 2,489 units for the second quarter of fiscal 1996. Related cost of sales
for the second quarter of fiscal 1997 decreased to $3.1 million from $15.6
million in the second quarter of fiscal 1996, principally as a result of
decreased sales volume. Remaining inventory on hand at July 31, 1996 for
discontinued dealership operations was approximately 270 units.
During the third quarter of fiscal 1996, the Company discontinued
automobile rental operations through the sale of certain assets and through
certain leases to a subsidiary of Avis, Inc. The assets and operating results of
both rental and dealership operations have been restated to reflect
discontinuation.
As discussed in Note E to the consolidated financial statements the Company
paid $1 million for plaintiff's attorneys fees pursuant to a class action
lawsuit. This $1 million was booked as an expense during the quarter ended July
31, 1996. Due to the uncertainties inherent in the estimating process for legal
reserves, it is reasonably possible that these reserves will be further revised
until all claims are settled.
-13-
<PAGE> 16
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds include net cash provided by
principal collected on installment notes receivable, bank financing and proceeds
from the sale of rental automobiles. The funds generated from the sale of rental
automobiles has decreased and will cease by the end of fiscal 1997 as the supply
of cars is exhausted.
External sources of funds available to the Company at July 31, 1996
consisted of $51 million in unsecured uncommitted short-term bank lines of
credit (increased to $61 million on August 9, 1996) and $50 million in an
unsecured committed bank facility, neither of which have compensating balance
requirements. The committed bank facility expires on May 27, 1997. Outstanding
borrowings at July 31, 1996 amounted to $26.0 million from the uncommitted lines
and $15.0 from the committed facility.
The Company believes it has sufficient internal and external sources of
funds available to meet its current obligations, to fund current operating and
capital requirements as necessary, and to finance short-term growth. Management
is currently actively exploring additional financing options to ensure adequate
funding for long-term growth.
The ratio of operating debt to total capital was 10.3% at July 31, 1996
and 1.5% at January 31, 1996. It is anticipated that debt levels will increase
through the end of this fiscal year primarily to fund the increased growth in
new installment contracts.
-14-
<PAGE> 17
NATIONAL AUTO CREDIT, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
----------------------------------------------------
The Annual Meeting of Stockholders was held on June 6, 1996.
The election of three directors was voted upon. Below are the
results of the election:
<TABLE>
<CAPTION>
Votes
Votes Against Broker
in Favor or Withheld Abstentions Non-Votes
----------- ----------- ----------- ---------
<S> <C> <C>
Election of Directors
Robert J. Bronchetti 25,279,183 275,219 -- --
J. Hunter Brown 25,440,934 113,468 -- --
James E. Smith, Jr. 25,280,628 273,774 -- --
</TABLE>
Each other director whose term of office as a director
continued after the meeting is as follows: Sam J.
Frankino, Noah T. Herndon, Per E. Hoel, and Edward N.
Leszczynski. Subsequent to the date of the Annual
Meeting of Stockholders, Edward N. Leszczynski resigned
as a director.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
--------
Exhibit
Number Exhibit Description
------ -------------------
10(i) Credit Agreement dated June 30, 1995 among the Company, the Banks
listed on the signature page thereof, and NBD Bank, as Agent,
filed herewith, as amended by Amendment No. 1 to Credit Agreement
dated May 28, 1996, filed herewith.
27 Financial Data Schedule
Electronically filed with the Securities and
Exchange Commission pursuant to Item 601(c) of Regulation S-K.
b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended July
31, 1996.
-15-
<PAGE> 18
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL AUTO CREDIT, INC.
Date: September 12, 1996 By: /s/ Robert J. Bronchetti
----------------------- ----------------------------------
Robert J. Bronchetti
President and
Chief Executive Officer
and Director
By: /s/ Davida S. Howard
----------------------------------
Davida S. Howard
Vice President-Finance and
Controller (Principal Financial
and Accounting Officer)
-16-
<PAGE> 19
INDEX OF EXHIBITS
Exhibit Number Description
- -------------- -----------
10(i) Credit Agreement dated June 30, 1995
among the Company, the Banks listed on
the signature page thereof, and NBD
Bank, as Agent, filed herewith, as
amended by Amendment No. 1 to Credit
Agreement dated May 28, 1996, filed
herewith.
27 Financial Data Schedule
-17-
<PAGE> 1
Exhibit 10(i)
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 30, 1995 (this "Agreement"), is
by and among NATIONAL AUTO CREDIT, INC., a Delaware corporation (the "Company"),
each of the Affiliates of the Company designated in Section 1.1 as a "Borrowing
Affiliate" (the Company and Borrowing Affiliates may each be referred to as a
"Borrower" and, collectively, as the "Borrowers") and the Banks set forth on the
signature pages hereof (collectively, the "Banks" and individually, a "Bank")
and NBD BANK, a Michigan banking corporation, as agent for the Banks (in such
capacity, the "Agent").
INTRODUCTION
The Borrowers desire to obtain a short-term revolving credit facility
in the aggregate principal amount of $40,000,000 in order to provide funds to
support its commercial paper program, and the Banks are willing to establish
such a credit facility in favor of the Borrowers on the terms and conditions
herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
2. Certain Definitions. As used herein the following terms shall
have the following respective meanings:
"Adjusted Tangible Net Worth" of any person shall mean, as of any date,
(a) the amount of any capital stock, paid in capital and similar equity accounts
plus (or minus in the case of a deficit) the capital surplus and retained
earnings of such person and the amount of any foreign currency translation
adjustment account shown as a capital account of such person, plus (b) the
amount of treasury stock of such person, not exceeding $30,000,000, and only to
the extent that it has been acquired by such person subsequent to January 31,
1995, less (c) treasury stock, less (d) the net book value of all items of the
following character which are included in the assets of such person and were
incurred after January 31, 1995: (i) goodwill, including without limitation, the
excess of cost over book value of any asset, (ii) organization or experimental
expenses, (iii) unamortized debt discount and expense, (iv) patents, trademarks,
trade names and copyrights, (v) franchises, licenses and permits, and, (vi)
other assets which are deemed intangible assets under Generally Accepted
Accounting Principles.
"Affiliate", when used with respect to any person shall mean any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise. Notwithstanding the foregoing provisions
of this definition, the term "Affiliate" shall not include Sam J. Frankino,
Chairman of the Board and majority shareholder of the Company.
"Applicable Margin" shall mean the following margin based upon the
Interest
<PAGE> 2
Coverage Ratio as adjusted on the first day of the calendar month immediately
following the date on which the financial statements and compliance certificate
required pursuant to Section 5.1(d) are delivered to the Banks and shall remain
in effect until the next change to be effected pursuant to this definition,
based upon such ratio for the four consecutive fiscal quarters immediately
preceding such date; provided, that, the Eurodollar Rate shall not be adjusted
pursuant to the Applicable Margin for any outstanding Eurodollar Rate Loan until
after the end of the Eurodollar Interest Period for such Eurodollar Rate Loan:
Applicable
Interest Coverage Ratio Margin
Eurodollar Rate
Loans Facility Fee
(a) Greater than or equal to 4.0 to 1.0 0.30% 0.08%
(b) Less than
4.0 to 1.0 but greater
than or equal to 2.0
to 1.0 0.375% 0.10%
(c) Less than 2.0 to 1.0 0.50% 0.15%
; provided, however, that, if any financial statements referred to above are not
delivered within the time period specified above, then, until the financial
statements are delivered, the Applicable Margin for Eurodollar Rate Loans shall
be 0.50% and for the facility fee will be 0.15%.
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now owing or hereafter arising, direct or indirect,
contingent or otherwise, of the Borrowers to the Agent or any Bank pursuant to
the Loan Documents.
"Borrowing" shall mean the aggregation of Loans of the Banks to be made
to any Borrower, or continuations and conversions of such Loans, made pursuant
to Article II on a single date (and with respect to Eurodollar Rate Loans, for a
single Interest Period), which Borrowings may be classified for purposes of this
Agreement by reference to the type of Loans comprising the related Borrowing,
e.g., a "Eurodollar Rate Borrowing" is a Borrowing comprised of Eurodollar Rate
Loans.
"Borrowing Affiliate" shall mean each of the Affiliates of the Company
set forth on Schedule 1.1(a). As of the Effective Date, there are no Borrowing
Affiliates. An Affiliate may be added to Schedule 1.1(a) as a "Borrowing
Affiliate" upon request by the Company to the Agent for designation of such
Affiliate as a "Borrowing Affiliate" hereunder so long as (a) each of the Banks
approves the designation of such Affiliate as a "Borrowing Affiliate", which
approval shall not be unreasonably withheld, (b) each of the Guarantors
guarantees the obligations of such new Borrowing Affiliate pursuant to the terms
of the Guaranty, (c) such new Borrowing Affiliate delivers Notes executed in
favor of each Bank, and all documents and items referred to in Section 2.5, all
in form and substance satisfactory to the Banks, (d) the Company and such new
Borrowing Affiliate execute an agreement in the form of Exhibit A hereto and (e)
no Default or Event of Default has occurred and is continuing hereunder at the
time the request is made.
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which the Agent is not open to the public for carrying on substantially
all of its banking functions.
"Capital Lease" of any person shall mean any lease which, in accordance
with Generally Accepted Accounting Principles, is or should be capitalized on
the books of such person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
<PAGE> 3
"Commitment" shall mean, with respect to each Bank, the commitment of
each such Bank to make Loans pursuant to Section 2.1, in amounts not exceeding
in aggregate principal amount outstanding at any time the respective commitment
amounts for each such Bank set forth next to the name of each such Bank on the
signature pages hereof, as such amounts may be reduced from time to time
pursuant to Section 2.2 or Section 8.6.
"Consolidated" or "consolidated" shall mean, when used with reference to
any financial term in this Agreement, the aggregate for two or more persons of
the amounts signified by such term for all such persons determined on a
consolidated basis in accordance with Generally Accepted Accounting Principles.
"Contingent Liabilities" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
any letters of credit, surety bonds or similar obligations and all obligations
of such person to advance funds to, or to purchase assets, property or services
from, any other person in order to maintain the financial condition of such
other person.
"Controlled Group" means a person and all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated) under
common control which, together with such person, are treated as a single
employer generally under Section 414(b) or 414(c) of the Code.
"Cumulative Net Income" of any person shall mean, as of any date, the
net income (after deduction for income and other taxes of such person, or its
shareholders in the case of a corporation that has elected to be taxed as a
Subchapter S corporation under the Code, determined by reference to income or
profits of such person) for the period commencing on February 1, 1995 through
the end of the most recently completed fiscal year of such person (but without
reduction for any net loss incurred for any fiscal year during such period),
taken as one accounting period, all as determined in accordance with Generally
Accepted Accounting Principles.
"Default" shall mean any of the events or conditions described in
Section 6.1 which might become an Event of Default with notice or lapse of time
or both.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"EBIT" shall mean, with respect to any person, for any period, the sum
of (a) Operating Net Income or Loss plus (b) all amounts deducted in determining
such Operating Net Income or Loss on account of (i) Interest Expense and (ii)
taxes based on or measured by income, all as determined in accordance with
Generally Accepted Accounting Principles.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" at any date shall mean all provisions of law,
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by the government of the United States
of America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein or by any court, agency,
instrumentality, regulatory authority or commission of any of the foregoing
concerning the protection of, or regulating the discharge of substances into,
the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations thereunder.
<PAGE> 4
"ERISA Affiliate" shall mean, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code and the regulations promulgated thereunder.
"Eurodollar Business Day" shall mean, with respect to any Eurodollar
Rate Loan, a day which is both a Business Day and a day on which dealings in
Dollar deposits are carried out in the London interbank market.
"Eurodollar Interest Period" shall mean, with respect to any Eurodollar
Rate Loan, the period commencing on the day such Eurodollar Rate Loan is made or
converted to a Eurodollar Rate Loan and ending on the date one, two, three or
six months thereafter, as any Borrower may elect under Section 2.4 or 2.7, and
each subsequent period commencing on the last day of the immediately preceding
Eurodollar Interest Period and ending on the date one, two, three or six months
thereafter, as any Borrower may elect under Section 2.4 or 2.7, provided,
however, that (a) any Eurodollar Interest Period which commences on the last
Eurodollar Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Eurodollar Business Day of the appropriate subsequent
calendar month, (b) each Eurodollar Interest Period which would otherwise end on
a day which is not a Eurodollar Business Day shall end on the next succeeding
Eurodollar Business Day or, if such next succeeding Eurodollar Business Day
falls in the next succeeding calendar month, on the next preceding Eurodollar
Business Day, and (c) no Eurodollar Interest Period which would end after the
Termination Date shall be permitted.
"Eurodollar Rate" shall mean, with respect to any Eurodollar Rate Loan
and the related Eurodollar Interest Period, the per annum rate that is equal to
the sum of:
(a) the Applicable Margin,
(b) the rate per annum obtained by dividing (i) the per annum rate
of interest at which deposits in Dollars for such Eurodollar Interest Period and
in an aggregate amount comparable to the amount of such Eurodollar Rate Loan to
be made by the Agent in its capacity as a Bank hereunder are offered to the
Agent by other prime banks in the London interbank market, at approximately
11:00 a.m. London time, on the second Eurodollar Business Day prior to the first
day of such Eurodollar Interest Period, by (ii) an amount equal to one minus the
stated maximum rate (expressed as a decimal) of all reserve requirements
(including, without limitation, any marginal, emergency, supplemental, special
or other reserves) that is specified on the first day of such Eurodollar
Interest Period by the Board of Governors of the Federal Reserve System (or any
successor agency thereto) for determining the maximum reserve requirement with
respect to eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) maintained by a member bank of such
System;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%).
"Eurodollar Rate Loan" shall mean any Loan which bears interest at the
Eurodollar Rate.
"Event of Default" shall mean any of the events or conditions described
in Section 6.1.
"Existing Credit Agreement" shall mean the Credit Agreement dated as of
June 1, 1992, as amended, among the Company, formerly known as Agency
Rent-A-Car, Inc., the banks named therein and NBD Bank, as agent.
"Federal Funds Rate" shall mean the per annum rate that is equal to the
per annum rate established and announced by the Agent from time to time as the
opening federal funds rate paid by
<PAGE> 5
the Agent in its regional federal funds market for overnight borrowings from
other banks; all as conclusively determined by the Agent, such sum to be rounded
up, if necessary, to the nearest whole multiple of one one-hundredth of one
percent (1/100 of 1%), which Federal Funds Rate shall change simultaneously with
any change in such announced rates.
"Floating Rate" shall mean the per annum rate equal to the greater of
(i) the Prime Rate in effect from time to time, and (ii) the sum of one percent
(1%) per annum plus the Federal Funds Rate in effect from time to time; which
Floating Rate shall change simultaneously with any change in such Prime Rate or
Federal Funds Rate, as the case may be.
"Floating Rate Loan" shall mean any Loan which bears interest at the
Floating Rate.
"Generally Accepted Accounting Principles" shall mean Generally Accepted
Accounting Principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 4.6.
"Guaranties" shall mean the guaranties entered into by each of the
Guarantors for the benefit of the Agent and the Banks pursuant to this Agreement
in substantially the form of Exhibit B hereto, as amended or modified from time
to time.
"Guarantor" shall mean each Supporting Subsidiary as of the Effective
Date, and each person thereafter becoming a Supporting Subsidiary, or otherwise
entering into a Guaranty, from time to time.
"Hazardous Materials" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801, et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, et seq.) and in the
regulations adopted and publications promulgated pursuant thereto, or any other
federal, state or local government law, ordinance, rule or regulation.
"Indebtedness" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) all obligations which are secured
by any Lien existing on any asset or property of such person whether or not the
obligation secured thereby shall have been assumed by such person, (d) the
unpaid purchase price for goods, property or services acquired by such person,
except for trade accounts payable arising in the ordinary course of business
that are not past due, (e) all obligations of such person to purchase goods,
property or services where payment therefor is required regardless of whether
delivery of such goods or property or the performance of such services is ever
made or tendered (generally referred to as "take or pay contracts"), (f) all
liabilities of such person in respect of Unfunded Benefit Liabilities under any
plan of such person or of any member of a Controlled Group of which such person
is a member, (g) all obligations of such person in respect of any interest rate
or currency swap, rate cap or other similar transaction (valued in an amount
equal to the highest termination payment, if any, that would be payable by such
person upon termination for any reason on the date of determination), and (h)
all obligations of others similar in character to those described in clauses (a)
through (g) of this definition for which such person is contingently liable, as
obligor, guarantor, surety or in any other capacity, or in respect of which
obligations such person assures a creditor against loss or agrees to take any
action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
letters of credit, surety bonds or similar obligations and all obligations of
such person to advance funds to, or to purchase assets, property or services
from, any other person in order to maintain the financial condition of such
other person.
<PAGE> 6
"Interest Coverage Ratio" of any person shall mean, for any period, the
ratio of (a) EBIT to (b) Interest Expense.
"Interest Expense" of any person shall mean, for any period, all
interest paid or payable by such person on Indebtedness during such period.
"Interest Payment Date" shall mean (a) with respect to any Eurodollar
Rate Loan, the last day of each Eurodollar Interest Period with respect to such
Eurodollar Rate Loan and, in the case of any Eurodollar Interest Period
exceeding three months, those days that occur during such Eurodollar Interest
Period at intervals of three months after the first day of such Eurodollar
Interest Period, and (b) in all other cases, the last Business Day of each
January, April, July and October occurring after the date hereof, commencing
with the first such Business Day occurring after the date of this Agreement.
"Lien" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement filing,
lessor's or lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, encumbrance, preferential arrangement
or other claim or right.
"Loan" shall mean any borrowing under Section 2.4 evidenced by a Note
and made pursuant to Section 2.1. Any such Loan or portion thereof may also be
denominated as a Floating Rate Loan or a Eurodollar Rate Loan and such Floating
Rate Loans and Eurodollar Rate Loans are referred to herein as "types" of Loans.
"Loan Documents" shall mean this Agreement, the Notes, the Guaranties
and any other agreement, instrument or document executed at any time in
connection with this Agreement.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"Note" shall mean any promissory note of the Borrowers evidencing one or
more Loans, in substantially the form annexed hereto as Exhibit C, as amended or
modified from time to time and together with any promissory note or notes issued
in exchange or replacement therefor.
"Operating Net Income or Loss" of any person shall mean, as of any date,
net income or loss from operations before giving effect to (a) extraordinary
items, (b) charges taken as a result of accounting changes and (c) gains or
losses from discontinued operations, all as determined in accordance with
Generally Accepted Accounting Principles.
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per annum
plus the Floating Rate, (b) in respect of principal of Eurodollar Rate Loans, a
rate per annum that is equal to the sum of three percent (3%) per annum plus the
per annum rate in effect thereon until the end of the then current Eurodollar
Interest Period for such Loan and, thereafter, a rate per annum that is equal to
the sum of three percent (3%) per annum plus the Floating Rate, and (c) in
respect of other amounts payable by the Company hereunder (other than interest),
a per annum rate that is equal to the sum of three percent (3%) per annum plus
the Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean Liens permitted by Section 5.2(d) hereof.
"Person" or "person" shall include an individual, a corporation, an
association, a
<PAGE> 7
partnership, a trust or estate, a joint stock company, an unincorporated
organization, a joint venture, a trade or business (whether or not
incorporated), a government (foreign or domestic) and any agency or political
subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any pension plan (other
than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any Subsidiary of such person or any ERISA Affiliate,
or by any other person if such person, any Subsidiary of such person or any
ERISA Affiliate could have liability with respect to such pension plan.
"Prime Rate" shall mean the per annum rate announced by the Agent from
time to time as its "prime rate" (it being acknowledged that such announced rate
may not necessarily be the lowest rate charged by the Agent to any of its
customers), which Prime Rate shall change simultaneously with any change in such
announced rate.
"Prohibited Transaction" shall mean any transaction involving any Plan
which is proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Reportable Event" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Required Banks" shall mean Banks holding not less than sixty-seven
percent (67%) of the aggregate principal amount of the Loans then outstanding
(or sixty-seven percent (67%) of the Commitments if no Loans are then
outstanding).
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Supporting Subsidiary" shall mean each Subsidiary of a Borrower, if, at
the time of determination the total assets of such Subsidiary are $5,000,000 or
more. Once a Subsidiary is determined to be a Supporting Subsidiary, it shall
continue to be a Supporting Subsidiary, regardless of any change in its assets.
"Termination Date" shall mean the earlier to occur of (a) June 28, 1996
or such later date to which the Termination Date is extended pursuant to Section
2.1(b), and (b) the date on which the Commitments shall be terminated pursuant
to Section 2.2 or 6.2.
"Total Liabilities" of any person shall mean, as of any date, all
obligations which, in accordance with Generally Accepted Accounting Principles,
are or should be classified as liabilities on a balance sheet of such person.
"Unfunded Benefit Liabilities" shall mean, with respect to any Plan as
of any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
2.1 Other Definitions; Rules of Construction. As used herein, the terms
"Agent", "Banks", "Company", "Borrowing Affiliate", "Borrower", "Borrowers" and
"this Agreement" shall have the respective meanings ascribed thereto in the
introductory paragraph of this Agreement. Such
<PAGE> 8
terms, together with the other terms defined in Section 1.1, shall include both
the singular and the plural forms thereof and shall be construed accordingly.
All computations required hereunder and all financial terms used herein shall be
made or construed in accordance with Generally Accepted Accounting Principles
unless such principles are inconsistent with the express requirements of this
Agreement. Use of the terms "herein", "hereof", and "hereunder" shall be deemed
references to this Agreement in its entirety and not to the Section or clause in
which such term appears. References to "Sections" and "subsections" shall be to
Sections and subsections, respectively, of this Agreement unless otherwise
specifically provided.
ARTICLE II.
THE COMMITMENTS AND THE LOANS
3. Commitment of the Banks.
(a) Loans. Each Bank agrees, for itself only, subject to the terms and
conditions of this Agreement, to make Loans to the Borrowers pursuant to Section
2.4, from time to time from and including the Effective Date to but excluding
the Termination Date, not to exceed in aggregate principal amount at any time
outstanding the amount of its respective Commitment as of the date any such Loan
is made.
(b) Extensions. The Banks shall consider annual requests for the
extension of Termination Date. The Company shall deliver a notice in writing to
the Agent on or before April 15 of each year in the event the Company chooses to
extend the Termination Date for a period of 364 days from the then existing
Termination Date. The Agent shall provide notice to each of the Banks within
five (5) business days after receiving such notice. Each of the Banks agrees to
provide notice in writing to the Agent of its agreement or refusal to extend
such Termination Date for a period of 364 days on or before May 31 of each year;
provided, however, that the failure of any Bank to so communicate its agreement
or refusal shall be deemed to be such Bank's refusal to so extend the
Termination Date. The determination to extend or not to extend the Termination
Date shall be given or withheld by each Bank in its absolute and sole discretion
and any such agreement or refusal once given shall not be revocable by any Bank
prior to the then applicable Termination Date. No extension of the Termination
Date shall in any event be effective until the Agent shall have received an
agreement to so extend, in the form of Exhibit D, attached hereto executed by
each Bank; provided, however, that if any Bank refuses to extend the Termination
Date, the Agent shall provide notice to the Company and (i) the commitment of
each Bank shall remain unchanged and the Total Commitment and the Percentage of
Total Commitments shall be modified accordingly, or (ii) additional lenders, as
selected by the Company, shall be added to this Agreement.
3.1 Termination and Reduction of Commitments. The Company shall have the
right to terminate or reduce the Commitments at any time and from time to time
at its option, provided that (a) the Company shall give not less than five (5)
days prior notice of such termination or reduction to the Agent (with sufficient
executed copies for each Bank) specifying the amount and effective date thereof,
(b) each partial reduction of the Commitments shall be in a minimum amount of
$5,000,000 and in an integral multiple of $1,000,000 and shall reduce the
Commitments of all of the Banks proportionately in accordance with the
respective commitment amounts for each such Bank set forth on the signature
pages hereof next to the name of each such Bank, (c) no such termination or
reduction shall be permitted with respect to any portion of the Commitments as
to which a request for a Borrowing pursuant to Section 2.4 is then pending, and
(d) the Commitments may not be terminated if any Loans are then outstanding and
may not be reduced below the principal amount of Loans then outstanding. The
Commitments or any portion thereof terminated or reduced pursuant to this
Section 2.2, whether optional or mandatory, may not be reinstated.
<PAGE> 9
3.2 Fees. (a) The Borrowers agree to pay to the Agent, for the benefit
of the Banks, a facility fee on the entire amount of the Commitments, for the
period from the Effective Date to but excluding the Termination Date, at a per
annum rate equal to the Applicable Margin. Accrued facility fees shall be
payable quarterly in arrears on the last Business Day of each March, June,
September and December, commencing on the first such Business Day occurring
after the date of this Agreement and on the Termination Date.
(b) The Borrowers agree to pay to the Agent an agency fee for its
services as Agent under this Agreement in such amounts as are mutually agreed
upon by the Company and the Agent.
3.3 Disbursement of Loans. (a) A Borrower shall give the Agent notice of
its request for each Borrowing in substantially the form of Exhibit E hereto
(with sufficient executed copies for each Bank) not later than 10:00 a.m.
Detroit time (i) three Eurodollar Business Days prior to the date such Borrowing
is requested to be made if such Borrowing is to be made as a Eurodollar Rate
Borrowing, and (ii) on the date such Borrowing is requested to be made if such
Borrowing is to be made as a Floating Rate Borrowing, which notice shall specify
whether a Eurodollar Rate Borrowing, or Floating Rate Borrowing is requested
and, in the case of each requested Eurodollar Rate Borrowing, the Eurodollar
Interest Period to be initially applicable to such Borrowing. The Agent, by 1:00
p.m. Detroit time, on the same day such notice is given, shall provide notice of
such requested Borrowing to each Bank. Subject to the terms and conditions of
this Agreement, the proceeds of each such requested Borrowing shall be made
available to the Borrower requesting such Loan in immediately available funds.
(b) Each Bank, on the date any Borrowing is requested to be made,
shall make its pro rata share of such Borrowing available in immediately
available funds at the principal office of the Agent for disbursement to the
Borrower requesting such Loan. Unless the Agent shall have received notice from
any Bank prior to the date such Borrowing is requested to be made under this
Section 2.4 that such Bank will not make available to the Agent such Bank's pro
rata portion of such Borrowing, the Agent may assume that such Bank has made
such portion available to the Agent on the date such Borrowing is requested to
be made in accordance with this Section 2.4. If and to the extent such Bank
shall not have so made such pro rata portion available to the Agent, the Agent
may (but shall not be obligated to) make such amount available to the Borrower
requesting such Loan, and such Bank and the Borrowers severally agree to pay to
the Agent forthwith on demand such amount together with interest thereon, for
each day from the date such amount is made available to the Borrowers by the
Agent until the date such amount is repaid to the Agent, at a rate per annum, if
paid by such Borrower, equal to the interest rate applicable to such Borrowing
during such period, and if paid by such Bank, equal to the Federal Funds Rate.
If such Bank shall pay such amount to the Agent together with interest, such
amount so paid shall constitute a Loan by such Bank as a part of such related
Borrowing for purposes of this Agreement. The failure of any Bank to make its
pro rata portion of any such Borrowing available to the Agent shall not relieve
any other Bank of its obligations to make available its pro rata portion of such
Borrowing on the date such Borrowing is requested to be made, but no Bank shall
be responsible for failure of any other Bank to make such pro rata portion
available to the Agent on the date of any such Borrowing.
(c) All Loans made under this Section 2.4 shall be evidenced by
the Notes and all such Loans shall be due and payable and bear interest as
provided in Article III. Each Bank is hereby authorized by each Borrower to
record on the schedule attached to the Notes, or in its books and records, the
date, amount and type of each Loan and the duration of the related Eurodollar
Interest Period (if applicable), the amount of each payment or prepayment of
principal thereon, and the other information provided for on such schedule,
which schedule or books and records, as the case may be, shall constitute prima
facie evidence of the information so recorded, provided, however, that failure
of any Bank to record, or any error in recording, any such information shall not
relieve any Borrower of its obligation to repay the outstanding principal amount
of the Loans, all accrued interest thereon and other amounts payable with
respect thereto in
<PAGE> 10
accordance with the terms of the Notes and this Agreement. Subject to the terms
and conditions of this Agreement, a Borrower may borrow Loans under this Section
2.4, prepay Loans pursuant to Section 3.1 and reborrow Loans under this Section
2.4.
3.4 Conditions for First Disbursement. The obligation of the Banks to
make the first Loan hereunder is subject to receipt by each Bank and the Agent
of the following documents and completion of the following matters, in form and
substance satisfactory to each Bank and the Agent:
(a) Charter Documents. Certificates of recent date of the
appropriate authority or official of each Borrower's and each Guarantor's
respective state of incorporation listing all charter documents of each Borrower
and each Guarantor, respectively, on file in that office and certifying as to
the good standing and corporate existence of each Borrower and each Guarantor,
respectively, together with copies of such charter documents of each Borrower
and each Guarantor, certified as of a recent date by such authority or official
and certified as true and correct as of the Effective Date by a duly authorized
officer of each Borrower and each Guarantor, respectively;
(b) By-Laws and Corporate Authorizations. Copies of the by-laws of
each Borrower and each Guarantor together with all authorizing resolutions and
evidence of other corporate action taken by each Borrower and each Guarantor to
authorize the execution, delivery and performance by each Borrower and each
Guarantor of this Agreement, the Notes and the Guaranty to which each Borrower
and such Guarantor, respectively, is a party and the consummation by each
Borrower and such Guarantor, respectively of the transactions contemplated
hereby, certified as true and correct as of the Effective Date by a duly
authorized officer of each Borrower and each Guarantor, respectively;
(c) Incumbency Certificate. Certificates of incumbency of each
Borrower and each Guarantor containing, and attesting to the genuineness of, the
signatures of those officers authorized to act on behalf of each Borrower and
such Guarantor in connection with this Agreement, the Notes and the Guaranty to
which such Borrower or such Guarantor is a party and the consummation by such
Borrower and such Guarantor of the transactions contemplated hereby, certified
as true and correct as of the Effective Date by a duly authorized officer of
each Borrower and each Guarantor, respectively;
(d) Notes. The Notes duly executed on behalf of Borrowers for each
Bank;
(e) Guaranties. The Guaranties, duly executed on behalf of each
Guarantor;
(f) Legal Opinions. The favorable written opinion of counsel for
each Borrower and each Guarantor (which counsel may be an employee of the
Company or any such Guarantor), with respect to each of the matters set forth in
Article IV (other than Sections 4.6, 4.7, 4.11, and 4.12), and as to such other
matters as the Banks or the Agent may reasonably request; and
(g) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations, registrations
or filings, if any, required on the part of any Borrower or any Guarantor in
connection with the execution, delivery and performance of this Agreement, the
Notes, the Guaranties or the transactions contemplated hereby or as a condition
to the legality, validity or enforceability of this Agreement, the Notes or any
of the Guaranties, certified as true and correct and in full force and effect as
of the Effective Date by a duly authorized officer of the Company, or, if none
are required, a certificate of such officer to that effect.
<PAGE> 11
3.5 Further Conditions for Disbursement. The obligation of the Banks to
make any Loan (including the first Loan), or any continuation or conversion
under Section 2.7, is further subject to the satisfaction of the following
conditions precedent:
(a) The representations and warranties contained in Article IV
hereof and in the Guaranties shall be true and correct on and as of the date
such Loan is made (both before and after such Loan is made) as if such
representations and warranties were made on and as of such date;
(b) No Default or Event of Default shall exist or shall have
occurred and be continuing on the date such Loan is made (whether before or
after such Loan is made); and
Each Borrower shall be deemed to have made a representation and warranty to the
Banks at the time of the making of, and the continuation or conversion of, each
Loan to the effects set forth in clauses (a) and (b) of this Section 2.6. For
purposes of this Section 2.6, the representations and warranties contained in
Section 4.6 hereof shall be deemed made with respect to both the financial
statements referred to therein and the most recent financial statements
delivered pursuant to Section 5.1(d)(ii) and (iii).
3.6 Subsequent Elections as to Borrowings. A Borrower may elect (a) to
continue a Eurodollar Rate Borrowing, or a portion thereof, as a Eurodollar Rate
Borrowing, or (b) may elect to convert a Eurodollar Rate Borrowing, or a portion
thereof, to a Floating Rate Borrowing, or (c) elect to convert a Floating Rate
Borrowing, or a portion thereof, to a Eurodollar Rate Borrowing, in each case by
giving notice thereof to the Agent (with sufficient executed copies for each
Bank) in substantially the form of Exhibit F hereto not later than 10:00 a.m.
Detroit time (i) three Eurodollar Business Days prior to the date any such
continuation of or conversion to a Eurodollar Rate Borrowing is to be effective,
(ii) the date such continuation or conversion is to be effective in all other
cases, provided that an outstanding Eurodollar Rate Borrowing may only be
converted on the last day of the then current Eurodollar Interest Period with
respect to such Borrowing, and provided, further, if a continuation of a
Borrowing as, or a conversion of a Borrowing to, a Eurodollar Rate Borrowing is
requested, such notice shall also specify the Eurodollar Interest Period to be
applicable thereto upon such continuation or conversion. The Agent, on the day
such notice is given in the event of an election to convert or continue a
Floating Rate Borrowing, and not later than the Business Day next succeeding the
day such notice is given in all other cases, shall provide notice of such
election to the Banks. If a Borrower shall not timely deliver such a notice with
respect to any outstanding Eurodollar Rate Borrowing, the Borrower shall be
deemed to have elected to convert such Eurodollar Rate Borrowing to a Floating
Rate Borrowing on the last day of the then current Eurodollar Interest Period
with respect to such Borrowing.
3.7 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Eurodollar Rate Borrowing pursuant to Section 2.4, or a request for a
continuation of a Eurodollar Rate Borrowing as a Eurodollar Rate Borrowing, or a
request for a conversion of a Floating Rate Borrowing to a Eurodollar Rate
Borrowing pursuant to Section 2.7, (a) in the case of any Eurodollar Rate
Borrowing, deposits in Dollars for periods comparable to the Eurodollar Interest
Period elected by a Borrower are not available to any Bank in the relevant
interbank secondary market, or (b) the Eurodollar Rate, will not adequately and
fairly reflect the cost to any Bank of making, funding or maintaining the
related Eurodollar Rate Loan, or (c) by reason of national or international
financial, political or economic conditions or by reason of any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect, or the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Bank with any guideline, request or directive of such
authority (whether or not having the force of law), including without limitation
exchange controls, it is impracticable, unlawful or impossible for any Bank (i)
to make or fund the relevant Eurodollar Rate Borrowing, or (ii) to continue such
Eurodollar Rate Borrowing as a Eurodollar Rate Loan, or (iii) to convert a Loan
to a
<PAGE> 12
Eurodollar Rate Loan, then no Borrower shall be entitled, so long as such
circumstances continue, to request a Eurodollar Rate Borrowing pursuant to
Section 2.4 or a continuation of or conversion to a Eurodollar Rate Borrowing of
the affected type pursuant to Section 2.7. In the event that such circumstances
no longer exist, the Banks shall again consider requests for Eurodollar Rate
Borrowings of the affected type pursuant to Section 2.4, and requests for
continuations of and conversions to Eurodollar Rate Borrowings of the affected
type pursuant to Section 2.7.
3.8 Minimum Amounts; Limitation on Number of Borrowings. Except for (a)
Borrowings and conversions thereof which exhaust the entire remaining amount of
the Commitments, and (b) conversions or payments required pursuant to Section
3.7, each Borrowing and each continuation or conversion pursuant to Section 2.7
and each prepayment thereof shall be in a minimum amount of $3,000,000 and in an
integral multiple of $1,000,000. The aggregate number of Eurodollar Rate
Borrowings outstanding at any one time under this Agreement may not exceed five.
3.9 Guaranties. To secure the payment when due of the Notes and all
other obligations of the Borrowers under this Agreement to the Banks and the
Agent, the Company shall execute and deliver, or cause to be executed and
delivered, to the Banks and the Agent Guaranties of all Supporting Subsidiaries;
provided, however, that the Banks hereby agree to release the Subsidiary of the
Company to be formed for the sole purpose of accomplishing the sale, liquidation
or other disposition of the automobile rental fleet as provided in Section
5.2(f) from its obligations under any Guaranty executed after the Effective Date
by such Subsidiary upon the sale, liquidation or other disposition of such
Subsidiary or its assets.
ARTICLE III.
PAYMENTS AND PREPAYMENTS
4. Principal Payments. (a) Unless earlier payment is required under
this Agreement, the Borrowers shall pay to the Banks on the Termination Date
the entire outstanding principal amount of the Loans.
(b) The Borrowers may at any time and from time to time prepay all
or a portion of the Loans without premium or penalty, provided that (i) a
Borrower may not prepay any portion of any Loan as to which an election for
continuation of or conversion to a Eurodollar Rate Loan is pending pursuant to
Section 2.7, and (ii) unless earlier payment is required under this Agreement,
any Eurodollar Rate Loan may only be prepaid on the last day of the then current
Eurodollar Interest Period with respect to such Loan.
4.1 Interest Payments. The Borrowers shall pay interest to the Banks on
the unpaid principal amount of each Loan, for the period commencing on the date
such Loan is made until such Loan is paid in full, on each Interest Payment Date
and at maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(a) During such periods that such Loan is a Floating Rate Loan,
the Floating Rate.
(b) During such periods that such Loan is a Eurodollar Rate Loan,
the Eurodollar Rate applicable to such Loan for each related Eurodollar Interest
Period.
Notwithstanding the foregoing paragraphs (a) and (b), the Borrowers shall pay
interest on demand at the Overdue Rate on the outstanding principal amount of
any Loan and any other amount payable by the Borrowers hereunder (other than
interest) which is not paid in full when due (whether at stated
<PAGE> 13
maturity, by acceleration or otherwise) for the period commencing on the due
date thereof until the same is paid in full.
4.2 Payment Method. (a) All payments to be made by the Borrowers
hereunder will be made in Dollars and in immediately available funds to the
Agent for the account of the Banks at its address referred to in Section 8.2 not
later than 2:00 p.m. Detroit time on the date on which such payment shall become
due. Payments received after 2:00 p.m. Detroit time shall be deemed to be
payments made prior to 2:00 p.m. Detroit time on the next succeeding Business
Day. Each Borrower hereby authorizes the Agent to charge its account with the
Agent in order to cause timely payment of amounts due hereunder to be made
(subject to sufficient funds being available in such account for that purpose).
(b) At the time of making each such payment, a Borrower shall,
subject to the other terms and conditions of this Agreement, specify to the
Agent that Loan or other obligation of the Borrowers hereunder to which such
payment is to be applied. In the event that the Borrowers fails to so specify
the relevant obligation or if an Event of Default shall have occurred and be
continuing, the Agent may apply such payments as it may determine in its sole
discretion.
(c) On the day such payments are deemed received, the Agent shall
remit to the Banks their pro rata shares of such payments in immediately
available funds, made by wire transfer, (i) in the case of payments of principal
and interest on any Borrowing, determined with respect to each such Bank by the
ratio which the outstanding principal balance of its Loan included in such
Borrowing bears to the outstanding principal balance of the Loans of all of the
Banks included in such Borrowing and (ii) in the case of fees paid pursuant to
Section 2.3 and other amounts payable hereunder (other than the Agent's fees
payable pursuant to Section 2.3(b) and amounts payable to the Agent or any Bank
under Section 2.4(b), 3.6 or 3.8) determined with respect to each such Bank by
the ratio which the Commitment of such Bank bears to the Commitments of all the
Banks.
4.3 No Setoff or Deduction. All payments of principal of and interest on
the Loans and other amounts payable by the Borrowers hereunder shall be made by
the Borrowers without setoff or counterclaim, and free and clear of, and without
deduction or withholding for, or on account of, any present or future taxes,
levies, imposts, duties, fees, assessments, or other charges of whatever nature,
imposed by any governmental authority, or by any department, agency or other
political subdivision or taxing authority; provided, however, that this Section
3.4 shall not preclude any Borrower from counterclaiming against any Bank having
its principle office in the United States of America for (a) income taxes owed
to the United States of America by such Bank, which are paid by a Borrower under
a valid garnishment order, or (b) other obligations of such Bank, unrelated to
such taxes, levies, imposts, duties, fees, assessments, or other charges, which
are paid by a Borrower under a valid garnishment order.
4.4 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement shall be
made on the basis of a year of 360 days (or 365 or 366 days, as the case may be,
when determining the Floating Rate) for the actual number of days elapsed,
including the first day but excluding the last day of the relevant period.
4.5 Additional Costs. (a) In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect and
whether or not presently applicable to any Bank or the Agent, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by
<PAGE> 14
any Bank or the Agent with any guideline, request or directive of any such
authority (whether or not having the force of law), shall (a) affect the basis
of taxation of payments to any Bank or the Agent of any amounts payable by a
Borrower under this Agreement (other than taxes imposed on the overall net
income of the Bank or the Agent, by the jurisdiction, or by any political
subdivision or taxing authority of any such jurisdiction, in which any Bank or
the Agent, as the case may be, has its principal office), or (b) shall impose,
modify or deem applicable any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit extended by
any Bank, or (c) shall impose any other condition with respect to this
Agreement, the Commitments, the Notes or the Loans, and the result of any of the
foregoing is to increase the cost to any Bank or the Agent, as the case may be,
of making, funding or maintaining any Eurodollar Rate Loan or to reduce the
amount of any sum receivable by any Bank thereon, then the Borrowers shall pay
to such Bank or the Agent, as the case may be, from time to time, upon request
by such Bank (with a copy of such request to be provided to the Agent) or the
Agent, additional amounts sufficient to compensate such Bank or the Agent, as
the case may be, for such increased cost or reduced sum receivable to the
extent, in the case of any Eurodollar Rate Loan, such Bank is not compensated
therefor in the computation of the interest rate applicable to such Eurodollar
Rate Loan. A statement as to the amount of such increased cost or reduced sum
receivable, prepared in good faith and in reasonable detail by such Bank or the
Agent, as the case may be, and submitted by such Bank or the Agent, as the case
may be, to the Borrowers, shall be conclusive and binding for all purposes
absent manifest error in computation.
(b) In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect and whether
or not presently applicable to any Bank or the Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank or the Agent
with any guideline, request or directive of any such authority (whether or not
having the force of law), including any risk-based capital guidelines, affects
or would affect the amount of capital required or expected to be maintained by
such Bank or the Agent (or any corporation controlling such Bank or the Agent),
including any change in capital required to be maintained with respect to
commitments for credit of less than 365 days in duration, and such Bank or the
Agent, as the case may be, determines that the amount of such capital is
increased by or based upon the existence of such Bank's or the Agent's
obligations hereunder and such increase has the effect of reducing the rate of
return on such Bank's or the Agent's (or such controlling corporation's) capital
as a consequence of such obligations hereunder to a level below that which such
Bank or the Agent (or such controlling corporation) could have achieved but for
such circumstances (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Bank or the Agent to be material,
then the Borrowers shall pay to such Bank or the Agent, as the case may be, from
time to time, upon request by such Bank (with a copy of such request to be
provided to the Agent) or the Agent, additional amounts sufficient to compensate
such Bank or the Agent (or such controlling corporation) for any increase in the
amount of capital and reduced rate of return which such Bank or the Agent
reasonably determines to be allocable to the existence of such Bank's or the
Agent's obligations hereunder. A statement as to the amount of such
compensation, prepared in good faith and in reasonable detail by such Bank or
the Agent, as the case may be, and submitted by such Bank or the Agent to the
Borrowers, shall be conclusive and binding for all purposes absent manifest
error in computation.
4.6 Illegality and Impossibility. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, shall
make it unlawful or impossible for any Bank to maintain any Eurodollar Rate Loan
under this Agreement, the Borrowers shall upon receipt of notice thereof from
such Bank, repay in full the then outstanding principal amount of each
Eurodollar Rate Loan so affected, together with all accrued interest thereon to
the date of payment
<PAGE> 15
and all amounts owing to such Bank under Section 3.8, (a) on the last day of the
then current Eurodollar Interest Period applicable to such Loan if such Bank may
lawfully continue to maintain such Loan to such day, or (b) immediately if such
Bank may not continue to maintain such Loan to such day.
4.7 Indemnification. If a Borrower makes any payment of principal with
respect to any Eurodollar Rate Loan or converts any Eurodollar Rate Loan on any
other date than the last day of an Eurodollar Interest Period applicable thereto
(whether pursuant to Section 3.7, Section 6.2 or otherwise), or if the a
Borrower fails to borrow any Eurodollar Rate Loan after notice has been given to
the Banks in accordance with Section 2.4, or if a Borrower fails to make any
payment of principal or interest in respect of a Eurodollar Rate Loan when due,
the Borrowers shall reimburse each Bank on demand for any resulting loss or
expense incurred by each such Bank, including without limitation any loss
incurred in obtaining, liquidating or employing deposits from third parties,
whether or not such Bank shall have funded or committed to fund such Loan. A
statement as to the amount of such loss or expense, prepared in good faith and
in reasonable detail by such Bank and submitted by such Bank to the Borrowers,
shall be conclusive and binding for all purposes absent manifest error in
computation. Calculation of all amounts payable to such Bank under this Section
3.8 shall be made as though such Bank shall have actually funded or committed to
fund the relevant Eurodollar Rate Loan through the purchase of an underlying
deposit in an amount equal to the amount of such Loan and having a maturity
comparable to the related Eurodollar Interest Period; provided, however, that
such Bank may fund any Eurodollar Rate Loan in any manner it sees fit and the
foregoing assumption shall be utilized only for the purpose of calculation of
amounts payable under this Section 3.8.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Agent and the Banks that:
5. Corporate Existence and Power. Each Borrower is a Person duly
organized, validly existing and in good standing under the laws of the state or
other political subdivision of its jurisdiction of incorporation or
organization, as the case may be, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law. Each Borrower has all requisite power, corporate
or otherwise, to own or lease the properties used in its business and to carry
on its business as now being conducted and as proposed to be conducted, and to
execute and deliver this Agreement, and the Notes, and to engage in the
transactions contemplated by this Agreement.
5.1 Corporate Authority. The execution, delivery and performance by each
Borrower of this Agreement and the Notes have been duly authorized by all
necessary corporate action and are not in contravention of any law, rule or
regulation, or any judgment, decree, writ, injunction, order or award of any
arbitrator, court or governmental authority, or of the terms of such Borrower's
charter or by-laws, or of any contract or undertaking to which such Borrower is
a party or by which such Borrower or its property may be bound or affected or
result in the imposition of any Lien except for Permitted Liens.
5.2 Binding Effect. This Agreement is, and the Notes when delivered
hereunder will be, legal, valid and binding obligations of each Borrower
enforceable against each Borrower in accordance with their respective terms.
5.3 Subsidiaries. Schedule 4.4 hereto correctly sets forth the corporate
name, jurisdiction of incorporation and ownership of each Subsidiary of each
Borrower as of the Effective
<PAGE> 16
Date. Each such Subsidiary and each corporation becoming a Subsidiary of any
Borrower after the date hereof is and will be a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is and will be duly qualified to do business in each
additional jurisdiction where such qualification is or may be necessary under
applicable law. Each Subsidiary of each Company has and will have all requisite
corporate power to own or lease the properties used in its business and to carry
on its business as now being conducted and as proposed to be conducted. All
outstanding shares of capital stock of each class of each Supporting Subsidiary
of the Company have been and will be validly issued and are and will be fully
paid and nonassessable and, except as otherwise indicated in Schedule 4.4 hereto
or consented to by the Required Banks from time to time, are and will be owned,
beneficially and of record, by the Company or another Supporting Subsidiary of
the Company free and clear of any Liens. The corporations described in Schedule
4.4 hereto constitute all persons in which any Borrower or any of its
Subsidiaries has an ownership interest as of the Effective Date.
5.4 Litigation. Except as set forth in Schedule 4.5 hereto, there is no
action, suit or proceeding pending or, to the best of each Borrower's knowledge,
threatened against or affecting any Borrower or any of their respective
Subsidiaries before or by any court, governmental authority or arbitrator, which
if adversely decided might result, either individually or collectively, in any
material adverse change in the business, properties, operations or condition,
financial or otherwise, of any Borrower or any of their respective Subsidiaries
or in any material adverse effect on the legality, validity or enforceability of
this Agreement, the Notes or any Guaranty and, to the best of each Borrower's
knowledge, there is no basis for any such action, suit or proceeding.
5.5 Financial Condition. The consolidated balance sheet of the Company
and its Subsidiaries and the consolidated statements of income, retained
earnings, and cash flows of the Company and its Subsidiaries for the fiscal year
ended January 31, 1995 and reported on by Deloitte & Touche, independent
certified public accountants, copies of which have been furnished to the Banks,
fairly present, and the financial statements of the Company and its Subsidiaries
delivered pursuant to Section 5.1(d) will fairly present, the consolidated
financial position of the Company and its Subsidiaries as at the respective
dates thereof, and the consolidated results of operations of the Company and its
Subsidiaries for the respective periods indicated, all in accordance with
Generally Accepted Accounting Principles consistently applied (subject, in the
case of said interim statements, to year-end audit adjustments). There has been
no material adverse change in the business, properties, operations or condition,
financial or otherwise, of the Company or any of its Subsidiaries since January
31, 1995. There is no material Contingent Liability of any Borrower that is not
reflected in such financial statements or in the notes thereto.
5.6 Use of Loans. Each Borrower will use the proceeds of the Loans to
support its commercial paper program and no Borrower will use the proceeds of
the Loans to repurchase the stock of any Borrower or any of their respective
Subsidiaries. Neither any Borrower nor any of their respective Subsidiaries
extends or maintains, in the ordinary course of business, credit for the
purpose, whether immediate, incidental, or ultimate, of buying or carrying
margin stock (within the meaning of Regulation U of the Board of Governors of
the Federal Reserve System), and no part of the proceeds of any Loan will be
used for the purpose, whether immediate, incidental, or ultimate, of buying or
carrying any such margin stock or maintaining or extending credit to others for
such purpose. After applying the proceeds of each Loan, such margin stock will
not constitute more than 25% of the value of the assets (either of any Borrower
alone or of the Company and its Subsidiaries on a consolidated basis) that are
subject to any provisions of this Agreement or any Guaranty that may cause the
Loans to be deemed secured, directly or indirectly, by margin stock.
5.7 Consents, Etc. Except for such consents, approvals, authorizations,
declarations, registrations or filings delivered by the Borrowers pursuant to
Section 2.5(g), if any, each of which is in full force and effect, no consent,
approval or authorization of or declaration, registration or filing with any
governmental authority or any nongovernmental person or entity, including
without limitation any creditor, lessor or stockholder of Borrowers or any of
their
<PAGE> 17
respective Subsidiaries, is required on the part of any Borrower in connection
with the execution, delivery and performance of this Agreement, or the Notes, or
the transactions contemplated hereby or as a condition to the legality, validity
or enforceability of this Agreement, the Notes or any Guaranty.
5.8 Taxes. Each Borrower and its Subsidiaries have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes shown
thereon to be due, including interest and penalties, or have established
adequate financial reserves on their respective books and records for payment
thereof. Neither any Borrower nor any of their respective Subsidiaries knows of
any actual or proposed tax assessment or any basis therefor, and no extension of
time for the assessment of deficiencies in any federal or state tax has been
granted by any Borrower or any Subsidiary.
5.9 Title to Properties. Except as otherwise disclosed in the latest
balance sheet delivered pursuant to Section 4.6 or 5.1(d) of this Agreement, a
Borrower or one or more of its Subsidiaries have good and marketable fee simple
title to all of the real property, and a valid and indefeasible ownership
interest in all of the other properties and assets reflected in said balance
sheet or subsequently acquired by any Borrower or any Subsidiary. All of such
properties and assets are free and clear of any Lien, except for Permitted
Liens.
5.10 ERISA. The Borrowers, their respective Subsidiaries, their ERISA
Affiliates and their respective Plans are in compliance in all material respects
with those provisions of ERISA and of the Code which are applicable with respect
to any Plan. No Prohibited Transaction and no Reportable Event has occurred with
respect to any such Plan. None of any Borrower, any of their respective
Subsidiaries or any of their ERISA Affiliates is an employer with respect to any
Multiemployer Plan. The Borrowers, their respective Subsidiaries and their ERISA
Affiliates have met the minimum funding requirements under ERISA and the Code
with respect to each of their respective Plans, if any, and have not incurred
any liability to the PBGC or any Plan. The execution, delivery and performance
of this Agreement, the Notes and the Guaranties does not constitute a Prohibited
Transaction. There is no material Unfunded Benefit Liability with respect to any
Plan of any Borrower, their respective Subsidiaries or their ERISA Affiliates.
5.11 Environmental and Safety Matters. Each Borrower and each Subsidiary
is in substantial compliance with all federal, state and local laws, ordinances
and regulations relating to safety and industrial hygiene or to the
environmental condition, including without limitation all Environmental Laws in
jurisdictions in which any Borrower or any Subsidiary owns or operates, or has
owned or operated, a facility or site, or arranges or has arranged for disposal
or treatment of hazardous substances, solid waste, or other wastes, accepts or
has accepted for transport any hazardous substances, solid wastes or other
wastes or holds or has held any interest in real property or otherwise, except
as disclosed on Schedule 4.12 hereto, and as to such matters disclosed on such
Schedule, none will have a material adverse effect on the financial condition or
business of any Borrower or any of their respective Subsidiaries. No demand,
claim, notice, suit, suit in equity, action, administrative action,
investigation or inquiry whether brought by any governmental authority, private
person or entity or otherwise, arising under, relating to or in connection with
any Environmental Laws is pending or threatened against any Borrower or any of
their respective Subsidiaries, any real property in which any Borrower or any
such Subsidiary holds or has held an interest or any past or present operation
of any Borrower or any Subsidiary, except as disclosed on Schedule 4.12 hereto,
and as to such matters disclosed on such Schedule, none will have a material
adverse effect on the financial condition or business of any Borrower or any of
its Subsidiaries. Neither any Borrower nor any of their respective Subsidiaries
(a) is the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any toxic substances,
radioactive materials, hazardous wastes or related materials into the
environment, (b) has received any notice of any toxic substances, radioactive
materials, hazardous waste or related materials in, or upon any of its
properties in violation of any Environmental Laws, or (c) knows of any basis for
any such investigation, notice or violation, except as disclosed on Schedule
4.12 hereto,
<PAGE> 18
and as to such matters disclosed on such Schedule, none will have an material
adverse affect on the financial condition or business of any Borrower or any of
their respective Subsidiaries. No release, threatened release or disposal of
hazardous waste, solid waste or other wastes is occurring or has occurred on,
under or to any real property in which any Borrower or any of their respective
Subsidiaries holds any interest or performs any of its operations, in violation
of any Environmental Law, except as disclosed on Schedule 4.12 hereto, and as to
such matters disclosed on such Schedule, none will have a material adverse
effect on the financial condition or business of any Borrower or any of their
respective Subsidiaries.
ARTICLE V.
COVENANTS
6. Affirmative Covenants. Each Borrower covenants and agrees that, until
the Termination Date and thereafter until payment in full of the principal of
and accrued interest on the Notes and the performance of all other obligations
of the Borrowers under this Agreement, unless the Required Banks shall otherwise
consent in writing, it shall, and shall cause each of its Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to be
done all things necessary to preserve, renew and keep in full force and effect
its legal existence, except to the extent permitted by Section 5.2(e), and its
qualification as a foreign corporation in good standing in each jurisdiction in
which such qualification is necessary under applicable law, and the rights,
licenses, permits (including those required under Environmental Laws),
franchises, patents, copyrights, trademarks and trade names material to the
conduct of its businesses; and defend all of the foregoing against all claims,
actions, demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings and with respect to which adequate
financial reserves have been established on the books and records of any such
Borrower or such Subsidiary.
(c) Maintenance of Properties; Insurance. Maintain, preserve and
protect all property that is material to the conduct of the business of the any
Borrower or any of their respective Subsidiaries and keep such property in good
repair, working order and condition and from time to time make, or cause to be
made all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times in accordance with
customary and prudent business practices for similar businesses; and maintain in
full force and effect insurance with responsible and reputable insurance
companies or associations in such amounts, on such terms and covering such
risks, including fire and other risks insured against by extended coverage, as
is usually carried by companies engaged in similar businesses and owning similar
properties similarly situated and maintain in full force and effect public
liability insurance, insurance against claims for personal injury or death or
property damage occurring in connection with any of its activities or any of any
properties owned, occupied or controlled by it, in such amount as it shall
reasonably deem necessary, and maintain such other insurance as may be required
by law.
<PAGE> 19
(d) Reporting Requirements. Furnish to the Banks and the Agent
the following:
(i) Promptly and in any event within three calendar days
after becoming aware of the occurrence of (A) any Default, or Event of Default
described in Section 6.1, (B) the commencement of any material litigation
against, by or affecting any Borrower or any of their respective Subsidiaries,
and any material developments therein, (C) entering into any material contract
or undertaking that is not entered into in the ordinary course of business, or
(D) any development in the business or affairs of any Borrower or any of their
respective Subsidiaries which has resulted in or which is likely in the
reasonable judgment of such Borrower, to result in a material adverse change in
the business, properties, operations or condition, financial or otherwise of the
Company or any of its Subsidiaries, a statement of the chief financial officer
of such Borrower setting forth details of such Default or Event of Default,
litigation, development, contract, or undertaking, and the action which such
Borrower or such Subsidiary, as the case may be, has taken and proposes to take
with respect thereto;
(ii) As soon as available and in any event within 60 days
after the end of each of the first three fiscal quarters of the Company, the
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such quarter, and the related consolidated statements of income, retained
earnings, and cash flows for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, setting forth in each case
in comparative form the corresponding figures for the corresponding date or
period of the preceding fiscal year, all in reasonable detail and duly certified
(subject to year-end audit adjustments) by the chief financial officer of the
Company as having been prepared in accordance with Generally Accepted Accounting
Principles; together with a certificate of the chief financial officer of the
Company stating (A) that no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is continuing,
a statement setting forth the details thereof and the action which the Company
has taken and proposes to take with respect thereto, and (B) that a computation
(which computation shall accompany such certificate and shall be in reasonable
detail) showing compliance with Section 5.2(a), (b), (c), (e), and (f) hereof is
in conformity with the terms of this Agreement;
(iii) As soon as available and in any event within 100 days
after the end of each fiscal year of the Company, a copy of the consolidated
balance sheet of the Company and its Subsidiaries as of the end of such fiscal
year and the related consolidated statements of income, retained earnings, and
cash flows of the Company and its Subsidiaries for such fiscal year, with a
customary audit report of Deloitte & Touche, or other independent certified
public accountants selected by the Company and acceptable to the Required Banks,
without qualifications unacceptable to the Required Banks, together with the
consolidating balance sheets and the related consolidating statements of income
of the Company and its Subsidiaries for such year; together with a certificate
of the chief financial officer of the Company stating (A) that no Default or
Event of Default has occurred and is continuing or, if a Default or Event of
Default has occurred and is continuing, a statement setting forth the details
thereof and the action which the Company has taken and proposes to take with
respect thereto, and (B) that a computation (which computation shall accompany
such certificate and shall be in reasonable detail) showing compliance with
Section 5.2(a), (b), (c), (e), and (f) hereof is in conformity with the terms of
this Agreement;
(iv) Promptly after the sending or filing thereof, copies of
all reports, proxy statements and financial statements which any Borrower or any
of its Subsidiaries sends to or files with any of their respective security
holders or any securities exchange or the Securities and Exchange Commission or
any successor agency thereof;
(v) Promptly and in any event within 10 calendar days after
receiving or becoming aware thereof (A) a copy of any notice of intent to
terminate any Plan of any
<PAGE> 20
Borrower, its Subsidiaries or any ERISA Affiliate filed with the PBGC, (B) a
statement of the chief financial officer of such Borrower setting forth the
details of the occurrence of any Reportable Event with respect to any such Plan,
(C) a copy of any notice that any Borrower, any of their respective Subsidiaries
or any ERISA Affiliate may receive from the PBGC relating to the intention of
the PBGC to terminate any such Plan or to appoint a trustee to administer any
such Plan, or (D) a copy of any notice of failure to make a required installment
or other payment within the meaning of Section 412(n) of the Code or Section
302(f) of ERISA with respect to any such Plan; and
(vi) Promptly, such other information respecting the
business, properties, operations or condition, financial or otherwise, of any
Borrower or any of their respective Subsidiaries as any Bank or the Agent may
from time to time reasonably request.
(e) Accounting; Access to Records, Books, Etc. Maintain a system
of accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
Generally Accepted Accounting Principles and to comply with the requirements of
this Agreement and, at any reasonable time and from time to time, permit any
Bank or the Agent or any agents or representatives thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, each Borrower and their respective Subsidiaries, and to discuss
the affairs, finances and accounts of such and its Subsidiaries with their
respective directors, officers, employees and independent auditors, and by this
provision each Borrower does hereby authorize such persons to discuss such
affairs, finances and accounts with any Bank or the Agent.
(f) Additional Guaranties. Promptly cause each person becoming a
Supporting Subsidiary of each Borrower from time to time to execute and deliver
to the Banks and the Agent, within 30 days after such person becomes a
Supporting Subsidiary, a Guaranty, together with other related documents of the
type described in Section 2.5, with respect to such Supporting Subsidiary, in
form and substance reasonably satisfactory to the Agent and the Required Banks.
(g) Further Assurances. Will, and will cause each Guarantor to,
execute and deliver within 30 days after request therefor by the Required Banks
or the Agent, all further instruments and documents and take all further action
that may be necessary or desirable, or that the Required Banks or the Agent may
request, in order to give effect to, and to aid in the exercise and enforcement
of the rights and remedies of the Banks and the Agent under, this Agreement, the
Notes or the Guaranties. In addition, each Borrower agrees to deliver to the
Agent and the Banks from time to time upon the acquisition or creation of any
Subsidiary not listed in Schedule 4.4 hereto supplements to Schedule 4.4 such
that such Schedule, together with such supplements, shall at all times
accurately reflect the information provided for thereon.
6.1 Negative Covenants. Until the Termination Date and thereafter until
payment in full of the principal of and accrued interest on the Notes and the
performance of all other obligations of the Borrowers under this Agreement, each
Borrower agrees that, unless the Required Banks shall otherwise consent in
writing it shall not, and shall not permit any of its Subsidiaries to:
(a) Total Liabilities to Adjusted Tangible Net Worth. Permit or
suffer the ratio of Consolidated Total Liabilities of the Company and its
Subsidiaries to Consolidated Adjusted Tangible Net Worth of the Company and its
Subsidiaries at any time to be greater than 2.0 to 1.0.
(b) Adjusted Tangible Net Worth. Permit or suffer Consolidated
Adjusted Tangible Net Worth of the Company and its Subsidiaries at any time to
be less than the sum of $170,000,000 plus an amount equal to 50% of Cumulative
Net Income (without any reduction for net loss) of the Company and its
Subsidiaries for each fiscal year of the Company after the Effective Date.
<PAGE> 21
(c) Interest Coverage Ratio. Permit or suffer the Consolidated
Interest Coverage Ratio of the Company and its Subsidiaries to be less than 1.5
to 1.0 as of the end of each fiscal quarter calculated for the four (4)
consecutive fiscal quarters then ending.
(d) Liens. Create, incur or suffer to exist any Lien on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of any Borrower or any of
their respective Subsidiaries, other than:
(i) Liens for taxes not delinquent or for taxes being
contested in good faith by appropriate proceedings and as to which adequate
financial reserves have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created
and maintained in the ordinary course of business which do not secure
obligations exceeding $1,000,000 in the aggregate and are not material in the
aggregate, and which would not have a material adverse effect on the business or
operations of a Borrower or any of its Subsidiaries and which constitute (A)
pledges or deposits under worker's compensation laws, unemployment insurance
laws or similar legislation, (B) good faith deposits in connection with bids,
tenders, contracts or leases to which a Borrower or any of its Subsidiaries is a
party for a purpose other than borrowing money or obtaining credit, including
rent security deposits, (C) liens imposed by law, such as those of carriers,
warehousemen and mechanics, if payment of the obligation secured thereby is not
yet due, (D) Liens securing taxes, assessments or other governmental charges or
levies not yet subject to penalties for nonpayment, and (E) pledges or deposits
to secure public or statutory obligations of a Borrower or any of its
Subsidiaries, or surety, customs or appeal bonds to which a Borrower or any of
its Subsidiaries is a party;
(iii) Liens affecting real property which constitute minor
survey exceptions or defects or irregularities in title, minor encumbrances,
easements or reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of such real property, provided that
all of the foregoing, in the aggregate, do not at any time materially detract
from the value of said properties or materially impair their use in the
operation of the businesses of a Borrower or any of its Subsidiaries;
(iv) Each Lien described in Schedule 5.2(d) hereto may be
suffered to exist upon the same terms as those existing on the date hereof, but
no extension or renewal (which shall not include the filing of UCC continuation
statements) thereof shall be permitted;
(v) The interest or title of a lessor under any lease
otherwise permitted under this Agreement with respect to the property subject to
such lease to the extent performance of the obligations of a Borrower or its
Subsidiary thereunder are not delinquent; and
(vi) Prior to the disposition of assets contemplated by
Section 5.2(f)(ii), other Liens on assets of the Company and its Subsidiaries,
other than accounts or general intangibles, that secure Indebtedness not
exceeding in aggregate amount 50% of the net book value of the Company's motor
vehicles comprising its automotive fleet, and which Liens are granted solely to
original equipment manufacturers of motor vehicles to secure Indebtedness
arising pursuant to borrowings under the Company's original equipment
manufacturers financing program.
(e) Merger; Acquisitions; Etc. Purchase or otherwise acquire,
whether in one or a series of transactions, all or a substantial portion of the
business assets, rights, revenues or property, real, personal or mixed, tangible
or intangible, of any person, or all or a substantial portion of the capital
stock of or other ownership interest in any other person; nor merge or
consolidate or amalgamate with any other person or take any other action having
a similar effect, nor
<PAGE> 22
enter into any joint venture or similar arrangement with any other person,
provided, however, that this Section 5.2(e) shall not prohibit any merger or
acquisition if (i) it is a merger of a Subsidiary into, or the acquisition of
the assets of a Subsidiary by, a Borrower or a Supporting Subsidiary, where a
Borrower or the Supporting Subsidiary, as the case may be, is the surviving or
continuing corporation, or (ii) it is an acquisition (A) of a business or assets
that are generally related to the business presently engaged in by a Borrower,
(B) on terms approved in advance by the board of directors or other governing
body of the seller of the business or assets, and (C) the amount of
consideration paid or exchanged by a Borrower and all Subsidiaries for all such
acquisitions pursuant to this clause (ii) does not exceed $10,000,000 in
aggregate amount; and in the case of each of clauses (i) and (ii), immediately
after each such merger or acquisition, no Default or Event of Default shall
exist or shall have occurred and be continuing and, prior to the consummation of
each such merger, if a Borrower is a party thereto, and each such acquisition
for consideration of $3,000,000 or more, such Borrower shall have provided to
the Banks an opinion of counsel and a certificate of the chief financial officer
of such Borrower (attaching computations to demonstrate compliance with all
financial covenants hereunder), each stating that such merger or acquisition
complies with this Section 5.2(e) and that any other conditions under this
Agreement relating to such transaction have been satisfied.
(f) Disposition of Assets; Etc. Sell, lease, license, transfer,
assign or otherwise dispose of any of its business, assets, rights, revenues or
property, real, personal or mixed, tangible or intangible, whether in one or a
series of transactions, other than inventory sold or leased in the ordinary
course of business upon customary credit terms, sales of motor vehicles by the
Company to one or more of its Subsidiaries, for fair value, in the ordinary
course of the Company's business, and sales of scrap or obsolete material or
equipment; provided, however, that this Section 5.2(f) shall not prohibit any
such sale, lease, license, transfer, assignment, liquidation or other
disposition: (i) if the aggregate book value (disregarding any write-downs of
such book value other than ordinary depreciation and amortization) of all of the
business, assets, rights, revenues and property disposed of after the date of
this Agreement shall be less than four percent (4%) of such aggregate book value
of the total assets of the Company or such Subsidiary, as the case may be, and
if, immediately after such transaction, no Default or Event of Default shall
exist or shall have occurred and be continuing; and (ii) of the automotive
rental fleet and associated assets so long as no Default or Event of Default
shall exist or shall have occurred and be continuing.
(g) Investments, Loans and Advances. Purchase or otherwise acquire
any capital stock of or other ownership interest in, or debt securities of or
other evidences of Indebtedness of, any other person; nor make any loan or
advance of any of its funds or property or make any other extension of credit
to, or make any investment or acquire any interest whatsoever in, any other
person; nor incur any Contingent Liability; other than (i) extensions of trade
credit made in the ordinary course of business on customary credit terms and
commission, travel and similar advances made to officers and employees in the
ordinary course of business, (ii) commercial paper of any United States issuer
having the highest rating then given by Moody's Investors Service, Inc., or
Standard & Poor's Corporation, direct obligations of and obligations fully
guaranteed by the United States of America or any agency or instrumentality
thereof, or certificates of deposit of any commercial bank which is a member of
the Federal Reserve System and which has capital, surplus and undivided profit
(as shown on its most recently published statement of condition) aggregating not
less than $100,000,000, provided, however, that each of the foregoing
investments has a maturity date not later than 270 days after the acquisition
thereof by a Borrower or any of its Subsidiaries, (iii) those investments,
loans, advances and other transactions described in Schedule 5.2(g) hereto,
having the same terms as existing on the date of this Agreement, and extensions
or renewals thereof in substantially the same amounts, shall be permitted, (iv)
transactions permitted by Section 5.2(e), (v) tax advantaged investments
(including cash investments and commitments for future investments) by the
Company and its Subsidiaries in low income housing of not more than $20,000,000
in aggregate amount, and (vi) other investments, loans, and advances which do
not exceed $10,000,000 in aggregate amount.
<PAGE> 23
(h) Nature of Business. Make any substantial change in the nature
of its business from that engaged in on the date of this Agreement, or engage in
any other businesses other than those in which it is engaged on the date of this
Agreement; provided, however, that this subsection (h) shall not preclude any
Borrower or any Subsidiary (i) from engaging in additional related or ancillary
businesses that are not likely to have a material effect on any Borrower or any
Supporting Subsidiary, including without limitation activating a dormant
insurance company for the purpose of providing credit insurance, automobile
warranty programs and other programs or services related or incidental to the
Company's automobile finance programs, and (ii) changing the nature of its
business from that of a car rental agency to an automobile finance company.
(i) Negative Pledge Limitation. Enter into any agreement, with any
person other than the Banks pursuant hereto which prohibits or limits the
ability of any Borrower or any Subsidiary to create, incur, assume or suffer to
exist any Lien upon any of its assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or hereafter
acquired.
(j) Use of Proceeds. Use the proceeds of the Loans for any purpose
other than as support for its commercial paper program, which prohibited uses
shall include, without limitation, repurchase of the stock of any Borrower or
any of their respective Subsidiaries.
ARTICLE VI.
DEFAULT
7. Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived by the Required Banks pursuant to Section 8.1:
(a) Nonpayment. Any Borrower shall fail to pay when due any
principal of or any Borrower shall fail to pay any interest on any of the Notes
or any fees or any other amount payable hereunder, which failure continues for a
period of five days; or
(b) Misrepresentation. Any representation or warranty made by any
Borrower or any Guarantor in Article IV hereof or in any Guaranty or any other
certificate, report, financial statement or other document furnished by or on
behalf of any Borrower or any Guarantor in connection with this Agreement, shall
prove to have been incorrect in any material respect when made or deemed made;
or
(c) Certain Covenants. Any Borrower shall fail to perform or
observe any term, covenant or agreement contained in Article V hereof; or
(d) Other Defaults. Any Borrower or any Guarantor shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or in any Guaranty, and any such failure shall remain unremedied for
30 calendar days after notice thereof shall have been given to such Borrower or
such Guarantor, as the case may be, by the Agent (or such shorter period of time
as may be specified in such Guaranty); or
(e) Cross Default. Any Borrower or any of their respective
Subsidiaries shall fail to pay any part of the principal of, the premium, if
any, or the interest on, or any other payment of money due under any of its
Indebtedness (other than Indebtedness hereunder), beyond any period of grace
provided with respect thereto, which individually or together with other such
Indebtedness as to which any such failure exists has an aggregate outstanding
principal amount in excess of $500,000; or if any Borrower or any of its
Subsidiaries fails to perform or observe any
<PAGE> 24
other term, covenant or agreement contained in any agreement, document or
instrument evidencing or securing any such Indebtedness having such aggregate
outstanding principal amount, or under which any such Indebtedness was issued or
created, beyond any period of grace, if any, provided with respect thereto if
the effect of such failure is either (i) to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, any payment in
respect of such Indebtedness to become due prior to its due date or (ii) to
permit the holders of such Indebtedness (or a trustee on behalf of such holders)
to elect a majority of the board of directors of such Borrower; or
(f) Judgments. One or more judgments or orders for the payment of
money in an aggregate amount of $1,000,000 or more (which $1,000,000 amount may
not be deemed a material amount) shall be rendered against any Borrower or any
of their respective Subsidiaries, or any other judgment or order (whether or not
for the payment of money) shall be rendered against or shall affect any Borrower
or any of their respective Subsidiaries which causes or could cause a material
adverse change in the business, properties, operations or condition, financial
or otherwise, of any Borrower or any of their respective Subsidiaries or which
does or could have a material adverse effect on the legality, validity or
enforceability of this Agreement, the Notes or any Guaranty, and either (i) such
judgment or order shall have remained unsatisfied and such Borrower or such
Subsidiary shall not have taken action necessary to stay enforcement thereof by
reason of pending appeal or otherwise, prior to the expiration of the applicable
period of limitations for taking such action or, if such action shall have been
taken, a final order denying such stay shall have been rendered, or (ii)
enforcement proceedings shall have been commenced by any creditor upon any such
judgment or order; or
(g) ERISA. The occurrence of a Reportable Event that results in or
could result in liability of any Borrower or any Subsidiary of any Borrower or
their ERISA Affiliates to the PBGC or to any Plan and such Reportable Event is
not corrected within thirty (30) days after the occurrence thereof; or the
occurrence of any Reportable Event which could constitute grounds for
termination of any Plan of any Borrower, their respective Subsidiaries or their
ERISA Affiliates by the PBGC or for the appointment by the appropriate United
States District Court of a trustee to administer any such Plan and such
Reportable Event is not corrected within thirty (30) days after the occurrence
thereof; or the filing by any Borrower, any Subsidiary of any Borrower or any of
their ERISA Affiliates of a notice of intent to terminate a Plan or the
institution of other proceedings to terminate a Plan; or any Borrower, any
Subsidiary of any Borrower or any of their ERISA Affiliates shall fail to pay
when due any liability to the PBGC or to a Plan; or the PBGC shall have
instituted proceedings to terminate, or to cause a trustee to be appointed to
administer, any Plan of any Borrower, their respective Subsidiaries or their
ERISA Affiliates; or any person engages in a Prohibited Transaction with respect
to any Plan which results in or could result in liability of any Borrower, their
respective Subsidiary of any Borrower or any of their ERISA Affiliates, any Plan
of any Borrower, their respective Subsidiaries or their ERISA Affiliates or
fiduciary of any such Plan; or failure by any Borrower, any Subsidiary of any
Borrower or any of their ERISA Affiliates to make a required installment or
other payment to any Plan within the meaning of Section 302(f) of ERISA or
Section 412(n) of the Code that results in or could result in liability of any
Borrower, their respective Subsidiary or any of their ERISA Affiliates to the
PBGC or any Plan; or the withdrawal of any Borrower, any of their respective
Subsidiaries or any of their ERISA Affiliates from a Plan during a plan year in
which it was a "substantial employer" as defined in Section 4001(9a)(2) of
ERISA; or any Borrower, any of their respective Subsidiaries or any of their
ERISA Affiliates becomes an employer with respect to any Multiemployer Plan
without the prior written consent of the Required Banks; or
(h) Insolvency, Etc. Any Borrower or any of their respective
Subsidiaries shall be dissolved or liquidated (or any judgment, order or decree
therefor shall be entered), or shall generally not pay its debts as they become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or shall
institute, or there shall be instituted against any Borrower or any of their
respective Subsidiaries, any
<PAGE> 25
proceeding or case seeking to adjudicate it a bankrupt or insolvent or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief or protection of debtors or seeking the
entry of an order for relief, or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
assets, rights, revenues or property, and, if such proceeding is instituted
against such Borrower or such Subsidiary and is being contested by such Borrower
or such Subsidiary, as the case may be, in good faith by appropriate
proceedings, such proceeding shall remain undismissed or unstayed for a period
of 60 days; or such Borrower or such Subsidiary shall take any action (corporate
or other) to authorize or further any of the actions described above in this
subsection; or
(i) Security Documents. Any event of default described in any
Guaranty shall have occurred and be continuing, or any material provision of any
Guaranty shall at any time for any reason cease to be valid, binding and
enforceable against any obligor thereunder, or the validity, binding effect or
enforceability thereof shall be contested by any person, or any obligor, shall
deny that it has any or further liability or obligation thereunder, or any
Guaranty shall be terminated, invalidated or set aside, or be declared
ineffective or inoperative or in any way cease to give or provide to the Banks
and the Agent the benefits purported to be created thereby, or
(j) Material Adverse Change. The occurrence of a material and
adverse change in the business, financial condition, or prospects of any
Borrower or any Guarantor; or
(k) Change of Control. Any Borrower shall experience a Change of
Control. For purposes of this Section 6.1(k), a "Change of Control" shall occur
if during any twelve-month period any person or group of persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule 13D-3
promulgated by the Securities and Exchange Commission under said Act) of 50% or
more in voting power of the voting shares of any Borrower.
7.1 Remedies. (a) Upon the occurrence and during the continuance of any
Event of Default, the Agent, upon being directed to do so by the Required Banks,
shall by notice to the Borrowers (i) terminate the Commitments or (ii) declare
the outstanding principal of, and accrued interest on, the Notes and all other
amounts owing under this Agreement to be immediately due and payable, or both,
whereupon the Commitments shall terminate forthwith and all such amounts shall
become immediately due and payable, provided that in the case of any event or
condition described in Section 6.1(h) with respect to any Borrower or any
Supporting Subsidiary, the Commitments shall automatically terminate forthwith
and all such amounts shall automatically become immediately due and payable
without notice; in all cases without demand, presentment, protest, diligence,
notice of dishonor or other formality, all of which are hereby expressly waived.
(b) The Agent, upon being directed to do so by the Required Banks,
shall, in addition to the remedies provided in Section 6.2(a), exercise and
enforce any and all other rights and remedies available to it or the Banks,
whether arising under this Agreement, any Note or any Guaranty or under
applicable law, in any manner deemed appropriate by the Agent, with consent of
the Required Banks, including suit in equity, action at law, or other
appropriate proceedings, whether for the specific performance (to the extent
permitted by law) of any covenant or agreement contained in this Agreement or in
any Note or Guaranty, or in aid of the exercise of any power granted in this
Agreement, any Note or any Guaranty.
(c) Upon the occurrence and during the continuance of any Event of
Default, each Bank may at any time and from time to time, without notice to any
Borrower (any requirement for such notice being expressly waived by each
Borrower) set off and apply against any and all of the obligations of the
Borrowers now or hereafter existing under this Agreement, whether owing to such
Bank or any other Bank or the Agent, any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such
<PAGE> 26
Bank to or for the credit or the account of any Borrower and any property of any
Borrower from time to time in possession of such Bank, irrespective of whether
or not such Bank shall have made any demand hereunder and although such
obligations may be contingent and unmatured. Each Borrower hereby grants to the
Banks and the Agent a lien on and security interest in all such deposits,
indebtedness and property as collateral security for the payment and performance
of the obligations of the Borrowers under this Agreement. The rights of such
Bank under this Section 6.2(c) are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which such Bank may
have.
ARTICLE VII.
THE AGENT AND THE BANKS
8. Appointment and Authorization. Each Bank hereby irrevocably appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers under this Agreement and the Notes and the Guaranties as
are delegated to the Agent by the terms hereof or thereof, together with all
such powers as are reasonably incidental thereto. The provisions of this Article
VII are solely for the benefit of the Agent and the Banks, and the Borrowers
shall not have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation towards or relationship of agency or trust
with or for any Borrower.
8.1 Agent and Affiliates. NBD Bank in its capacity as a Bank hereunder
shall have the same rights and powers hereunder as any other Bank and may
exercise or refrain from exercising the same as though it were not the Agent.
NBD Bank and its affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, and generally engage in any kind of
banking, trust, financial advisory or other business with any Borrower or any
Subsidiary of any Borrower as if it were not acting as Agent hereunder, and may
accept fees and other consideration therefor without having to account for the
same to the Banks.
8.2 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement, have a fiduciary relationship with any Bank, and no
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or shall otherwise exist against the Agent. As to any
matters not expressly provided for by this Agreement (including, without
limitation, collection and enforcement actions under the Notes and the
Guaranties), the Agent shall not be required to exercise any discretion or take
any action, but the Agent shall take such action or omit to take any action
pursuant to the reasonable written instructions of the Required Banks and may
request instructions from the Required Banks. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, pursuant to the written
instructions of the Required Banks, which instructions and any action or
omission pursuant thereto shall be binding upon all of the Banks; provided,
however, that the Agent shall not be required to act or omit to act if, in the
judgment of the Agent, such action or omission may expose the Agent to personal
liability or is contrary to this Agreement, the Notes, any Guaranty, or
applicable law.
8.3 Reliance by Agent. The Agent shall be entitled to rely upon any
certificate, notice, document or other communication (including any cable,
telegram, telex, facsimile transmission or oral communication) believed by it to
be genuine and correct and to have been sent or given by or on behalf of a
proper person. The Agent may treat the payee of any Note as the holder thereof
unless and until the Agent receives written notice of the assignment thereof
pursuant to the terms of this Agreement signed by such payee, and the Agent
receives the written agreement of the assignee that such assignee is bound
hereby to the same extent as if it had been an original party
<PAGE> 27
hereto. The Agent may employ agents (including without limitation collateral
agents) and may consult with legal counsel (who may be counsel for a Borrower),
independent public accountants and other experts selected by it and shall not be
liable to the Banks, except as to money or property received by it or its
authorized agents, for the negligence or misconduct of any such agent selected
by it with reasonable care or for any action taken or omitted to be taken by it
in good faith in accordance with the advice of such counsel, accountants or
experts.
8.4 Default. The Agent shall not be deemed to have knowledge of the
occurrence of any Default or Event of Default, unless the Agent has received
written notice from a Bank or a Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice, the Agent shall give written notice thereof to
the Banks.
8.5 Liability of Agent. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to the Banks for any action taken
or not taken by it or them in connection herewith with the consent or at the
request of the Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any recital, statement, warranty or
representation contained in this Agreement, any Note or any Guaranty, or in any
certificate, report, financial statement or other document furnished in
connection with this Agreement, (ii) the performance or observance of any of the
covenants or agreements of any Borrower or any Guarantor, (iii) the satisfaction
of any condition specified in Article II hereof, or (iv) the validity,
effectiveness, legal enforceability, value or genuineness of this Agreement, any
Note, any Guaranty, or any collateral subject thereto, or any other instrument
or document furnished in connection herewith.
8.6 Nonreliance on Agent and Other Banks. Each Bank acknowledges and
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Borrowers and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decision in
taking or not taking action under this Agreement. The Agent shall not be
required to keep itself informed as to the performance or observance by any
Borrower or any Guarantor of this Agreement, the Notes, any Guaranty, or any
other documents referred to or provided for herein, or to inspect the properties
or books of any Borrower or any Guarantor and, except for notices, reports and
other documents and information expressly required to be furnished to the Banks
by the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any information concerning the affairs, financial
condition or business of the Borrowers or any of their respective Subsidiaries
which may come into the possession of the Agent or any of its affiliates.
8.7 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Borrowers, but without limiting any obligation of
the Borrowers to make such reimbursement), ratably according to the respective
principal amounts of the Loans then outstanding made by each of them (or if no
Loans are at the time outstanding, ratably according to the respective amounts
of their Commitments), from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever (including,
without limitation, fees and disbursements of counsel) which may be imposed on,
incurred by, or asserted against the Agent in any way relating to or arising out
of this Agreement or the transactions contemplated hereby or any action taken or
omitted by the Agent under this Agreement, provided, however, that no Bank shall
be liable for any portion of such claims, damages, losses, liabilities, costs or
expenses resulting from the Agent's gross negligence or willful misconduct.
Without limitation of the foregoing, each Bank agrees to reimburse the Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including without limitation fees and expenses of counsel) incurred by the
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or
<PAGE> 28
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
to the extent that the Agent is not reimbursed for such expenses by the
Borrowers, but without limiting the obligation of the Borrowers to make such
reimbursement. Each Bank agrees to reimburse the Agent promptly upon demand for
its ratable share of any amounts owing to the Agent by the Banks pursuant to
this Section. If the indemnity furnished to the Agent under this Section shall,
in the judgment of the Agent, be insufficient or become impaired, the Agent may
call for additional indemnity from the Banks and cease, or not commence, to take
any action until such additional indemnity is furnished.
8.8 Resignation of Agent. The Agent may resign as such at any time upon
thirty days' prior written notice to the Company and the Banks. In the event of
any such resignation, the Required Banks shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor, which shall be a
commercial bank organized under the laws of the United States or any State
thereof and having a combined capital and surplus of at least $500,000,000. If a
successor is not so appointed or does not accept such appointment before the
Agent's resignation becomes effective, the resigning Agent may appoint a
temporary successor to act until such appointment by the Required Banks is made
and accepted or if no such temporary successor is appointed as provided above by
the resigning Agent, the Required Banks shall thereafter perform all the duties
of the Agent hereunder until such appointment by the Required Banks is made and
accepted. Any successor to the Agent shall execute and deliver to the Company
and the Banks an instrument accepting such appointment and thereupon such
successor Agent, without further act, deed, conveyance or transfer shall become
vested with all of the properties, rights, interests, powers, authorities and
obligations of its predecessor hereunder with like effect as if originally named
as Agent hereunder. Upon request of such successor Agent, the Company and the
resigning Agent shall execute and deliver such instruments of conveyance,
assignment and further assurance and do such other things as may reasonably be
required for more fully and certainly vesting and confirming in such successor
Agent all such properties, rights, interests, powers, authorities and
obligations. The provisions of this Article VII shall thereafter remain
effective for such resigning Agent with respect to any actions taken or omitted
to be taken by such Agent while acting as the Agent hereunder.
8.9 Sharing of Payments. The Banks agree among themselves that, in the
event that any Bank shall obtain payment in respect of any Loan or any other
obligation owing to the Banks under this Agreement through the exercise of a
right of set-off, banker's lien, counterclaim or otherwise in excess of its
ratable share of payments received by all of the Banks on account of the Loans
and other obligations (or if no Loans are outstanding, ratably according to the
respective amounts of the Commitments), such Bank shall promptly purchase from
the other Banks participations in such Loans and other obligations in such
amounts, and make such other adjustments from time to time, as shall be
equitable to the end that all of the Banks share such payment in accordance with
such ratable shares. The Banks further agree among themselves that if payment to
a Bank obtained by such Bank through the exercise of a right of set-off,
banker's lien, counterclaim or otherwise as aforesaid shall be rescinded or must
otherwise be restored, each Bank which shall have shared the benefit of such
payment shall, by repurchase of participations theretofore sold, return its
share of that benefit to each Bank whose payment shall have been rescinded or
otherwise restored. Each Borrower agrees that any Bank so purchasing such a
participation may, to the fullest extent permitted by law, exercise all rights
of payment, including set-off, banker's lien or counterclaim, with respect to
such participation as fully as if such Bank were a holder of such Loan or other
obligation in the amount of such participation. The Banks further agree among
themselves that, in the event that amounts received by the Banks and the Agent
hereunder are insufficient to pay all such obligations or insufficient to pay
all such obligations when due, the fees and other amounts owing to the Agent in
such capacity shall be paid therefrom before payment of obligations owing to the
Banks under this Agreement. Except as otherwise expressly provided in this
Agreement, if any Bank or the Agent shall fail to remit to the Agent or any
other Bank an amount payable by such Bank or the Agent to the Agent or such
other Bank pursuant to this Agreement on the date when such amount is due, such
payments shall be made together with interest thereon for each date from the
date such amount is due until the date such amount is paid to the Agent or such
other Bank at a rate per annum
<PAGE> 29
equal to the rate at which borrowings are available to the payee in its
overnight federal funds market. It is further understood and agreed among the
Banks and the Agent that if any Bank shall engage in any other transactions with
a Borrower and shall have the benefit of any collateral or security therefor
which does not expressly secure the obligations arising under this Agreement
except by virtue of a so-called dragnet clause or comparable provision, such
Bank shall be entitled to apply any proceeds of such collateral or security
first in respect of the obligations arising in connection with such other
transaction before application to the obligations arising under this Agreement.
ARTICLE VIII.
MISCELLANEOUS
9. Amendments, Etc. (a) No amendment, modification, termination or
waiver of any provision of this Agreement nor any consent to any departure
therefrom shall be effective unless the same shall be in writing and signed by
the Required Banks and the Borrowers, and, to the extent any rights or duties of
the Agent may be affected thereby, the Agent, provided, however, that no such
amendment, modification, termination, waiver or consent shall, without the
consent of the Agent and all of the Banks, (i) authorize or permit the extension
of time for, or any reduction of the amount of, any payment of the principal of,
or interest on, the Notes, or any fees or other amount payable hereunder, (ii)
amend or terminate the respective Commitments of any Bank set forth on the
signature pages hereof or modify the provisions of this Section regarding the
taking of any action under this Section, or the provisions of Section 7.10, or
the provisions of the first sentence of Section 8.6, or the definition of
Required Banks, or (iii) provide for the release of any Guarantor; provided,
that, the Agent may release the Guaranty described in Section 2.10 relating to
the disposition of the automobile rental fleet.
(b) Any such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
9.1 Notices. (a) All notices and other communications hereunder shall be
in writing and shall be delivered or sent to the Borrowers, the Agent, and the
Banks at the respective addresses or numbers for notices set forth on the
signature pages hereof, or to such other address or number as may be designated
by any Borrower, the Agent, or any Bank by notice to the other parties hereto.
All notices and other communications shall be deemed to have been given at the
earlier of (i) the time of actual delivery thereof to such address or number, or
(ii) if sent by certified or registered mail, postage prepaid, to such address,
on the third day after the date of mailing, if deposited prepaid with a
nationally recognized overnight delivery service guaranteeing next day delivery
to such address, prior to the deadline for next day delivery, on the Business
Day next following such deposit, or (iii) if sent by facsimile transmission,
upon confirmation of receipt by telephone at the number specified for
confirmation, provided, however, that notices to the Agent shall not be
effective until received.
(b) Notices by any Borrower to the Agent with respect to
terminations or reductions of the Commitments pursuant to Section 2.2, requests
for Loans pursuant to Section 2.4, requests for continuations or conversions of
Loans pursuant to Section 2.7 and notices of prepayment pursuant to Section 3.1
shall be irrevocable and binding on the Borrower.
9.2 No Waiver By Conduct; Remedies Cumulative. No course of dealing on
the part of the Agent or any Bank, nor any delay or failure on the part of the
Agent or any Bank in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice the
Agent's or such Bank's rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Agent or any
<PAGE> 30
Bank under this Agreement, any of the Notes, or any Guaranty is intended to be
exclusive of any other right or remedy, and every right and remedy shall be
cumulative and in addition to every other right or remedy granted thereunder or
now or hereafter existing under any applicable law. Every right and remedy
granted by this Agreement, any of the Notes, any Guaranty, or by applicable law
to the Agent or any Bank may be exercised from time to time and as often as may
be deemed expedient by the Agent or any Bank and, unless contrary to the express
provisions of this Agreement, the Notes, or any Guaranty, irrespective of the
occurrence or continuance of any Default or Event of Default.
9.3 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of any Borrower or any
Guarantor made herein or in any Guaranty or in any certificate, report,
financial statement or other document furnished by or on behalf of any Borrower
or any Guarantor in connection with this Agreement or any Guaranty shall be
deemed to be material and to have been relied upon by the Banks, notwithstanding
any investigation heretofore or hereafter made by any Bank or on such Bank's
behalf, and those covenants and agreements of the Borrowers set forth in Section
3.6, 3.8 and 8.5 hereof shall survive the repayment in full of the Loans and the
termination of the Commitments.
9.4 Expenses. (a) Each Borrower agrees to pay, or reimburse the Agent
for the payment of, on demand, (i) the reasonable fees and expenses of counsel
to the Agent, including without limitation the fees and expenses of Dickinson,
Wright, Moon, Van Dusen & Freeman, in connection with the preparation,
execution, delivery and administration of this Agreement, the Notes, the
Guaranties, and the consummation of the transactions contemplated hereby, and in
connection with advising the Agent as to its rights and responsibilities with
respect thereto, and in connection with any amendments, waivers or consents in
connection therewith, and (ii) all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing or
recording of this Agreement, the Notes, the Guaranties and the consummation of
the transactions contemplated hereby, and any and all liabilities with respect
to or resulting from any delay in paying or omitting to pay such taxes or fees,
and (iii) all reasonable costs and expenses of the Agent and the Banks
(including reasonable fees and expenses of counsel and whether incurred through
negotiations, legal proceedings or otherwise) in connection with any Default or
Event of Default or the enforcement of, or the exercise or preservation of any
rights under, this Agreement or the Notes or any Guaranties, or in connection
with any refinancing or restructuring of the credit arrangements provided under
this Agreement.
(b) Each Borrower hereby indemnifies and agrees to hold harmless
the Banks and the Agent, and their respective officers, directors, employees and
agents, from and against any and all claims, damages, losses, liabilities, costs
or expenses of any kind or nature whatsoever (including reasonable attorneys
fees and disbursements incurred in connection with any investigative,
administrative or judicial proceeding whether or not such person shall be
designated as a party thereto) which the Banks or the Agent or any such person
may incur or which may be claimed against any of them by reason of or in
connection with entering into this Agreement or the transactions contemplated
hereby, including without limitation those arising under Environmental Laws;
provided, however, that no Borrower shall be required to indemnify any such Bank
and the Agent or such other person, to the extent, but only to the extent, that
such claim, damage, loss, liability, cost or expense is attributable to the
gross negligence or willful misconduct of such Bank or the Agent, as the case
may be.
(c) In consideration of the execution and delivery of this
Agreement by each Bank and the extension of the Commitments, each Borrower
hereby indemnifies, exonerates and holds the Agent, each Bank and each of their
respective officers, directors, employees and agents (collectively, the
"Indemnified Parties") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith, including reasonable attorneys' fees and
disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to:
<PAGE> 31
(i) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of any Loan;
(ii) the entering into and performance of this Agreement and
any other agreement or instrument executed in connection herewith by any of the
Indemnified Parties (including any action brought by or on behalf of each
Borrower as the result of any determination by the Required Banks not to fund
any Loan);
(iii) any investigation, litigation or proceeding related to
any acquisition or proposed acquisition by any Borrower or any of their
respective Subsidiaries of any portion of the stock or assets of any person;
(iv) any investigation, litigation or proceeding related to
any environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the release by any Borrower or any of their
respective Subsidiaries of any Hazardous Material; or
(v) the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releasing from, any real
property owned or operated by any Borrower, or any of their respective
Subsidiaries of any Hazardous Material (including any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under any
Environmental Law), regardless of whether caused by, or within the control of,
such Borrower or such Subsidiary, except for any such Indemnified Liabilities
arising for the account of a particular Indemnified Party by reason of the
activities of the Indemnified Party on the property of any Borrower conducted
subsequent to a foreclosure on such property by the Banks or by reason of the
relevant Indemnified Party's gross negligence or willful misconduct or breach of
this Agreement, and if and to the extent that the foregoing undertaking may be
unenforceable for any reason, each Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. Each Borrower shall be
obligated to indemnify the Indemnified Parties for all Indemnified Liabilities
subject to and pursuant to the foregoing provisions, regardless of whether any
Borrower or any of their respective Subsidiaries had knowledge of the facts and
circumstances giving rise to such Indemnified Liability.
9.5 Successors and Assigns. (a) This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided no Borrower may, without the prior consent of the Banks,
assign its rights or obligations hereunder, under the Notes or under the
Guaranties and the Banks shall not be obligated to make any Loan hereunder to
any entity other than a Borrower.
(b) Any Bank may sell to any financial institution or
institutions, and such financial institution or institutions may further sell, a
participation interest (undivided or divided) in, the Loans and such Bank's
rights and benefits under this Agreement, the Notes and the Guaranties, and to
the extent of that participation interest such participant or participants shall
have the same rights and benefits against each Borrower under Section 3.6, 3.8
and 6.2(c) as it or they would have had if such participant or participants were
the Bank making the Loans to the Borrowers hereunder, provided, however, that
(i) such Bank's obligations under this Agreement shall remain unmodified and
fully effective and enforceable against such Bank, (ii) such Bank shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Bank shall remain the holder of its Notes for all
purposes of this Agreement, (iv) the Borrowers, the Agent and the other Banks
shall continue to deal solely and directly with such Bank in connection with
such Bank's rights and obligations under this Agreement, and (v) such Bank shall
not grant to its participant any rights to consent or withhold consent to any
action taken by such Bank or the Agent under this Agreement other than action
requiring the consent of all of the Banks hereunder.
(c) The Agent from time to time in its sole discretion may appoint
agents
<PAGE> 32
for the purpose of servicing and administering this Agreement and the
transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under this Agreement, the Notes, any Guaranty or
otherwise. In furtherance of such agency, the Agent may from time to time direct
that the Borrowers and the Guarantors provide notices, reports and other
documents contemplated by this Agreement (or duplicates thereof) to such agent.
Each Borrower hereby consents to the appointment of such agent and agrees to
provide all such notices, reports and other documents and to otherwise deal with
such agent acting on behalf of the Agent in the same manner as would be required
if dealing with the Agent itself.
(d) Each Bank may, with the prior consent of the Borrowers (which
shall not be unreasonably withheld) and the Agent, assign to one or more banks
or other entities all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitment,
the Loans owing to it and the Note held by it); provided, however, that (i) each
such assignment shall be of a uniform, and not a varying, percentage of all
rights and obligations, (ii) except in the case of an assignment of all of a
Bank's rights and obligations under this Agreement, (A) the amount of the
Commitment of the assigning Bank being assigned pursuant to each such assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $5,000,000, and in integral multiples
of $5,000,000 thereafter, or such lesser amount as the Borrowers and the Agent
may consent to and (B) after giving effect to each such assignment, the amount
of the Commitment of the assigning Bank shall in no event be less than
$5,000,000, (iii) the parties to each such assignment shall execute and deliver
to the Agent, for its acceptance and recording in the Register, an Assignment
and Acceptance in the form of Exhibit G hereto (an "Assignment and Acceptance"),
together with any Note subject to such assignment and a processing and
recordation fee of $3,000, and (iv) any Bank may without the consent of the
Borrowers or the Agent, and without paying any fee, assign to any Affiliate of
such Bank that is a bank or financial institution all of its rights and
obligations under this Agreement. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all of
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto).
(e) By executing and delivering an Assignment and Acceptance, the
Bank assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Bank makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Bank makes no representation or warranty and assumes
no responsibility with respect to the financial condition of the Borrowers or
the performance or observance by the Borrowers of any of their obligations under
this Agreement or any other instrument or document furnished pursuant hereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section 4.6 and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon the Agent, such
assigning Bank or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (v) such assignee appoints
and authorizes the Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers and discretion as are
reasonably incidental
<PAGE> 33
thereto; and (vi) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement are
required to be performed by it as a Bank.
(f) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Advances owing to,
each Bank from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Borrowers, the Agent and the Banks may treat each person whose name is recorded
in the Register as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrowers or any Bank at any
reasonable time and from time to time upon reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed by
an assigning Bank and an assignee, together with any Note subject to such
assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrowers. Within five Business Days after its receipt of such
notice, the Borrowers, at their own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note a new Note to the order of such
assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Bank has retained a Commitment
hereunder, a new Note to the order of the assigning Bank in an amount equal to
the Commitment retained by it hereunder. Such new Note shall be in an aggregate
principal amount equal to the aggregate principal amount of such surrendered
Note shall be dated the effective date of such Assignment and Acceptance and
shall otherwise be in substantially the form of Exhibit G hereto.
(h) The Borrowers shall not be liable for any costs or expenses of
any Bank in effectuating any participation or assignment under this Section 8.6.
(i) The Banks may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.6, disclose to the assignee or participant or proposed assignee or participant
any information relating to the Borrowers.
(j) Notwithstanding any other provision set forth in this
Agreement, any Bank may at any time create a security interest in, or assign,
all or any portion of its rights under this Agreement (including, without
limitation, the Loans owing to it and the Note held by it) in favor of any
Federal Reserve Bank in accordance with Regulation A of the Board of Governors
of the Federal Reserve System; provided that such creation of a security
interest or assignment shall not release such Bank from its obligations under
this Agreement.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
9.7 Governing Law. This Agreement is a contract made under, and shall be
governed by and construed in accordance with, the law of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State. Each Borrower
and each Bank further agrees that any legal action or proceeding with respect to
this Agreement, any of the Notes, or any Guaranty, or the transactions
contemplated hereby may be brought in any court of the State of Michigan, or in
any court of the United States of America sitting in Michigan, and each Borrower
and each Bank hereby submits to and accepts generally and unconditionally the
jurisdiction of those courts with respect to its person and property, and
irrevocably consents to the service of process in connection with any such
action or proceeding by personal delivery to such Borrower or such Bank, as the
case may be, or by the mailing thereof by registered or certified mail, postage
prepaid to such Borrower or such Bank, as
<PAGE> 34
the case may be, at their address referred to in Section 8.2. Nothing in this
paragraph shall affect the right of the Banks and the Agent to serve process in
any other manner permitted by law or limit the right of the Banks or the Agent
to bring any such action or proceeding against any Borrower or property in the
courts of any other jurisdiction in which property of any Borrower is located.
Each Borrower and each Bank hereby irrevocably waives any objection to the
laying of venue of any such suit or proceeding in the above described courts
located or sitting in Michigan.
9.8 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
9.9 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
9.10 Integration and Severability. This Agreement embodies the entire
agreement and understanding between the Borrowers and the Agent and the Banks,
and supersedes all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of any Borrower under
this Agreement, any of the Notes or any Guaranty shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining obligations of such Borrower shall not in any way be affected or
impaired thereby, and such invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of any Borrower under this Agreement, any of the Notes or any
Guaranty in any other jurisdiction.
9.11 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
such condition exists.
9.12 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement, the Notes or any Guaranty, in no event shall the amount of interest
paid or agreed to be paid by any Borrower exceed an amount computed at the
highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement, the
Notes or any Guaranty at the time performance of such provision shall be due,
shall involve exceeding the interest rate limitation validly prescribed by law
which a court of competent jurisdiction may deem applicable hereto, then, ipso
facto, the obligations to be fulfilled shall be reduced to an amount computed at
the highest rate of interest permissible under applicable law, and if for any
reason whatsoever the Bank shall ever receive as interest an amount which would
be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of the Loans outstanding
hereunder (whether or not then due and payable) and not to the payment of
interest, or shall be refunded to the Borrowers if such principal and all other
obligations of the Borrowers to the Banks have been paid in full.
9.13 Indebtedness under Existing Credit Agreement. This Agreement and
the Loans made pursuant to Article II are in substitution for the Existing
Credit Agreement and the loans made under the Existing Credit Agreement and the
Notes delivered to the Banks hereunder are delivered in exchange and in
substitution for the notes issued pursuant to the Existing Credit Agreement. The
commitments under the Existing Credit Agreement are superceded and replaced by
the Commitments hereunder. The initials Loans hereunder shall be used to pay all
Indebtedness owing under the notes issued pursuant to the Existing Credit
Agreement.
9.14 Joint and Several Obligations; Contribution Rights; Savings Clause.
(a)
<PAGE> 35
Notwithstanding anything to the contrary set forth herein or in any Note or in
any other Loan Document, the obligations of the Borrowers hereunder and under
the Notes and the other Loan Documents are joint and several.
(b) If any Borrower makes a payment in respect of the Bank
Obligations it shall have the rights of contribution set forth below against the
other Borrowers; provided that no Borrower shall exercise its right of
contribution until all the Bank Obligations shall have been finally paid in full
in cash. If any Borrower makes a payment in respect of the Bank Obligations that
is smaller in proportion to its Payment Share (as hereinafter defined) than such
payments made by the other Borrowers are in proportion to the amounts of their
respective Payment Shares, the Borrower making such proportionately smaller
payment shall, when permitted by the preceding sentence, pay to the other
Borrowers an amount such that the net payments made by the Borrower in respect
of the Bank Obligations shall be shared among the Borrowers pro rata in
proportion to their respective Payment Shares. If any Borrower receives any
payment that is greater in proportion to the amount of its Payment Shares than
the payments received by the other Borrowers are in proportion to the amounts of
their respective Payment Shares, the Borrower receiving such proportionately
greater payment shall, when permitted by the second preceding sentence, pay to
the other Borrowers an amount such that the payments received by the Borrowers
shall be shared among the Borrowers pro rata in proportion to their respective
Payment Shares. Notwithstanding anything to the contrary contained in this
paragraph or in this Agreement, no liability or obligation of any Borrower that
shall accrue pursuant to this paragraph shall be paid nor shall it be deemed
owed pursuant to this paragraph until all of the Bank Obligations shall be
finally paid in full in cash.
For purposes hereof, the "Payment Share" of each Borrower shall be the
sum of (a) the aggregate proceeds of the Bank Obligations received by such
Borrower plus (b) the product of (i) the aggregate Bank Obligations remaining
unpaid on the date such Bank Obligations become due and payable in full, whether
by stated maturity, acceleration, or otherwise (the "Determination Date")
reduced by the amount of such Bank Obligations attributed to such Borrower
pursuant to clause (a) above, times (ii) a fraction, the numerator of which is
such Borrower's net worth on the effective date of this Agreement (determined as
of the end of the immediately preceding fiscal reporting period of such
Borrower), and the denominator of which is the aggregate net worth of all
Borrowers on such effective date.
(c) It is the intent of each Borrower, the Agent and the Banks
that each Borrower's maximum Bank Obligations shall be, but not in excess of:
(i) in a case or proceeding commenced by or against such
Borrower under the Bankruptcy Code on or within one year from the date on which
any of the Bank Obligations are incurred, the maximum amount that would not
otherwise cause the Bank Obligations (or any other obligations of such Borrower
to the Agent and the Banks) to be avoidable or unenforceable against such
Borrower under (A) Section 548 of the Bankruptcy Code or (B) any state
fraudulent transfer or fraudulent conveyance act or statute applied in such case
or proceeding by virtue of Section 544 of the Bankruptcy Code; or
(ii) in a case or proceeding commenced by or against such
Borrower under the Bankruptcy Code subsequent to one year from the date on which
any of the Bank Obligations are incurred, the maximum amount that would not
otherwise cause the Bank Obligations (or any other obligations of such Borrower
to the Agent and the Banks) to be avoidable or unenforceable against such
Borrower under any state fraudulent transfer or fraudulent conveyance act or
statute applied in any such case or proceeding by virtue of Section 544 of the
Bankruptcy Code;
(iii) in a case or proceeding commenced by or against such
Borrower under any law, statute or regulation other than the Bankruptcy Code
(including, without limitation, any other bankruptcy, reorganization,
arrangement, moratorium, readjustment of debt, dissolution,
<PAGE> 36
liquidation or similar debtor relief laws), the maximum amount that would not
otherwise cause the Bank Obligations (or any other obligations of such Borrower
to the Agent and the Banks) to be avoidable or unenforceable against such
Borrower under such law, statute or regulation including, without limitation,
any state fraudulent transfer or fraudulent conveyance act or statute applied in
any such case or proceeding.
(d) The Borrowers acknowledge and agree that they have requested
that the Banks make credit available to the Borrowers with each Borrower
expecting to derive benefit, directly and indirectly, from the loans and other
credit extended by the Banks to the Borrowers.
(e) The joint and several obligations of the Borrowers described
in this Section 8.15 shall remain in full force and effect without regard to and
shall not be released, affected or impaired by: (i) any amendment, assignment,
transfer, modification of or addition or supplement to the Bank Obligations,
this Agreement, any Note or any other Loan Document, except to the extent any
such amendment, assignment, transfer or modification specifically relates to the
matters set forth in Section 8.15; (ii) any extension, indulgence, increase in
the Bank Obligations or other action or inaction in respect of any of the Loan
Documents or otherwise with respect to the Bank Obligations, or any acceptance
of security for, or guaranties of, any of the Bank Obligations or Loan
Documents, or any surrender, release, exchange, impairment or alteration of any
such security or guaranties including without limitation the failing to perfect
a security interest in any such security or abstaining from taking advantage or
of realizing upon any guaranties or upon any security interest in any such
security; (iii) any default by any Borrower under, or any lack of due execution,
invalidity or unenforceability of, or any irregularity or other defect in, any
of the Loan Documents; (iv) any waiver by the Banks or any other person of any
required performance or otherwise of any condition precedent or waiver of any
requirement imposed by any of the Loan Documents, any guaranties or otherwise
with respect to the Bank Obligations; (v) any exercise or non-exercise of any
right, remedy, power or privilege in respect of this Agreement or any of the
other Loan Documents; (vi) any sale, lease, transfer or other disposition of the
assets of any Borrower or any consolidation or merger of any Borrower with or
into any other person, corporation, or entity, or any transfer or other
disposition by any Borrower or any other holder of any shares of capital stock
of any Borrower; (vii) any bankruptcy, insolvency, reorganization or similar
proceedings involving or affecting any Borrower; (viii) the release or discharge
of any Borrower from the performance or observance of any agreement, covenant,
term or condition under any of the Bank Obligations or contained in any of the
Loan Documents by operation of law; or (ix) any other cause whether similar or
dissimilar to the foregoing which, in the absence of this provision, would
release, affect or impair the obligations, covenants, agreements and duties of
any Borrower hereunder, including without limitation any act or omission by the
Agent, or the Bank or any other any person which increases the scope of such
Borrower's risk; and in each case described in this paragraph whether or not any
Borrower shall have notice or knowledge of any of the foregoing, each of which
is specifically waived by each Borrower. Each Borrower warrants to the Banks
that it has adequate means to obtain from each other Borrower on a continuing
basis information concerning the financial condition and other matters with
respect to the Borrowers and that it is not relying on the Agent or the Banks to
provide such information either now or in the future.
9.15 Waivers, Etc. Each Borrower unconditionally waives, except as
otherwise provided in this Agreement: (a) notice of any of the matters referred
to in Section 8.15(e) above; (b) all notices which may be required by statute,
rule or law or otherwise to preserve any rights of the Agent, or the Bank,
including, without limitation, presentment to and demand of payment or
performance from the other Borrowers and protect for non-payment or dishonor;
(c) any right to the exercise by the Agent, or the Bank of any right, remedy,
power or privilege in connection with any of the Loan Documents; (d) any
requirement that the Agent, or the Bank, in the event of any default by any
Borrower, first make demand upon or seek to enforce remedies against, such
Borrower or any other Borrower before demanding payment under or seeking to
enforce this Agreement against any other Borrower; (f) any right to notice of
the disposition of any security which the Agent, or the Bank may hold from any
Borrower or otherwise and any right to object to the commercial
<PAGE> 37
reasonableness of the disposition of any such security; and (g) all errors and
omissions in connection with the Agent, or the Bank's administration of any of
the Bank Obligations, any of the Loan Documents', or any other act or omission
of the Agent, or the Bank which changes the scope of the Borrower's risk, except
as a result of the gross negligence or willful misconduct of the Agent, or the
Bank. The obligations of each Borrower hereunder shall be complete and binding
forthwith upon the execution of this Agreement and subject to no condition
whatsoever, precedent or otherwise, and notice of acceptance hereof or action in
reliance hereon shall not be required.
9.16 Waiver of Jury Trial. The Banks, the Agent and the Borrowers, after
consulting or having had the opportunity to consult with counsel, knowingly,
voluntarily and intentionally waive any right any of them may have to a trial by
jury in any litigation based upon or arising out of this Agreement or any
related instrument or agreement or any of the transactions contemplated by this
Agreement or any course of conduct, dealing, statements (whether oral or
written) or actions of either of them. None of the Banks, the Agent or any
Borrower shall seek to consolidate, by counterclaim or otherwise, any such
action in which a jury trial has been waived with any other action in which a
jury trial cannot be or has not been waived. These provisions shall not be
deemed to have been modified in any respect or relinquished by any of the Banks,
the Agent or any Borrower except by a written instrument executed by all of
them.
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the ___ day of June, 1995, which shall be the
Effective Date of this Agreement, notwithstanding the day and year first above
written.
Address for Notices: NATIONAL AUTO CREDIT, INC.
National Auto Credit By:_____________________________
30000 Aurora Road
Solon, Ohio 44139 Its: __________________________
Attention:
Robert J. Bronchetti
President and Chief
Executive Officer And:____________________________
Telephone No.: (216) 349-1000
Facsimile No.: (216) 349-0442 Its: _________________________
Facsimile Confirmation
Number: (216) 349-1000
NBD BANK, as Agent and as a Bank
NBD Bank By:_____________________________
611 Woodward Avenue
Detroit, Michigan 48226 Its: ___________________________
Attention:
Andrew W. Strait
Vice President
Midwest Banking Division
Telephone No.: (313) 225-3300
Facsimile No.: (313) 225-1671
Facsimile Confirmation
Number: (313) 225-3300
Commitment Amount:
$20,000,000
THE BANK OF NEW YORK
The Bank of New York By:_____________________________
One Wall Street, 22nd Floor
New York, New York 10286 Its: ___________________________
Attention:
<PAGE> 39
----------------
Telephone No.: (212) ___-____
Facsimile No.: (212) ___-____
Facsimile Confirmation
Number: (212) ___-____
Commitment Amount:
$10,000,000
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
One First Union Center By:_____________________________
Charlotte, North Carolina 28207
Attention: Mary J. Amatore Its: __________________________
Telephone No.: (704) 374-2641
Facsimile No.: (704) 374-2802
Facsimile Confirmation
Number: (704) 374-4426
Commitment Amount:
$10,000,000
Total Commitments: $40,000,000
WP6:[WPCMS.00007.2231]AGR_AA0_07
<PAGE> 40
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of May 28, 1996 this
"Amendment"), is among NATIONAL AUTO CREDIT, INC., a Delaware corporation
(the"Company"), ARAC, INC., a Delaware corporation, formerly known as National
Auto Credit, Inc., (the "ARAC", collectively with the Company, the "Borrowers"
or each a "Borrower"), the banks set forth on the signature pages hereof
(collectively, the "Banks") and NBD BANK, a Michigan banking corporation, as
agent for the Banks (in such capacity, the "Agent").
RECITALS
A. The Borrowers, the Agent and the Banks are parties to a Credit
Agreement, dated as of June 30, 1995, (as now and hereafter amended, the "Credit
Agreement"), pursuant to which the Banks agreed, subject to the terms and
conditions thereof, to extend credit to the Borrowers.
B. The Borrowers desire to amend the Credit Agreement and the Agent and
the Banks are willing to do so strictly in accordance with the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 Section 1.1 shall be amended as follows:
(a) The definition of "Commitment" shall be amended by adding the
following language immediately after the reference "hereof" in line 4 of such
definition: "or of any Bank added pursuant to Section 8.18, provided, that, the
aggregate amount of the Commitments shall at no time exceed $50,000,000".
(b) The definition of "Eurodollar Rate" shall be amended by
deleting clause (a) in its entirety and inserting the following in place
thereof: "(a) one-half of one percent (0.50%) per annum, ".
(c) The definition of "Termination Date" shall be amended by
deleting the reference in clause (a) to "June 28, 1996" and inserting
"May 27, 1997" in place thereof.
<PAGE> 41
(d) The definition of "Applicable Margin" shall be delete in its entirety.
(e) The following definitions shall be added in appropriate
alphabetical order:
"Net Dealer Holdback" shall mean the aggregate amount of the
dealer holdback which is payable by the Company to member dealers
from the acceptance of retail installment contracts, net of any
cash advanced to such dealers, including the Company's dealer
advance reserve, as reflected on the balance sheet of the Company.
"Net Non-Performing Assets" shall mean the gross installment
notes receivable of the Company less associated unearned income
which are 120 days or more contractually past due.
"Reserve for Credit Loss" shall mean the sum of the Company's
allowance for loan losses and the Net Dealer Holdback.
1.2 Section 2.3(a) shall be amended by deleting the reference in the
third line to "the Applicable Margin" and by inserting the following in place
thereof: "one-eighth of one percent (1/8 of 1%) per annum".
1.3 Section 2.9 shall be amended by deleting the reference therein to
"$3,000,000" and "$1,000,000" and by inserting "$1,000,000" and "$500,000",
respectively, in place thereof and by deleting the last sentence of such Section
in its entirety.
1.4 Section 5.1(d)(vi) shall be redesignated as Section 5.1(d)(vii) and
the following shall be added as Section 5.1(d)(vi):
(vi) As soon as available and in any event within 30 days after
the end of each month, a report on loan receivable portfolio statistics,
including an aging of accounts receivable, and on dealer concentrations, in
substantially the form attached as Schedule 5.1(d)(vi);
1.5 Section 5.1(e) shall be amended by adding the following language at
the end thereof: "and permit the Agent or any of its agents and representatives
to conduct a comprehensive field audit of its books, records, properties and
assets".
1.6 Section 5.2(b) shall be deleted in its entirety and the following
shall be inserted in place thereof:
(b) Adjusted Tangible Net Worth. Permit or suffer the
Consolidated Adjusted Tangible Net Worth of the Company and Subsidiaries at any
time to be less than the sum of $185,000,000 plus an amount equal to 50% of
Cumulative Net Income (without any
<PAGE> 42
reduction for net loss) of the Company and its Subsidiaries for each fiscal year
of the Company commencing with the fiscal year ending January 31, 1997.
1.7 Section 5.2(e) shall be amended by deleting the reference in line
17 to "prior to the consummation of each such merger" and inserting "within 15
days after the consummation of each such merger" in place thereof and by
deleting the references to "$10,000,000" and "$3,000,000" and by inserting
"$20,000,000" and "$5,000,000", respectively, in place thereof.
1.8 A new Section 5.2(k) shall be added at the end of Section 5.2 to
read as follows:
(k) Reserve for Credit Losses. Permit or suffer the
Reserve for Credit Losses at any time to be less than the aggregate amount of
Net Non-Performing Assets.
1.9 A new Section 8.18 shall be added at the end of Article VIII to
read as follows:
8.18 Additional Banks. Additional lenders may also be Banks hereunder
and the aggregate amount of the Commitments hereunder shall increase
accordingly, with the prior written consent of the Company and the Agent, by
executing an Assumption Agreement substantially in the form of Exhibit H hereto.
Upon any Bank being added hereto, a new schedule will be distributed by the
Agent to all Banks and the Company showing the Commitment amount and the pro
rata share of each Bank.
1.10 Exhibit H is hereby added to the Credit Agreement in the form of
Exhibit H attached hereto. Schedule 4.5 shall be amended by adding the
information set forth on the Supplement to Schedule 4.5 attached hereto.
ARTICLE II. REPRESENTATIONS. Each Borrower represents and warrants to the
Agent and the Banks that:
3. The execution, delivery and performance of this Amendment is within
its powers, has been duly authorized and is not in contravention with any law,
of the terms of its Articles of Incorporation or By-laws, or any undertaking to
which it is a party or by which it is bound.
3.1 This Amendment is the legal, valid and binding obligation of the
Borrower enforceable against it in accordance with the terms hereof.
3.2 After giving effect to the amendments herein contained, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as
<PAGE> 43
if made on and as of the date hereof.
3.3 No Event of Default or Default exists or has occurred and is
continuing on the date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become
effective until each of the following has been satisfied:
4. This Amendment shall be signed by the Borrowers and the Banks.
4.1 Copies of resolutions adopted by the Board of Directors of each
Borrower, certified by an officer of each Borrower as being true and correct and
in full force and effect without amendment as of the date hereof, authorizing
each Borrower to enter into this Amendment.
4.2 Each of the Guarantors shall have executed the Consent and
Agreement at the end of this Amendment.
ARTICLE IV. MISCELLANEOUS.
5. References in the Credit Agreement or in any note, certificate,
instrument or other document to the "Credit Agreement" shall be deemed to be
references to the Credit Agreement as amended hereby and as further amended from
time to time.
5.1 Each Borrower agrees to pay and to save the Agent harmless for the
payment of all costs and expenses arising in connection with this Amendment,
including the reasonable fees of counsel to the Agent in connection with
preparing this Amendment and the related documents.
5.2 Each Borrower acknowledges and agrees that the Agent and the Banks
have fully performed all of their obligations under all documents executed in
connection with the Credit Agreement and all actions taken by the Agent and the
Banks are reasonable and appropriate under the circumstances and within their
rights under the Credit Agreement and all other documents executed in connection
therewith and otherwise available. Each Borrower represents and warrants that it
is not aware of any claims or causes of action against the Agent or any Bank,
any participant lender or any of their successors or assigns.
5.3 Except as expressly amended hereby, each Borrower agrees that the
Credit Agreement, the Notes and all other documents and agreements executed by
the Borrower in connection with the Credit Agreement in favor of the Agent or
any Bank are ratified and confirmed and shall remain in full force and effect
and that it has no set off, counterclaim or defense with respect to any of the
foregoing. Terms used but not defined herein shall have the
<PAGE> 44
respective meanings ascribed thereto in the Credit Agreement.
5.4 This Amendment may be signed upon any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
<PAGE> 45
IN WITNESS WHEREOF, the parties signing this Amendment have caused this
Amendment to be executed and delivered as of May 28, 1996.
NATIONAL AUTO CREDIT, INC.
By:
Its:
ARAC, INC.
By:
Its:
NBD BANK, as Agent and Individually as
a Bank
By:
Its:
THE BANK OF NEW YORK
By:
Its:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:
Its:
<PAGE> 46
CONSENT AND AGREEMENT
As of the date and year first above written, each of the undersigned
hereby:
(a) fully consents to the terms and provisions of the above Amendment
and the consummation of the transactions contemplated hereby and agrees to all
terms and provisions of the above Amendment applicable to it;
(b) agrees that each Guaranty and all other agreements executed by any
of the undersigned in connection with the Credit Agreement or otherwise in favor
of the Agent or the Banks (collectively, the "Security Documents") are hereby
ratified and confirmed and shall remain in full force and effect, and each of
the undersigned acknowledges that it has no setoff, counterclaim or defense with
respect to any Security Document; and
(c) acknowledges that its consent and agreement hereto is a condition
to the Banks' obligation under this Amendment and it is in its interest and to
its financial benefit to execute this consent and agreement.
NATIONAL MOTORS, INC.
By:
Its:
NAC, INC.
By:
Its:
NAC RENT-A-CAR SYSTEM, LTD., formerly
known as Agency Rent-A-Car System,
Ltd.
By:
Its:
<PAGE> 47
NAC CAPITAL, INC.
By:
Its:
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<FISCAL-YEAR-END> JAN-31-1997
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