MORGAN STANLEY & CO. INCORPORATED
1585 Broadway
New York, New York 10036
May 3, 1999
URS Corporation
100 California Street, Suite 500
San Francisco, CA 94111-4529
Attention: Mr. Kent P. Ainsworth
Executive Vice President
and Chief Financial Officer
Dear Mr. Ainsworth:
We understand that URS Corporation, a Delaware corporation ("URS"), or
one or its subsidiaries will acquire (the "Acquisition") all of the issued and
outstanding shares of Dames & Moore Group, a Delaware corporation (the
"Company"). As we understand the Acquisition, URS, together with its wholly-
owned subsidiary ("Merger Sub") will, pursuant to an Agreement and Plan of
Merger to be entered into with the Company (the "Acquisition Agreement"), offer
to acquire through a tender offer (the "Tender Offer") all of the issued and
outstanding shares of the Company's capital stock (the "Company Stock") for a
price of $16 per share, in cash. The Acquisition will be financed through (i) a
cash equity investment by Richard C. Blum & Associates, L.P. ("RCBA") in URS of
not less than $100 million (the "Equity Contribution"), (ii) URS" issuance and
sale on the date on which the Tender Offer is consummated (the "Closing Date")
of senior subordinated increasing rate notes in an aggregate principal amount of
$200 million (the "Bridge Notes") having substantially the terms set forth in
Exhibit A hereto (such Exhibit, together with Exhibit B hereto, collectively,
the "Term Sheet") (unless the Permanent Financing (as defined below) has been
consummated in connection with the Acquisition), and (iii) an aggregate amount
of $550 million in bank borrowings comprised of $450 million in term loans and
$100 million in a revolving credit facility (the "Senior Bank Financing") with
Wells Fargo Bank, N.A. ("Wells Fargo") and certain other financial institutions.
As promptly as reasonably practicable after the closing of the Tender Offer,
Merger Sub will consummate a merger with the Company in which the Company will
be the surviving corporation and a wholly-owned subsidiary of URS (the
"Merger"). As soon as reasonably practicable after the consummation of the
Acquisition, URS will issue $200 million in long-term, fixed-rate, unsecured,
subordinated debt securities (the "Permanent Financing"), the cash proceeds of
which will be used to redeem the Bridge Notes or any outstanding Rollover Notes
(as defined herein). If by the maturity date of the
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Bridge Notes the Permanent Financing shall not have been issued, or shall not
have been issued in an amount sufficient to repay the principal of and accrued
and unpaid interest on the Bridge Notes, such unpaid principal will be satisfied
by the issuance to the holders of the Bridge Notes of debt securities of URS
having substantially those terms set forth in Exhibit B hereto (the "Rollover
Notes"). The Acquisition, the refinancing of certain existing debt of URS and
the Company, and the debt and equity financings thereof described above are
hereinafter referred to as the "Transaction".
Based upon and subject to the foregoing and as further provided below
and in the Term Sheet, Morgan Stanley & Co. Incorporated ("MS") hereby commits
to purchase, or to cause one or more of its affiliates to purchase, on the
Closing Date up to $200 million of the Bridge Notes, in each case on the terms
and subject to the conditions set forth in the Term Sheet. The term
"Purchasers" as used in this Commitment Letter and the Term Sheet shall mean MS,
one or more of MS's assignees and the financial institutions referred to in the
succeeding paragraph who actually purchase or undertake the commitment to
purchase the Bridge Notes referred to herein. Unless the Purchasers' commitment
hereunder shall have been terminated in accordance with the terms of this
Commitment Letter, the Purchasers shall have the exclusive right to purchase
Bridge Notes or otherwise provide other bridge or interim financing in
connection with the Acquisition and neither you nor the Company shall, directly
or indirectly, enter into any bridge or other interim financing in connection
with the Acquisition except for the sale of Bridge Notes to the Purchasers. You
hereby represent and covenant that based on your review and analysis, to the
best of your knowledge, (a) all information other than Projections (as defined
below) that has been or is hereafter made available to the Purchasers by you or
your representatives, advisors or affiliates in connection with the Transaction
(the "Information") has been reviewed and analyzed by you in connection with the
performance of your own due diligence and is, or in the case of Information made
available after the date hereof will be, complete and correct in all material
respects and does not and will not contain any untrue statement of a material
fact or omit to state a material fact known to you and necessary to make the
statements contained therein, in the light of the circumstances under which such
statements were or are made, not misleading and (b) all financial projections
concerning the Company that have been or are hereafter made available to the
Purchasers by you or your representatives, advisors or affiliates in connection
with the Transactions (the "Projections") have been or, in the case of
Projections made available after the date hereof, will be prepared in good faith
based upon reasonable assumptions (it being understood that the Projections are
subject to significant uncertainties and contingencies, many of which are beyond
your control, and that no assurance can be given that such Projections will be
realized). You agree to supplement the Information and the Projections prior to
the termination of the Purchasers' commitment hereunder so that the
representation and warranty made in the preceding sentence is correct as of such
date. The Purchasers will be using and relying on the Information and the
Projections. The representations and covenants contained in this paragraph
shall remain effective until a definitive financing agreement with respect to
the Bridge Notes (the "Financing Documentation") is executed and thereafter the
disclosure representations contained herein shall
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be terminated and of no further force and effect. Those matters that are not
covered or made clear herein or in the Term Sheet are subject to mutual
agreement of the parties. This Commitment Letter may not be amended or modified,
and no waiver will be effective, except by a writing duly executed by the
parties hereto. Fees payable to MS in connection with the Bridge Notes and the
Permanent Financing shall be payable as described in the fee letter (the "Fee
Letter") executed simultaneously herewith.
MS reserves the right, prior to or after execution of the definitive
documentation for the Bridge Notes, to syndicate all or part of its commitment
for the Bridge Notes to one or more financial institutions that will become
parties to such definitive documentation pursuant to a syndication to be managed
by MS, and the commitment of MS hereunder shall be reduced as and when binding
commitments are received from such financial institutions; provided that (i) MS
shall consult with you in identifying such financial institutions and (ii) the
financial ability of any such institution to purchase the respective Bridge
Notes shall be reasonably acceptable to you. MS may commence syndication
efforts promptly after the execution of this letter by you and you agree
actively to assist MS in achieving a syndication that is satisfactory to you and
MS. Such syndication will be accomplished by a variety of means, including
direct contact during the syndication between senior management and advisors of
URS and the proposed syndicate members. To assist MS in its syndication
efforts, you hereby agree (a) to provide and cause your advisors to provide MS
and the other syndicate members upon request with all information reasonably
deemed necessary by MS to complete syndication, including but not limited to
information and evaluations prepared by you and your advisors or on your behalf
relating to the Transaction, (b) to assist MS upon request in the preparation of
an Information Memorandum to be used in connection with the syndication of the
Bridge Notes and (c) to make available your senior officers and representatives,
in each case from time to time and upon reasonable notice to attend and make
presentations regarding the business and prospects of URS at a meeting or
meetings of lenders or prospective lenders. In addition, you agree that, except
for the Senior Bank Financing and any refinancing, renewal or increase thereof,
no financing for you or any of your subsidiaries or affiliates shall be
syndicated, privately placed or publicly offered to the extent that such
financing could have an adverse effect on the syndication of the Bridge Notes
(it being understood that lease financings in the ordinary course of business
shall not be prohibited by this sentence).
By your execution of this Commitment Letter, you hereby retain MS to
act as exclusive agent or sole underwriter for the Permanent Financing
(including any other financing that will refinance the Bridge Notes or Rollover
Notes or other debt financing the proceeds of which are used to fund in part the
Acquisition (excluding the Senior Bank Financing)), and MS agrees to act as such
exclusive agent or sole underwriter pursuant to the terms of an underwriting or
placement agreement and related transaction documents (collectively, the
"Purchase Agreement"). Neither you nor the Company shall, directly or indirectly
(except through MS or as otherwise approved by MS), sell or offer to sell any
debt security for cash or property in
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connection with the financing of the Acquisition or any related refinancings
(other than (a) loans incurred under and pursuant to the Senior Bank Facility,
(b) the Equity Contribution and (c) the Bridge Notes) during the term of our
engagement for the Permanent Financing. Notwithstanding anything to the contrary
contained herein or any oral representations or assurances previously or
subsequently made by the parties, this Commitment Letter is not intended to be
and does not constitute a commitment or obligation by MS to act as an
underwriter or placement agent in connection with any offering or sale of
securities (other than MS's obligation to purchase the Bridge Notes as provided
herein); and no liability or obligation on the part of MS to proceed with or
participate in an offering of securities by you or the Company shall be created
or exist unless or until MS has executed and delivered a Purchase Agreement and
then only in accordance with the terms and conditions set forth therein (other
than MS's obligation to purchase the Bridge Notes as provided herein). The
engagement of MS hereunder for the Permanent Financing may be terminated (i) by
MS at any time, or (ii) by you after the earliest to occur of (1) the
termination of the Acquisition Agreement in accordance with its terms, (2) the
use of the proceeds of the sale of the Permanent Financing contemplated by this
Commitment Letter or (3) 18 months after the consummation of the Acquisition, by
prior written notice thereof to MS; provided, however, that any fees earned
prior to the date of such termination shall survive such termination.
Upon request from MS, URS shall take reasonable steps to assist MS in
preparing an offering document and shall participate in due diligence and
marketing efforts (including a road show) so that, as soon as reasonably
practicable after such request, the Permanent Financing can be completed on such
terms and conditions as are customary for similar high-yield financings in light
of the then-prevailing market conditions.
In partial consideration for our commitment hereunder URS hereby
agrees to indemnify and hold harmless the Purchasers, each of the members or
shareholders or other investors or holders of interests in, or other transferees
of the Purchasers (collectively, "Additional Investors"), any affiliates of the
Purchasers and the Additional Investors, and each other person, if any,
controlling the Purchasers or any Additional Investors and any of their
respective affiliates, and any of the directors, officers, agents and employees
of any of the foregoing (each, an "Indemnified Person") from and against any
losses, claims, damages or liabilities related to, arising out of or in
connection with the matters that are the subject of the commitment made
hereunder (including, without limitation, any use made or proposed to be made by
URS of the proceeds from the Transaction) or in connection with any aspect of
the Transaction (collectively, the "Subject Matter"), and will reimburse any
Indemnified Person for all expenses (including fees and expenses of counsel) as
they are incurred in connection with investigating, preparing, pursuing or
defending any action, claim, suit, investigation or proceeding related to,
arising out of or in connection with the Subject Matter, whether or not pending
or threatened and whether or not such action, claim, suit or proceeding is
brought by you, your subsidiaries, creditors or any Indemnified Person, or any
Indemnified Person is otherwise a party thereto, and whether or not the
Transaction is consummated. URS will not, however, be responsible for any
5
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith, willful
misconduct or gross negligence of any Indemnified Person. URS also agrees that
no Indemnified Person shall have any liability (whether direct or indirect, in
contract or tort or otherwise) to URS for or in connection with the Subject
Matter, except for any such liability for losses, claims, damages or liabilities
incurred by you that are finally judicially determined to have resulted from the
bad faith, willful misconduct or gross negligence of such Indemnified Person and
except for direct damages (but not consequential or punitive damages) incurred
by you that are finally judicially determined to have resulted from the
Purchasers' wrongful failure to purchase the Bridge Notes.
URS will not, without the prior written consent of the Purchasers,
settle, compromise, consent to the entry of any judgment in or otherwise seek to
terminate any action, claim, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is a party thereto) unless such settlement, compromise, consent or termination
includes a full and unconditional release of each Indemnified Person from any
liabilities arising out of such action, claim, suit or proceeding.
If the indemnification provided for in the second preceding paragraph
of this Commitment Letter is judicially determined to be unavailable (other than
in accordance with the terms hereof) to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to herein, then, in lieu of
indemnifying such Indemnified Person hereunder, URS agrees to contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities (and expenses relating thereto) (i) in such
proportion as is appropriate to reflect the relative benefits to URS on the one
hand, and the Purchasers, on the other hand, of the Transaction or (ii) if the
allocation provided by clause (i) is not available, in such proportion as is
appropriate to reflect not only the relative benefits referred to in such clause
(i) but also the relative fault of URS and the Purchasers, as well as any other
relevant equitable considerations; provided that in no event shall the
Purchasers' aggregate contribution to the amount paid or payable exceed the
aggregate amount of fees actually received by them under this Commitment Letter.
URS agrees to pay all reasonable legal and other out-of-pocket
expenses of the Purchasers in connection with this Commitment Letter, the
Financing Documentation and the other matters referred to herein, including
travel costs, document production and other expenses of this type, and the fees
of outside counsel and fees of other professional advisors, whether or not the
Acquisition is consummated or any Bridge Notes are actually issued. In
addition, you hereby agree to pay when and as due the fees described in the Fee
Letter.
This commitment will expire at the earliest of (a) 5:00 p.m. New York
City time on May 7, 1999 and (b) the execution of the Acquisition Agreement by
all parties thereto, unless accepted prior to such time and, if accepted prior
to such time, shall expire at the earliest of (i)
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consummation of the Acquisition or another transaction or series of transactions
in which URS or any of its affiliates acquires, directly or indirectly, any
stock or assets of the Company, (ii) termination of the Acquisition Agreement,
(iii) consummation of the Permanent Financing and (iv) 5:00 p.m. New York City
time on September 30, 1999, if the closing of the Tender Offer shall not have
occurred by such time. No such termination shall affect your obligations under
each of the five immediately preceding paragraphs, including the obligation to
pay all fees set forth in the Fee Letter, which shall remain in full force and
effect regardless of any termination or the completion of the Transaction.
This Commitment Letter shall be governed by the laws of the State of
New York. Any right to trial by jury with respect to any claim, action, suit or
proceeding arising out of or contemplated by this letter is hereby waived and
the parties hereto hereby submit to the non-exclusive jurisdiction of the
federal and New York State courts located in the City of New York in connection
with any dispute related to this letter and/or any matters contemplated hereby.
This Commitment Letter is not assignable by you to any other person. This
Commitment Letter and the Term Sheet (and the contents thereof) may not be
disclosed to any other person except your accountants and attorneys in
connection with the Acquisition and then only on a confidential basis and in
connection with the Transaction; provided that coincidental with your execution
of the Acquisition Agreement and delivery to the Board of Directors of the
Company you may disclose this Commitment Letter to the Company and its advisors,
RCBA and its advisors and Wells Fargo and its advisors and (ii) after your
acceptance of this Commitment Letter, you may reference the existence of, or
file, this Commitment Letter to the extent required in connection with any law
or regulation (including any securities law or regulation), order or decree.
This Commitment Letter is not intended to confer upon any person,
other than the parties hereto, their successors hereunder and MS and its
affiliates, any benefit or any legal or equitable right, remedy or claim
hereunder.
[The remainder of this page intentionally left blank.]
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Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us an executed duplicate of this
letter. Upon your acceptance hereof, this letter will constitute a binding
agreement between us.
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ William Kourakos
-------------------------------------------
Name: William Kourakos
Title: Managing Director
Agreed to and Accepted
this 5th day of May, 1999
URS CORPORATION
By: /s/ Kent Ainsworth
--------------------------------
Title: Vice President and
Chief Financial Officer
EXHIBIT A
---------
SENIOR SUBORDINATED INCREASING RATE NOTES:
SUMMARY OF TERMS AND CONDITIONS/1/
Issuer: URS.
Issue: Unsecured Senior Subordinated Increasing Rate Notes (the
"Bridge Notes") issued pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement") between
the Issuer and the Purchasers.
Use of Proceeds: The proceeds of the Bridge Notes, along with borrowings
under the term loan and revolving loan portions of the
Senior Bank Financing and proceeds from the Equity
Contribution, will be used (i) to finance the purchase
price of the Acquisition (including any appraisal rights
in connection therewith), (ii) to refinance certain
existing debt of the Issuer and the Company, and (iii) to
pay costs and expenses in connection with the Transaction.
Principal Amount: Up to $200.0 million.
Price: 100% of the principal amount.
Interest Rate: Interest on the Bridge Notes shall be paid at the
Applicable Bridge Note Interest Rate (as defined below)
and payable quarterly in arrears. "Applicable Bridge Note
Interest Rate" means the higher of the following, as
determined as of the beginning of each three-month period:
(i) three-month U.S. Dollar LIBOR (as determined from
specified sources) plus 650 basis points and (ii) the
- --------------------
/1/ Capitalized terms used but not defined herein are used as defined in the
Commitment Letter (the "Commitment Letter") to which this Summary of Terms
and Conditions is attached.
highest yield on any of the 1-, 3-, 5- and 10-year direct
obligations issued by the United States plus 600 basis
points; provided that if the Bridge Notes are not retired
in whole by the end of the first six months following the
issuance date, the Applicable Bridge Note Interest Rate
otherwise in effect will increase by 100 basis points and
shall thereafter increase by an additional 50 basis points
at the end of each subsequent three-month period for so
long as the Bridge Notes are outstanding (the aggregate
number of basis points by which the Applicable Bridge Note
Interest Rate has so increased during the term of the
Bridge Notes being the "Incremental Spread"); and provided
further that (A) in no event shall the Applicable Bridge
Note Interest Rate exceed 17.0% and (B) the amount of cash
interest paid will be subject to a cap of 15.0%, with the
excess (if any) of the Applicable Bridge Note Interest
Rate over such interest rate cap to be paid in additional
Bridge Notes.
Maturity: One year from the date of issuance.
Ranking: The Bridge Notes will be unsecured and senior to all
subordinated indebtedness of the Issuer and will be pari
passu with all other unsubordinated indebtedness of the
Issuer except that they will be subordinated to the Senior
Bank Financing and any refinancing or renewal thereof.
Guarantees: Same guarantees as are provided to the lenders under the
Senior Bank Financing (the "Senior Lenders") but the
guarantees will be unsecured and senior to all
subordinated indebtedness of the guarantor and will be
pari passu with all other unsubordinated indebtedness of
the guarantor, except that they will be subordinated to
the guarantor's guarantee of the Issuer's obligations
under the Senior Bank Financing or any refinancing or
renewal thereof. Upon a release by the Senior Lenders of
the guarantee by any subsidiary guarantor under the Senior
Bank Financing, any guarantee by such subsidiary hereunder
shall also be released.
Mandatory Redemption: The Issuer will redeem the Bridge Notes at 100% of their
principal amount plus accrued interest to the redemption
date with (i) the net proceeds from the Permanent
Financing, (ii) to the extent not required to prepay the
Senior Bank Financing, the net proceeds from the issuance
of any other debt or equity securities (with exceptions to
be determined) and (iii) to the extent not required to
prepay the
A-2
Senior Bank Financing, the net proceeds from asset sales
(with exceptions to be determined).
Change-of-Control: The Issuer will redeem the Bridge Notes upon any
change-of-control (to be defined in a mutually acceptable
manner) of the Issuer at a redemption price of 101% of par
plus accrued interest.
Optional Redemption: The Bridge Notes will be callable, in whole or in part,
upon not less than 10 days written notice, at the option
of the Issuer, at any time at 100% of par plus accrued
interest to the redemption date.
Mandatory Exchange: If the Bridge Notes have not been previously redeemed in
full for cash on or prior to maturity, the principal of
the Bridge Notes outstanding at maturity shall, subject to
certain conditions precedent, be satisfied at maturity
through the issuance and delivery of the Rollover Notes
described below in the attached term sheet (Exhibit B).
Right to Resell
Bridge Notes: The Purchasers shall have the absolute and unconditional
right, consistent with applicable securities laws, to
resell the Bridge Notes to one or more third parties,
whether by transfer, assignment or participation.
Conditions to
Funding: The execution and closing of the Securities Purchase
Agreement and the funding of the Bridge Notes will be
subject to satisfaction of the following conditions
precedent and such others that are mutually agreeable to
the Issuer and the Purchasers:
1. The Tender Offer shall have been consummated (or shall
be consummated coincidentally with the funding of the
Bridge Notes) in accordance with the terms of the
Acquisition Agreement (which shall be in full force
and effect), without any material waiver or amendment
not consented to by Purchasers committed to purchase
in the aggregate at least a majority of the principal
amount of the Bridge Notes (the "Required Purchasers")
of any term, provision or condition set forth therein,
and in compliance with all applicable laws (provided
that (a) in excess of 50% (on a fully diluted basis)
of the Company Stock has been tendered and not
withdrawn pursuant to the Tender Offer and (b) the
price for the Company
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Stock in the Tender Offer shall not be in excess of
$16 per share), and the Purchasers shall be satisfied
in their reasonable discretion that the restrictions
in Section 203 of the Delaware General Corporation Law
are not applicable to the purchase of the Company
Stock or the Acquisition or that any conditions to
avoiding the restrictions contained therein have been
satisfied. The structure of the Transaction, including
the tax, ERISA, accounting and other consequences
thereof, and corporate and legal structure of the
Issuer and the Company shall be reasonably
satisfactory to the Required Purchasers to the extent
that any portion of the corporate and legal structure
of the Issuer or the Company or of the legal structure
of the Transaction are not set forth in, or are
materially different from, the respective portions of
any such structure set forth in the term sheet
attached to the letter dated May 3, 1999 between Wells
Fargo and the Issuer with respect to the Senior Bank
Financing, the draft Securities Purchase Agreement
with respect to the Equity Contribution delivered to
MS on May 2, 1999, or the May 2, 1999 draft of the
Agreement and Plan of Merger among the Issuer, Merger
Sub and the Company; provided that the portions of the
corporate and legal structure of the Issuer and the
Company and the legal structure of the Transaction set
forth in such documents shall be deemed approved by
the Required Purchasers. The senior management of the
Issuer as in place on the date of the Commitment
Letter shall have continued in their respective
management positions.
2. The Company's Board of Directors shall have taken such
actions in connection with its Stockholder Rights
Agreement so that the Purchasers are satisfied that
the rights arising thereunder are not applicable to
the Tender Offer or the Merger. The Company's Board of
Directors shall have approved the Tender Offer and the
Acquisition and recommended that its shareholders
tender their Company Stock pursuant to the Tender
Offer, and such recommendation shall not have been
withdrawn or qualified.
A-4
3. The other financings and transactions contemplated to
be consummated on the Closing Date, including without
limitation (i) the closing of the Senior Bank
Financing (and the Issuer shall be in compliance with
all material provisions thereof) and (ii) the Equity
Contribution, shall have been consummated prior to (or
shall be consummated simultaneously with) the issuance
of the Bridge Notes, and each such financing and
transaction shall be in compliance with applicable law
and on terms and conditions (including interest rates
and covenants), and in accordance with documentation,
reasonably satisfactory to the Required Purchasers to
the extent that the terms and conditions of the Senior
Bank Financing, the Equity Contribution, the Tender
Offer and the Merger are not set forth in, or are
materially different from, the respective terms and
conditions of the term sheet attached to the letter
dated May 3, 1999 between Wells Fargo and the Issuer
with respect to the Senior Bank Financing, the draft
Securities Purchase Agreement with respect to the
Equity Contribution delivered to MS on May 2, 1999, or
the May 2, 1999 draft of the Agreement and Plan of
Merger among the Issuer, Merger Sub and the Company;
provided that the terms and conditions set forth in
such documents shall be deemed approved by the
Required Purchasers.
4. The Issuer and each Guarantor shall have delivered
certificates in form and substance reasonably
satisfactory to the Required Purchasers, attesting to
the Solvency (as hereinafter defined) of the Issuer
and each such Guarantor individually and together with
its subsidiaries, taken as whole, immediately before
and immediately after giving effect to the
Transaction, from its chief financial officer. As used
herein, the term "Solvency" of any person means (i)
the fair value of the property of such person exceeds
its total liabilities (including, without limitation,
contingent liabilities), (ii) the present fair
saleable value of the assets of such person is not
less than the amount that will be required to pay its
probable liability on its debts as they become
absolute and matured, (iii) such person does not
intend to, and does not believe that it will, incur
debts or
A-5
liabilities beyond its ability to pay as such debts
and liabilities mature and (iv) such person is not
engaged, and is not about to engage, in business or a
transaction for which its property would constitute an
unreasonably small capital.
5. Satisfactory completion of all loan documentation and
other documentation relating to the Bridge Notes,
Rollover Notes and the Warrants in form and substance
reasonably satisfactory to the Purchasers, including
issuance of appropriate subsidiary guarantees, and
receipt by the Purchasers of reasonably satisfactory
opinions of counsel to the Issuer and to the
Purchasers as to the Transaction, together with
customary closing documentation.
6. All material governmental and third party consents and
approvals necessary in connection with the Transaction
and the issuance of the Bridge Notes shall have been
obtained (without the imposition of any material
conditions that are not acceptable to the Purchasers)
and shall remain in effect; all applicable waiting
periods shall have expired without any adverse action
being taken by any competent authority; and no law or
regulation shall be applicable in the judgment of the
Required Purchasers that restrains, prevents or
imposes materially adverse conditions upon the
Transaction or the issuance of the Bridge Notes.
7. Absence of any material adverse change in the
business, financial condition, operations,
performance, properties or prospects of the Issuer and
its subsidiaries, taken as a whole, or the Company and
its subsidiaries, taken as a whole, since the end of
the most recent fiscal year (October 31, 1998) in the
case of the Issuer and since the end of the third
fiscal quarter (December 25, 1998) for fiscal 1998 in
the case of the Company (except for those items
included in the respective disclosure schedule to the
Acquisition Agreement), and as determined in the
reasonable judgment of the Purchasers. No additional
facts or information (including the occurrence of any
events or
A-6
circumstances) shall have come to the attention of
Purchasers that are inconsistent with the information
disclosed to the Purchasers by or on behalf of the
Issuer or the Company prior to the date of the
Commitment Letter and that, either individually or in
the aggregate, could reasonably be expected, in the
reasonable judgment of the Purchasers, to have a
material adverse effect on (a) the business, financial
condition, operations, performance, properties or
prospects of (i) the Issuer and its subsidiaries,
taken as a whole, or (ii) the Company and its
subsidiaries, taken as a whole, (b) the refinancing of
the Bridge Notes or (c) the rights or remedies of the
Purchasers or the ability of the Issuer and the
Guarantors to perform their obligations to the
Purchasers (collectively, a "Material Adverse
Effect").
8. There shall exist no action, suit, investigation,
litigation or proceeding (including those pertaining
to environmental matters) pending or threatened in any
court or before any arbitrator or governmental or
regulatory agency or authority that could reasonably
be expected to have a Material Adverse Effect (except
for such actions, suits, investigations, litigation
and proceedings disclosed to the Purchasers prior to
the date of the Commitment Letter).
9. Absence of any disruption or change in financial,
banking or capital markets or in the regulatory
environment that in the good faith judgment of the
Purchasers could materially and adversely affect the
sale of the Bridge Notes or the refinancing thereof.
10. Absence of any default or event of default and
material accuracy of representations and warranties.
11. All costs, fees, expenses (including, without
limitation, reasonable legal fees and expenses) and
other compensation contemplated hereby payable to (or
on behalf of) the Purchasers shall have been paid.
Representations and
A-7
Warranties: The Securities Purchase Agreement will contain the
following representations and warranties and such others
that are mutually agreeable to the Issuer and the Required
Purchasers:
1. Corporate existence.
2. Corporate and governmental authorizations; no
contravention; binding and enforceable agreements.
3. Financial information.
4. No material adverse change.
5. Environmental matters.
6. Compliance with laws, including ERISA and
environmental laws.
7. No material litigation.
8. Existence, incorporation, etc., of subsidiaries.
9. Payment of taxes and other material obligations.
10. Full disclosure.
Covenants: The Securities Purchase Agreement will contain the
following covenants and such others that are mutually
agreeable to the Issuer and the Required Purchasers:
1. Furnishing of information (including quarterly
financial and operating reports).
2. Maintenance of property; insurance coverage.
3. Compliance with laws; conduct of business.
4. Use of proceeds.
5. Restrictions on indebtedness.
6. Negative pledge except for the Senior Bank Financing.
7. Additional guarantees from subsidiaries to the extent
that such guarantees are delivered under the Senior
Bank Financing.
8. Restrictions on dividends and other restricted
payments (including redemptions and prepayment of
junior or pari passu indebtedness).
9. Restrictions on asset sales.
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10. Restrictions on transactions with affiliates.
11. Restrictions on mergers and consolidations except for
subsidiaries merging into other subsidiaries or the
Issuer.
12. To prepare offering documents and participate in due
diligence and marketing efforts (including a road
show) and to effect refinancing of Bridge Notes
through the Permanent Financing as soon as
practicable.
13. Restrictions on investments.
14. Restrictions on absence of limitations on the ability
of subsidiaries to upstream assets.
15. Restrictions on capital expenditures and acquisitions.
16. Availability of management to meet with holders of
Bridge Notes or Rollover Notes upon request and upon
reasonable notice.
Events of Default: The Securities Purchase Agreement will contain the
following events of default and such others that are
mutually agreeable to the Issuer and the Required
Purchasers:
1. Failure to pay any principal when due or any interest
or fees payable within five days of when due.
2. Failure to meet covenants, with grace periods where
appropriate.
3. Representations or warranties false in any material
respect when made.
4. Cross acceleration to other debt of the Issuer, the
Company and their subsidiaries that is triggered by a
default of such other debt (with minimum dollar
amounts to be agreed upon).
5. Judgment defaults (with minimum dollar amounts to be
agreed upon).
6. Insolvency, bankruptcy and ERISA.
Indemnification: The Issuer will indemnify the Purchasers against all
losses, liabilities, claims, damages, or expenses relating
to the Bridge Notes, the Securities Purchase Agreement and
the use of the Bridge Note proceeds or the commitments,
including but not limited to reasonable attorney"s fees
and settlement costs, substantially on the terms set forth
in the Commitment Letter.
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Expenses: The Issuer will pay all reasonable legal and other out-of-
pocket expenses of the Purchasers as incurred, including
travel costs, document production and other expenses of this
type, and the fees of outside counsel and fees of other
professional advisors engaged with the Issuer's consent.
Governing Law: State of New York.
Miscellaneous: Certain provisions of the Commitment Letter and Term Sheet
will be superseded and replaced by the provisions of the
Financing Documentation.
The Securities Purchase Agreement will provide that each
Purchaser agrees not to disclose any non-public information
obtained from the Issuer thereunder; provided, however, that
disclosure of such information may be made (a) to affiliates
of such Purchaser and their respective accountants,
attorneys and other advisors (each of whom will be bound by
the confidentiality provisions hereof), (b) as required by
any government agency having appropriate jurisdiction, (c)
pursuant to legal process or (d) to prospective Purchasers
and their respective accountants, attorneys and other
advisors, provided that they have entered into a similar
confidentiality agreement prior to the time they have
received any confidential or non-public information and
their respective accountants, attorneys and other advisors;
provided further that, unless specifically prohibited by the
applicable law or court order, each Purchaser shall
reasonably notify the Issuer of any request by any
governmental agency or representative thereof (other than
any such request in connection with any examination of the
financial condition of such Purchaser by such governmental
agency) for disclosure of any such non-public information
prior to disclosure of such information; and provided
further that in no event shall any Purchaser be obligated or
required to return any material furnished by the Issuer, the
Company or any of their respective subsidiaries.
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EXHIBIT B
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SENIOR SUBORDINATED ROLLOVER NOTES:
SUMMARY OF TERMS AND CONDITIONS
Issuer: The Issuer.
Issue: Unsecured Senior Subordinated Rollover Notes (the
"Rollover Notes").
Principal Amount: Up to the outstanding principal amount of the Bridge Notes
plus an amount equal to 2.75% of such principal amount,
representing a funding fee payable to the holders thereof.
Purpose: The Rollover Notes will be used in their entirety to
redeem 100% of the outstanding principal amount of the
Bridge Notes.
Maturity: 10 years after the issuance date of the Rollover Notes.
Interest Rate: Interest on the Rollover Notes shall be paid at the
Applicable Rollover Note Interest Rate (as defined below)
and payable quarterly in arrears. "Applicable Rollover
Note Interest Rate" means the sum of (A) the Incremental
Spread (as defined in the Summary of Terms and Conditions
for the Bridge Notes) as of the date of the issuance of
the Rollover Notes, which shall increase by an additional
50 basis points at the end of each three-month period for
so long as the Rollover Notes are outstanding, plus (B)
----
the higher of the following, as determined as of the
beginning of each three-month period: (i) three months
U.S. Dollar LIBOR (as determined from specified sources)
plus 650 basis points and (ii) the highest yield on any of
the 1-, 3-, 5- and 10-year direct obligations issued by
the United States plus 600 basis points; and provided
further that (A) in no event shall the Applicable Rollover
Note Interest Rate exceed 17.0% and (B) the amount of cash
interest paid will be subject to a cap of 15.0%, with the
excess (if any) of the Applicable Rollover Note Interest
Rate over such interest rate cap to be paid in additional
Rollover Notes.
Optional Redemption: The Rollover Notes will be redeemable at the option of the
Issuer, in whole or in part, at any time upon not less
than 10 days' written
notice, at par plus accrued and unpaid interest to the
redemption date; provided, however, that if any holder of
a Rollover Note that was a holder on the date of issuance
of the Rollover Notes sells Rollover Notes to third-party
purchasers on a fixed rate basis no less favorable to the
Issuer than the then-applicable rate of interest (it being
understood that any such holders shall have the right
unilaterally to fix the Interest Rate on the Rollover
Notes in conjunction with such third-party sales and it
also being understood that no such third-party sales shall
take place unless the Issuer has been given 20 days' prior
notice), the redemption price for any such Rollover Notes
during the 5-year period commencing from the date of
issuance of the Rollover Notes will include a make-whole
premium calculated on the basis of a discount rate equal
to the rate on U.S. Treasury securities with a maturity
closest to the maturity of the Revolver Notes to be
redeemed plus 0.5% and thereafter at par plus accrued
interest plus a premium equal to 50% of the fixed-rate
coupon for such Rollover Notes, declining ratably (on each
yearly anniversary commencing on the sixth anniversary of
the issuance of the Rollover Notes) to par one year prior
to the maturity of the Rollover Notes.
Mandatory Redemption: Same as Bridge Notes, except that (a) the redemption price
for Rollover Notes that accrue interest at the floating
rate shall be at par plus accrued interest and (b) the
redemption price for Rollover Notes that accrue interest
at a fixed rate shall be at par plus the respective
premium set forth above in Section "Optional Redemption".
Change-of-Control: The Issuer will redeem the Rollover Notes upon any change-
of-control of the Issuer at a redemption price of 101% of
par plus accrued interest.
Ranking: Same as Bridge Notes.
Guarantees: Same as Bridge Notes.
Registration Rights: The Issuer will file, and will use its best efforts to
cause to become effective, an exchange offer registration
statement with respect to exchanging the Rollover Notes
for identical securities that are registered under the
Securities Act of 1933 as soon as practicable after the
issuance of the Rollover Notes. If such exchange offer
cannot be completed within 180 days from the date of
issuance of the Rollover Notes, the Issuer will file and
cause to become effective a
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"shelf" registration statement with respect to resales of
the Rollover Notes. If an exchange offer registration
statement for the Rollover Notes has either (i) not been
filed within 60 days from the date of issuance of the
Rollover Notes, or (ii) such exchange offer or a shelf
registration has not been completed within 180 days from
the date of issuance of the Rollover Notes, the Issuer
will pay liquidated damages of $.192 per week per $1,000
principal amount of Rollover Notes until such time as such
registration statement has been filed or such exchange
offer has been completed, as the case may be. In addition,
the holders of the Rollover Notes will have the right to
"piggy back" in the registration of any debt securities
that are registered by the Issuer unless all of the
Rollover Notes will be redeemed from the proceeds of such
securities.
Equity Amount: Warrants ("Warrants"), representing in the aggregate 3% of
the fully-diluted common stock of the Issuer (the "Warrant
Amount") as of the date the Rollover Notes are issued,
will be issued to the holders of the Rollover Notes (if
any are issued) as follows: 1.5% at the time the Rollover
Notes are issued and an additional 1.5% at the end of the
first six-month period thereafter if the Rollover Notes
are still outstanding.
All Warrants will be exercisable at a nominal price for a
period of five years from the date such warrants are
issued and will have customary anti-dilution provisions
and demand and "piggy back" registration rights and
customary cut-back provisions.
Right to Resell
Rollover Notes
and Warrants: The holders shall have the absolute and unconditional
right to resell Rollover Notes and Warrants in compliance
with applicable law to any third parties.
Defeasance
Provisions: None.
Conditions to
Issuance: The right to issue the Rollover Notes and the Purchasers'
obligation to accept them in satisfaction of the Bridge
Notes will be subject to satisfaction of the following
conditions precedent: (i) at the time of issuance, there
shall exist no event of default under the Securities
Purchase Agreement, (ii) all fees, interest and other
amounts owing to the holders shall have been paid in full,
(iii) all Warrants required to be issued upon the issuance
of the Rollover Notes shall have been
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issued and (iv) no injunction, decree, order or judgment
enjoining such issuance shall be in effect.
Representation,
Warranties,
Covenants, Events of
Default, Indemnities
and Expenses: As in the Securities Purchase Agreement (see above),
except that the Rollover Notes will contain covenants
customary for Rule 144A high-yield debt offerings.
Governing Law: State of New York.
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