EXHIBIT 10.2
September 23, 2003
Phoenix Footwear Group, Inc.
12626 High Bluff Drive, Suite 440
San Diego, California 92130
Attention: James Riedman, Chief Executive Officer
RE: COMMITMENT FOR $24,750,000 FACILITY
Dear Jim:
You have advised Manufacturers and Traders Trust Company (the "BANK," "US"
or "OUR") that Phoenix Footwear Group, Inc. (the "BORROWER") seeks financing for
the acquisition of Royal Robbins, Inc. ("Royal") in a stock purchase (the
"MERGER"). Attached hereto is a Summary of Terms and Conditions (the "TERM
SHEET") describing the general terms and conditions for up to an aggregate of $
24,750,000 in Facility (the "FACILITY").
Based upon and subject to the terms and conditions set forth in this
Commitment Letter (the "COMMITMENT LETTER") and the Term Sheet, we are pleased
to advise you of our commitment to provide the Facility. The commitment of the
Bank hereunder is based upon the financial and other information regarding the
Borrower and its subsidiaries and Royal Robbins previously provided to the Bank.
Accordingly, the commitments hereunder are subject to the condition, among
others, that (i) there shall not have occurred after the date of such financial
and other information any adverse change in the business, assets, liabilities
(actual or contingent), operations or condition (financial or otherwise) of the
Borrower and its subsidiaries taken as a whole or in Royal Robbins and its
subsidiaries, taken as a whole, and (ii) the execution and delivery of the
Bank's legal documents, together with any other documents requested by us to
effect the Facility, by the Borrower and, as applicable, each Guarantor,
incorporating the terms and conditions outlined or referred to in the Term
Sheet.
By executing this Commitment Letter, you agree to reimburse the Bank from
time to time on demand for all reasonable out-of-pocket fees and other expenses
(including, but not limited to, the reasonable fees, disbursements and other
charges of counsel to the Bank) incurred in connection with the Facility,
including the preparation of definitive documentation for the Facility and the
other transactions contemplated hereby.
Execution Copy
By executing this Commitment Letter, you further agree to indemnify and
hold harmless the Bank and its directors, officers, employees, attorneys and
affiliates (each an "INDEMNIFIED PERSON") from any losses, claims, costs,
damages, expenses or liabilities (or actions, suits or proceedings, including
any inquiry or investigation, with respect thereto) to which any Indemnified
Person may become subject, insofar as such losses, claims, costs, damages,
expenses or liabilities (or actions, suits, or proceedings, including any
inquiry or investigation, with respect thereto) arise out of, in any way relate
to, or result from, this Commitment Letter, the Facility or the other
transactions contemplated hereby and thereby and to reimburse upon demand each
Indemnified Person for any and all legal and other expenses incurred in
connection with investigating, preparing to defend or defending any such loss,
claim, cost, damage, expense or inquiry or investigation, with respect thereto;
provided that you shall have no obligation under this indemnity provision for
liabilities resulting solely from gross negligence, willful misconduct or breach
of this Commitment Letter by any Indemnified Person. The foregoing provisions of
this paragraph shall be in addition to any right that an Indemnified Person
shall have at common law or otherwise. This Commitment Letter is addressed
solely to Phoenix Footwear Group, Inc. and is not intended to confer any
obligations to or on or benefits on any third party. No Indemnified Person shall
be responsible or liable for consequential damages, which may be alleged as a
result of this Commitment Letter.
The provisions of the immediately preceding paragraph shall remain in full
force and effect regardless of whether definitive financing documentation shall
be executed and delivered and notwithstanding the termination of this Commitment
Letter or the commitment of the Bank hereunder.
This Commitment Letter and the Term Sheet do not summarize all of the
terms, conditions, covenants, representations, warranties and other provisions
which will be contained in the definitive credit documentation for the Facility
and the transactions contemplated thereby. The Bank shall have the right to
require that such credit documentation include, in addition to the provisions
outlined herein and in the Term Sheet, provisions considered appropriate by the
Bank for this type of financing transaction, as well as provisions that the Bank
may otherwise deem appropriate after they are afforded the opportunity to
conduct and complete, to their satisfaction, a due diligence review.
The Bank's commitment with respect to the Facility set forth above shall
terminate at 5:00 p.m. on September 24th, 2003, unless this Commitment Letter is
accepted by the Borrower in writing prior to such time and, if accepted prior to
such time, shall expire at the earlier of (i) consummation of the Merger, (ii)
termination of the definitive agreement for the Merger between Borrower and
Royal and (iii) 5:00 p.m., Eastern Standard Time, on October 31st, 2003, if the
closing of this transaction shall not have occurred by such time.
This Commitment Letter may be executed in counterparts which, taken
together, shall constitute an original. This Commitment Letter together with the
Term Sheet, embodies the entire agreement and understanding between the Bank and
the Borrower with respect to the specific matters set forth above and supersedes
all prior agreements and understandings relating
to the subject matter hereof. No party has been authorized by the Bank to make
any oral or written statements inconsistent with this Commitment Letter.
THIS COMMITMENT LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.
This Commitment Letter may not be assigned without the prior written
consent of the Bank.
If you are in agreement with the foregoing, please execute the enclosed
copy of this Commitment Letter and return it to me no later than 5:00 P.M.
Eastern Standard Time on September 24th, 2003 along with the Facility Fee
described in the Summary of Terms and Conditions. This Commitment Letter will
become effective upon your delivery to the Bank of executed counterparts of this
Commitment Letter and the receipt of the Facility Fee. This Commitment Letter
shall terminate if not accepted by you prior to that time.
Very truly yours,
Manufacturers and Traders Trust Company
By: /s/ Kevin Wilmot
--------------------------------
Name: Kevin Wilmot
Title: Assistant Vice President
COMMITMENT ACCEPTED AND AGREED TO
THIS 23RD DAY OF SEPTEMBER, 2003
PHOENIX FOOTWEAR GROUP, INC.
By: /s/ James Riedman
-----------------------------------
Name: James Riedman
Title: Chairman and Chief Executive Officer
SUMMARY OF TERMS AND CONDITIONS
REVOLVING CREDIT AGREEMENT
AMOUNT: $18,000,000 (during the months of February through May), and
$15,000,000 (during June thorough January).
BORROWER: Phoenix Footwear Group, Inc.
PURPOSE: Working capital and to fund the acquisition of Royal
Robbins, Inc.
BORROWING The lesser of $18,000,000 (February, March, April, May) or
$15,000,000 June through January) or the sum of the
following:
BASE:
a) 80% eligible accounts receivable (0-90 days);
b) Plus 50% of eligible finished goods inventory with a
$3,500,000 inventory cap for Phoenix, $1,500,000
inventory cap for Trask, and a $1,500,000 inventory cap
for Royal;
c) Less a $2,000,000 Term Loan reserve (same as current
structure);
d) Less Letters of Credit issued not to exceed a
$5,000,000 sublimit.
Eligible finished goods and eligible accounts receivable are
the same as defined in the existing credit agreement
Final advance rates for Royal Robbins receivables and
inventory as well as the inventory cap are subject to Bank
audit to be performed.
INTEREST RATE: Libor plus 275 or Prime plus -1/4%.
These rates are in effect until 6/30/04 and then revert back
to pricing grid (See Exhibit A) or earlier, if new equity is
injected into the company.
UNUSED FEE: 1/4%
MATURITY DATE: June 30, 2005
TERM LOAN
BORROWER: Phoenix Footwear Group, Inc.
AMOUNT: $1,500,000
TERM: Five (5) years.
PURPOSE: To fund the purchase of Royal Robbins, Inc. and consolidate
the existing debt of Borrower.
REPAYMENT: Monthly principal payments of $25,000, plus interest.
INTEREST RATE: Libor plus 300 or Prime plus .375%. These rates are in
effect until 6/30/04 and then revert back to pricing grid
(See Exhibit A), or earlier of new equity is injected into
the company.
TERM LOAN
BORROWER: Phoenix Footwear Group, Inc.
AMOUNT: $2,250,000.
PURPOSE: Originally part of restructure plan after sale of slipper
division.
REPAYMENT: No change to existing structure, except new covenants will
be in effect.
INTEREST RATE: Libor plus 300 or Prime plus .375%. These rates are in
effect until 6/30/04 and then revert back to pricing grid
(See Exhibit A), or earlier if new equity is injected into
the company.
TERM LOAN
BORROWER: Phoenix Footwear Group, Inc.
AMOUNT: $3,000,000
PURPOSE: Funded to Trask acquisition.
REPAYMENT: No change to existing structure, except new covenants will
be in effect.
INTEREST RATE: Libor plus 300 or Prime plus .375%. These rates are in
effect until 6/30/04 and then revert back to pricing grid
(See Exhibit A) or earlier if new equity is injected into
the company.
GENERAL CONDITIONS
The following terms and conditions shall apply to all of the above credit
accommodations:
COVENANTS: Financial and other covenants mutually agreeable to the
Borrower and the Bank will be negotiated in conjunction with
the documentation associated
with these accommodations. Covenants will include an excess
cash flow recapture provision.
DOCUMENTATION: The credits described above shall be evidenced by legal
documentation as Bank and its counsel may require. All such
documentation shall be satisfactory in form and substance to
the Bank and its counsel.
EXPENSES: The Borrower will pay all reasonable fees and expenses
incurred in loan documentation, including disbursements,
search fees, filing fees, title insurance, appraisal fees,
Bank's attorney's fees, and M&T field audit fees. If the
transaction does not close for any reason, Borrower will pay
any fees and expenses already incurred.
PREPAYMENT Prepayment Permitted. No prepayment premium on prime based
debt; normal breakage penalty on LIBOR borrowings.
FACILITY FEE: $40,000. This fee is earned and payable upon acceptance of
this commitment.
GUARANTORS: Phoenix Footwear Group, Inc. and all of its subsidiaries,
including any new subsidiaries established in conjunction
with the proposed acquisition of Royal Robbins, Inc., to
guarantee all debt including existing obligations.
OTHER: Subject to Bank's satisfaction with the final form,
substance, and terms and conditions of the proposed
acquisition/merger, including Bank's review and satisfaction
with Borrower's proposed organizational and legal structure
(to include management), tax assumptions, final projections,
purchase allocation and accounting ERISA liabilities and
compliance, and all other matters related to the
acquisition, including, but not limited to, appropriate
legal opinions, and all other matters deemed necessary by
Bank.
COLLATERAL: All debt - to be secured by a first security interest in all
of the Borrower's and Royal Robbins, Inc.'s assets
including, but not limited to accounts receivable,
inventory, equipment, machinery, fixtures, investments,
instruments, general intangibles, and trademarks (subject to
permitted liens).
PRICING GRID: To take effect on 6/30/04. See attached Exhibit A.
PENOBSCOT
LETTER OF CREDIT: The existing $1,700,000 Letter of Credit associated with the
dissenting shareholders lawsuit, that is blocked against the
Revolver, will be eliminated before closing of the Royal
acquisition.
LETTERS OF CREDIT: To be issued on behalf of Phoenix, Trask and Royal Robbins
to a maximum aggregate sublimit amount of $5,000,000. Letter
of Credit Fee to be 1.5%.
EXIT FEE: If Borrower prepays or reduces Bank commitments from other
than internally generated cash flow or assets dispositions
during the first three years following closing, the Borrower
shall pay 3% of such reduction to the Bank. New equity can
be used to prepay the bank debt without triggering the exit
fee.
CONDITIONS PRECEDENT TO CLOSING
The initial borrowings under the Facility will be subject to satisfaction of the
following conditions precedent.
(a) Borrower and Royal Robbins, Inc. shall execute and deliver to one
another a merger agreement that is satisfactory to Bank.
(b) The Bank shall have received certified copies of certificate of
incorporation, bylaws, resolutions and other corporate documentation
reasonably requested by the Bank and officer's certificates regarding
incumbency and solvency in form and substance reasonably satisfactory
to the Bank.
(c) There shall not have occurred a material adverse change since June 30,
2003, in the business, assets, liabilities, operations or financial
condition of the Borrower and there shall not have occurred a material
adverse change since August 30, 2003, in the business, assets,
liabilities, operations or financial condition Royal Robbins, Inc. or
in the facts and information regarding such entities as represented or
otherwise known to the Bank to date.
(d) In the case of the initial borrowings under the Facility, the Bank
shall have received reasonably satisfactory certificates from the
Chief Financial Officer of the Borrower as to the financial condition
and solvency of each of the Borrower and the Subsidiaries.
(e) The Bank shall have received reasonably satisfactory opinions of
counsel to the Borrower and the Subsidiaries (which shall cover, among
other things, authority, legality (including compliance with
Regulation U), validity, binding effect and enforceability of the
documents for the Facility) and such resolutions, certificates and
other documents as the Bank shall reasonably require.
(f) In the case of the initial borrowings under the Facility, evidence of
receipt of all governmental, shareholder and other, if any, consents
and approvals necessary in connection with the related financings and
other transactions contemplated hereby except where the failure to
obtain such consents or approvals would not, individually or in the
aggregate, have a material adverse effect on the business, assets,
liabilities, operations or financial condition of the Borrower and its
subsidiaries, taken as a whole.
(g) In the case of borrowings under the Facility, any suit, investigation
or proceeding pending in any court or before any arbitrator or
governmental authority that would reasonably be expected to have a
material adverse effect on its subsidiaries taken as a whole or on the
ability of the Borrower taken as a whole to perform their respective
obligations under the documents to be executed in connection with the
Facility.
(h) The Borrower shall have paid to the Bank all fees and expenses due and
payable at the closing of the Credit Faculties.
(i) A Bank field audit at Royal Robbins shall be performed prior to
closing, the results of which are to be satisfactory to the Bank in
its sole discretion. This field audit will establish the final
accounts receivable and inventory advance rates and inventory cap for
Royal Robbins.
Borrower acknowledges that not every ancillary provision imposing duties,
burdens, or limitations on Borrower and to be contained in the final
documentation customary for this type of transaction can be set forth in this
commitment.
EXHIBIT A: PRICING GRID
Revolver: The following pricing grid will be in effect for the revolving and
term Facilities:
Revolver Revolver Term Term Revolver
Prime Rate LIBOR Prime Rate LIBOR Unused
Total Debt*/EBITDA Advances Advances Advances Advances Fee
------------------ -------- -------- -------- -------- ---
Level I 3.0 < or equal to x P +. 375% 300 b.p. P +. 5 % 325 b.p. .25%
Level II 2.5 < or equal to x < or equal to 2.99 P + .25 250 b.p. P + .375 275 b.p. .25%
Level III 2.0 < or equal to x < or equal to 2.49 P 200 b.p. P 225 b.p. .125%
Level IV < 1.99 P 175 b.p. P 200 b.p. .125%
* Total debt based on 12 month avg. debt., and EBITDA will be based on trailing
12 month EBITDA
Interest Rate: During the initial 9 months (until 6/30/04) of the Facility,
the pricing will be set at the following:
Revolver - Libor plus 275 or Prime plus -1/4%. Term - Libor
plus 300 or Prime plus .375%.
After 6/30/04, the pricing will revert to the pricing grid
shown above.