1
NATIONSBANK, N.A.
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
NATIONSBANC MONTGOMERY SECURITIES LLC
NationsBank Corporate Center
100 North Tryon Street
Charlotte, North Carolina 28255
March 24, 1999
Vestar Capital Partners III, L.P.
245 Park Avenue
41st Floor
New York, New York
Attention: Mr.Jim Elrod
RE: Acquisition Financing
Dear Jim:
You have advised us that Vestar Capital Partners III, L.P. (together with its
affiliates, the "Sponsor") intends to form an acquisition company (the
"Acquisition Company") which will (i) acquire (the "Acquisition") outstanding
common stock of Sheridan Healthcare, Inc. (the "Target") pursuant to a tender
offer (the "Tender Offer"), (ii) following the consummation of the Tender Offer,
merge itself into the Target, with the Target being the surviving entity (the
"Merger") and (iii) contemporaneously with consummation of the Merger, refinance
all existing funded indebtedness of the Target (the "Refinancing"). The
Acquisition Company will be the wholly-owned subsidiary of a holding company
(the "Parent") formed by the Sponsor. You have advised us that the sum required
to consummate the Tender Offer, the Acquisition, the Merger and the Refinancing
(including payment of transaction fees and expenses in an amount not to exceed
$12.0 million) is approximately $165 million (before giving effect to any
acquisitions by the Target reasonably acceptable to us after the date hereof).
The Tender Offer, the Acquisition, the Merger, the Refinancing and the payment
of transaction fees and expenses in connection therewith are collectively
referred to herein as the "Transaction".
You have advised us that up to $33.2 million of a senior tender offer facility
will be required to finance the Tender Offer and that up to $125.0 million (of
which amount $75.0 million will be drawn at closing) in permanent senior debt
financing will be required in order to refinance the tender offer financing, to
close the Merger, to pay the cost and expenses related to the Tender Offer, the
Acquisition, the Merger and the Refinancing and provide for ongoing general
working capital and corporate purposes after completion of the Merger. Prior to
the Merger, the
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Vestar Capital Partners III, L.P.
March 24, 1999
Page 2
Acquisition Company will be the "Borrower" and, subsequent to the Merger, the
Target (into which the Acquisition Company shall have been merged) will be the
"Borrower." You have further advised us that that no external debt financing
other than the financing described herein and the $20.0 million junior
subordinated debt financing referred to in the term sheet attached hereto (the
"Junior Subordinated Debt") will be required in connection with the Transaction.
You have further advised us that in connection with the Transaction a common
equity investment in cash of no less than $60.1 million will be contributed by
the Sponsor to the Parent (and concurrently contributed by the Parent to the
Borrower) and no less than $3.0 million of common equity in cash will be further
contributed by certain members of the Target's existing management team. The
Sponsor may make a cash investment of $20.0 million in common or preferred stock
of the Borrower (or, at the option of the Sponsor, the Parent (in which case,
the proceeds of such contribution shall be concurrently contributed by the
Parent to the Borrower)) in lieu of providing the Junior Subordinated Debt.
You have also advised us that you intend to pursue a $90 million senior
subordinated financing (the "Senior Subordinated Debt") in conjunction with the
Permanent Facilities. We understand that, in the event that you consummate the
Senior Subordinated Debt financing concurrently with the closing of the
Permanent Facilities, the Junior Subordinated Debt or a $20 million equity
investment in lieu thereof will not be required to consummate the Transaction,
and you will only require, in addition to the Tender Offer Facility, a $50
million permanent senior secured revolving credit facility (of which $5 million
will be drawn at closing of the Permanent Facilities) to provide for ongoing
general corporate purposes after completion of the Transaction. The financing
arrangements described in this paragraph are referred to herein and in the Term
Sheet (as defined below) as the "Alternate Financing Structure."
In connection with the foregoing, NationsBank, N.A. ("NationsBank" or the
"Agent") is pleased to advise you of its commitment to provide the full
principal amount of the $33.2 million senior tender offer facility (the "Tender
Offer Facility") and the $125.0 million permanent senior secured credit
facilities (the "Permanent Facilities", and together with the Tender Offer
Facility, the "Credit Facilities") described in the term sheet attached hereto
as Annex I (the "Term Sheet"). NationsBanc Montgomery Securities LLC ("NMS") is
pleased to advise you of its commitment to act as Sole Lead Arranger and Sole
Book Manager for the Credit Facilities and to form a syndicate of financial
institutions (together with NationsBank, the "Lenders") reasonably acceptable to
you for the Credit Facilities. No additional agents, arrangers or book managers
will be appointed without the prior approval of NationsBank and NMS. All
capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Term Sheet.
The commitments of NationsBank and NMS hereunder are subject to the satisfaction
of each of the following conditions precedent in a manner acceptable to
NationsBank and NMS in their sole discretion:
(a) each of the terms and conditions set forth herein;
(b) each of the terms and conditions set forth in the Term Sheet;
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Vestar Capital Partners III, L.P.
March 24, 1999
Page 3
(c) the absence of a material breach of any representation or warranty of
the Sponsor set forth herein;
(d) execution of the fee letter dated the date hereof among the Sponsor,
NationsBank and NMS (the "Fee Letter") prior to or concurrently with
the acceptance by the Sponsor of this letter; and
(e) there not having occurred and being continuing since the date hereof a
material adverse change in the market for syndicated bank credit
facilities which NationsBank and NMS determine in their reasonable
discretion could have a material adverse effect on the syndication of
the Credit Facilities.
In addition to the forgoing conditions, the commitments of NationsBank and NMS
hereunder are subject to the requirement that the interest rates, maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions
and other terms of the Junior Subordinated Debt or the Senior Subordinated Debt
be reasonably satisfactory to the Agent.
Furthermore, the commitments of NationsBank and NMS hereunder are based upon the
financial and other information regarding the Target and its subsidiaries
previously provided to NationsBank and NMS and are subject to the conditions,
among others, that (i) NationsBank and NMS shall have completed, with results
reasonably satisfactory to them and their counsel, all legal and accounting due
diligence with respect to the Target and its subsidiaries and (ii) there shall
not have occurred after December 31, 1998 any material adverse change in the
business, assets, liabilities (actual or contingent), operations, condition
(financial or otherwise) or prospects of the Target and its subsidiaries taken
as a whole. If, after the date hereof, NationsBank and NMS become aware of
information with respect to the Target and its subsidiaries relating to
conditions or events not previously disclosed to NationsBank and NMS or relating
to new information or additional developments concerning conditions or events
previously disclosed to NationsBank and NMS and which has a material adverse
effect on the business, assets, liabilities (actual or contingent), operations,
condition (financial or otherwise) or prospects of the Target and its
subsidiaries taken as a whole, NationsBank and NMS may suggest alternative
financing amounts or structures that ensure adequate protection for the Lenders
or decline to participate in the proposed financing.
You agree to actively assist NationsBank and NMS in achieving a syndication of
the Credit Facilities that is satisfactory to NationsBank, NMS and you.
Syndication of the Credit Facilities will be accomplished by a variety of means,
including direct contact during the syndication between senior management and
advisors of the Sponsor and, to the extent reasonably practicable, the Target,
and the proposed Lenders. To assist NationsBank and NMS in the syndication
efforts, you hereby agree to (a) provide and cause your advisors to provide
NationsBank and NMS and the other Lenders upon request with all information
reasonably deemed necessary by NationsBank and NMS to complete syndication,
including but not limited to information and evaluations prepared by the Sponsor
and the Target and their advisors, or on
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Vestar Capital Partners III, L.P.
March 24, 1999
Page 4
their behalf, relating to the Transaction, (b) assist NationsBank and NMS upon
their reasonable request in the preparation of an Information Memorandum to be
used in connection with the syndication of the Credit Facilities and (c)
otherwise assist NationsBank and NMS in their syndication efforts, including by
making available officers and advisors of the Sponsor and, to the extent
reasonably practicable, the Target and its subsidiaries from time to time to
attend and make presentations regarding the business and prospects of the Target
and its subsidiaries, as appropriate, at a meeting or meetings of prospective
Lenders. You further agree to refrain from engaging in any additional financings
for the Transaction (except as described in this letter and except for the
Junior Subordinated Debt or a $20 million equity investment in lieu thereof or,
if the Alternate Financing Structure is implemented, the Senior Subordinated
Debt) during such syndication process unless otherwise agreed to by NationsBank
and NMS.
It is understood and agreed that NationsBank and NMS, after consultation with
you, will manage and control all aspects of the syndication, including decisions
as to the selection of proposed Lenders (which shall be reasonably acceptable to
you) and any titles offered to proposed Lenders, when commitments will be
accepted and the final allocations of the commitments among the Lenders. It is
understood that no Lender participating in the Credit Facilities will receive
compensation from you outside the terms contained herein, in the Term Sheet and
in the Fee Letter in order to obtain its commitment. It is also understood and
agreed that the amount and distribution of the fees among the Lenders will be at
the sole discretion of NationsBank and NMS.
You hereby represent, warrant and covenant that (i) to your knowledge, all
information, other than Projections (as defined below), which has been or is
hereafter made available to NationsBank and NMS or the Lenders by you or any of
your representatives in connection with the transactions contemplated hereby
("Information"), when taken as a whole, is and 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 necessary to make the
statements contained therein not materially misleading and (ii) all financial
projections and estimates concerning the Target and its subsidiaries that have
been or are hereafter made available to NationsBank and NMS or the Lenders by
you or any of your representatives (the "Projections") have been or will be
prepared in good faith based upon assumptions believed by you to be reasonable.
You agree to furnish us with such Information and Projections as we may
reasonably request and to supplement the Information and the Projections from
time to time until closing of the Permanent Facilities so that the
representation and warranty in the preceding sentence is correct on the such
date. In arranging and syndicating the Credit Facilities, NationsBank and NMS
will be using and relying on the Information and the Projections without
independent verification thereof.
By executing this letter agreement, you agree to reimburse NationsBank and NMS
at closing of the Permanent Facilities (or, if the Permanent Facilities are not
closed, on the date that the commitment of NationsBank to provide the Permanent
Facilities expires in accordance with the terms of this letter agreement) for
all reasonable out-of-pocket fees and expenses (including, but not limited to,
the reasonable fees, disbursements and other charges of Moore & Van Allen,
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Vestar Capital Partners III, L.P.
March 24, 1999
Page 5
PLLC, as counsel to NationsBank) incurred in connection with this letter and the
preparation of the definitive documentation for the Credit Facilities and the
other transactions contemplated hereby.
In the event that NationsBank or NMS becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter contemplated
by this letter, the Sponsor will reimburse NationsBank and NMS for their
reasonable legal and other expenses (including the cost of any investigation and
preparation) as they are incurred by NationsBank or NMS. The Sponsor also agrees
to indemnify and hold harmless NationsBank, NMS and their affiliates and their
respective directors, officers, employees and agents (the "Indemnified Parties")
from and against any and all losses, claims, damages and liabilities, joint or
several, related to or arising out of any matters contemplated by this letter,
to the extent that such losses, claims, damages or liabilities do not result
from the gross negligence or willful misconduct of any Indemnified Party.
The provisions of the immediately preceding two paragraphs shall remain in full
force and effect notwithstanding the termination of this letter agreement or the
commitment of NationsBank and NMS hereunder; provided, that they shall terminate
upon execution and delivery of definitive financing documentation for the Credit
Facilities.
As described herein and in the Term Sheet, NMS will act as Sole Lead Arranger
and Sole Book Manager for the Credit Facilities. NationsBank reserves the right
to allocate, in whole or in part, to NMS certain fees payable to NationsBank in
such manner as NationsBank and NMS agree in their sole discretion. You
acknowledge and agree that NationsBank may share with any of its affiliates
(including specifically NMS) any information relating to the Credit Facilities,
the Target, the Sponsor and their subsidiaries and affiliates solely for
purposes of performing NationsBank's and NMS's obligations hereunder.
This letter agreement may not be assigned by the Sponsor without the prior
written consent of NationsBank and NMS.
If you are in agreement with the foregoing, please execute and return the
enclosed copy of this letter agreement no later than the close of business on
March 26, 1999. This letter agreement will become effective upon your delivery
to us of executed counterparts of this letter agreement and the Fee Letter. This
commitment shall terminate if not so accepted by you prior to that time.
Following acceptance by you, this commitment will terminate (i) on May 31, 1999,
unless the Tender Offer Facility is closed by such time, and (ii) if the Tender
Offer Facility is closed in a timely manner, then on August 31, 1999, unless the
Permanent Facilities are closed by such time
Except as required by applicable law or court order, this letter and the Fee
Letter and the contents hereof and thereof shall not be disclosed by you to any
third party (with the exception of the Target and its advisors) without the
prior consent of NationsBank and NMS, other than to your attorneys, financial
advisors and accountants, in each case to the extent necessary in your
reasonable judgment.
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Vestar Capital Partners III, L.P.
March 24, 1999
Page 6
This letter may be executed in counterparts which, taken together, shall
constitute an original. This letter, together with the Term Sheet and the Fee
Letter, embodies the entire agreement and understanding among NationsBank, NMS
and the Sponsor with respect to the specific matters set forth herein and
supersedes all prior agreements and understandings relating to the subject
matter hereof. No party has been authorized by NationsBank or NMS to make any
oral or written statements inconsistent with this letter.
Notwithstanding any provision to the contrary contained in this letter or the
Fee Letter, the Sponsor shall be deemed released of its obligations under this
letter upon the execution of definitive financing documentation for the Credit
Facilities.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
Very truly yours,
NATIONSBANK, N.A.
By: /s/ Elton Vogel
-----------------------------------
Title: Managing Director
NATIONSBANC MONTGOMERY SECURITIES LLC
By: /s/ Elton Vogel
-----------------------------------
Title: Managing Director
ACCEPTED AND AGREED TO:
VESTAR CAPITAL PARTNERS III, L.P.
By: VESTAR ASSOCIATES III, L.P.,
its General Partner
By: VESTAR ASSOCIATES CORPORATION III,
its General Partner
By: /s/ James Elrod, Jr.
Title:
Date:
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ANNEX I
SHERIDAN HEALTHCARE, INC.
SUMMARY OF TERMS & CONDITIONS
March 24, 1999
Unless otherwise defined herein, capitalized terms shall have the definitions
assigned to them in the Commitment Letter dated of even date herewith to which
this Summary of Terms & Conditions is attached.
==============================================================================
BORROWER: A newly formed company (the "Acquisition
Company") which will acquire (the
"Acquisition") outstanding stock of Sheridan
Healthcare, Inc. (the "Target") pursuant to
a tender offer (the "Tender Offer").
Subsequent to the Acquisition, the
Acquisition Company will be merged with and
into the Target, with the Target being the
surviving entity (the "Merger") and all then
existing funded indebtedness of the Target
shall be refinanced (the "Refinancing").
Prior to the Merger, the Acquisition Company
will be the Borrower and, subsequent to the
Merger, the Target (into which the
Acquisition Company shall have been merged)
will be the Borrower. The Acquisition
Company shall be a subsidiary of a newly
formed holding company (the "Parent").
GUARANTORS: Tender Offer Facility: The Tender Offer
Facility (hereinafter defined) shall be
guaranteed by the Parent.
Permanent Facilities: The Permanent
Facilities (hereinafter defined) shall be
guaranteed by the Parent. and all existing
and hereafter acquired direct and indirect
domestic subsidiaries of the Borrower upon
consummation of the Merger.
All guarantees shall be guarantees of
payment and not of collection.
AGENT: NationsBank, N.A. (the "Agent" or
"NationsBank") will act as sole and
exclusive administrative and collateral
agent. As such, NationsBank will negotiate
with the Borrower, act as the primary
contact for the Borrower and perform all
other duties associated with the role of
exclusive administrative agent. No other
agents or co-agents may be appointed without
the prior written consent of NationsBank and
NMS.
SOLE LEAD ARRANGER &
SOLE BOOK MANAGER: NationsBanc Montgomery Securities LLC
("NMS").
LENDERS: A syndicate of financial institutions
(including NationsBank) arranged by NMS,
which institutions shall be acceptable to
the Borrower and the Agent (collectively,
the "Lenders").
CREDIT FACILITIES: Tender Offer Facility
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An aggregate principal amount of up to $33.2
million of a senior tender offer facility
(the "Tender Offer Facility") to finance all
costs and expenses associated with the
purchase by the Acquisition Company of all
of the tendered stock and options of the
Target up to a tender price of $9.25 per
share.
Permanent Facilities An aggregate principal amount of up to $125
million of permanent senior secured credit
facilities (the "Permanent Facilities", and
together with the Tender Offer Facility, the
"Credit Facilities") will be available upon
consummation of the Merger under the
conditions hereinafter set forth and shall
consist of:
Revolving Credit Facility: A $50 million
revolving credit facility, which will
include a sublimit for the issuance of
standby and commercial letters of credit
(each a "Letter of Credit") and a sublimit
for the making of swingline loans (each a
"Swingline Loans"). Letters of Credit will
be issued by NationsBank (in such capacity,
the "Fronting Bank"), and each Lender will
purchase an irrevocable and unconditional
participation in each Letter of Credit.
Swingline Loans will be made by NationsBank,
and each Lender will purchase an irrevocable
and unconditional participation in each
Swingline Loan.
Term Loan Facility: $75 million term loan
facility. The Term Loan Facility will not be
available if the Alternate Financing
Structure is implemented.
PURPOSE: Tender Offer Facility: The proceeds of the
Tender Offer Facility shall be used to
finance the acquisition of tendered shares
of the Target ("Shares") upon the completion
of the Tender Offer.
Permanent Facilities: The proceeds of the
Permanent Facilities shall be used (i) to
refinance the Tender Offer Facility, (ii) to
finance a portion of the Merger and the
Refinancing, (iii) to pay fees and expenses
incurred in connection with the Tender
Offer, the Acquisition, the Merger and the
Refinancing in an amount (together with the
fees and expenses paid with proceeds of the
Tender Offer Facility) not to exceed $12
million and (iv) to provide for ongoing
working capital and general corporate
purposes of the Borrower and its
subsidiaries, including, without limitation,
permitted acquisitions; provided that, if
the Alternate Financing Structure is
implemented, proceeds of the Permanent
Facilities may be used to finance permitted
acquisitions only during the first three
years of the Permanent Facilities.
INTEREST RATES: Advances outstanding under the Credit
Facilities shall bear interest as set forth
on Addendum I hereto.
MATURITY: Tender Offer Facility: The Tender Offer
Facility shall terminate and all amounts
outstanding thereunder shall be due and
payable in full on the earlier to occur of
the closing of the Merger or on August 31,
1999.
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Permanent Facilities: The Revolving Credit
Facility shall terminate and all amounts
outstanding thereunder shall be due and
payable in full 5 years from closing of the
Permanent Facilities. If the Alternate
Financing Structure is implemented, (i) the
Revolving Credit Facility shall be
permanently reduced 36 months from closing
of the Permanent Facilities by an amount
equal to all outstanding borrowings (but not
the undrawn amount of Letters of Credit)
thereunder at such time and (ii) all
outstanding advances (but not the undrawn
amount of Letters of Credit) under the
Revolving Credit Facility made during the
first 36-month period following closing of
the Permanent Facilities shall be subject to
repayment according to the Scheduled
Amortization.
The Term Loan Facility shall be subject to
repayment according to the Scheduled
Amortization, with the final payment of all
amounts outstanding, plus accrued interest,
being due 6 years from closing of the
Permanent Facilities.
AVAILABILITY: Tender Offer Facility: Loans made under the
Tender Offer Facility shall be available in
a single borrowing upon the completion of
the Tender Offer.
Permanent Facilities: Loans under the
Revolving Credit Facility may be made, and
Letters of Credit may be issued, subject to
availability under the aggregate committed
amount for the Revolving Credit Facility.
Loans made under the Term Loan Facility will
be available in a single borrowing at
closing of the Permanent Facilities;
provided, that the Term Loan Facility will
not be available if the Alternate Financing
Structure is implemented.
SCHEDULED
AMORTIZATION: Revolving Credit Facility: If the Alternate
Financing Structure is implemented, all
advances under the Revolving Credit Facility
made during the first 36-month period
following closing of the Permanent
Facilities will be subject to quarterly
amortization of principal commencing in the
fourth year from closing of the Permanent
Facilities in amount equal to 5% of the
aggregate amount all outstanding borrowings
(but not the undrawn amount of Letters of
Credit) under the Revolving Credit Facility
at the end of such 36-month period, with the
balance payable at maturity (with respect to
the Revolving Credit Facility, the
"Scheduled Amortization").
Term Loan Facility: The Term Loan Facility
will be subject to quarterly amortization of
principal in amounts to be determined (with
respect to the Term Loan Facility, the
"Scheduled Amortization").
SECURITY: Tender Offer Facility: Concurrently with
consummation of the Acquisition, the Agent
(on behalf of the Lenders) shall receive a
first priority perfected security interest
in all of the Shares purchased in connection
with the Tender Offer.
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Permanent Facilities: Concurrently with
consummation of the Merger, the Agent (on
behalf of the Lenders) shall receive a first
priority perfected security interest in (i)
100% of the issued and outstanding capital
stock of the Borrower, (ii) 100% of the
issued and outstanding capital stock of each
of the direct and indirect domestic
subsidiaries of the Borrower, (iii) 65% of
the issued and outstanding voting capital
stock (or such greater percentage which
would not result in material adverse tax
consequences) and 100% of the issued and
outstanding non-voting capital stock of each
direct foreign subsidiary of the Borrower or
any of its domestic subsidiaries and (iv)
substantially all other present and future
assets and properties of the Borrower and
the Guarantors (including, without
limitation, accounts receivable, inventory,
real property, machinery, equipment,
contracts, trademarks, copyrights, patents,
license agreements, and general intangibles,
but excluding certain non-material real
property to be determined), subject to
permitted liens and, in the case of leases
of real property, license agreements and
other like arrangements requiring the
consent of third parties thereto, subject to
and only to the extent that any such
consents required from such third parties
are actually obtained.
The foregoing collateral (collectively, the
"Collateral") shall ratably secure the
Credit Facilities and any interest rate
swap/foreign currency swap or similar
agreements with a Lender (or an affiliate of
a Lender) under the Credit Facilities.
MANDATORY
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: If at any time, the outstanding principal
amount of loans under the Tender Offer
Facility exceeds 50% of the value of the
Shares pledged to secure such loans, the
Borrower immediately shall prepay the Tender
Offer Facility in an amount sufficient to
eliminate such excess.
The Permanent Facilities will be prepaid by
an amount equal to (a) 100% of the net cash
proceeds of all non-ordinary course asset
sales by the Parent, the Borrower or any
subsidiary (including stock of
subsidiaries), subject to baskets and
reinvestment provisions to be agreed upon;
(b) if the Alternate Financing Structure is
implemented, 50% of Excess Cash Flow (to be
defined) pursuant to a cash sweep
arrangement commencing after the third
anniversary of closing of the Permanent
Facilities; (c) 100% of the net cash
proceeds from the issuance of any funded
debt for borrowed money by the Parent, the
Borrower or any subsidiary (other than
certain permitted funded debt for borrowed
money) and (d) 100% of the net cash proceeds
from the issuance of equity (other than
sponsor equity) by the Parent, the Borrower
or any subsidiary. If the Alternate
Financing Structure is not implemented,
prepayments shall be applied to reduce the
Term Loan Facility, pro rata with respect to
each remaining installment of principal;
provided, however, that with respect to
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clause (a) above, any prepayment shall be
applied to reduce ratably the Term Loan and
the commitments under the Revolving Credit
Facility. If the Alternate Financing
Structure is implemented, (i) no prepayments
shall be required under clauses (b), (c) and
(d) above prior to the third anniversary of
closing of the Permanent Facilities and (ii)
any prepayment shall be applied to reduce
the commitments under the Revolving Credit
Facility.
OPTIONAL
PREPAYMENTS
AND COMMITMENT
REDUCTIONS: The Credit Facilities may be prepaid (and
commitments thereunder may be permanently
reduced) voluntarily in whole or in part at
any time without penalty, subject to
reimbursement of the Lenders' breakage and
redeployment costs in the case of prepayment
of LIBOR borrowings.
CONDITIONS
PRECEDENT
TO CLOSING: The initial borrowings under the Credit
Facilities will be subject to satisfaction
of the following conditions precedent:
(i) The negotiation, execution and delivery of
definitive documentation with respect to the
Credit Facilities satisfactory to NMS and
the Agent.
(ii) In the case of the initial borrowings under
the Tender Offer Facility, the Agent's
satisfactory review of (a) the offer to
purchase the Shares and the related
documentation entered into in connection
with the Tender Offer and (b) the merger
agreement (including all schedules and
exhibits thereto) regarding the Transaction
(the "Merger Agreement") which shall provide
for aggregate costs of the Transaction
(including all fees and expenses (in an
amount not to exceed $12 million) and the
repayment in full of all funded debt of the
Target and its subsidiaries immediately
prior to the Merger) not in excess of $165
million (before giving effect to any
acquisitions by the Target reasonably
acceptable to the Agent after the date
hereof).
(iii) In the case of the initial borrowings under
the Tender Offer Facility, the Agent's
satisfaction that (a) the Tender Offer shall
have been consummated upon satisfaction of
any material conditions specified therein
and at least a majority of the voting power
(on a fully diluted basis), on the date of
purchase, of all securities of the Target
entitled to vote generally in the election
of directors or in a merger shall have been
purchased in connection with the Tender
Offer (or shall be purchased with such
initial borrowings under the Tender Offer
Facility), and (b) no more than $9.25 shall
have been paid for any
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Share and the purchase price for 100% of the
Shares (on a fully diluted basis) in
connection with the Merger will not exceed
$66.3 million.
(iv) In the case of the initial borrowings under
the Permanent Facilities, the Merger and the
Refinancing (a) shall have been consummated
in all material respects in accordance with
the terms of the Merger Agreement and in
compliance with applicable law and
regulatory approvals, and all conditions
precedent to the obligations of the buyer
thereunder shall have been satisfied and (b)
the Merger Agreement shall not have been
altered, amended or otherwise changed or
supplemented in any material respect or any
material condition therein waived, without
the prior written consent of the Agent.
(v) The corporate capital and ownership
structure (including articles and by-laws),
equityholder agreements and management of
the Parent, the Borrower, the Target and
their respective subsidiaries (after giving
effect to the Acquisition and Merger),
including without limitation employment
contracts, equity ownership interests and
key man life insurance with key executives,
shall be reasonably satisfactory to the
Agent. Without limiting the generality of
the above, the Agent shall be satisfied that
the Borrower shall have received (a) in the
case of the initial borrowings under the
Tender Offer Facility, a cash capital
contribution to the Parent (which shall be
concurrently contributed by the Parent to
the Borrower) from the Sponsor and existing
management of an amount equal to the sum of
(1) 50% of the value of the Shares purchased
pursuant to the Tender Offer plus (2) all
expenses incurred in connection with the
Tender Offer and (b) in the case of the
initial borrowings under the Permanent
Facilities, (1) a cash capital contribution
to the Parent (which shall be concurrently
contributed by the Parent to the Borrower)
from the Sponsor and existing management of,
together with the cash capital contribution
referred to in the immediately clause (a),
approximately $63.1 million in common equity
(at least $60.1 million of which shall be
contributed by the Sponsor) and (2) unless
the Alternate Financing Structure is to be
implemented, at least $20 million from the
issuance by the Borrower (or, at the option
of the Sponsor, the Parent) to the Sponsor
of the Junior Subordinated Debt or common or
preferred equity in the Borrower (or, at the
option of the Sponsor, the Parent), in
either case under terms satisfactory to the
Agent in its reasonable discretion (it being
understood that if such Junior Subordinated
Debt or common or preferred equity is issued
by the Parent, the proceeds thereof shall be
concurrently contributed by the Parent to
the
13
Borrower). If the Alternate Financing
Structure is implemented, the terms of the
Senior Subordinated Debt shall be
satisfactory to the Agent in its reasonable
discretion.
(vi) The Agent shall have received and, in each
case, be reasonably satisfied with (a)
interim monthly financial statements for
each fiscal month of the Target after
December 31, 1998, (b) in the case of the
initial borrowings under the Permanent
Facilities, a pro forma consolidated balance
sheet of the Borrower as of closing of the
Permanent Facilities giving effect to the
Merger and the financings and other
transactions contemplated hereby and
reflecting estimated purchase accounting
adjustments, prepared by independent public
accountants of recognized national standing,
and (c) such other information relating to
the Target and its subsidiaries or the
Transaction as the Agent may reasonably
require.
(vii) There shall not have occurred a material
adverse change since December 31, 1998 in
the business, assets, liabilities (actual or
contingent), operations, condition
(financial or otherwise) or prospects of the
Borrower and its subsidiaries or in the
facts and information regarding such
entities as represented to date.
(viii) In the case of the initial borrowings under
the Permanent Facilities, the Agent shall
have received a satisfactory certificate
from the chief financial officer of the
Borrower as to the financial condition and
solvency of each of the Borrower and the
Guarantors (after giving effect to the
Acquisition and Merger and the incurrence of
indebtedness related thereto).
(ix) The Agent shall have received (a)
satisfactory opinions of counsel to the
Borrower and the Guarantors (which shall
cover, among other things, authority,
legality, validity, binding effect and
enforceability of the documents for the
Credit Facilities) and such resolutions,
certificates and other documents as the
Agent shall reasonably require and (b)
satisfactory evidence that, upon completion
of the Merger, the Agent (on behalf of the
Lenders) holds or will hold a perfected,
first priority lien in all collateral for
the Credit Facilities, subject to no other
liens except for permitted liens to be
determined.
(x) (a) In the case of borrowing under the
Tender Offer Facility, receipt of all
governmental, equityholder and third party
consents (including Hart-Scott-Rodino
clearance and the consent, if necessary, of
any existing lenders and/or bondholders of
the Target to the extent that indebtedness
owing to such lenders and/or bondholders is
to remain in place after the Tender Offer)
and approvals necessary in connection with
the Tender Offer and the related financings
and other transactions contemplated hereby
and expiration of all applicable waiting
periods
14
without any action being taken by any
authority that could restrain, prevent or
impose any material adverse conditions on
the Acquisition Company, the Target and its
subsidiaries taken as a whole, the Tender
Offer or such related financings or other
such transactions or that could seek or
threaten any of the foregoing, and no law or
regulation shall be applicable which in the
reasonable judgment of the Agent could have
such effect and (b) in the case of the
initial borrowings under the Permanent
Facilities, receipt of all material
governmental, shareholder and third party
consents and approvals necessary or, in the
reasonable discretion of the Agent,
desirable in connection with the
consummation of the Merger and the related
financings and other transactions
contemplated hereby and expiration of all
applicable waiting periods without any
action being taken by any authority that
could restrain, prevent or impose any
material adverse conditions on the Borrower
and its subsidiaries taken as a whole, the
Merger or such related financings or other
transactions, and no law or regulation shall
be applicable which in the reasonable
judgment of the Agent could have such
effect.
(xi) The absence of any action, suit,
investigation or proceeding pending in any
court or before any arbitrator or
governmental authority that could reasonably
be expected to have a material adverse
effect on the financial condition of the
Borrower and its subsidiaries taken as a
whole or any transaction contemplated hereby
or on the ability of the Borrower and the
Guarantors taken as a whole to perform their
respective obligations under the documents
to be executed in connection with the Credit
Facilities.
(xii) The Target and its subsidiaries shall be in
compliance with all existing material
financial obligations (after giving effect
to the Acquisition and Merger).
(xiii) In the case of the initial borrowings under
the Permanent Facilities, the Agent shall be
reasonably satisfied that the amount of
committed financing available to the
Borrower shall be sufficient to meet the
ongoing financing needs of the Borrower and
its subsidiaries after giving effect to the
Transaction and, immediately after giving
effect to the Acquisition and the Merger and
the related borrowings under the Revolving
Credit Facility, availability under the
Revolving Credit Facility shall be no less
than (a) if the Alternate Financing
Structure is not implemented, $50 million or
(b) if the Alternate Financing Structure is
implemented, $45 million.
(xiv) The Borrower shall have paid to the Lenders
and the Agent all fees and expenses due and
payable at closing of the Permanent
Facilities.
15
REPRESENTATIONS &
WARRANTIES: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
appropriate materiality and reasonableness
limitations), to include without limitation:
(i) corporate status; (ii) corporate power
and authority/enforceability; (iii) no
violation of law or contracts or
organizational documents; (iv) no material
litigation; (v) correctness of specified
financial statements and no material adverse
change since December 31, 1998; (vi) no
required governmental or third party
approvals; (vii) use of proceeds/compliance
with margin regulations; (viii) status under
Investment Company Act; (ix) ERISA; (x)
environmental matters; (xi) perfected liens
and security interests; (xii) payment of
taxes, (xiii) consummation of the
Transaction and (xiv) Year 2000 assurances.
COVENANTS: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
materiality limitations, baskets and
carve-outs to be negotiated), to include
without limitation: (i) delivery of
financial statements and other reports; (ii)
delivery of compliance certificates: (iii)
delivery of notices of default, material
litigation and material governmental and
environmental proceedings; (iv) compliance
with laws; (v) payment of taxes; (vi)
maintenance of insurance; (vii) limitation
on liens and negative pledges; (viii)
limitations on mergers, consolidations and
sales of assets; (ix) limitations on
incurrence of debt (specifically excluding
the Junior Subordinated Debt, if any (and
subordinated guarantees thereof by the
Guarantors), and, if the Alternate Financing
Structure is implemented, the Senior
Subordinated Debt (and subordinated
guarantees thereof by the Guarantors),
whether entered into at closing of the
Permanent Facilities or thereafter); (x)
limitations on cash dividends and stock
redemptions and the redemption and/or
prepayment of other debt; (xi) limitations
on investments and acquisitions (including
the satisfaction of the incurrence covenants
set forth below); (xii) ERISA; (xiii)
limitation on transactions with affiliates
(specifically excluding sponsor fees in
amounts to be determined); (xiv) limitation
on capital expenditures; and (xv) upon
completion of the Merger, delivery of
collateral documentation and opinions as to
the perfected security interest of the Agent
in the Collateral.
Financial covenants under the Permanent
Facilities to include (but not limited to):
(i) if the Alternate Financing Structure is
not implemented:
o Maintenance on a rolling four quarter
basis of a Maximum Senior Leverage Ratio
(total funded senior debt/EBITDA)
16
not to exceed 4.0 to 1.0 with step-downs
to be determined beginning on the third
anniversary of closing of the Permanent
Facilities,
o Maintenance on a rolling four quarter
basis of a Minimum Fixed Charge Coverage
Ratio (EBITDA less capital expenditures
less cash taxes)/(interest expense +
scheduled principal repayments) with
step-ups to be determined beginning on
the third anniversary of closing of the
Permanent Facilities, and
o Maintenance on a rolling four quarter
basis of a Minimum Interest Coverage
Ratio (EBITDA/interest expense) with
step-ups to be determined beginning on
the third anniversary of closing of the
Permanent Facilities.
(ii) if the Alternate Financing Structure is
implemented:
o Maintenance on a rolling four quarter
basis of a Maximum Senior Leverage Ratio
not to exceed 3.5 to 1.0 with step-downs
to be determined beginning on the third
anniversary of closing of the Permanent
Facilities,
o Maintenance on a rolling four quarter
basis of a Maximum Total Leverage Ratio
(total funded debt/EBITDA) not to exceed
5.0 to 1.0 with step-downs to be
determined beginning on the third
anniversary of closing of the Permanent
Facilities, and
o Maintenance on a rolling four quarter
basis of a Minimum Interest Coverage
Ratio with step-ups to be determined
beginning on the third anniversary of
closing of the Permanent Facilities.
Incurrence covenants for permitted
acquisitions under the Permanent Facilities
(calculated on a pro forma basis giving
effect to such acquisition) to include (but
not limited to):
(i) if the Alternate Financing Structure is
not implemented:
o Maximum Senior Leverage Ratio not to
exceed 3.5 to 1.0, and
o Minimum Interest Coverage Ratio to be
determined.
(ii) if the Alternate Financing Structure is
implemented:
o Maximum Senior Leverage Ratio not to
exceed 3.0 to 1.0, and
o Maximum Total Leverage Ratio not to
exceed 4.5 to 1.0.
The Parent shall have agreed that it will
not engage in any business, activity or
operation other than owning and holding the
capital stock of the Borrower,
17
guaranteeing the Credit Facilities and
pledging its assets (including the capital
stock of the Borrower) as security therefor,
and activities directly related thereto. The
Parent shall not be permitted to merge with
or into any other person.
EVENTS OF DEFAULT: Tender Offer Facility: Usual and customary
for senior tender offer facilities of this
type.
Permanent Facilities: Usual and customary
for permanent senior secured credit
facilities of this type (subject to
materiality and grace periods to be
negotiated), and to include, without
limitation, (i) nonpayment of principal,
interest, fees or other amounts, (ii)
violation of covenants, (iii) material
inaccuracy of representations and
warranties, (iii) cross-default to other
material agreements and indebtedness, (iv)
bankruptcy or insolvency, (v) material
judgments, (vi) ERISA, (vii) actual or
asserted invalidity of any loan documents or
security interests, or (viii) Change in
Control.
ASSIGNMENTS/
PARTICIPATIONS: Each Lender will be permitted to make
assignments in minimum amounts of $5 million
to other financial institutions approved by
the Borrower and the Agent, which approval
shall not be unreasonably withheld. Lenders
will be permitted to sell participations
with voting rights limited to significant
matters such as changes in amount, reduction
in rate and extension of maturity date. An
assignment fee of $3,500 is payable by the
Lender to the Agent upon any such assignment
occurring (including, but not limited to an
assignment by a Lender to another Lender).
WAIVERS & AMENDMENTS: Amendments and waivers
of the provisions of the loan agreement and
other definitive credit documentation will
require the approval of Lenders holding
loans and commitments representing more than
50% of the aggregate amount of loans and
commitments under the Credit Facilities,
except that the consent of all the Lenders
affected thereby shall be required with
respect to (i) increases in commitment
amounts, (ii) reductions of principal,
interest, or fees, (iii) extensions of final
maturities, (iv) releases of all or
substantially all collateral and (v)
releases of all or substantially all
guarantors.
INDEMNIFICATION: In the definitive documentation for the
Credit Facilities, the Borrower shall
indemnify the Lenders from and against all
losses, liabilities, claims, damages or
expenses relating to their loans, the
Borrower's use of loan proceeds or the
commitments, including but not limited to
reasonable attorneys' fees and settlement
costs, but only to the extent that such
losses, liabilities, claims, damages or
expenses do not result primarily from the
gross negligence or willful misconduct of
the indemnified party.
CLOSING: With respect to the Tender Offer Facility,
on or before May 31, 1999, and with respect
to the Permanent Facilities, on or before
August 31, 1999.
18
GOVERNING LAW: New York.
FEES/EXPENSES: As outlined in ADDENDUM I.
OTHER: This term sheet is intended as an outline
only and does not purport to summarize all
the conditions, covenants, representations,
warranties and other provisions which would
be contained in definitive legal
documentation for the Credit Facilities
contemplated hereby. Each of the Borrower,
the Guarantors, the Agent and the Lenders
shall waive its right to a trial by jury.