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EXHIBIT 99.(a)(8)
September 8, 1998
Mr. Frank Krasovec, President
FPK, LLC
c/o Norwood Promotional Products, Inc.
106 E. Sixth Street, Suite 300
Auston, TX 78701
Dear Frank:
Liberty Capital Partners, Inc. ("Liberty") proposes to make $60 MILLION of
financing available to a new corporation,"FPK, LLC", formed by the senior
management (the "Management") of Norwood Promotional Products, Inc. (the
"Company") for the purpose of acquiring the Company pursuant to the terms and
conditions set forth in the Merger Agreement dated March 15, 1998 between the
Company and FPK, LLC. The financing proposed herein (the "Proposed Transaction")
will consist of $37 million of senior subordinated debt (the "Subordinated
Debt"), $20 million of preferred stock (the "Preferred Stock"), and $3 million
of common stock (the "Common Stock"). The anticipated sources and uses of funds
required to consummate the Proposed Transaction, as well as the equity ownership
of the Company after closing, is set forth in Exhibit A attached hereto. This
letter sets forth the basic terms and conditions of our proposal.
1) Subordinated Debt. Liberty will provide $37 MILLION of the financing in
the form of the Subordinated Debt. The Subordinated Debt will (i)
accrue interest at a rate of 12.5% per annum, payable quarterly, (ii)
be pre-payable at any time without the payment of any premium or
penalty, (iii) be issued with detachable warrants (the "Subordinated
Debt Warrants"), exercisable for $.01/share, for 20% of the common
equity of the Company on a fully diluted basis; provided that if the
Subordinated Debt is repaid in full prior to the third anniversary of
the closing date of the Proposed Transaction (the "Closing Date"), 50%
of the Subordinated Debt Warrants shall be canceled without
consideration. Scheduled principal payments on the Subordinated Debt
shall commence after the tenth anniversary of the Closing Date, or upon
the first quarter after the Senior Term Debt has been repaid in full.
Liberty will receive a fee on the Closing Date equal to 3% of the face
amount of the Subordinated Debt ($1,110,000).
2) Preferred Stock. Liberty will provide $20 MILLION of financing in the
form of the Preferred Stock. The Preferred Stock will (i) accrue a
dividend at a rate of 10% per
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Mr. Frank Krasovec, President
FPK, LLC
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annum, compounded quarterly (the "Dividend Rate"), from and after the
Closing Date to the date of redemption, (ii) be redeemable at any time
without the payment of any premium or penalty, (iii) be manditorily
redeemable on the earlier of (a) the tenth anniversary of the Closing
Date, (b) a change in control, or (c) a default of the terms of the
Preferred Stock, and (iv) be issued with detachable warrants (the
"Preferred Stock Warrants"), exercisable for $.01/share, for 15% of the
common equity of the Company on a fully diluted basis. The Company may
pay the accrued dividend on the Preferred Stock currently or may elect
to allow such dividend to be payment-in-kind until the fifth
anniversary of the Closing Date. Any dividends not paid currently shall
accrue dividends thereon at the Dividend Rate. The Company may elect to
convert the Preferred Stock into subordinated debt with substantially
the same terms and conditions of the Preferred Stock.
3) Common Stock. Liberty will provide $3 MILLION of financing in the form
of the Common Stock. The Common Stock shall be purchased on the same
terms and conditions as retained by the Management, including the
execution of a shareholders' agreement which shall be mutually
agreeable between the parties hereto.
4) Warrants for Common Stock. Each of the Subordinated Debt Warrants and
the Preferred Stock Warrants (collectively, the "Warrants") will
entitle the holder to purchase one share of common stock of the Company
at a price of $.01 per share, subject to adjustment pursuant to
customary anti-dilution provisions, and will expire on the tenth
anniversary of the Closing Date.
5) Conditions to Proposed Transaction. The Proposed Transaction will be
subject to the negotiation, execution and delivery of definitive
agreements effectuating the terms of the transactions described herein
in form and substance reasonably satisfactory to Liberty, the Company
and FPK, LLC (the "Definitive Agreements"). Liberty' obligations under
the Definitive Agreements will be conditioned upon customary closing
conditions, including: (i) satisfactory completion of Liberty'
business, accounting, and legal due diligence review of the Company;
(ii) retention of management on terms and conditions reasonably
satisfactory to Liberty; and (iii) absence of a material adverse change
in the business, assets, condition (financial or otherwise), of the
Company.
6) Board Composition. Liberty shall be entitled to have two persons
nominated and elected to the board of the Company and each of its
subsidiaries (the "Board"). Each such member shall be paid customary
board fees.
7) Registration Rights. Liberty shall have two long form demand
registration rights plus an unlimited number of piggyback registration
rights (subject to customary limitations for underwriting, disclosure
and offering reasons) with regard to all common stock and common stock
equivalents.
8) Expenses. FPK, LLC shall pay or reimburse Liberty for all reasonable
out-of-pocket expenses incurred in connection with the Proposed
Transaction, whether or not the Proposed Transaction is consummated.
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Mr. Frank Krasovec, President
FPK, LLC
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9) Access. FPK, LLC shall cause the Company to provide Liberty's
accounting, legal, and other representatives access at reasonable times
to the Company's and its subsidiaries' personnel familiar with the
business of the Company and its subsidiaries and to all items related
to the Company's and its subsidiaries' assets, personnel and affairs
which are reasonably necessary to perform additional due diligence.
10) Confidentiality. Without Liberty' prior written consent, none of FPK,
LLC, Frank Krasovec or the Company shall (whether directly or through
any employees, agents, representatives and advisors) disclose to any
person (other than any regulatory or supervisory authority or as
otherwise required by law) either the fact that discussions or
negotiations are taking place concerning the Proposed Transaction, or
any terms, conditions or other facts with respect to the Proposed
Transaction, including the timing or status thereof. All press releases
and other public announcements prior to the Closing Date relating to
the Proposed Transaction will be prepared jointly by Liberty, the
Management and the Company. The term "person" as used in this agreement
shall be broadly interpreted to include, without limitation, any
corporation, partnership, or individual (but excluding any regulatory
or supervisory authority).
11) Indemnification. FPK, LLC agrees to indemnify and hold harmless Liberty
and its affiliates and their respective directors, officers, employees
and agents (the "Indemnified Parties") from and against any and all
losses, claims, charges and liabilities, joint or several, related to
or arising out of any matters contemplated by this letter (including
any arising out of the negligence of any Indemnified Party), unless and
only to the extent that it shall be finally judicially determined that
such losses, claims, damages or liabilities resulted primarily from the
gross negligence or willful misconduct of such Indemnified Party. If
Liberty becomes involved in any capacity in any action, suit proceeding
or investigation in connection with any matter contemplated by this
letter, FPK, LLC shall reimburse Liberty for its reasonable legal and
other expenses (including the cost of any investigation and preparation
as they are incurred by Liberty). In the event of any dispute arising
out of or based upon this letter or the transactions contemplated
hereby, FPK, LLC will waive any right it may have to trial by jury.
12) Governing Law; Binding Effect; Counterparts. This letter agreement
shall be governed by the laws of the State of New York. This letter
agreement is not intended to be a binding agreement between the parties
hereto but only an expression of their mutual intent and understanding,
except for the provisions of paragraphs 8 through 12, inclusive, which
shall be binding upon and inure to the benefit of the parties hereto,
their respective successors and permitted assigns. This letter
agreement may be executed in two or more counterparts, all of which
taken together will constitute one binding agreement.
If you are in agreement with the terms hereof, please evidence such agreement by
signing and returning one copy hereof to me at the letterhead address above.
This letter will expire at 5:00 p.m., Eastern Standard Time on Wednesday,
September 9, 1998 if Liberty have not received, at or prior to such time, a copy
of this letter signed by FPK, LLC and Frank Krasovec. Should you, or any of your
advisors have any questions or need additional information, please feel free to
call any of us at Liberty (212) 354-7676. We look forward to working with you on
this transaction.
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Mr. Frank Krasovec, President
FPK, LLC
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Best regards,
LIBERTY CAPITAL PARTNERS, INC.
By /s/ PETER E. BENNETT
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Peter E. Bennett
Its President
Acknowledged and Agreed
this ___ day of September 1998
FPK, LLC
By /s/ FRANK P. KRASOVEC
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Its
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By /s/ FRANK P. KRASOVEC
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FRANK KRASOVEC
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EXHIBIT A
NORWOOD PROMOTIONAL PRODUCTS, INC.
SOURCES OF FINANCING
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(a) (b)
FULLY FULLY
DILUTED DILUTED
TOTAL PREFERRED OWNERSHIP OWNERSHIP TOTAL
FINANCING RATE SOURCES DOLLARS PERCENTAGE AT CLOSING LIBERTY
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Senior Term Loan 8.50% $ 75,000
Senior Revolving Loan 8.50% $ 10,000
Senior Subordinated Loan 12.50% $ 37,000 10.00% 20.00% $37,000
Preferred Stock 10.00% $ 20,000 16.88% 15.00% $20,000
Common Stock
Management $ 20,334 $ 0 38.47% 34.19%
D. Tully $ 4,000 $ 0 7.57% 6.73%
Other Investors $ 0 $ 0 0.00% 0.00%
Warrants & Options
Outstanding $ 0 $ 0 21.42% 19.04%
Option Pool $ 0 $ 0 0.00% 0.00%
Liberty Partners $ 3,000 $20,000 5.68% 5.04% $ 3,000
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TOTAL $169,334 $20,000 100.00% 100.00% $60,000
Liberty % 32.55% 40.04%
(a) Assumes Subordinated Debt repaid within three years
(b) Assumes Subordinated Debt is not repaid within three years
USE OF FUNDS
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Purchase Price $ 88,600
Retire Existing Debt $ 43,500
Retained Equity $ 20,400
Fees & Expenses $ 9,000
Working Capital $ 7,834
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Total Uses of Funds $169,334