May 3, 2001
Mr. Guy Naggar Mr. Joseph J. Grabowski
President President and CEO
Specialty Acquisition Corp. Specialty Catalog Corp.
c/o Kane Kessler, PC 21 Bristol Drive
1350 Avenue of the Americas South Easton, MA 02375
New York, NY 10019
Re: Potential Investment by certain affiliates of Golub Associates Incorporated
in Specialty Catalog Corp.
Gentlemen:
As used in this letter, the term "Proposal" includes the terms contained in this
letter and the attached summary term sheet (the "Term Sheet"), which is an
integral part of this letter. Any capitalized defined term, including those
defined in this paragraph, will have the same meaning throughout the Proposal.
The term "Company" shall mean Specialty Acquisition Corp. ("SAC") and Specialty
Catalog Corp. ("SCC") and their successors and affiliates, jointly and
severally.
This Proposal, upon its acceptance by the Company, will become a binding
agreement regarding our consideration of a potential subordinated debt and
warrant investment (the "Financing") in SAC. Golub Associates Incorporated
("Associates") understands that the Company would use the Financing only in
connection with a possible recapitalization, going private or similar
transaction involving SCC (individually or collectively, a "Transaction"). If
the Company or any other entity affiliated with the Company proceeds with a
Transaction, the Company and/or such affiliated entity each agree not to use
subordinated debt financing from any other source for a Transaction, unless
Associates elects in writing either to terminate its interest in providing
subordinated debt financing for a Transaction or to substantially change the
terms or conditions contained in the attached Term Sheet.
Neither Associates nor its investment affiliates participating in the Financing
(the "Investors") will be under any obligation to consummate the Financing
until: (a) each of the terms and conditions outlined in this Proposal and in all
of the documentation and related documents (collectively with this Proposal, the
"Financing Documents") has been met to the satisfaction of Investors and
Associates in their sole discretion, and (b) all of the Financing Documents, in
form and substance satisfactory to Investors and Associates in their sole
discretion, have been executed by the parties.
A Federal Licensee Under the Small Business Act of 1958 1
Expenses
By accepting this Proposal, the Company agrees to pay promptly all reasonable
out-of-pocket costs and expenses incurred by Investors or Associates (including
fees and disbursements of their counsel and accountants), whether or not any
financing by Investors is consummated, in connection with or related to the
following: all due diligence by Investors, Associates and their representatives
(including any independent consultants), all Financing Documents (including any
proposed or executed amendments to any of the Financing Documents), all closings
related to the Financing, and any legal action by Associates or Investors to
enforce this agreement. Associates will invoice the Company for such costs and
expenses from time to time, and the Company agrees to pay such expenses within
ten days of receipt of the invoice (which shall include supporting documentation
for such costs and expenses). The obligations of the Company under this
paragraph will survive any expiration or termination of this Proposal.
Associates presently expects that its out-of-pocket costs and expenses,
excluding fees and disbursements of its counsel, will not exceed $120 thousand.
Associates agrees to: (i) seek the Company's approval, which shall not be
unreasonably withheld, to exceed the estimate in the preceding sentence, and
(ii) notify the Company prior to incurring any substantial legal or accounting
expenses related to the Financing.
Confidentiality of Proposal and No-Shop Undertaking
The terms of this Proposal are confidential, and neither the contents of this
letter nor the details of the Proposal may be disclosed by either the Company or
Investors or Associates or their respective advisors, except: (a) as required by
law with prior written notice to the other party, or (b) to those individuals at
the relevant party or their existing investors and financial institutions who
have a critical need to know as a result of being involved in the proposed
transaction (such as the senior lenders and their attorneys). Either party will
advise the other party in advance if any such information is disclosed to a
third party. All the parties hereto agree to require any parties receiving such
disclosures to keep such information confidential.
During the term of the Proposal, or its earlier termination as contemplated
herein, neither the Company nor its officers, directors, shareholders, advisors,
representatives or employees shall directly or indirectly solicit, permit,
participate in, engage in or otherwise facilitate discussions with any other
potential subordinated debt investors in the Company without the written consent
of Associates. In addition, the Company will promptly notify Associates in
writing of the form and content of any communication regarding such matters or
any attempt by any third party to engage in such activities.
Access; Due Diligence; Interim Financial Statements
Upon their execution of appropriate confidentiality agreements with SCC (the
"Confidentiality Agreement"), the Company will allow Associates, Investors and
their respective representatives all reasonable requested access to the
Company's assets, records, personnel, and relevant third parties for the purpose
of completing all due diligence investigations deemed necessary or advisable by
Associates and Investors.
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Following the execution of this Proposal and the Confidentiality Agreement and
until the closing, Company will furnish to Associates and Investors, not later
than 25 days after the end of each month (or earlier, if received earlier),
financial statements for SCC for such month, prepared in accordance with GAAP
consistent with past practice along with management's analysis of results for
the month and year-to-date period compared to budget and prior year prepared for
SCC's Board of Directors.
Successors and Assigns; Modification
As used herein, the terms "Investors," "Associates," and the "Company" include
the successors or assigns of those parties, except that neither the Investors
nor the Company shall have the right to assign its rights. No modification,
rescission, waiver, release or amendment of any provision of this Proposal may
be made, except by a written agreement signed by the Company and a duly
authorized representative of Investors.
Entire Agreement; Headings
This Proposal constitutes the entire agreement and understanding between the
parties hereto with respect to the potential financing and supersedes all prior
negotiations, understandings and agreements between such parties with respect to
the potential financing, including, without limitation, those expressed in any
prior proposal letter delivered by Investors to the Company. Headings used in
this letter are for convenience only and do not affect the construction of the
Proposal.
Jury Trial Waiver; Indemnification
The Company, Investors and Associates hereby knowingly, voluntarily and
intentionally waive any right to trial by jury the Company, Investors and
Associates may have in any action or proceeding, in law or in equity, in
connection with the Proposal. The Company represents and warrants that no
representative or agent of Associates or Investors has represented expressly or
otherwise, that Investors and Associates will not, in the event of litigation,
seek to enforce this right to jury trial waiver. The Company acknowledges that
Investors and Associates have been induced to enter into this proposal by, among
other things, the provisions of this section.
The Company agrees to indemnify and hold harmless Associates, Investors and
their affiliates and their directors, officers, partners, advisors, counsel,
agents and employees (each an "Indemnified Party") from and against any and all
losses, claims, damages, expenses (including reasonable attorneys' fees and
disbursements) or liabilities resulting from any actual or threatened legal
actions, proceedings or investigations arising out of this Proposal or any other
Transaction matter whether or not any Indemnified Party is named as a party to
any such legal action, proceeding or investigation (all of the preceding
collectively referred to as "Claims"). The Company further agrees to reimburse
each Indemnified Party promptly upon demand from time to time for all expenses
(including reasonable attorneys' fees and disbursements) as they are incurred in
connection with the investigation of, preparation for or defense of any Claim.
The Company will not, however, be responsible to any Indemnified Party hereunder
for any
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Claims to the extent that a court of competent jurisdiction shall have finally
judicially determined that any such claim shall have arisen primarily out of or
resulted primarily from actions taken or omitted to be taken by any Indemnified
Party constituting the willful malfeasance or gross negligence of such
Indemnified Party.
Completing the Transaction
The Company agrees that it will use good faith efforts to satisfy the conditions
to the Financing, subject to the terms and conditions of this Proposal, as soon
as reasonably possible. Investors and Associates will not proceed with the
Financing if: (i) Investors has not received from the Company a copy of this
letter acknowledged and agreed to by the Company in the spaces provided on or
before 5 p.m. on May 4, 2001, or (ii) prior to any such receipt, Associates or
Investors gives notice of withdrawal hereof either orally or in writing.
Other Provisions
This Proposal expires on December 31, 2001, except that the obligations of each
party described in the following sections shall survive the expiration:
"Expenses," "Confidentiality of Proposal and No-Shop Undertaking" (first
paragraph only), "Successors and Assigns; Modification," and "Jury Trial Waiver;
Indemnification."
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Very truly yours,
Golub Associates Incorporated Participating Investment Affiliates of Golub
Associates Incorporated:
LEG Partners III SBIC, L.P.
By: /s/ Gregory W. Cashman By: Golub PS-GP, LLC, its general
----------------------- partner
Principal
By: /s/ Gregory W. Cashman
----------------------
Director
LEG Partners Debenture SBIC, L.P.
By: Golub Debenture GP, LLC, its general
partner
By: /s/ Gregory W. Cashman
----------------------
Director
Acknowledged and agreed to Acknowledged and agreed to
on behalf of itself and affiliates: on behalf of itself and affiliates:
Specialty Acquisition Corp. Specialty Catalog Corp.
By: /s/ Guy Naggar By: /s/ Joseph Grabowski
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Title: President Title: President and CEO
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Date: May 4, 2001 Date: May 4, 2001
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