EXHIBIT (b)(3)
DB CAPITAL INVESTORS, L.P.
31 WEST 52ND STREET
26TH FLOOR
NEW YORK, NEW YORK 10019
SUB DEBT COMMITMENT LETTER
January 27, 2002
J Holdings Corp.
J Acquisition Corp.
ACI Capital Co., Inc.
c/o ACI Capital Co., Inc.
900 Third Avenue
26th Floor
New York, New York 10022
Ladies and Gentlemen:
We are pleased to confirm the arrangements under which DB Capital Investors,
L.P. ("DBCI") is committed to provide subordinated debt in connection with the
transactions described herein in the amount, on the terms and subject to the
conditions set forth in this letter (together, the "COMMITMENT LETTER") and the
Fee Letter (as defined below).
We understand that J Holdings Corp., a Delaware company ("PARENT", which is a
newly formed, wholly owned subsidiary of ACI Capital Co., Inc. ("ACI")), and J
Acquisition Corp., a Delaware company and a wholly owned subsidiary of Parent
("PURCHASER"), will sign, concurrently herewith, a merger agreement, dated the
date hereof, and in the form attached hereto as EXHIBIT A (along with any other
agreements or documents entered into in connection therewith or delivered
pursuant thereto, the "ACQUISITION AGREEMENT") to acquire (the "ACQUISITION")
all of the issued and outstanding common stock of Jenny Craig, Inc., a Delaware
corporation (the "COMPANY"). In addition, in connection with the Acquisition,
Parent, Purchaser, Sidney Craig, Jenny Craig, SJF Enterprises, Inc., DA
Holdings, Inc., Craig Enterprises, Inc. and the Company will enter into a
Stockholders' Voting Agreement, dated the date hereof and substantially in the
form attached hereto as EXHIBIT B (along with any other agreements or documents
entered into in connection therewith or delivered pursuant thereto, the "VOTING
AGREEMENT"). We have confirmed that the total purchase price and financing
requirements (including equity financing being
provided by ACI, Company stockholders and management) for the Acquisition will
be financed as set forth on EXHIBIT C hereto (the "FINANCINGS").
1. Commitment. DBCI is pleased to confirm its commitment (the "COMMITMENT")
to participate in Purchaser's Junior Subordinated Debt Financing (the "SUBDEBT
Financing") in an aggregate principal amount of $15 million, on the terms and
subject to the conditions contained in this Commitment Letter and in the outline
of terms and conditions attached hereto as Exhibit D (the "TERM SHEET"). The
obligations of Purchaser under the Subdebt Financing will be secured by a second
priority lien on, and security interest in, substantially all assets of
Purchaser (it being understood that the Company will become the borrower under
the Subdebt Financing upon consummation of the Acquisition), Parent and all
domestic subsidiaries of Purchaser, in each case subject to such exclusions as
both of ACI and DBCI (in their sole and absolute discretion) may agree. DBCI's
Commitment is subject, in its discretion, to the conditions set forth in this
Commitment Letter and the Term Sheet and to the negotiation, execution and
delivery of definitive documentation evidencing the Financings (along with any
other agreements or documents entered into in connection therewith or delivered
pursuant thereto, the "FINANCING AGREEMENTS"), satisfactory to DBCI and its
counsel and the satisfaction of the terms, conditions and covenants contained
therein.
2. Fees and Expenses. The fees for these services, among others, are to be
set forth in a separate letter (the "FEE LETTER"), to be entered into prior to
the closing of the Acquisition by and among ACI, DBCI, Parent and Purchaser.
3. Conditions Precedent. DBCI's obligations hereunder are conditioned on
the following:
a. The transactions contemplated by the Acquisition Agreement and the
Voting Agreement shall have been consummated concurrently with, or shall
be ready for consummation immediately after, DBCI's debt financing
hereunder on the terms and conditions set forth in such agreements
without modification, amendment or waiver, except as previously
consented to in writing by DBCI. All conditions precedent to the
obligations of Parent and Purchaser under such agreements (other than
Section 6.3(c) of the Acquisition Agreement) shall have been satisfied
without modification, amendment or waiver, except as previously
consented to in writing by DBCI.
b. The transactions contemplated by the Financing Agreements shall have
been consummated prior to or concurrently with DBCI's debt financing
hereunder in accordance with their terms, without modification,
amendment or waiver, except as previously consented to in writing by
DBCI. All conditions precedent to the obligations of the lenders or
investors under the Financing Agreements shall have been satisfied,
other than any conditions relating to the debt capital contemplated by
this letter, the equity capital commitment letters from SJF Enterprises,
Inc., ACI and DBCI and the junior subordinated debt commitment letter
from ACI, each of even date herewith.
2
c. ACI, Parent and Purchaser shall have complied with their obligations
hereunder.
4. Covenants. DBCI, ACI, Parent and Purchaser agree as follows:
a. DBCI shall, and shall be permitted to, consummate the investment
contemplated by the Commitment in accordance with the terms hereof.
b. Parent and Purchaser shall, and ACI shall cause them to, consummate the
transactions contemplated by the Acquisition Agreement and the Voting
Agreement and satisfy their obligations thereunder, without amendment,
modification or waiver except as previously consented to in writing by
DBCI.
c. ACI, Parent and Purchaser shall, and ACI shall cause Parent and
Purchaser to, consummate the transactions contemplated by the Financing
Agreements without amendment, modification or waiver, except as
previously consented to in writing by DBCI. Without limiting the
generality of the foregoing, there shall be no equity, debt or other
financing of any type other than as set forth on EXHIBIT C hereto,
without the prior written consent of DBCI.
d. Parent and Purchaser shall, and ACI shall cause them to, to the extent
commercially reasonable, enforce their respective rights and the
obligations of the Company and other parties to the Acquisition
Agreement or Voting Agreement (such other parties to the Voting
Agreement, the "JC PARTIES"), including any rights to compensation or
payments of any kind from any of the Company or the JC Parties whether
or not the Acquisition is consummated, whether in respect of damages for
breach, payments of termination fees, payments of expenses, gains owing
under the Voting Agreement or otherwise.
e. ACI, Parent and Purchaser shall promptly keep DBCI informed of, consult
and confer with DBCI on all matters relating to the Acquisition,
Acquisition Agreement, Voting Agreement, Financing and Financing
Agreements and any discussions, communications or negotiations by and
between ACI, Parent and Purchaser on the one hand and any of the Company
or the JC Parties on the other hand in respect thereof. Such obligation
shall include provision of copies of material correspondence, documents
and other information and adequate notice and opportunity to attend
conferences and meetings in respect thereof. In addition ACI, Parent and
Purchaser shall apprise DBCI of, and consult with DBCI concerning all
actions they may take or consider pursuant to or as contemplated by the
Acquisition Agreement, Voting Agreement and Financing Agreements
including exercise of rights thereunder regarding termination,
information, further assurances, covenants, conditions, rights upon
breach, enforcement of nonsolicitation and other rights.
f. Without limiting DBCI's other rights in this Commitment Letter, in the
event that an alternate bidder for the Company emerges or for some other
reason an altered or improved bid for the Company is necessary or
contemplated, DBCI will be
3
given the opportunity, but will not be obligated, to participate in any
transactions contemplated in order to improve the terms of the
Acquisition Agreement or make an alternative offer for the Company on
the same percentage basis relative to ACI as the percentage resulting
from dividing DBCI's original commitment to purchase debt and equity
capital in Parent hereunder by ACI's original commitment to purchase
debt and equity capital in Parent.
5. Acknowledgment. Each of ACI and DBCI has, independently and without
reliance on the other party, based on such information and due diligence it has
conducted as it has deemed appropriate, made its own analysis and decision to
enter into its commitment to invest in Parent and to enter into the other
documents and transactions contemplated by the Acquisition and the Acquisition
Agreement. Each of ACI and DBCI will independently and without reliance upon the
other party, continue to make its own decisions and to conduct its own due
diligence with respect to the operation of the Company and the matters,
transactions and any related agreements contemplated by the Acquisition and the
Acquisition Agreement. ACI represents and warrants that it has made available to
DBCI all the due diligence materials which ACI has received from the Company.
6. Confidentiality. Please note that this Commitment Letter, the Fee
Letter, the transactions contemplated hereby and any written or oral information
provided by DBCI in connection with this arrangement is exclusively for the
information of ACI, Parent, Purchaser and the Company and may not be disclosed
to any other party or circulated or referred to publicly without DBCI's prior
written consent, except that you may disclose such information to your and the
Company's officers, directors, agents and advisors who are directly involved in
the consideration of the transactions contemplated hereby to the extent such
persons are obligated to hold such advice in confidence or if otherwise required
by law or in the event such information or documents are made public through no
fault of ACI, Parent or Purchaser.
7. Assignment. None of DBCI, ACI, Parent or Purchaser may assign any of
their respective rights or be relieved of any of their respective obligations
hereunder without the prior written consent of the other parties hereto.
8. Termination. The Commitment will terminate upon the first to occur of
(i) the closing of the Acquisition, (ii) the abandonment or termination of the
Acquisition Agreement, (iii) a material breach by ACI, Parent or Purchaser under
this Commitment Letter or the Fee Letter, provided, however, that DBCI shall
notify ACI in writing of such breach, whereupon ACI shall have a commercially
reasonable period of time (not to exceed twenty (20) calendar days) after ACI's
receipt of such notice to cure such breach or (iv) the Expiration Date (as
defined in the Acquisition Agreement), as may be extended in accordance with the
terms of the Acquisition Agreement.
4
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to DBCI the enclosed copy of this Commitment Letter on or
before the close of business on the date hereof, whereupon this Commitment
Letter shall become a binding agreement among us.
Very truly yours,
DB CAPITAL INVESTORS, L.P.
By: /s/ ROBERT SHARP
---------------------------
Authorized Signatory
Confirmed as of the date above:
ACI CAPITAL CO., INC.
By: /s/ KEVIN S. PENN
------------------------------
Name: Kevin S. Penn
Title: Managing Director
Confirmed as of the date above:
J HOLDINGS CORP.
By: /s/ KEVIN S. PENN
------------------------------
Name: Kevin S. Penn
Title: President
5
Confirmed as of the date above:
J ACQUISITION CORP.
By: /s/ KEVIN S. PENN
-----------------------------
Name: Kevin S. Penn
Title: President
6
EXHIBIT D
OUTLINE OF TERMS AND CONDITIONS FOR PROPOSED SUBDEBT FINANCING
This Outline of Terms and Conditions is part of the Sub Debt Commitment Letter,
dated January 27, 2002 (the "Commitment Letter"), addressed to J Holdings Corp.,
J Acquisition Corp. and ACI Capital Co., Inc. ("ACI") by DB Capital Investors,
L.P. (together with the other lenders party to the definitive Subdebt Financing
agreement, the "Lenders") and is subject to the terms and conditions of the
Commitment Letter. Capitalized terms used herein shall have the meanings set
forth in the Commitment Letter unless otherwise defined herein.
BORROWER: J Acquisition Corp. Upon consummation of the
Acquisition, Jenny Craig, Inc. and certain of
its subsidiaries, as required by the Lenders
(collectively the "Borrower").
GUARANTORS: All domestic subsidiaries of the Borrower that
are not included in the "Borrower," as required
by the Lenders (together with the Borrower,
each a "Loan Party" and collectively, the "Loan
Parties").
LENDERS: The Lenders or their respective affiliates
thereof, to be designated at closing.
FINANCING FACILITY: Junior Subordinated Debt Financing of up to $24
million (the "Subdebt Financing"). The Subdebt
Financing will be funded in a single draw on
the Closing Date (as defined below) and will be
structured as a term loan which may not, once
repaid, be drawn upon again.
ACI will fund $9 million of the Subdebt
Financing and DB Capital Investors, L.P. will
fund $15 million thereof.
TERM: The Subdebt Financing will have a term of five
(5) years (the "Maturity Date").
AMORTIZATION: The Subdebt Financing will be payable in full
on the Maturity Date.
MANDATORY
AND OPTIONAL PREPAYMENT: Customary mandatory prepayments to be included
in definitive loan documentation (e.g.,
issuance of equity, debt, sale of assets, tax
refunds, casualty events, etc.). Optional
prepayments on the Subdebt Financing will be
permitted in whole or in part, and from time to
time. Prepayments will be subject to a one-year
interest penalty in the first three years
following the closing of the Acquisition; a
half-year interest penalty in the fourth year
following the closing of the Acquisition; and
no prepayment penalty in the fifth year
following the closing of the Acquisition. Such
penalties will be computed based on the
interest rate in effect at the time of the
prepayment.
CLOSING DATE: On or prior to the closing date of, and
immediately prior to, the Acquisition (the
"Closing Date").
COLLATERAL: All obligations of the Loan Parties to the
Lenders shall be secured by a perfected, second
priority lien on and security interest in
substantially all of the now owned and
hereafter acquired assets of the Loan Parties,
including, but not limited to, accounts
receivable, inventory, machinery and equipment,
trademarks and tradenames, copyrights, patents
and other intellectual property, general
intangibles, chattel paper, all shares of all
capital stock of domestic subsidiaries of the
Borrower and 65% of the shares of capital stock
1
of all foreign subsidiaries of the Borrower,
and all proceeds thereof, and such other
assets, tangible or intangible, as may be
required, in the Lenders' opinion, as security
for the contemplated Subdebt Financing (the
"Collateral"). All borrowings by the Borrower,
all costs, fees and expenses of the Lenders and
all other obligations owed to the Lenders shall
be secured as described above and shall be
charged to the loan account to be established
under the Subdebt Financing.
INTEREST: The Subdebt Financing shall bear interest at a
rate calculated in the same manner as the rate
payable on the Ableco Term B loan (including,
for the purposes of determining the rate
payable on the Ableco Term B loan, the facility
fee payable thereunder). If the Ableco Term
Loan B is no longer outstanding, the rate on
the Subdebt Financing shall continue to be the
rate that would have been payable had such
Ableco Term Loan B continued to be outstanding.
The interest shall be payable quarterly, and
in-kind, in whole or in part, at the option of
Borrower.
All interest shall be computed on the basis of
a year of 360 days for the actual days elapsed.
If any Event of Default shall occur and be
continuing, interest shall accrue at a rate per
annum equal to 3% in excess of the prevailing
rate.
WARRANTS: In connection with and consideration for the
Subdebt Financing, the Lenders shall be issued
warrants (the "Warrants") to acquire 15% of the
common equity of Parent on a fully diluted
basis, at an exercise price per share equal to
the price per share of the Parent's common
stock. The Warrants shall be allocated to the
Lenders ratably to their capital contributions
to the Subdebt Financing.
FEES: Closing Fee equal to 3% of the Subdebt
Financing.
USE OF PROCEEDS: The Loans under the Subdebt Financing will be
used solely (i) to consummate the Acquisition,
(ii) for the general working capital
requirements of the Borrower and (iii) to pay
fees and expenses related to the Subdebt
Financing.
CONDITIONS
PRECEDENT: The obligation of the Lenders to fund the
Subdebt Financing on the Closing Date will be
subject to customary conditions precedent
including, without limitation, the following:
2
(a) Execution and delivery of
appropriate legal
documentation in form and
substance satisfactory to and
as required by the Lenders and
their respective counsel
(including, without
limitation, the Subdebt
Financing agreement, the
security and pledge
agreements, the mortgages and
title insurance policies, the
guaranties, the landlord
waivers, other collateral
access agreements, and the
satisfaction of the conditions
precedent contained therein).
(b) Satisfaction of all conditions
precedent to Parent's and
Purchaser's obligations to
close under the Acquisition
Agreement (other than the
conditions set forth in
Section 6.3(c) of the
Acquisition Agreement;
provided, however, that all
conditions precedent to the
obligation of the Senior
Lender (as defined in the
Acquisition Agreement) to
consummate the Senior
Financing (as defined in the
Acquisition Agreement) have
been met and the Senior Lender
shall intend to and shall be
willing and prepared to
consummate the Senior
Financing, in each case other
than with respect to any
conditions relating to the
debt capital investment
contemplated by the Commitment
Letter, the debt capital
commitment letter of ACI of
even date herewith, or the
equity capital commitment
letter of SJF Enterprises,
Inc., of even date herewith).
(c) The Lenders shall have been
granted a perfected, second
priority lien on all
Collateral, and shall have
received UCC, tax and judgment
lien searches and other
appropriate evidence
(including title reports and
surveys relating to all owned
real property comprising
Collateral), evidencing the
absence of any other liens on
the Collateral, except
existing liens acceptable to
the Lenders and the lien
securing the senior debt
financing described in Section
4.5(a) of the Acquisition
Agreement (the "Senior
Financing.")
(d) Opinions from the Loan
Parties' counsel as to such
matters as the Lenders and the
respective counsel to the
Lenders may reasonably
request.
REPRESENTATIONS
AND WARRANTIES: Bring-down of representations and warranties in
the Acquisition Agreement, plus authority to
enter into Subdebt Financing documentation,
non-violation of other agreements, and
enforceability and priority of the Lenders'
liens.
COVENANTS: Usual covenants, including, but not limited to,
provision of financial statements, notices of
litigation, defaults and unmatured defaults and
other information, compliance with pension,
environmental and other laws, inspection of
properties, books and records, maintenance of
insurance, limitations with respect to liens
and encumbrances, dividends and retirement of
capital stock, guarantees, sale and lease back
transactions, consolidations and mergers,
investments, capital expenditures, loans and
advances, indebtedness, operating leases,
transactions with affiliates, prepayment of
other indebtedness and amendments to material
agreements.
The loan documentation will contain the same
financial covenants as those contained in the
Senior Financing loan documents.
3
' Financial reporting to include: (i) annual,
audited financial statements, (ii) quarterly,
internally prepared, financial statements,
(iii) monthly, internally prepared, financial
statements, (iv) annual projections, including
monthly balance sheet, profit and loss and cash
flow figures, and (v) other reporting as
required by the Lenders.
EVENTS OF DEFAULT: Usual events of default, including, but not
limited to, payment, cross-default, violation
of covenants, breach of representations or
warranties, bankruptcy or insolvency, judgment,
ERISA, environmental and change of control;
provided, that so long as the Borrower has
outstanding indebtedness under the Senior
Financing and to the extent the Subdebt
Financing is held by the original Lenders (or
their respective affiliates), the only events
of default that will permit the Lenders to
exercise their rights to accelerate the
maturity of the Subdebt Financing or foreclose
on any security will be bankruptcy and
insolvency and an event of default under the
Senior Financing pursuant to which the Senior
Lender accelerates and forecloses on the
security.
GOVERNING LAW: All documentation in connection with the
Subdebt Financing shall be governed by the laws
of the State of New York.
ASSIGNMENTS,
PARTICIPATIONS: The Lenders may sell or assign their respective
loans under the Subdebt Financing without the
consent of the other Loan Parties. The Lenders
may also sell participations in their
respective loans under the Subdebt Financing
without the consent of the other Loan Parties,
provided that such participants shall be
limited to customary voting rights.
FEES & EXPENSES: Upon closing of the Acquisition, the Borrower
shall be fully obligated to pay, and shall
immediately, reimburse the Lenders for all
their out-of-pocket expenses incurred in
connection with the Acquisition and pay the
Lenders a fee of 3% of the Subdebt Financing.
4