EXHIBIT (a)(1)
to Schedule 13E-3
February 2, 1999
Vestar Capital Partners III, L.P.
245 Park Avenue, 41st Floor
New York, NY 10167-4098
Attention: Mr. Sander M. Levy
Vestar Capital Partners III, L.P.
17th Street Plaza
1225 17th Street, Suite 1660
Denver, CO 80202
Attention: Mr. James P. Kelley
Mr. Christopher J. Henderson
Project Knit
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Senior Secured Credit Facilities
--------------------------------
Commitment Letter
-----------------
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase
-----
Securities Inc. ("CSI") that Vestar Capital Partners III, L.P. ("Vestar")
--- ------
proposes to acquire (the "Acquisition") St. John Knits, Inc., a California
-----------
corporation (the "Company"). You have further advised us that immediately prior
-------
to the Acquisition, a wholly owned subsidiary ("Merger Sub") of St. John Knits
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International, Incorporated, a wholly owned subsidiary of the Company (the
"Borrower"), will merge with and into the Company, with the Company being the
- ---------
surviving corporation (the
2
"Reorganization"). In connection with the Reorganization, the existing
--------------
stockholders of the Company will exchange their shares of common stock of the
Company ("Company Common Stock") for shares of common stock of the Borrower
--------------------
("Borrower Common Stock"), resulting in the Company becoming a wholly owned
---------------------
subsidiary of the Borrower. You have further advised us that, in connection with
the Acquisition, (a) Vestar will form a limited liability company ("Holdco"),
------
which will form a subsidiary ("Newco") and (b) immediately prior to the
-----
Reorganization (i) Vestar and certain co-investors reasonably satisfactory to
Chase will contribute approximately $153,637,000 of cash equity to Holdco in
consideration for the issuance of an 84.1% limited liability company interest in
Holdco ("Holdco Interest"), (ii) certain members of management of the Company
---------------
(the "Gray Management") will contribute approximately 1,206,000 shares of
Company Common Stock to Holdco in consideration for approximately $7,110,000 and
the issuance of an aggregate 15.9% Holdco Interest (having an aggregate value of
approximately $29,069,000), (iii) Holdco will contribute approximately
$146,527,000 of cash equity to Newco in consideration for the issuance of 100%
of the common stock of Newco. You have further advised us that certain members
of management of the Company may be offered the opportunity to purchase Borrower
Common Stock from the Borrower representing not more than 5% of the outstanding
capital stock of the Borrower and that any such purchase would reduce the amount
of Vestar's contribution to Holdco and may be funded by loans from Vestar. You
have further advised us that in connection with the Acquisition, Newco, the
Borrower, the Company and Merger Sub will enter into an agreement and plan of
merger (the "Merger Agreement"), pursuant to which (a) the Borrower will obtain
----------------
the senior secured credit facilities (the "Facilities") described in the Summary
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of Principal Terms and Conditions attached hereto as Exhibit A (the "Term
----
Sheet") in an aggregate principal amount of $180,000,000, (b) the Borrower will
- -----
issue up to $160,000,000 principal amount of its senior subordinated notes (the
"Senior Subordinated Notes") in a public offering or in a Rule 144A offering or
-------------------------
other private placement, (c) Newco will merge with and into Borrower (the
"Merger"), (d) at the effective time of the Merger, the outstanding shares of
------
capital stock of the Borrower held by its stockholders (the "Sellers") (other
-------
than the shares held by Holdco, which will be cancelled) will be converted into
a combination of aggregate cash consideration equal to approximately
$447,581,000 and 456,000 shares of Borrower
3
Common Stock , such that, following the Merger, certain of the Sellers will
continue to own approximately 7.0% of the outstanding capital stock of the
Borrower having an aggregate value of approximately $13,684,000, (e) at the
effective time of the Merger, outstanding in the money options to buy shares of
Borrower Common Stock will be cashed out for an aggregate amount of
approximately $14,003,000, (f) at the effective time of the Merger, the
outstanding shares of capital stock of Newco held by Holdco will be converted
into Borrower Common Stock representing approximately 93.0% of the outstanding
capital stock of the Borrower having an aggregate value of approximately
$182,706,000, and (g) the Borrower will pay transaction costs and expenses in
connection with the foregoing in an amount not to exceed $20,000,000 (the
foregoing transactions are collectively referred to herein as the
"Transactions"). In connection with the foregoing, you have requested that CSI
------------
agree to structure, arrange and syndicate the Facilities, and that Chase commit
to provide the Facilities and to serve as administrative agent therefor.
CSI is pleased to advise you that it is willing to act as exclusive
advisor, lead arranger and book manager for the Facilities. Furthermore, Chase
is pleased to advise you of its commitment to provide the entire amount of the
Facilities upon the terms and subject to the conditions set forth or referred to
in this Commitment Letter and in the Term Sheet.
It is agreed that Chase will act as the sole and exclusive
administrative agent, collateral agent and syndication agent, and that CSI will
act as the sole and exclusive advisor, lead arranger and book manager, for the
Facilities, and each will, in such capacities, perform the duties and exercise
the authority customarily performed and exercised by it in such roles. You
agree that no other agents, co-agents, managers or arrangers will be appointed,
no other titles will be awarded and no compensation (other than that expressly
contemplated by the Term Sheet and the Fee Letter referred to below) will be
paid in connection with the Facilities unless you and we shall so agree.
We intend to syndicate the Facilities to a group of financial
institutions (together with Chase, the "Lenders") identified by us in
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consultation with you. CSI intends to commence syndication efforts promptly
upon the execution of this Commitment Letter, and you agree actively
4
to assist CSI in completing a syndication satisfactory to it. Such assistance
shall include (a) your using commercially reasonable efforts to ensure that the
syndication efforts benefit materially from your and, to the extent reasonably
possible, the Borrower's and the Company's existing lending relationships, (b)
direct contact between senior management and advisors of Vestar, the Borrower
and the Company and the proposed Lenders, (c) assistance in the preparation of a
Confidential Information Memorandum and other marketing materials to be used in
connection with the syndication and (d) the hosting, with CSI, of one or more
meetings of prospective Lenders. To the extent that syndication of any credit
facility in connection with other Vestar investments could reasonably be
expected to disrupt or otherwise interfere with the orderly syndication of the
Facilities, it is understood and agreed that you will, to the extent permitted
by applicable law, provide CSI with reasonable prior notice of the syndication
of such other credit facility and, upon the reasonable request of CSI, you will
endeavor in good faith to coordinate the syndication of such credit facility
with the syndication of the Facilities.
CSI will manage, in consultation with you, all aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist CSI in its syndication efforts, you agree promptly to
prepare and provide (and to use your reasonable efforts to cause the Borrower
and the Company to provide) to CSI and Chase all information with respect to the
Borrower, the Company, the Transactions and the other transactions contemplated
hereby, including all financial information and projections (the "Projections"),
-----------
as we may reasonably request in connection with the arrangement and syndication
of the Facilities. You hereby represent and covenant that, to your knowledge,
(a) all information other than the Projections (the "Information") that has been
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or will be prepared by or on behalf of you, the Borrower, the Company or any of
your or their officers, employees or other authorized representatives and made
available to Chase or CSI by you, the Borrower, the Company or any of your or
their officers, employees or other authorized representatives, when taken as a
whole, is or will be, when furnished, complete and correct in all material
respects and does not or will not, when
5
furnished, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
materially misleading in light of the circumstances under which such statements
are made and (b) the Projections that have been or will be made available to
Chase or CSI by you, the Borrower, the Company or any of your or their officers,
employees or other authorized representatives have been or will be prepared in
good faith based upon reasonable assumptions. You agree to supplement the
Information and Projections from time to time until the closing of the
Facilities so that the representation and covenant in the preceding sentence
remain correct. You understand that in arranging and syndicating the Facilities
we will be using and relying on the Information and Projections without
independent verification thereof.
As consideration for Chase's commitment hereunder and CSI's agreement
to perform the services described herein, you agree to pay or to cause the
Borrower to pay to Chase the nonrefundable fees set forth in the Term Sheet and
in the Fee Letter dated the date hereof and delivered herewith (the "Fee
---
Letter").
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Chase and CSI shall be entitled, after consultation with you, to (i)
change the structure, terms, pricing or relative amounts of the Facilities (it
being understood that no such change shall result in any interest rate on the
Facilities set forth in the Term Sheet being increased by more than 0.50%) and
(ii) reduce the amount of the Facilities and increase the amount of the Senior
Subordinated Notes (provided that the aggregate amount of the Facilities and the
Senior Subordinated Notes is not reduced and that any such adjustment would not
materially adversely affect the marketing of the Senior Subordinated Notes), in
any such case if Chase and CSI reasonably determine that such changes are
necessary in order to ensure a successful syndication of the Facilities.
Chase's commitment hereunder is subject to the agreements in this paragraph.
Chase's commitment hereunder and CSI's agreement to perform the
services described herein are also subject to (a) our not having discovered or
otherwise becoming aware of any information not previously disclosed to us that
we believe to be materially adversely inconsistent with our understanding, based
on the information provided to us prior
6
to the date hereof, of the business, assets, operations, prospects or condition
(financial or otherwise) of the Borrower, the Company and its subsidiaries, (b)
there not occurring any material adverse change in or affecting the business,
assets, operations, prospects or condition (financial or otherwise) of the
Borrower, the Company and its subsidiaries, taken as a whole, since November 1,
1998, (c) there not having occurred a material disruption of or material adverse
change in financial, banking or capital market conditions that, in our
reasonable judgment, could materially impair the syndication of the Facilities,
(d) our reasonable satisfaction that prior to and during the syndication of the
Facilities there shall be no competing offering, placement or arrangement of any
debt securities or bank financing by or on behalf of the Borrower, the Company
or any subsidiary thereof (other than the Senior Subordinated Notes), and (e)
the other conditions set forth or referred to in the Term Sheet.
In addition, Chase's commitment hereunder is subject to the
negotiation, execution and delivery of definitive documentation with respect to
the Facilities reasonably satisfactory to Chase and customary for transactions
of this type. The terms and conditions of Chase's commitment hereunder and of
the Facilities are not limited to those set forth herein and in the Term Sheet.
Those matters that are not covered by the provisions hereof and of the Term
Sheet are subject to the approval and agreement of Chase, CSI, you and the
Borrower.
You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "indemnified person") from and against any and all losses,
------------------
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the
Facilities, the Transactions or any related transaction or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
regardless of whether any indemnified person is a party thereto, and to
reimburse each indemnified person upon demand for any reasonable legal or other
expenses incurred in connection with investigating or defending any of the
foregoing, provided that the foregoing indemnity will not, as to any indemnified
--------
person, apply to losses, claims, damages, liabilities or related expenses to the
extent they arise from the willful misconduct or gross negligence of
7
such indemnified person, and (b) to reimburse Chase, CSI and their affiliates
upon presentation of reasonable supporting documentation for all reasonable out-
of-pocket expenses (including due diligence expenses, syndication expenses,
consultants' fees and expenses, travel expenses, and reasonable fees, charges
and disbursements of counsel (which, in the case of the initial documentation
and closing of the Facilities, shall be limited to a single counsel to the Agent
in each applicable jurisdiction)) incurred in connection with the Facilities and
any related documentation (including, without limitation, this Commitment
Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any damages arising from the use by
others of Information or other materials obtained through electronic,
telecommunications or other information transmission systems, except for damages
arising from such indemnified person's gross negligence or willful misconduct,
or for any special, indirect, consequential or punitive damages in connection
with its activities related to the Facilities.
You acknowledge that Chase and its affiliates may be providing debt
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which you, the Borrower and the
Company may have conflicting interests regarding the transactions described
herein and otherwise. Neither Chase nor its affiliates will use confidential
information obtained from you, the Borrower and the Company by virtue of the
transactions contemplated by this Commitment Letter or its other relationships
with you in connection with the performance by Chase or its affiliates of
services for other companies, and neither Chase nor its affiliates will furnish
any such information to other companies. You also acknowledge that neither
Chase nor any of its affiliates has any obligation to use in connection with the
transactions contemplated by this Commitment Letter, or to furnish to you, the
Borrower or the Company, confidential information obtained by it from other
companies.
This Commitment Letter and Chase's commitment hereunder shall not be
assignable by you without the prior written consent of Chase and CSI (and any
purported assignment without such consent shall be null and void), is intended
to be solely for the benefit of the parties hereto and is not intended to confer
any benefits upon, or create
8
any rights in favor of, any person other than the parties hereto. This
Commitment Letter may not be amended or waived except by an instrument in
writing signed by you, Chase and CSI. This Commitment Letter may be executed in
any number of counterparts, each of which shall be an original, and all of
which, when taken together, shall constitute one agreement. Delivery of an
executed signature page of this Commitment Letter by facsimile transmission
shall be effective as delivery of a manually executed counterpart hereof. This
Commitment Letter and the Fee Letter are the only agreements that have been
entered into among us with respect to the Facilities and set forth the entire
understanding of the parties with respect thereto. This Commitment Letter shall
be governed by, and construed in accordance with, the laws of the State of New
York.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter, the Term Sheet or the Fee Letter nor any of
their terms or substance shall be disclosed, directly or indirectly by you, to
any other person except (a) you may disclose this Commitment Letter, the Term
Sheet and the Fee Letter (i) to your officers who are directly involved in the
consideration of this matter or (ii) as may be compelled in a judicial or
administrative proceeding or as otherwise required by law (in which case you
agree to inform us promptly thereof), and (b) you may disclose this Commitment
Letter and the Term Sheet, and their terms and substance (but not the Fee Letter
or its terms and substance) (i) to the Company (including its Board of Directors
and any committee thereof), the Borrower (including its Board of Directors and
any committee thereof), Robert E. Gray, Marie Gray, Kelly A. Gray and their
respective attorneys and advisors on a confidential basis in connection with the
Transactions and (ii) in connection with any filing under the Securities Act of
1933 or the Securities Exchange Act of 1934.
The reimbursement, indemnification and confidentiality provisions
contained herein and in the Fee Letter 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
Chase's commitment hereunder; provided that your obligations under this
--------
Commitment Letter shall automatically terminate (other than those under the
third, fourth, eleventh and thirteenth paragraphs hereof and the first and last
sentence of the fifth paragraph hereof) and
9
be superseded by the provisions of the definitive documentation relating to the
Facilities upon the initial funding thereunder and the consummation of the
Acquisition, and you shall automatically be released from all liability in
connection therewith at such time.
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter, not later
than 5:00 p.m., New York City time, on February 3, 1999. Chase's commitment and
CSI's agreements contained herein will expire at such time in the event Chase
has not received such executed counterparts in accordance with the immediately
preceding sentence. In the event that the initial borrowing in respect of the
Facilities does not occur on or before June 15, 1999, then this Commitment
Letter and Chase's commitment and CSI's undertakings hereunder shall
automatically terminate unless Chase and CSI shall, in their discretion, agree
to an extension.
Chase and CSI are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK,
by /s/ DEBORAH DAVEY
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Name: Deborah Davey
Title: Vice President
CHASE SECURITIES INC.,
by /s/ JAMES A. FEELEY III
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Name: James A. Feeley III
Title: Vice President
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Accepted and agreed to
as of the date first
written above by:
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/ SANDER LEVY
-----------------------------
Name: Sander Levy
Title:
CONFIDENTIAL
February 2, 1999 EXHIBIT A
Project Knit
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Senior Secured Credit Facilities
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Summary of Principal Terms and Conditions
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Borrower: St. John Knits International, Incorporated, a Delaware
corporation (the "Borrower").
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Transactions: Vestar Capital Partners III, L.P. ("Vestar"), proposes to
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acquire (the "Acquisition") St. John Knits, Inc., a
-----------
California corporation (the "Company"). Immediately prior
-------
to the Acquisition, a wholly owned subsidiary of the
Borrower ("Merger Sub"), will merge with and into the
----------
Company, with the Company being the surviving corporation
(the "Reorganization"). In connection with the
--------------
Reorganization, the existing stockholders of the Company
will exchange their shares of common stock of the Company
("Company Common Stock") for shares of common stock of
--------------------
the Borrower ("Borrower Common Stock"), resulting in the
---------------------
Company becoming a wholly owned subsidiary of the
Borrower. In connection with the Acquisition, (a) Vestar
will form a limited liability company ("Holdco"), which
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will form a subsidiary ("Newco") and (b) immediately
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prior to the Reorganization (i) Vestar and certain co-
investors reasonably satisfactory to the Chase (as
defined below) will contribute approximately $153,637,000
of cash equity to Holdco in consideration for the
issuance of an 84.1% limited liability company interest
in Holdco ("Holdco Interest"), (ii) certain members of
---------------
management
2
of the Company (the "Gray Management") will contribute
approximately 1,206,000 shares of Company Common Stock to
Holdco in consideration for approximately $7,110,000 and
the issuance of an aggregate 15.9% Holdco Interest
(having an aggregate value of approximately $29,069,000)
and (iii) Holdco will contribute (the "Contribution")
------------
approximately $146,527,000 of cash equity to Newco in
consideration for the issuance of 100% of the common
stock of Newco. You have further advised us that certain
members of management of the Company may be offered the
opportunity to purchase Borrower Common Stock from the
Borrower representing not more than 5% of the outstanding
capital stock of the Borrower and that any such purchase
would reduce the amount of Vestar's contribution to
Holdco and may be funded by loans from Vestar. Newco, the
Borrower, the Company and Merger Sub will enter into an
agreement and plan of merger (the "Merger Agreement"),
----------------
pursuant to which (a) the Borrower will obtain the senior
secured credit facilities described below under the
caption "Facilities" in an aggregate principal amount of
$180,000,000, (b) the Borrower will issue up to
$160,000,000 principal amount of senior subordinated
notes (the "Senior Subordinated Notes") in a public
-------------------------
offering or in a Rule 144A offering or other private
placement, (c) Newco will merge with and into Borrower
(the "Merger"), (d) at the effective time of the Merger,
------
the outstanding shares of capital
3
stock of the Borrower held by its stockholders (the
"Sellers") (other than the shares held by Holdco, which
-------
will be cancelled) will be converted into a combination
of aggregate cash consideration equal to approximately
$447,581,000 and 456,000 shares of Borrower Common Stock,
such that, following the Merger, certain of the Sellers
will continue to own approximately 7.0% of the
outstanding capital stock of the Borrower having an
aggregate value of approximately $13,684,000, (e) at the
effective time of the Merger, outstanding in the money
options to buy shares of Borrower Common Stock will be
cashed out for an aggregate amount of approximately
$14,003,000, (f) at the effective time of the Merger, the
outstanding shares of capital stock of Newco held by
Holdco will be converted into Borrower Common Stock
representing approximately 93.0% of the outstanding
capital stock of the Borrower having an aggregate value
of approximately $182,706,000 and (g) the Borrower will
pay transaction costs and expenses in connection with the
foregoing in an amount not to exceed $20,000,000 (the
foregoing transactions are collectively referred to
herein as the "Transactions").
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Sources and Uses: The approximate sources and uses of funds necessary to
consummate the Transactions are set forth on Annex II
attached hereto.
Facilities: (A) Two Senior Secured Term Loan Facilities to be
provided to the Borrower in an aggregate
4
principal amount of up to $155,000,000 (the "Term
----
Loan Facilities"), such aggregate principal amount
---------------
to be allocated between (a) a Tranche A Term Loan
Facility in an aggregate principal amount of
$75,000,000 (the "Tranche A Facility") and (b) a
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Tranche B Term Loan Facility in an aggregate
principal amount of $80,000,000 (the "Tranche B
---------
Facility"); provided that Chase and CSI shall be
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entitled to change such allocation of the Term Loans
between the Tranche A Facility and the Tranche B
Facility if Chase and CSI reasonably determine that
such changes are necessary to ensure a successful
syndication of the Facilities.
(B) Senior Secured Revolving Credit Facility (the
"Revolving Facility" and, together with the Term
------------------
Loan Facilities, the "Facilities") in an aggregate
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principal amount up to $25,000,000. Up to an amount
to be agreed of the Revolving Facility will be
available in the form of a swingline facility and up
to an amount to be agreed of the Revolving Facility
will be available in the form of letters of credit.
Agent: The Chase Manhattan Bank ("Chase") will act as
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administrative agent, collateral agent and syndication
agent (collectively, the "Agent") for a syndicate of
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financial
5
institutions (the "Lenders"), and will perform the duties
customarily associated with such roles.
Advisor, Lead Chase Securities Inc. will act as advisor, lead arranger
Arranger and Book and book manager for the Facilities (the "Arranger"), and
Manager: --------
will perform the duties customarily associated with such
roles.
Purpose: (A) The proceeds of the Term Loan Facilities will be
used on the date of the initial funding under the
Facilities (the "Closing Date"), together with the
------------
proceeds of the Contribution and the Senior
Subordinated Notes, to consummate the Transactions.
(B) The proceeds of loans under the Revolving Facility
will be used for working capital requirements;
provided that such proceeds will not be used to
--------
consummate the Transactions.
Availability: (A) The full amount of the Term Loan Facilities must be
drawn in a single drawing on the Closing Date.
Amounts repaid under the Term Loan Facilities may
not be reborrowed.
(B) Loans under the Revolving Facility will be available
at any time on and after the date immediately
following the Closing Date and prior to the final
maturity of the Revolving Facility. Amounts repaid
under the Revolving Facility may be reborrowed.
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Final Maturity and (A) Tranche A Facility: The Tranche A Facility will
Amortization: ------------------
mature six years after the Closing Date, and will
amortize in equal quarterly installments in the
annual amounts indicated below:
Year Annual Payment
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1 $ 3,000,000
2 5,000,000
3 7,000,000
4 11,000,000
5 22,000,000
6 27,000,000
(B) Tranche B Facility: The Tranche B Facility will
------------------
mature eight years after the Closing Date, and will
amortize in equal quarterly installments in the
annual amounts indicated below:
Year Annual Payment
---- --------------
1 --
2 $ 1,000,000
3 1,000,000
4 1,000,000
5 1,000,000
6 11,000,000
7 30,000,000
8 35,000,000
(C) Revolving Facility: The Revolving Facility will
------------------
mature six years after the Closing Date.
Letters of Credit: Letters of credit under the Revolving Facility will be
issued by Chase or one of its affiliates (in such
capacity, the "Issuing Bank"). Each letter of credit will
expire no later than the earlier of (a) the date one year
7
after its date of issuance and (b) the fifth business day
prior to the final maturity of the Revolving Facility.
Drawings under any letter of credit shall be reimbursed
by the Borrower on the same business day that funds are
disbursed. To the extent the Borrower does not reimburse
the Issuing Bank on such business day, the Lenders under
the Revolving Facility will be irrevocably and
unconditionally obligated to reimburse the Issuing Bank
pro rata based upon their respective Revolving Facility
commitments.
Guarantees: All obligations of the Borrower under the Facilities will
be unconditionally guaranteed by each existing and each
subsequently acquired or organized domestic and, to the
extent no adverse tax consequences to the Borrower or
such subsidiary would result therefrom, foreign
subsidiary of the Borrower (including, without
limitation, the Company).
Security: The Facilities and the related guarantees as well as
hedging agreements entered into with counterparties that
are Lenders will be secured by a first priority pledge of
all the equity securities of the Company and by
substantially all the assets of the Borrower and each
existing and each subsequently acquired or organized
domestic, or subject to the following limitation, foreign
subsidiary of the Borrower (including, without
limitation, the Company) (collectively, the
"Collateral"), including but not
----------
8
limited to (a) a first priority pledge of all the capital
stock of and other investments in each existing and each
subsequently acquired or organized subsidiary of the
Borrower (including, without limitation, the Company)
(which pledge, in the case of any foreign subsidiary,
shall be limited to 65% of the capital stock of such
foreign subsidiary to the extent the pledge of any
greater percentage would result in adverse tax
consequences to the Borrower or such subsidiary) and (b)
perfected first priority security interests in
substantially all tangible and intangible assets
(including trademarks, copyrights and all other
intellectual property) of the Borrower and each existing
and each subsequently acquired or organized domestic, or
subject to the foregoing limitation, foreign subsidiary
of the Borrower (including, without limitation, the
Company).
On the Closing Date, (a) all necessary documentation for
creating valid and prior security interests in real
property owned by the Borrower, the Company and its
subsidiaries reasonably selected by the Agent and certain
material real property leased by the Borrower, the
Company and its subsidiaries to be agreed upon shall be
executed and be in full force and effect and filed with
the applicable filing offices and the Borrower shall
provide to the Agent reasonably satisfactory title
insurance policies or title reports at the reasonable
discretion of the Agent, in each
9
case at the Borrower's expense, and (b) the Agent shall
have received current certified surveys and Phase I
environmental reports with respect to all such real
property reasonably satisfactory to the Agent.
All the above-described pledges and security interests
shall be created on terms, and pursuant to documentation,
reasonably satisfactory to the Lenders, and, subject to
limited exceptions to be agreed upon, none of the
Collateral shall be subject to any other pledges or
security interests.
Interest Rates and As set forth on Annex I hereto.
fees:
Mandatory Loans under the Term Loan Facilities shall be prepaid
Prepayment: with (a) 100% of the net cash proceeds of all non-
ordinary course asset sales or other dispositions of
property by the Borrower and its subsidiaries (including
insurance and condemnation proceeds), subject to limited
exceptions to be agreed upon and with a provision to
allow reinvestment of asset sale proceeds subject to
limitations on amount and during a period to be agreed,
(b) 100% of the net cash proceeds of issuances of equity
and debt obligations of the Borrower and its
subsidiaries, subject to limited exceptions to be agreed
upon, and (c) 75% of annual Excess Cash Flow (to be
defined) which percentages will be subject to reduction
in increments to be agreed upon based on the achievement
by the Borrower of performance standards to be agreed
10
upon. To the extent that the amount of any mandatory
prepayment exceeds the outstanding loans under the Term
Loan Facilities, the commitments under the Revolving
Facility will be reduced.
The above-described mandatory prepayments shall be
allocated between the Term Loan Facilities pro rata,
subject to the provisions set forth below under the
caption "Special Application Provisions". Within each
Term Loan Facility, mandatory prepayments shall be
applied pro rata to reduce the remaining amortization
payments under such Facility.
Special Application Holders of loans under the Tranche B Facility may, so
Provisions: long as loans are outstanding under the Tranche A
Facility, decline to accept any mandatory or optional
prepayment and, under such circumstances, all amounts
that would otherwise be used to prepay loans under the
Tranche B Facility shall be used to prepay loans under
the Tranche A Facility pro rata.
Voluntary Voluntary prepayments will be permitted in whole or in
Prepayment: part, at the option of the Borrower, in minimum principal
amounts to be agreed upon, without premium or penalty,
subject to reimbursement of the Lenders' redeployment
costs in the case of prepayment of Adjusted LIBOR
borrowings other than on the last day of the relevant
Interest Period. All voluntary prepayments of the Term
Loan Facilities will be allocated
11
between the Term Loan Facilities pro rata, subject to the
provisions set forth above under the caption "Special
Allocation Provisions", and within each Term Loan
Facility will be applied pro rata to the remaining
amortization payments under such Term Loan Facility.
Representations and Usual for facilities and transactions of this type and
Warranties: others reasonably acceptable to the Borrower and the
Agent, with materiality qualifications to be agreed,
including but not limited to representations with respect
to: due organization and power; due authorization and
enforceability; governmental approvals; no conflicts;
financial condition; no material adverse change;
properties; litigation and environmental matters;
compliance with laws and agreements; inapplicability of
the Investment Company Act and Public Utility Holding
Company Act; taxes; ERISA matters; accuracy of
disclosure; subsidiaries; insurance; labor matters;
solvency; status of obligations; Year 2000 compliance;
and validity, priority and perfection of security
interests in the Collateral.
Conditions Usual for facilities and transactions of this type, those
Precedent to specified below and others to be agreed by the Borrower
Initial Borrowing: and the Agent, including but not limited to: delivery of
satisfactory legal opinions and certificates; accuracy of
representations and warranties (and, in the case of
representations and warranties that are not qualified as
to
12
materiality, accuracy of such representations and
warranties in all material respects); absence of
defaults; payment of fees and expenses; first priority
perfected security interests in the Collateral; evidence
of reasonably satisfactory insurance; and absence of
defaults, prepayment events or creation of liens under
debt instruments (other than with respect to debt that
will be repaid upon consummation of the Transactions) or
other agreements as a result of the Transactions.
The Merger Agreement (including the attachments thereto)
and the Voting Agreement, in the respective forms in
which each such agreement is executed, shall be
substantially in the respective forms previously
delivered to the Agent, and all other agreements to be
entered into in connection with the Transactions
(including, without limitation, a shareholders agreement
among certain stockholders of the Borrower (including,
without limitation, certain members of management of the
Borrower and the Company)), in the form in which they are
executed, shall be reasonably satisfactory to the
Lenders; the Transactions shall have been consummated or
shall be consummated simultaneously with the closing of
the Facilities in accordance with Annex II hereto and in
accordance with applicable law and the Merger Agreement;
and the Merger Agreement shall not have been amended,
waived or otherwise modified in any material respect
without the approval of the Lenders.
13
The terms and conditions of the Senior Subordinated Notes
and all documentation relating thereto shall be
reasonably satisfactory to the Lenders. The
Reorganization shall have been consummated on terms and
conditions reasonably satisfactory to the Lenders. The
Contribution shall be made and the Borrower shall have
received not less than $160,000,000 in gross proceeds
from the issuance of the Senior Subordinated Notes prior
to or simultaneously with the closing of the Facilities.
The Pro Forma Leverage Ratio of the Company for the
latest 12 months ending immediately prior to the Closing
Date shall be no greater than 5.25 to 1.0 (calculated in
a manner reasonably satisfactory to the Agent and in a
manner consistent with the financial models previously
furnished by the Company to the Agent).
The Lenders shall have received a pro forma consolidated
balance sheet of the Borrower as of the closing of the
Facilities, after giving effect to the Transactions and
the consummation of the other transactions contemplated
hereby, which shall not be materially inconsistent with
the forecasts previously provided to the Lenders.
The Lenders shall have received (a) audited consolidated
balance sheets and related statements of income and cash
flow for the Company for the year ended November 2, 1998,
and (b) reasonably satisfactory
14
unaudited consolidated balance sheets and related
statements of income, stockholders' equity and cash flows
for the Company for each fiscal quarter, and monthly
balance sheets and statements of income for the Company
for each fiscal month, in each case ending after November
2, 1998, and prior to the closing of the Facilities for
which statements are available, which financial
statements shall not be materially inconsistent with the
forecasts previously provided to the Lenders.
After giving effect to the Transactions and the other
transactions contemplated hereby, the Borrower and its
subsidiaries shall have outstanding no indebtedness or
preferred equity securities other than (a) the loans
under the Facilities, (b) the Senior Subordinated Notes
and (c) other indebtedness to be agreed upon with terms
and conditions reasonably satisfactory to the Lenders.
The Lenders shall have received reasonably satisfactory
audits with respect to the amount and nature of any
environmental exposures to which the Borrower and its
subsidiaries may be subject, after giving effect to the
Transactions and the consummation of the other
transactions contemplated hereby, from Environ, and the
Lenders shall be reasonably satisfied with the plans of
the Borrower with respect thereto.
The Lenders shall have received a
15
reasonably satisfactory audit prepared by Chase's asset-
based evaluating group with respect to the accounts
receivable and inventory and related systems of the
Borrower, the Company and its subsidiaries.
The Lenders shall have received a reasonably satisfactory
appraisal of the material trademarks owned by the
Borrower, the Company or its subsidiaries by appraisers
reasonably satisfactory to the Agent.
The Lenders shall have received a solvency letter, in
form and substance reasonably satisfactory to, and from a
recognized appraiser reasonably satisfactory to, the
Lenders as to the solvency of the Borrower and its
subsidiaries on a consolidated basis after giving effect
to the Transactions and the consummation of the other
transactions contemplated hereby.
All material governmental and third party consents and
approvals required in connection with the Transactions
and the other transactions contemplated hereby shall have
been obtained, all applicable appeal periods shall have
expired and there shall be no governmental or judicial
action, actual or threatened, that could reasonably be
expected to restrain, prevent or impose materially
burdensome conditions on the Transactions or the other
transactions contemplated hereby.
Affirmative Usual for facilities and transactions of this type
Covenants:
16
(including materiality qualifications and other
exceptions to be agreed) and others to be reasonably
acceptable to the Borrower and the Agent, including but
not limited to covenants with respect to: delivery of
financial statements, other information and reports and
notices of default, litigation and other material events;
delivery of information regarding Collateral; maintenance
of corporate existence and rights and conduct of
business; payment of obligations; maintenance of
properties in good working order; maintenance of
insurance; notice and application of proceeds of casualty
or condemnation; maintenance of books and records;
inspection rights of Lenders; compliance with laws; use
of proceeds; additional subsidiaries; further assurances;
and maintenance of interest rate protection agreements on
terms and conditions reasonably satisfactory to the
Agent.
Negative Covenants: Usual for facilities and transactions of this
type (including materiality qualifications and
other exceptions to be agreed) and others to be
reasonably acceptable to the Borrower and the
Agent, including but not limited to covenants
with respect to limitations on: indebtedness
and certain equity securities; liens; fundamental
changes; investments, loans, advances, guarantees
and acquisitions; asset sales; sale-leaseback
transactions; hedging agreements; restricted
payments and certain payments on subordinated
indebtedness;
17
transactions with affiliates; capital expenditures;
restrictive agreements; and amendments of material
documents.
Selected Financial The credit agreement relating to the Facilities (the
Covenants: "Credit Agreement") will contain the following
------ ---------
financial covenants of the Borrower (with definitions of
financial terms and compliance levels to be agreed upon)
(a) maximum ratio of Total Debt to EBITDA, (b) minimum
ratio of EBITDA to Interest Expense and (c) minimum Fixed
Charge Coverage ratio.
Events of Default: Usual for facilities and transactions of this type and
others to be reasonably acceptable to the Borrower and
the Agent, including but not limited to: nonpayment of
principal (no grace period); nonpayment of interest or
other amounts (three business days' grace); incorrectness
of representations and warranties; violation of covenants
(with grace periods to be agreed with respect to certain
affirmative covenants); failure to pay material
indebtedness; cross default to material indebtedness;
bankruptcy and similar events; material judgments; ERISA
events; actual or asserted invalidity of liens on
Collateral; and Change in Control (to be defined).
Cost and Yield
Protection: Usual for facilities and transactions of this type.
Voting: Amendments and waivers of the Credit Agreement and the
other definitive loan, guarantee and security
documentation will
18
require the approval of Lenders holding more than 50% of
the aggregate amount of the loans and unused commitments
under the Facilities (the "Required Lenders"), except
-------- -------
that the consent of each Lender adversely affected
thereby shall be required with respect to certain
customary matters.
Assignments and The Lenders will be permitted to assign loans and
Participations: commitments to other Lenders (or their affiliates)
without restriction, or to other assignees with the
consent of the Borrower and the Agent, in each case not
to be unreasonably withheld. Each partial assignment
(except to other Lenders or their affiliates) must be in
a minimum aggregate principal amount of $5,000,000. The
Administrative Agent will receive a processing and
recordation fee of $3,500, payable by the assignor and/or
the assignee, with each assignment. Assignments will be
by novation.
The Lenders will be permitted to participate loans and
commitments without restriction. Voting rights of
participants shall be limited to customary matters.
Expenses and All reasonable out-of-pocket expenses (including but
Indemnification: not limited to expenses incurred in connection with due
diligence) of the Arranger and the Agent associated with
the syndication of the Facilities and with the
preparation, execution and delivery, administration,
waiver or modification and enforcement of the Credit
Agreement and the other
19
documentation contemplated hereby and thereby (including
the reasonable fees, disbursements and other charges of
counsel) are to be paid by the Borrower. In addition, all
reasonable out-of-pocket expenses of the Lenders for
enforcement costs and documentary taxes associated with
the Facilities are to be paid by the Borrower.
The Borrower will indemnify the Arranger, the Agent, the
Lenders, their affiliates and their respective officers,
directors, employees, agents and advisors and hold them
harmless from and against all costs, expenses (including
reasonable fees, disbursements and other charges of
counsel) and liabilities incurred by or asserted against
any such indemnified person arising out of or relating to
the execution, delivery or performance of the definitive
documentation in respect of the Facilities, any loans
thereunder or use of the proceeds thereof, the
Transactions, any environmental exposures relating to the
Borrower or any of its subsidiaries or any claim,
litigation, investigation or proceeding relating to any
of the foregoing; provided that no such person will be
--------
indemnified for its gross negligence or willful
misconduct.
Counsel for the Cravath, Swaine & Moore.
Arranger and the
Agent:
Governing Law and State of New York.
Forum:
ANNEX I
Interest Rates: The interest rates under the Facilities will be as
follows:
Revolving Facility and Tranche A Facility
-----------------------------------------
At the Borrower's option, (1) Adjusted LIBOR plus the
Applicable Margin or (2) ABR plus the Applicable Margin;
provided, that all swingline loans shall bear interest at
--------
ABR plus the Applicable Margin.
Tranche B Facility
------------------
At the Borrower's option, (1) Adjusted LIBOR plus the
Applicable Margin or (2) ABR plus the Applicable Margin.
All Facilities
--------------
The Borrower may elect interest periods of 1, 2, 3 or 6
months (or 9 or 12 months, subject to availability to all
participating Lenders) for Adjusted LIBOR borrowings.
Calculation of interest shall be on the basis of actual
days elapsed in a year of 360 days (or 365 or 366 days,
as the case may be, in the case of ABR loans based on the
Prime Rate) and interest shall be payable at the end of
each interest period and, in any event, at least every 3
months.
ABR is the Alternate Base Rate, which is the highest of
Chase's Prime Rate, the Federal Funds Effective Rate plus
1/2 of 1% and the Base CD Rate plus 1%.
2
LIBOR is the London interbank offered rate with respect
to eurodollar deposits for 1, 2, 3 or 6 months or,
subject to availability to all participating Lenders, 9
or 12 months (as selected by the Borrower).
Adjusted LIBOR and the Base CD Rate will at all times
include statutory reserves (and, in the case of the Base
CD Rate, FDIC assessment rates).
The Applicable Margin is a percentage determined by
reference to the Borrower's ratio of Total Debt to EBITDA
(the "Leverage Ratio") as of the end of and for the most
-------- -----
recent period of four fiscal quarters for which financial
statements have been delivered, as set forth in the
pricing grid attached hereto as Annex III; provided that,
--------
prior to the date that is six months after the Closing
Date, loans under (a) the Revolving Facility and the
Tranche A Facility will bear interest at (1) Adjusted
Libor plus 3.00% or (2) ABR plus 2.00% and (b) the
Tranche B Facility will bear interest at (1) Adjusted
Libor plus 3.50% or (2) ABR plus 2.50%.
Default Rate: Overdue principal, interest and other amounts will
bear interest, in the case of principal, at the otherwise
applicable interest rate plus 2% per annum and in the
case of interest and other amounts, at the rate otherwise
applicable to ABR Loans plus 2% per annum.
Commitment Fees: A commitment fee on the undrawn
3
portion of the commitment of each Lender (including
Chase) under the Revolving Facility will commence to
accrue on the Closing Date and will be payable quarterly
in arrears and upon the termination of such Lender's
commitment; provided that for purposes of calculating the
--------
commitment fee, outstanding swingline loans shall be
considered to be undrawn commitments under the Revolving
Facility. The commitment fee will accrue at a rate of
0.50% per annum, subject to reduction based on the
Leverage Ratio as of the end of and for the most recent
period of four fiscal quarters for which financial
statements have been delivered, as set forth in the
Pricing Grid.
Letter of Credit Fees: Each Lender participating in the Revolving Facility will
receive a participation fee on its pro rata portion of
the aggregate undrawn face amount of all outstanding
letters of credit, calculated on a 360-day basis and
payable in arrears at the end of each quarter and upon
termination of the Revolving Facility. Such fee will
accrue at a rate per annum equal to (a) in the case of
trade letters of credit, 1.25% per annum, or (b) in the
case of other letters of credit, the Applicable Margin at
the time applicable to Adjusted LIBOR borrowings under
the Revolving Facility.
A fronting fee equal to 0.25% per annum on the face
amount of each Letter of Credit shall be payable in
arrears at the end of each quarter and upon termination
of the Revolving Facility to the
4
Issuing Bank for its own account. In addition, customary
administrative, issuance, amendment, payment and
negotiation charges shall be payable to the Issuing Bank
for its own account.
ANNEX II
Sources and Uses of Funds
-------------------------
(all figures are approximate)
Sources of Funds Uses of Funds
- ---------------- -------------
Cash on Balance Sheet $ 20,000,000
Options Proceeds 9,736,000
Revolving Facility 0 Acquisition $521,126,000
Tranche A Facility 75,000,000 Transaction Expenses 20,000,000
Tranche B Facility 80,000,000 ------------
Senior Subordinated
Notes 160,000,000
Management Equity
Rollover 29,069,000
Vestar Contribution 153,637,000
Public Equity Rollover 13,684,000
------------
Total Sources $541,126,000 Total Uses $541,126,000
ANNEX III
Pricing Grid
------------
Tranche A Facility, Revolving Facility and
------------------------------------------
Commitment Fee
--------------
Leverage Ratio Adjusted Libor ABR Commitment Fee
- -------------------------------------------------------------------------------
Greater than 5.0 to 1.0 3.00% 2.00% 0.500%
- -------------------------------------------------------------------------------
Greater than 4.5 to 1.0 and 2.75% 1.75% 0.500%
less than or equal to 5.0 to 1.0
- -------------------------------------------------------------------------------
Greater than 4.0 to 1.0 and 2.50% 1.50% 0.500%
less than or equal to 4.5 to 1.0
- -------------------------------------------------------------------------------
Greater than 3.75 to 1.0 and 2.25% 1.25% 0.500%
less than or equal to 4.0 to 1.0
- -------------------------------------------------------------------------------
Less than or equal to 3.75 to 1.0 2.00% 1.00% 0.375%
- -------------------------------------------------------------------------------
Tranche B Facility
------------------
Leverage Ratio Adjusted Libor ABR
- ----------------------------------------------------------------
Greater than 4.25 to 1.0 3.50% 2.50%
- ----------------------------------------------------------------
Greater than 3.75 to 1.0 and 3.25% 2.25%
Less than or equal to 4.25 to 1.0
- ----------------------------------------------------------------
Less than or equal to 3.75 to 1.0 3.00% 2.00%
- ----------------------------------------------------------------