Exhibit 99.3
BEAR, STEARNS & CO. INC. UBS LOAN FINANCE LLC
383 Madison Avenue 877 Washington Boulevard
New York, New York 10179 Stamford, Connecticut 06901
BEAR STEARNS CORPORATE UBS SECURITIES LLC
LENDING INC. 299 Park Avenue
383 Madison Avenue New York, New York 10179
New York, New York 10179
November 7, 2005
Senior Bridge Loans
Commitment Letter
Laundry Holding Co.
Laundry Merger Sub Co.
c/o Apollo Management, L.P.
MGM Tower
10250 Constellation Blvd., Suite 2900
Los Angeles, CA 90067
Attention: Andy Jhawar
Ladies and Gentlemen:
You have advised Bear, Stearns & Co. Inc. ("Bear Stearns"),
Bear Stearns Corporate Lending Inc. ("BSCL"), UBS Loan Finance LLC ("UBS") and
UBS Securities LLC ("UBSS"; and, together with Bear Stearns, BSCL and UBS, the
"Commitment Parties") that Laundry Merger Sub Co. ("AcquisitionCo"), a newly
formed, wholly owned subsidiary of Laundry Holding Co., a newly formed Delaware
corporation ("Parent") formed by Apollo Management, L.P. (together with certain
of its affiliates, collectively, the "Sponsor"), intends to acquire (the
"Acquisition") Laundry, Inc., a Delaware corporation (the "Target"), for total
consideration of approximately $1,366.6 million (including fees and expenses of
approximately $71.8 million). You have further advised us that, upon
consummation of the Acquisition, AcquisitionCo will be merged with and into
Target with Target surviving as a wholly owned subsidiary of Laundry Holding Co.
We understand that the Acquisition will be effected pursuant to a Merger
Agreement between the AcquisitionCo and the Target (the "Purchase Agreement").
References herein to the "Transaction" shall include the Acquisition, the
financings described herein, the payment of related premiums, fees and expenses
and all other transactions related to the Acquisition and such financings.
Exhibit A-1-3
You have also advised us that you propose to finance the
Transaction from the following sources: (a) not less than $633.4 million in cash
equity to the Parent by the Sponsor and one or more other investors reasonably
acceptable to us on terms to be agreed by Parent and us (the "Contributed
Equity"), which will be contributed by Parent to the common equity capital of
AcquisitionCo to finance the Acquisition, and common equity retained in the
Target on terms and conditions reasonably satisfactory to us (the "Rollover
Equity; together with the Contributed Equity, the "Equity"); and (b) $650.0
million in cash proceeds from either (i) the issuance by AcquisitionCo of senior
secured or unsecured floating or fixed rate notes (the "Take-out Notes"), in a
public offering or Rule 144A private placement (the "Permanent Debt Financing"),
or (ii) in the event that the placement of the Permanent Debt Financing cannot
be consummated by the date on which the Acquisition is to be consummated,
borrowings by the AcquisitionCo under a senior bridge facility (the "Senior
Bridge Facility") in the amount of up to $650.0 million (the "Aggregate
Commitment"). You have also advised us that you expect AcquisitionCo to,
simultaneously with the financings described above, enter into a $600.0 million
revolving credit facility (the "Senior ABL Facility") having the terms described
in the Bank Commitment Letter of even date herewith among you and the Commitment
Parties (the "Bank Commitment Letter"), of which an amount (not to exceed $100.0
million) equal to (i) the net working capital (current assets, other than cash,
less current liabilities) of the Target as of the last completed month's balance
sheet prior to the Closing Date less (ii) $470.0 million will be drawn
immediately after giving effect to the Transaction (in addition, in connection
with the Transaction, (x) up to $150.0 million face amount of letters of credit
will be issuable under the Senior ABL Facility to replace outstanding letters of
credit of the Target and (y) up to $10.0 million face amount of letters of
credit for the benefit of CVS Corporation and certain affiliated entities will
be issuable under the Senior ABL Facility). The principal amount of loans made
under the Senior Bridge Facility (the "Senior Bridge Loans") will mature one
year from their date of issuance but, provided that no Conversion Default (as
defined in Exhibit A hereto) exists on such date, may (at the option of the
holder) be exchanged for senior exchange notes of AcquisitionCo maturing on the
eighth anniversary of the funding date of the Senior Bridge Loans (the "Exchange
Notes" and, collectively with the Senior Bridge Loans, the "Bridge Financing").
The Senior ABL Facility will also be used to finance the continuing operations
of the Target and its subsidiaries after the Transaction.
Bear Stearns is pleased to advise you that it is willing to
act as sole lead arranger and joint bookrunner for the Senior Bridge Loans, and
UBSS is pleased to advise you that it is willing to act as joint bookrunner for
the Senior Bridge Loans. Furthermore, in the event that the placement of the
Permanent Debt Financing cannot be consummated by the date on which the
Acquisition is to be consummated, BSCL is pleased to advise you of its
commitment to provide (or to cause one of its subsidiaries or affiliates to
provide) 75.0% of the Senior Bridge Loans and UBS is pleased to advise you of
its commitment to provide (or to cause one of its subsidiaries or affiliates to
provide) 25.0% of the Senior Bridge Loans, in each case, upon the terms and
subject to the conditions set forth or referred to in this commitment letter
(this "Commitment Letter") and in the Summary of Terms and Conditions attached
hereto as Exhibit A (the "Senior Bridge Loans Term Sheet") and in the Bridge Fee
Letter referred to below. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Senior Bridge Loans Term Sheet.
Exhibit A-1-4
It is agreed that (i) Bear Stearns will act as the sole lead
arranger and a joint bookrunner in respect of the Senior Bridge Facility, (ii)
UBSS will act as a joint bookrunner in respect of the Senior Bridge Facility,
(iii) BSCL will act as sole and exclusive administrative agent in respect of the
Senior Bridge Facility, (iv) UBSS will act as sole and exclusive syndication
agent in respect of the Senior Bridge Facility and (v) Bear Stearns, BSCL and
UBSS will, in their respective capacities, perform the duties and exercise the
authority customarily performed and exercised by them in such roles. You agree
that no other agents, co-agents, lead arrangers or bookrunners will be
appointed, no other titles will be awarded and no compensation (other than that
expressly contemplated by the Senior Bridge Loans Term Sheet and the Bridge Fee
Letter referred to below) will be paid in connection with the Senior Bridge
Facility, unless you and we shall so agree.
BSCL and UBS intend to syndicate their respective Senior
Bridge Facility commitments to a group of financial institutions, commercial
banks and non-banking entities (together with BSCL and UBS, the "Lenders"),
identified by Bear Stearns in consultation with you. Upon the acceptance by Bear
Stearns of any commitment pursuant to the syndication of the Senior Bridge
Facility, the commitments of BSCL and/or UBS, as applicable, hereunder in
respect thereof shall be reduced by the amount of such accepted commitment. You
understand that Bear Stearns intends to commence such syndication efforts in
respect of the Senior Bridge Facility promptly following the execution by Parent
and/or AcquisitionCo of the Purchase Agreement, and you agree actively to assist
Bear Stearns in completing a syndication satisfactory to Bear Stearns prior to
the closing of the Acquisition. Such assistance shall include (a) your using
commercially reasonable efforts to ensure that the syndication efforts benefit
materially from your existing lending and investment banking relationships and
the existing lending and investment banking relationships of the Target , (b)
direct contact by the proposed Lenders with senior management and advisors of
Parent, AcquisitionCo and the Target, (c) assistance in the preparation of a
Confidential Information Memorandum and other marketing materials to be used in
connection with the syndication, including causing such marketing materials to
conform to market standards as reasonably determined by Bear Stearns and, at the
request of Bear Stearns, the preparation of versions of the Confidential
Information Memorandum that do not contain material non-public information
concerning Parent, AcquisitionCo and Target and their respective affiliates for
purposes of United States federal and state securities laws and (d) the hosting,
with Bear Stearns, of one or more meetings of prospective Lenders and, in
connection with any such meeting, consulting with Bear Stearns with respect to
the presentations to be made at such meeting, and to make available appropriate
officers and representatives of Sponsor, Parent, AcquisitionCo and the Target to
rehearse such presentations prior to such meetings, as reasonably requested by
Bear Stearns. You also agree that, at your expense, you will work with Bear
Stearns to procure a rating for the Senior Bridge Facility by Moody's Investors
Service, Inc. and Standard &Poor's Ratings Group promptly upon execution of the
Purchase Agreement and prior to the commencement of syndication of the Senior
Bridge Facility.
Bear Stearns 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 Bear Stearns in its syndication efforts,
you agree promptly to prepare and provide to Bear Stearns all information with
respect to the Sponsor, Parent, AcquisitionCo, the Target and the Transaction,
including all financial information and projections as Bear Stearns may
reasonably request in connection with the arrangement and syndication of the
Senior Bridge Facility, including a business plan and financial projections for
fiscal years 2005 through 2013 and a satisfactory written analysis of the
business and prospects of Parent and its subsidiaries for the period from the
Closing Date through the final maturity of the Senior Bridge Facility
Exhibit A-1-5
(collectively, the "Projections"). You hereby represent and covenant that (a)
all information other than the Projections (the "Information") that has been or
will be made available to Bear Stearns by you or any of your representatives,
consultants or other advisors in connection with the Transaction, 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 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 Bear Stearns by you or any of your
representatives have been or will be prepared in good faith based upon
reasonable assumptions. You understand that in arranging and syndicating the
Senior Bridge Facility Bear Stearns may use and rely on the Information and
Projections without independent verification thereof.
As consideration for the commitments and agreements of the
Commitment Parties hereunder you agree to pay, or to cause the Target to pay,
the nonrefundable fees set forth in the Senior Bridge Loans Term Sheet and in
the fee letter dated the date hereof and delivered herewith (the "Bridge Fee
Letter"), as and when indicated therein, and to perform the obligations set
forth in the Bridge Fee Letter, including those relating to changes in the
pricing, amounts, terms and structure of the Senior Bridge Facility.
Each Commitment Party's commitments and agreements hereunder
are subject to (a) there not occurring, subsequent to the date hereof, in the
reasonable determination of Bear Stearns or UBS, any change, effect, event,
occurrence or state of facts that is or would be materially adverse to the
business, condition (financial or otherwise), assets, properties or results of
operations of the Target and its subsidiaries taken as a whole, other than any
changes, effects, events, occurrences or state of facts relating to or resulting
from (i) changes in general economic, financial or securities market conditions
in the United States or elsewhere, (iii) general changes or developments in the
industry in which the Target and its subsidiaries operate, (iii) the
announcement of the Purchase Agreement and the transactions contemplated
thereby, (iv) any actions required under the Purchase Agreement to obtain any
approval or authorization under applicable antitrust or competition laws for the
consummation of the transactions contemplated by the Purchase Agreement, (v) the
effect of incurring and paying expenses to the Target's financial advisor and
other advisors to the Target in connection with negotiating, entering into,
performing and consummating the transactions contemplated by the Purchase
Agreement, (vi) changes in any applicable foreign, federal, state, provincial or
local civil or criminal law, statute, code, ordinance, regulation, legally
binding rule or other legally enforceable obligation imposed by a court or other
any federal, state or local or foreign government, any court, administrative,
regulatory or other governmental agency, commission or authority or any
non-governmental United States or foreign self-regulatory agency, commission or
authority or any arbitral tribunal or the interpretation thereof after the date
of the Purchase Agreement, (vii) changes in GAAP or the interpretation thereof
after the date of the Purchase Agreement and (viii) any outbreak of major
hostilities in which the United States is involved or any act of insurrection,
sabotage or terrorism within the United States or directed against its
facilities or citizens wherever located; provided in the case of the immediately
preceding clauses (i), (ii) and (viii) that such changes do not affect the
Exhibit A-1-6
Target or its subsidiaries disproportionately relative to other companies
operating in the same economies or industries, (b) our not becoming aware after
the date hereof of any information or other matter (including any matter
relating to financial models and underlying assumptions relating to the
Projections) affecting Parent, AcquisitionCo, the Target or the Transaction that
in our reasonable judgment is inconsistent in a material and adverse manner with
any such information or other matter disclosed to us prior to the date hereof ,
(c) the negotiation, execution and delivery on or before April 18, 2006 of
definitive documentation with respect to the Acquisition, in form and substance
satisfactory to each Commitment Party and its counsel, (d) our satisfaction that
prior to and during the syndication of the Senior Bridge Facility there shall be
no offering, placement or arrangement of any debt securities or bank financing
by or on behalf of the Parent, AcquisitionCo, the Target and/or any of their
respective affiliates, other than the Senior ABL Facility, that could disrupt or
otherwise interfere with the orderly syndication of the Senior Bridge Facility,
(e) your compliance with your covenants and agreements with us in respect of the
Transaction (including, without limitation, your covenants and agreements
contained in this Commitment Letter and the Bridge Fee Letter) and the
correctness of your representations and warranties to us in connection
therewith, and (f) the satisfaction of the other conditions set forth in Exhibit
B to this Commitment Letter. Those matters relating to the Senior Bridge
Facility that are not covered by the provisions hereof (including the
immediately preceding paragraph hereof) and of the Senior Bridge Loans Term
Sheet are subject to the approval and agreement of the Commitment Parties and
you.
You agree (a) to indemnify and hold harmless each Commitment
Party, their respective affiliates and their respective officers, directors,
employees, attorneys, advisors, and agents (each, an "Indemnified Person"), as
set forth in Annex A hereto, and (b) to reimburse each Commitment Party and its
affiliates on demand upon the Closing Date (if the Closing occurs) for all
reasonable out-of-pocket expenses (including due diligence expenses, syndication
expenses, consultant's fees (no consultant to be retained without prior approval
of Sponsor, such approval not to be unreasonably withheld) and expenses, travel
expenses, and reasonable fees, charges and disbursements of counsel) incurred in
connection with the Senior Bridge Facility and any related documentation
(including this Commitment Letter, the Senior Bridge Loans Term Sheet, the
Bridge 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 unauthorized persons of
Information or other materials sent through electronic, telecommunications or
other information transmission systems that are intercepted by such persons or
for any special, indirect, consequential or punitive damages on any theory of
liability in connection with any act, omission, breach, occurrence or event
relating in any respect to the Senior Bridge Facility or the Transaction.
You agree to engage one or more investment banks
(collectively, the "Investment Bank") reasonably satisfactory to the Commitment
Parties to publicly sell or privately place up to $650 million aggregate
principal amount of securities (the "Securities") of the Borrower (or if the
Investment Bank shall so determine that a portion of such securities shall be
issued by Parent, then by the Borrower and Parent) the proceeds of which will be
used to provide funds for the consummation of the Transaction if such sale or
placement is completed on or prior to the consummation thereof (and thereby
reducing by the amount of such proceeds the aggregate amount of the commitments
of the Commitment Parties with respect to the Senior Bridge Facility, which
reduction shall be applied pro rata to such commitments of the Lenders) or, to
the extent such sale or placement occurs after the making of loans under the
Senior Bridge Facility, the proceeds of which will be used to repay such loans.
You shall take any and every action reasonably necessary or desirable so that
the Investment Bank can, as soon as practicable after the date hereof (whether
before or after consummation of the Transaction), publicly sell or privately
place, in one or more offerings or placements, the Securities.
Exhibit A-1-7
You acknowledge that Bear Stearns and its affiliates and UBS
and its affiliates (the terms "Bear Stearns" and "UBS" as used below in this
paragraph being understood to include such applicable affiliates) may be
providing debt financing, equity capital or other services to other companies in
respect of which you or the Target may have conflicting interests regarding the
Transaction and otherwise. Neither Bear Stearns nor UBS will use confidential
information obtained from you by virtue of the Transaction or its other
relationships with you in connection with the performance by Bear Stearns or
UBS, as applicable, of services for other companies, and neither Bear Stearns
nor UBS will furnish any such information to other companies, and that neither
Bear Stearns nor UBS will be imputed to have knowledge of confidential
information provided to or obtained by Bear Stearns or UBS, as applicable, in
its capacity as financial advisor. You also acknowledge that neither Bear
Stearns nor UBS has any obligation to use in connection with the Transaction, or
to furnish to you, confidential information obtained from other companies.
This Commitment Letter shall not be assignable by you without
the prior written consent of each Commitment Party (and any purported assignment
without such consent shall be null and void), is intended to be solely for the
benefit of the signatory parties hereto and their permitted assigns and is not
intended to confer any benefits upon, or create any rights in favor of the
Target, any existing stockholder of the Target, or any other person except the
signatory parties hereto and the Indemnified Persons. This Commitment Letter may
not be amended or waived except by an instrument in writing signed by you and
each Commitment Party. 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 Bridge Fee Letter are the only agreements that have been entered into among
us with respect to the Senior Bridge Facility and set forth the entire
understanding of the parties with respect thereto.
This Commitment Letter is delivered to you on the
understanding that neither this Commitment Letter, the Senior Bridge Loans Term
Sheet, the Bridge Fee Letter, nor any of their terms or substance shall be
disclosed, directly or indirectly, by you to any other person except (a) to your
officers, agents and advisors and, on a confidential basis, those of the Target
who are directly involved in the consideration of this matter or (b) 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); provided, (i) that
this Commitment Letter and the Senior Bridge Loans Term Sheet only may be
disclosed to the Target and its advisors on a confidential basis and (ii) that
the Bridge Fee Letter disclosed to the Target shall be redacted in a manner
acceptable to BSCL to omit certain terms; provided further, that this Commitment
Letter, the Senior Bridge Loans Term Sheet and Exhibit B to this Commitment
Letter (but not the Bridge Fee Letter) may be attached to, or filed with, the
Purchase Agreement if and when the Purchase Agreement is filed or furnished as
an exhibit to a report filed by the Target under the Securities Exchange Act of
1934, as amended.
BSCL and UBS hereby notify the Sponsor, Parent, AcquisitionCo
and the Target that, pursuant to the requirements of the USA PATRIOT Act (Title
III of Pub. L. 107-56, signed into law October 26, 2001) (the "Act"), it, and
each Lender, may be required to obtain, verify and record information that
identifies the Sponsor, Parent, AcquisitionCo and the Target, which information
includes the name and address of the Sponsor, Parent, AcquisitionCo and the
Target and other information that will allow BSCL, UBS and each Lender to
identify the Sponsor, Parent, AcquisitionCo and the Target in accordance with
the Act. This notice is given in accordance with the requirements of the Act and
is effective for BSCL, UBS and each Lender.
Exhibit A-1-8
The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and all of the provisions contained
in the Bridge 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 BSCL's or UBS'
respective commitment hereunder.
This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York (excluding the conflicts of
laws rules). You hereby irrevocably submit to the non-exclusive jurisdiction of
any court of the State of New York located in the County of New York or the
United States District Court for the Southern District of the State of New York,
or any appellate courts from any thereof, for the purpose of any suit, action or
other proceeding arising out of this Commitment Letter, the Bridge Fee Letter,
or any of the agreements or transactions contemplated hereby, which is brought
by or against you and you (i) hereby irrevocably agree that all claims in
respect of any such suit, action or proceeding may be heard and determined in
any such court and (ii) hereby agree not to commence any action, suit or
proceeding relating to this Commitment Letter, the Bridge Fee Letter, or any
such other agreements or transactions other than in such court except to the
extent such forum is not available or mandated by applicable law. You hereby
waive and agree not to assert any objection that you may now or hereafter have
to the venue of any such suit, action or proceeding in any such court or that
such suit, action or proceeding was brought in an inconvenient court and agree
not to plead or claim the same. You hereby acknowledge that you have been
advised by counsel in the negotiation, execution and delivery of this Commitment
Letter, the Bridge Fee Letter, and the other agreements and transactions
contemplated hereby, that no Commitment Party has any fiduciary relationship
with or fiduciary duty to you or any other person arising out of or in
connection with this Commitment Letter, the Bridge Fee Letter or any of the
other agreements or transactions contemplated hereby and that no Commitment
Party has been retained to advise or has advised you or any other person
regarding the wisdom, prudence or advisability of entering into or consummating
the Transaction.
YOU HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS COMMITMENT LETTER, THE BRIDGE
FEE LETTER OR ANY OF THE OTHER AGREEMENTS OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY AND FOR ANY COUNTERCLAIM RELATING THERETO.
Parent and AcquisitionCo hereby agree to cause the Target
(including each of the Obligors) to become jointly and severally liable,
effective upon the closing of the Acquisition, for any and all liabilities and
obligations of Parent and/or AcquisitionCo relating to or arising out of any of
such parties' duties, responsibilities and obligations hereunder and under the
Bridge Fee Letter.
Exhibit A-1-9
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Senior Bridge Loans Term
Sheet and the Bridge Fee Letter by returning to us executed counterparts hereof
and of the Bridge Fee Letter not later than 5:00 p.m., New York City time, on
November 9, 2005. The commitments and agreements of the Commitment Parties
herein will automatically expire (i) at such time in the event we have not
received such executed counterparts in accordance with the immediately preceding
sentence, (ii) upon termination of the Purchase Agreement and (iii) at 12:00
noon, New York City time, on April 18, 2006 if the Closing Date has not yet
occurred. Unless BSCL's and UBS' commitments shall have terminated or expired
pursuant to the terms hereof prior to such time, BSCL's and UBS' commitments to
provide the Senior Bridge Loans pursuant to this Commitment Letter shall
terminate upon the earlier of (a) the issuance of the Take-out Notes and (b) the
receipt of a Securities Demand (as defined in the Bridge Fee Letter) from Bear
Stearns. Each Commitment Party may terminate their respective commitments and
agreements under this Commitment Letter at any time if any material breach or
default occurs in the performance of any of your obligations to any of the
Commitment Parties with respect to the Transaction.
[Signature Page Follows]
Exhibit A-1-10
We are pleased to have been given the opportunity to assist
you in connection with this important financing.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ Lawrence B. Alletto
--------------------------------
Name: Lawrence B. Alletto
Title: Senior Managing Director
BEAR STEARNS CORPORATE LENDING INC.
By: /s/ Lawrence B. Alletto
--------------------------------
Name: Lawrence B. Alletto
Title: Vice President
UBS LOAN FINANCE LLC
By: /s/ David A. Juge
--------------------------------
Name: David A. Juge
Title: Managing Director
By: /s/ Barbara S. Wang
--------------------------------
Name: Barbara S. Wang
Title: Director and Counsel
Region Americas Legal
Exhibit A-1-11
UBS SECURITIES LLC
By: /s/ Brendan Connolly
--------------------------------
Name: Brendan Connolly
Title: Executive Director
By: /s/ Barbara S. Wang
--------------------------------
Name: Barbara S. Wang
Title: Director and Counsel
Region Americas Legal
Accepted and agreed to
as of the date first
written above by:
LAUNDRY HOLDING CO.
Exhibit A-1-12
By: /s/ Andrew S. Jhawar
-----------------------------------------
Name: Andrew S. Jhawar
Title: Vice President
LAUNDRY MERGER SUB CO.
By: /s/ Andrew S. Jhawar
-----------------------------------------
Name: Andrew S. Jhawar
Title: Vice President
Exhibit A-1-13
Exhibit A-1
-----------
SENIOR BRIDGE LOANS
Summary Of Terms And Conditions
November 7, 2005
Capitalized terms used and not otherwise defined herein are
used with the meanings attributed thereto in the Commitment Letter dated
November 7, 2005 (the "Commitment Letter"), from Bear, Stearns & Co. Inc., Bear
Stearns Corporate Lending Inc., UBS Loan Finance LLC and UBS Securities LLC to
Parent and AcquisitionCo, of which this Summary of Terms and Conditions forms an
integral part.
Borrower: Laundry Merger Sub Co. (the "Borrower").
Concurrently with the consummation of
the Acquisition, the Borrower will merge
with and into the Target and the Target
will assume all obligations of the
Borrower.
Guarantors: Each affiliate of the Borrower that
guarantees all or a portion of the
indebtedness under the Senior ABL
Facility (the "Guarantors" and, together
with the Borrower, the "Obligors").
Lead Arranger: Bear, Stearns & Co. Inc. (in such
capacity, the "Lead Arranger").
Joint Bookrunners: Bear Stearns & Co. Inc. and UBS
Securities LLC (in such capacities, the
"Joint Bookrunners").
Administrative Agent: Bear, Stearns Corporate Lending Inc.
("BSCL")
Syndication Agent: UBS Loan Finance LLC
Lender(s): BSCL, UBS and a syndicate of financial
institutions, commercial banks and other
non-banking entities arranged by the
Lead Arranger (collectively, the "Senior
Bridge Lenders," and together with the
Senior Lenders, the "Lenders").
Loans: $650.0 million in aggregate principal
amount of senior bridge loans (the
"Bridge Loans").
Guarantees: The Guarantors will jointly and
severally guarantee the payment when due
of all the Bridge Loans and the costs of
collection and enforcement thereof
pursuant to senior unconditional
guarantees (the "Guarantees"). A
subsidiary's guarantee will be released
upon the sale of such subsidiary,
subject to use of the proceeds therefrom
to repay Bridge Loans and/or borrowings
under the Senior ABL Facility or as
otherwise provided in the definitive
documentation governing the Bridge Loans
(the "Bridge Financing Documents").
Exhibit A-1-14
Use of Proceeds: To consummate the Acquisition and to pay
fees and reasonable expenses associated
with the Transactions.
Availability: The Bridge Loans must be drawn in a
single drawing. Bridge Loans that are
subsequently repaid may not be
reborrowed.
Maturity: One year from the Closing Date (the
"First Anniversary"). If, upon the First
Anniversary, any Bridge Loan has not
been previously repaid in full, and
provided no Conversion Default (as
defined below under "Event of Default")
exists on such date, the maturity date
of the Bridge Loans shall be
automatically extended until the eighth
anniversary of the Closing Date and,
during such extension period, each
holder of a Bridge Loan shall have the
right to exchange its Bridge Loan for a
senior exchange note (each, an "Exchange
Note") in an equal principal amount, due
on the seven-year anniversary of the
First Anniversary. The Exchange Notes
will be issued pursuant to an Indenture
that will be attached as an exhibit to
the Bridge Financing Documents and will
have the terms summarized on Exhibit A-2
to the Commitment Letter. The Exchange
Notes will be delivered, undated, into
escrow on the Closing Date for delivery
on or after the First Anniversary.
Interest: Until the First Anniversary, the Bridge
Loans will bear interest (the "Bridge
Interest Rate"), at a rate per annum
equal to, at all times during each
interest period (as set forth below and
as determined at the beginning of the
applicable interest period), the greater
of (i) the three-month London Interbank
Offered Rate, reset quarterly and
adjusted for reserves, calculated on the
basis of the actual number of days
elapsed in a year of 360 days (the
"Libor Rate"), plus a spread of 675
basis points and (ii) 10%. If the Bridge
Loans are not repaid in whole within 90
days following the Closing Date, the
spreads set forth in the preceding
sentence will each increase by 50 basis
points at the end of such 90-day period
and shall increase by an additional 50
basis points at the end of each 90-day
period thereafter until the First
Anniversary. On and after the First
Anniversary, the Bridge Interest Rate
will be the Libor Rate calculated as
described above plus a spread of 925
basis points. Furthermore, and in
addition to any increase to the
then-applicable Bridge Interest Rate due
to the immediately preceding sentence,
overdue interest, fees and other amounts
shall bear interest at 2.0% per annum
above the then-applicable Bridge
Interest Rate. Interest will be payable
quarterly in arrears and on the date of
any prepayment or repayment of the
Bridge Loans.
Exhibit A-1-15
Collateral: Subject to the priorities described
under "Priorities; Intercreditor
Agreement" below, the obligations of the
Credit Parties in respect of the Bridge
Loans will be (and the Take-Out Notes
may be) secured by the Collateral, as
such term is defined under the caption
"Security" in Annex I of the Bank
Commitment Letter, except, in the case
of any foreign subsidiary, to the extent
such pledge or security interest would
be prohibited by applicable law or would
result in materially adverse tax
consequences, and except to the extent
the cost of obtaining such pledge or
security interest is excessive in
relation to the benefit thereof (as
determined by the Lead Arranger in its
reasonable discretion), and subject to
such other exceptions as are agreed.
Priorities; Intercreditor Agreement: The liens and security interests in the
Collateral and various other related
rights will be subject to the terms of
an Intercreditor Agreement to be
reasonably satisfactory to the Lead
Arranger. That agreement will provide,
among other things, that the liens on
Collateral comprised of equipment,
fixtures, trademarks, the pledged equity
interests and any interests in owned
real estate (but not leased real estate,
except that the Borrower will use
commercially reasonable efforts to
deliver, with respect to each of its
leased distribution centers, a perfected
leasehold mortgage and landlord's
consent in favor of the Administrative
Agent (it being understood that
commercially reasonable efforts shall
not include the payment of any material
fee to obtain a landlord's consent, the
increasing of rent under any lease in a
material amount, or other material
revisions to the economic terms of any
lease)) (the "Bridge Primary
Collateral") will secure the Bridge
Loans and any secured Take-Out Notes and
the obligations in respect of swap
agreements provided by the Lenders under
the Bridge Facility or the holders of
such Notes (the "Bridge and Take-Out
Notes Obligations") on a first-priority
basis and the Senior ABL Facility and
the obligations in respect of swap
agreements and cash management
Exhibit A-1-16
arrangements provided by the Lenders
under such Facility (the "Senior ABL
Obligations") on a second-priority
basis. The liens on all other Collateral
(the "ABL Primary Collateral") shall
secure the Senior ABL Obligations on a
first-priority basis and the Bridge and
Take-Out Notes Obligations on a
second-priority basis. The Intercreditor
Agreement shall provide, among other
things, for customary and appropriate
standstill and default notice
provisions, for access to and use of
(including licenses and trademarks) the
Bridge Primary Collateral during an
enforcement with respect to the ABL
Primary Collateral, for procedures and
limitations on the collection of
proceeds of Collateral, the tracing of
the priorities into such proceeds and
the allocation and turn-over of any
identified proceeds of Bridge Primary
Collateral which are collected through
the cash management process, for
releases of second-priority liens upon
sale or disposition of Collateral when
the first-priority lien is released, for
waiver of various adequate protection
rights, for limitations on the rights of
the second-priority lien holder to
enforce on its Collateral if the effect
would be to interfere with the
first-priority lien holder, and for
other customary provisions dealing with
bankruptcy and enforcement issues
between first-priority and
second-priority lien holders.
Ranking: The Bridge Loans will be joint and
several, secured, senior obligations of
the Obligors.
Mandatory Repayments: The net proceeds from any of the
following (collectively, "Net
Proceeds"), will be used to repay the
Bridge Loans, in each case, at 100.0% of
the principal amount of the Bridge Loans
repaid plus accrued and unpaid interest
to the date of the repayment and any
breakage costs: (i) any direct or
indirect public offering or private
placement of any equity securities of
Parent, the Borrower or any direct or
indirect parent holding company of the
Borrower (below the level of Sponsor)
(other than sales of equity to the
Sponsor), (ii) any direct or indirect
public offering or private placement of
any senior or subordinated debt
securities, including, without
limitation, any Permanent Debt
Financing, after the Closing Date by any
Obligor, any subsidiary of any Obligor,
and any direct or indirect parent
holding company of the Borrower (below
the level of Sponsor) (other than
certain indebtedness permitted under the
Bridge Financing Documents as in effect
on the Closing Date), (iii) any future
bank borrowings by any Obligor (other
than under the Senior ABL Facility as in
effect on the Closing Date, as the same
may be amended or modified, or replaced,
on terms consistent with recent
comparable financings for affiliates of
the Sponsor) and (iv) subject to prior
mandatory prepayments of the Senior ABL
Facility, and certain exceptions to be
agreed upon any future asset sales
proceeds by or from any Obligor or any
affiliate or direct or indirect
subsidiary of an Obligor.
Exhibit A-1-17
Change of Control: The Borrower shall prepay
the Bridge Loans at a price of 100.0% of
principal amount, plus accrued and
unpaid interest and any breakage costs,
upon the occurrence of a change of
control.
Optional Repayment: Prior to the First Anniversary Date, the
Bridge Loans may be prepaid, in whole or
in part, at the option of the Borrower
at any time upon three business days'
written notice at a price equal to
100.0% of the principal amount thereof
plus accrued interest to the date of
redemption and any breakage costs.
Bridge Loans may not be optionally
prepaid after the First Anniversary Date
and prior to the third anniversary
following the Closing Date. After the
third anniversary of the Closing Date
the Bridge Loans may be optionally
prepaid at a price equal to the
following percentage of the principal
amount prepaid during the corresponding
year: (a) 103%, if such prepayment
occurs after the third anniversary of
the Closing Date and prior to the fourth
anniversary of the Closing Date; (b)
102%, if such prepayment occurs on or
after the fourth anniversary of the
Closing Date and prior to the fifth
anniversary of the Closing Date; (c)
101%, if such prepayment occurs on or
after the fifth anniversary of the
Closing Date and prior to the sixth
anniversary of the Closing Date; and (d)
100%, if such prepayment occurs
thereafter.
Expenses and Indemnification: The Borrower shall pay (a) all
reasonable out-of-pocket costs and
expenses of the Bridge Lenders,
including expenses incurred in
connection with the preparation,
execution, delivery and administration
of the Bridge Financing Documents
(including the fees and expenses and
other charges of counsel) and (b) all
out-of-pocket expenses of the Bridge
Lenders (including the fees and expenses
and other charges of counsel) in
connection with the enforcement of the
Bridge Financing Documents. The Bridge
Lenders (and their affiliates and their
respective officers, directors,
employees, attorneys, advisors and
agents) will have no liability for, and
will be indemnified and held harmless
against, any loss, liability cost or
expense incurred in respect of the
financing contemplated hereby or the use
or the proposed use of proceeds therefor
(except to the extent resulting from the
gross negligence or willful misconduct
of the indemnified party).
Modification of the Bridge Modification of the Bridge Financing
Documents may be made with
Exhibit A-1-18
Loans: consent of the Required Lenders, except
that, without the consent of the Lenders
holding 100.0% of the Bridge Loans
affected thereby, no modification or
change may extend the maturity of any
Bridge Loans or time of payment of any
interest on the Bridge Loans, reduce the
rate of interest or the principal amount
of any Bridge Loans, alter the mandatory
prepayment provisions of the Bridge
Loans or reduce the percentage of
Lenders necessary to modify or change
the Bridge Financing Documents. As used
herein, "Required Lenders" means the
Bridge Lenders holding (i) prior to the
Closing Date, greater than 50.0% of the
Aggregate Commitment or (ii) after the
Closing Date, more than 50.0% of the
aggregate principal amount of the Bridge
Loans then outstanding.
Yield Protection: The Bridge Financing Documents shall
contain customary provisions, changes in
reserve, tax capital adequacy and other
requirements, guidelines or policies or
their interpretation or application, and
from the imposition of withholding or
other taxes illegality, change in
circumstances, reserves and other
provisions deemed necessary by the
Bridge Lenders to provide customary
protection for U.S. and non-U.S.
financial institutions.
Conditions Precedent: The availability of the
Bridge Loans shall be conditioned upon
the satisfaction on or before April 18,
2006 of the conditions set forth in
Exhibit B to the Commitment Letter of
which this Summary of Terms and
Conditions forms an integral part (the
date upon which all such conditions
precedent shall be satisfied, the
"Closing Date").
Covenants: The Bridge Financing Documents will
contain such covenants with respect to
the Borrower and its subsidiaries as are
customary and appropriate, based on the
covenants contained in the Senior Credit
Documentation usual and customary for
financings of this kind, including,
without limitation, as to (i) use of
proceeds, (ii) refinancing of the Bridge
Loans, (iii) furnishing of financial
statements in accordance with generally
accepted accounting principles,
officers' Certificates and other
information reasonably requested by any
Bridge Lender, (iv) compliance with laws
and material contractual obligations,
(v) continuance of business and
maintenance of existence and material
rights and privileges, (vi) payment of
other obligations, (vii) notices of
default, litigation and other matters,
(viii) restrictions on liens, (ix)
maintenance of books and records, (x)
restrictions on indebtedness of the
Borrower and its subsidiaries, (xi)
restrictions on investments, (xii)
restrictions on dividends,
Exhibit A-1-19
distributions, redemptions and other
payments in respect of capital stock,
(xiii) restrictions on sales and leasing
of assets, (xiv) restrictions on mergers
and consolidations and restrictions on
additional acquisitions, liquidations
and dissolutions, (xv) restrictions on
transactions with affiliates, (xvi)
restrictions on sale-leaseback
transactions, (xvii) restrictions on
changes in business activities, (xviii)
restrictions on material adverse
amendments to charter documents, (xix)
payments for consents (xx) restrictions
on capital expenditures, and (xxi)
restrictions on issuances and sales of
equity interests in wholly owned
subsidiaries.
Events of Default: The Bridge Financing Documents will
include such events of default as are
customary and appropriate, based on the
events of default contained in the
Senior Credit Documentation. "Conversion
Default" shall mean any payment default
under the Bridge Loans or the Senior ABL
Facility, any bankruptcy default (as
defined) or any material default under
the Engagement Letter or the Fee Letter.
Representations and Warranties: The Bridge Financing
Documents will contain such
representations and warranties with
respect to the Obligors, the Target and
their respective subsidiaries as are
customary and appropriate, based on the
representations and warranties contained
in the Senior Credit Documentation.
Assignments and Participations: Each of the Bridge Lenders may, upon
notice to the Borrower and the
Administrative Agent: (i) assign all (or
any portion in excess of $1.0 million)
of its Bridge Loans to any one or more
assignees, and (ii) pledge all (or any
portion in excess of $1.0 million) of
its Bridge Loans to any Federal Reserve
Bank or to any funding source of such
Bridge Lender. In addition, subject to
customary limitations on participants'
voting rights, each of the Bridge
Lenders may sell participations (a) in
its share of the Aggregate Commitment to
any assignee, provided that no such
participation shall relieve the selling
Bridge Lender of its obligations to make
Bridge Loans on the Closing Date, and
(b) in its Bridge Loans to any assignee.
Governing Law and Forum: New York.
Counsel for the Lenders: Simpson Thacher & Bartlett LLP.
Exhibit A-1-20
Exhibit A-2
SENIOR EXCHANGE NOTES
Summary of Terms and Conditions
Capitalized terms used and not otherwise defined herein are
used with the meanings attributed thereto in the Commitment Letter dated
November 7, 2005 (the "Commitment Letter"), from Bear, Stearns & Co. Inc., Bear
Stearns Corporate Lending Inc., UBS Finance LLC and UBS Securities LLC to Parent
and AcquisitionCo, of which this Summary of Terms and Conditions forms an
integral part.
Exchange Notes: If the Bridge Loans are not repaid in
their entirety at or before the First
Anniversary, and assuming no Conversion
Default has occurred and is continuing
on the First Anniversary, each holder of
a Bridge Loans will have the right to
exchange their Bridge Loans on the First
Anniversary for Exchange Notes in an
aggregate principal amount equal to the
then outstanding principal amount of the
Bridge Loans (plus any capitalized
interest added thereto, if applicable).
The Borrower will issue Exchange Notes,
and the Guarantors will issue joint and
several guarantees thereof, under an
indenture that complies with the Trust
Indenture Act of 1939, as amended (the
"Indenture"). The Obligors will appoint
a trustee reasonably acceptable to the
holders of the Exchange Notes. The
Exchange Notes and the Indenture will be
fully executed on the Closing Date and
the Exchange Notes will be deposited,
undated, into escrow at the closing of
the Bridge Loans.
Maturity: The Exchange Notes will mature on the
eighth anniversary of the Closing Date
(i.e., the seventh anniversary of the
First Anniversary).
Denomination: The Exchange Notes will be issued in
denominations of $1,000 and integral
multiples thereof.
Interest Rate: A floating rate equal at all times to
the Libor Rate calculated as described
in Exhibit A-1 plus a spread of 925
basis points.
Overdue interest, fees and other amounts
shall bear interest at 2.0% per annum
above the then-applicable interest rate
on the Exchange Notes.
22
Interest on the Exchange Notes will be
payable in arrears semi-annually after
their release from escrow and on the
maturity date of the Exchange Notes.
Ranking; Subordination: Same as Bridge Loans.
Guarantees: Same as Bridge Loans.
Security: Same as Bridge Loans.
Mandatory Redemptions: None.
Change of Control: Upon the occurrence of a change of
control, the Borrower shall offer to
redeem the Exchange Notes at a price of
101.0% of principal amount, plus accrued
interest.
Optional Redemption: The Exchange Notes may not be redeemed,
in whole or in part, at the option of
the Borrower at any time prior to the
third anniversary of the Closing Date.
After the third anniversary of the
Closing Date the Exchange Notes may be
optionally redeemed at a redemption
price equal to the following percentage
of the principal amount redeemed during
the corresponding year: (a) 103%, if
such redemption occurs after the third
anniversary of the Closing Date and
prior to the fourth anniversary of the
Closing Date; (b) 102%, if such
redemption occurs on or after the fourth
anniversary of the Closing Date and
prior to the fifth anniversary of the
Closing Date; (c) 101%, if such
redemption occurs on or after the fifth
anniversary of the Closing Date and
prior to the sixth anniversary of the
Closing Date; and (d) 100%, if such
redemption occurs thereafter.
In addition, on or prior to the second
anniversary of the Closing Date, up to
35% of the original principal amount of
the Exchange Notes may be redeemed from
the proceeds of a qualifying equity
offering by the Borrower or Parent at a
redemption price equal to par plus a
premium equal to the interest rate that
is applicable to the Exchange Notes on
the date on which notice of the
redemption is given plus accrued
interest.
Payments: Same as Bridge Loans.
Transferability: Unlimited except as otherwise provided
by law.
Defeasance Provisions of
Exchange Notes: Customary for high-yield debt
securities.
23
Modification: Modification of the Indenture may be
made with consent of the Required
Lenders, except that, without the
consent of the Lenders holding 100.0% of
the Exchange Notes affected thereby, no
modification or change may extend the
maturity of any Exchange Notes or time
of payment of any interest on the
Exchange Notes, reduce the rate of
interest or the principal amount of any
Exchange Notes, alter the mandatory
prepayment provisions of the Exchange
Notes or reduce the percentage of Bridge
Lenders necessary to modify or change
the Indenture.
Registration Rights: The Obligors will file within 60 days
after the initial issuance date of the
Exchange Notes (the "Trigger Date"), and
will use their best efforts to cause to
become effective as soon thereafter as
practicable, a shelf registration
statement with respect to the Exchange
Notes (a "Shelf Registration
Statement"). If a Shelf Registration
Statement is declared effective, the
Obligors will keep such registration
statement effective and available
(subject to customary exceptions) until
it is no longer needed to permit
unrestricted resales of the Exchange
Notes, but in no event shall the
Obligors be required to keep such
registration statement effective and
available for more than two years after
the Trigger Date. If within 120 days
from the Trigger Date (the
"Effectiveness Date"), a Shelf
Registration Statement for the Exchange
Notes has not been declared effective,
then the Obligors will pay liquidated
damages in the form of increased
interest of 50 basis points per annum on
the principal amount of Exchange Notes
outstanding to holders of such Exchange
Notes who are unable to freely transfer
Exchange Notes from and including the
120th day after the Trigger Date to but
excluding the effective date of such
Shelf Registration Statement. On the
90th day after the Effectiveness Date,
the interest shall increase by 50 basis
points per annum, and on each 90-day
anniversary of the Effectiveness Date
thereafter, shall increase by 50 basis
points per annum, to a maximum increase
in interest of 200 basis points. The
Obligors will also pay such increased
interest for any period of time (subject
to customary exceptions) following the
effectiveness of a Shelf Registration
Statement that such Shelf Registration
Statement is not available for sales
thereunder. All accrued increased
24
interest will be paid on each quarterly
interest payment date. In addition,
unless and until the Obligors have
caused the Shelf Registration Statement
to become effective, the holders of the
Exchange Notes will have the right to
"piggy-back" in the registration of any
debt securities (subject to customary
scale-back provisions) that are
registered by any of the Obligors (other
than on a Form S-4) unless all the
Exchange Notes will be redeemed or
repaid from the proceeds of such
securities.
Covenants: Customary for high-yield debt securities
of similar issuers.
Events of Default: Customary for high-yield debt securities
of similar issuers.
Governing Law and Forum: New York.
Counsel for the Lenders: Simpson Thacher & Bartlett LLP.
25
Exhibit B
The availability of each of the Facilities, in addition to the
conditions set forth in Exhibit A, shall be subject to the satisfaction of each
of the following conditions. Capitalized terms used but not defined herein have
the meanings given in said Exhibits.
(a) Each Credit Party shall have executed and delivered to the Lead
Arranger, and the Lead Arranger shall be satisfied with, customary definitive
financing documentation and such other documents and instruments as are
customary for transactions of this type or as they may reasonably request,
including: in the event the full amount of the Take-out Notes are not issued by
the Borrower mutually satisfactory definitive Bridge Financing Documents.
(b) The following transactions shall have occurred prior to, or shall
occur concurrently with, the initial extension of credit under the Senior Bridge
Facility:
(i) The conditions to borrowing described in Annex II
to the Bank Commitment Letter shall have been
satisfied or waived and no revolving credit loans
under the Senior ABL Facility shall be outstanding
except as contemplated by the Bank Commitment
Letter;
(ii) Not less than $633.4 million in common equity
shall have been issued by Parent to the Sponsor
and other investors reasonably acceptable to the
Lead Arranger on the terms and conditions set
forth in the Commitment Letter thereto and
otherwise satisfactory to the Lead Arranger, all
of which shall have been contributed by Parent to
the common equity capital of AcquisitionCo to
finance the Acquisition; it being understood such
equity may include rollover equity in the Target
in amounts and on terms and conditions reasonably
satisfactory to the Lead Arranger;
(iii) The Acquisition shall concurrently be consummated
in accordance with all applicable requirements of
law pursuant to and in accordance with
documentation (including the Purchase Agreement)
in form and substance reasonably satisfactory to
the Lead Arranger (the "Transaction
Documentation") (it being understood and agreed
that the draft Merger Agreement dated November 8,
2005 is acceptable to the Lead Arranger), and no
material provision thereof shall have been
amended, waived or otherwise modified without the
prior written consent of the Lead Arranger and, in
the case of each of the Bridge Loans and the
Senior ABL Facility, the Required Lenders (as such
term is defined in each of Exhibit A and Exhibit
B, as applicable);
(iv) All amounts outstanding under the Target's
existing indebtedness shall have been repaid or
repurchased in full, all commitments thereunder
shall have been terminated and all liens or
security interests related thereto shall have been
terminated or released, in each case, on terms and
conditions satisfactory to the Lead Arranger; and
26
(v) The capital and ownership structure of the Parent
and the Borrower and their respective subsidiaries
after giving effect to the Transaction shall be as
described in the Commitment Letter and otherwise
satisfactory to the Lead Arranger.
(c) The Parent, AcquisitionCo, the Borrower and the Target and their
subsidiaries and the transactions contemplated hereby shall be in compliance, in
all material respects, with all applicable laws and regulations, except to the
extent as would not have a material adverse effect on the Borrower and the
Target and their subsidiaries, taken as a whole. All necessary governmental and
material third party approvals in connection with the Transactions shall have
been obtained and shall be in effect, except to the extent as would not have a
material adverse effect on the Borrower and the Target and their subsidiaries,
taken as a whole.
(d) Each Lender shall have (i) received audited consolidated balance
sheets and related statements of income, stockholders' equity and cash flows of
the Target for the fiscal year ended December 31, 2005 and for each of the prior
two fiscal years (the "Audited Financial Statements") and (ii) received (A)
unaudited consolidated balance sheets and related statements of income,
stockholders' equity and cash flows of the Target for each fiscal quarter of the
current fiscal year ending more than 20 days prior to the Closing Date, for the
period from the beginning of the current fiscal year to the end of such fiscal
quarter and for the comparable periods of the preceding fiscal year (the
"Unaudited Financial Statements") (with respect to which the independent
auditors shall have performed a SAS 100 review), (B) unaudited consolidated
balance sheets and related statements of income of the Target for each fiscal
month ending more than 20 days prior to the Closing Date, for the period from
the beginning of the current fiscal year to the end of such month and for the
comparable periods of the preceding fiscal year, and (C) a pro forma
consolidated balance sheet and related statements of income and cash flows for
Borrower (the "Pro Forma Financial Statements"), pro forma EBITDA ("Pro Forma
EBITDA") and pro forma EBITDAR ("Pro Forma EBITDAR") for the last fiscal year
covered by the Audited Financial Statements and for each twelve-month period
ending after September 30, 2005 and more than 20 days prior to the Closing Date,
in each case after giving effect to the Transactions. By no later than February
3, 2006, the Lead Arranger shall have received financial data for the year ended
December 31, 2005 comparable to that typically contained in the Target's year
end earnings releases. The financial statements referred to in clauses (i),
(ii)(A) and (ii)(B) shall be prepared in accordance with accounting principles
generally accepted in the United States. The Pro Forma Financial Statements
shall be consistent in all material respects with the sources and uses described
in the Commitment Letter. The Pro Forma Financial Statements shall be prepared
on a basis consistent with pro forma financial statements that would be set
forth in a registration statement filed with the Securities and Exchange
Commission.
(e) Pro Forma EBITDA (calculated in accordance with Schedule A
attached hereto) of the Target for the fiscal year ended December 31, 2005 shall
not be less than $140 million. The ratio of (x) pro forma total consolidated
indebtedness (excluding any amounts drawn under the Senior ABL Facility on the
Closing Date) of AcquisitionCo as of December 31, 2005 (after giving effect to
the Transactions, including any voluntary capital contribution made in addition
to the required minimum Equity Financing, the proceeds of which are used to
27
reduce indebtedness of Parent and its subsidiaries) plus eight times rent for
the fiscal year ended December 31, 2005 to (y) Pro Forma EBITDAR (calculated in
accordance with Schedule A attached hereto) for the fiscal year ended December
31, 2005 shall not be greater than 6.75x. Same store sales of the Target during
the fiscal quarter ended December 31, 2005 shall not have decreased more than 6%
from same store sales during the fiscal quarter ended December 31, 2004.
(f) The Lead Arranger shall have received the results of such lien
searches as it may request in each relevant jurisdiction with respect to the
Parent, AcquisitionCo, the Borrower and the Target and their respective
subsidiaries, and such searches shall reveal no liens on any of the assets of
the Parent, AcquisitionCo, the Borrower and the Target or their respective
subsidiaries except for liens permitted by the Senior Credit Documentation or
liens to be discharged on or prior to the Closing Date pursuant to documentation
satisfactory to the Lead Arranger. All documents and instruments required to
perfect the first and second priority security interests in the collateral , as
appropriate, under the Facilities (including delivery of capital stock
certificates and undated stock powers executed in blank) shall have been
executed and be in proper form for filing, and, in connection with the real
estate collateral, the Lead Arranger shall have received satisfactory title
insurance policies, surveys and other customary documentation.
(g) The Lead Arranger shall have received and shall be satisfied with
a solvency certificate from the chief financial officer of each Credit Party,
which shall document the solvency of each Credit Party after giving effect to
the Transaction and the other transactions contemplated hereby.
(h) The Lead Arranger shall have received and shall be satisfied with
legal opinions (including opinions (i) from counsel to the Borrower and its
subsidiaries, (ii) delivered pursuant to the Purchase Agreement, accompanied by
reliance letters in favor of the Lead Agent and the Lenders and (iii) from such
special and local counsel as may reasonably be required by the Lead Arranger).
(i) The Lenders shall have received all documentation and other
information required by bank regulatory authorities under applicable "know your
customer" and anti-money laundering rules and regulations, including the USA
Patriot Act.
(j) The Investment Bank shall have been afforded no less than 45
consecutive calendar days to market the Take-Out Notes for use in connection
with the financing of the Acquisition, with the benefit of a preliminary
prospectus or preliminary offering memorandum and other marketing materials
relating to the Take-out Notes usable in a customary high-yield road show (which
in the case of preliminary offering memoranda or preliminary prospectuses shall
comply with the rules and regulations (including Regulation S-X) of the
Securities Act of 1933), which shall include audited financials for the 2005
fiscal year or, if such audited financials are not available, unaudited
financial statements for the fiscal quarter ended December 31, 2005, and upon
which the Investment Bank shall have received customary comfort from the
Target's independent outside auditors which, in the case of quarterly financial
statements, shall mean comfort based upon a SAS 100 review of such financial
statements.
Schedule A
----------
Pro Forma EBITDA Definition
For the purposes of calculating Pro Forma EBITDA for fiscal year 2005 related to
the minimum condition of $140 million, Pro Forma EBITDA shall be defined as:
o net earnings (loss)
o plus income taxes,
o plus interest expense,
o less interest income,
o plus depreciation,
o plus amortization of intangibles,
o plus goodwill amortization.
Pro Forma EBITDA will be adjusted to exclude the following items that occurred
in the first three quarters of fiscal year 2005:
o expenses that can specifically be delineated as being attributable to this
transaction (e.g. accounting, tax, legal, and other expenses specifically
attributable to this transaction) in an amount to be no greater than $0.9
million in aggregate.
Pro Forma EBITDA will be further adjusted to exclude the following items that
occurred only during the fourth quarter of fiscal year 2005:
o expenses that can specifically be delineated as being attributable to this
transaction (e.g. accounting, tax, legal, and other expenses specifically
attributable to this transaction);
o expenses related to transaction bonus and stay compensation specifically
related to this transaction in an amount to be no greater than $1.6
million;
o shareholder reporting expenses (e.g. proxy statement preparation fees,
proxy solicitor, printing, mailing expenses, etc.);
o non-recurring non-cash goodwill and asset impairment charges (excluding any
charges related to inventory);
o restructuring reserve charges or credits related to the 2001 store closure
program;
o non-cash stock-based compensation charges;
o severance costs associated with the Greensboro distribution center closure;
and
o non-recurring gains and losses from the sale of the Greensboro, NC
distribution center; the Clifton, NJ headquarters building; the Secaucus,
NJ store; the Plano, TX store; the College Station, TX store; and the
Colorado Springs, CO store;
In addition, the calculation of Pro Forma EBITDA should:
o Incorporate the reversal of any change in accounting principles occurring
after September 30, 2005, so that Pro Forma EBITDA will be calculated in
the same manner as it would have been calculated on September 30, 2005
before such change;
o Maintain the same methodology, procedures or practices employed by the
Borrower related to areas of accounting estimates as used in and consistent
with past practice; and
o To the extent the Borrower does not comply with Section 5.1 of the Merger
Agreement, not reflect any resulting impact to the income statement.
Bear Stearns and UBSS and their agents will be permitted to review all work
papers and have access to the Borrower's auditors in order to understand the
basis for the Borrower's computation of Pro Forma EBITDA.