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SECURITIES AND EXCHANGE COMMISSION,
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
(RULE 13e-100)
TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 13e-3 THEREUNDER
RULE 13E-3 TRANSACTION STATEMENT UNDER SECTION 13(e) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ____________)
VDI MultiMedia
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(Name of Issuer)
VDI MultiMedia
VDI MultiMedia, Inc.
VMM Merger Corp.
Bain Capital, Inc.
Donald R. Stine
Robert C. Semmer
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Name of Person(s) Filing Statement)
Common Stock, no par value
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(Title of Class of Securities)
91791610
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(CUSIP Number of Class of Securities)
R. Luke Stefanko
Chief Executive Officer and Chairman of the Board
7083 Hollywood Boulevard, 2nd Floor
Hollywood, California 90028
(323) 957-7990
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(Name, Address, and Telephone Numbers of Persons Authorized to Receive Notices)
<PAGE>
and Communications on Behalf of the Person(s) Filing Statement)
Copies to:
Barry Dastin, Esq. Dennis Myers, Esq.
Kaye, Scholer, Fierman, Hays & Handler, LLP Kirkland & Ellis
1999 Avenue of the Stars, Suite 1600 200 E. Randolph Drive
Los Angeles, California 90067 Chicago, Illinois 60601
(310) 788-1000 (312) 861-2000
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
Check the following box if the filing is a final amendment reporting the
results of the transaction: [ ]
Calculation of Filing Fee
- -------------------------------------------------------------------------------
Transaction Valuation* Amount of Filing Fee
142,064.118 $28,414
- -------------------------------------------------------------------------------
*For purposes of calculation of the filing fee only. The "Transaction
Valuation" amount referred to above is the sum of (i) the product of 9,166,653,
the number of outstanding shares of common stock, excluding 44,044 shares that
the will rollover into shares of the corporation that survives the mergers (as
defined herein) (the "Shares"), of VDI MultiMedia as of December 31, 1999 and
$15.00, the cash price per Share to be paid in the mergers plus, (ii) cash
consideration of up to $5,224,983 to be paid for options being surrendered in
connection with the mergers. In accordance with Rule 0-11 under the Securities
Exchange Act of 1934, the filing fee is determined by multiplying the amount
calculated pursuant to the preceding sentence by 1/50th of the one percent.
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[X] Check the box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing with which the offering fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $28,414 Filing Party: VDI MultiMedia
------------------ -----------------
Form or Registration No.: Preliminary Date Filed: January 26, 2000
Proxy Statement -------------------
Schedule 14A
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This Rule 13e-3 Transaction Statement (the "Statement") of VDI MultiMedia,
a California corporation ("VDI"), VDI MultiMedia, Inc., a Delaware corporation
and direct wholly owned subsidiary of VDI ("VDI Delaware"), VMM Merger Corp.,
Inc. a Delaware corporation ("Merger Sub"), and Bain Capital, Inc., a Delaware
corporation ("Bain Capital"), and Donald R. Stine and Robert C. Semmer, relates
to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 24, 1999, between VDI, VDI Delaware and Merger Sub, pursuant to which
(a) VDI will merge with and into VDI Delaware with VDI Delaware as the surviving
corporation (the "Reorganization Merger"), and (b) Merger Sub will merge with
and into VDI Delaware, with VDI Delaware as the surviving corporation (the
"Acquisition Merger" and, together with the Reorganization Merger, the
"Mergers"). The Merger Agreement and the Mergers have already been approved by
the Boards of Directors and the stockholders of all the parties to the Merger
Agreement, other than the shareholders of VDI. The Statement is intended to
satisfy the reporting requirements of Section 13(e) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
This Statement is filed in connection with the filing by VDI of a
preliminary proxy statement (the "Proxy Statement") under Regulation 14A of the
Exchange Act relating to the Mergers. The information in the Proxy Statement,
including all appendices thereto, is hereby expressly incorporated herein by
reference in response to the items of Schedule 13E-3, except as otherwise set
forth below.
Item 3. Identity and Background of Filing Person.
(d) Tender Offer. Not applicable.
Item 4. Terms of the Transaction.
(a) Material Terms.
(1) Tender Offers. Not applicable.
Item 6. Purposes of the Transaction and Plans or Proposals.
(d) Subject Company Negotiations. Not Applicable.
Item 11. Interest in Securities of the Subject Company.
(b) Securities Transactions. None.
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Item 12. The Solicitation or Recommendation.
(a) Solicitation Recommendation. Not applicable.
(b) Reasons. Not applicable.
(c) Intent to Tender. Not applicable.
Item 13. Financial Statements.
(b) Pro Forma Information. Not applicable.
Item 16. Exhibits.
The following documents are filed as exhibits to this Statement:
Exhibit Number Exhibit
- -------------- -------
(a) Proxy Statement (incorporated herein by reference to the
Proxy Statement of VDI filed with the Securities and
Exchange Commission on January 26, 2000).
(b)(1) Senior Secured Credit Facilities and Senior Subordinated
Facility Commitment Letter, dated December 23, 1999 by
and between Credit Suisse First Boston and Bain Capital,
Inc.
(b)(2) Put Agreement, dated December 28, 1999 by and between
Sankaty High Yield Asset Partners, L.P. and Bain Capital,
Inc.
(b)(3) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 24, 1999.
(b)(4) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 30, 1999.
(c) Fairness Opinion of Morgan Stanley & Co. Incorporated
(incorporated herein by reference to Appendix B to the
Proxy Statement).
(d)(1) Agreement and Plan of Merger, dated as of December 24,
1999, among VDI, VDI Delaware and Merger Sub
(incorporated herein by reference to Appendix A to the
Proxy Statement).
-5-
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(d)(2) Shareholders Agreement, dated as of December 24, 1999, among
Merger Sub, R. Luke Stefanko and Julia Stefanko.
(d)(3) Employment Agreement, dated as of December 24, 1999,
between Merger Corp. and Donald R. Stine.
(e) Not applicable.
(f) Summary of Appraisal Rights (incorporated herein by
reference to Appendix C to the Proxy Statement).
(g) None.
(h) Not Applicable
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
January 26, 2000 VDI MultiMedia
By: /s/ Donald R. Stine
--------------------------------
Name: Donald R. Stine
Title: President
VDI MultiMedia, Inc.
By: /s/ Donald R. Stine
--------------------------------
Name: Donald R. Stine
Title: President
VMM Merger Corp.
By: /s/ Joseph Pretlow
--------------------------------
Name: Joseph Pretlow
Title: President
Bain Capital, Inc.
By: /s/ Joseph Pretlow
--------------------------------
Its: Managing Director
/s/ Donald R. Stine
--------------------------------
Donald R. Stine
/s/ Robert C. Semmer
--------------------------------
Robert C. Semmer
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EXHIBIT INDEX
Exhibit Number Exhibit
- -------------- -------
(a) Proxy Statement (incorporated herein by reference to the
Proxy Statement of VDI filed with the Securities and
Exchange Commission on January 26, 2000).
(b)(1) Senior Secured Credit Facilities and Senior Subordinated
Facility Commitment Letter, dated December 23, 1999 by and
between Credit Suisse First Boston and Bain Capital, Inc.
(b)(2) Put Agreement, dated December 28, 1999 by and between
Sankaty High Yield Asset Partners, L.P. and Bain Capital,
Inc.
(b)(3) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 24, 1999.
(b)(4) Commitment Letter from Bain Capital Fund VI, L.P. to VMM
Merger Corp., dated December 30, 1999.
(c) Fairness Opinion of Morgan Stanley & Co. Incorporated
(incorporated herein by reference to Appendix B to the Proxy
Statement).
(d)(1) Agreement and Plan of Merger, dated as of December 24, 1999,
among VDI, VDI Delaware and Merger Sub (incorporated herein
by reference to Appendix A to the Proxy Statement).
(d)(2) Shareholders Agreement, dated as of December 24, 1999, among
Merger Sub, R. Luke Stefanko and Julia Stefanko.
(d)(3) Employment Agreement, dated as of December 24, 1999, between
Merger Corp. and Donald R. Stine.
(e) Not applicable.
(f) Summary of Appraisal Rights (incorporated herein by
reference to Appendix C to the Proxy Statement).
(g) None.
(h) Not applicable.
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EXHIBIT B(1)
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010
December 23, 1999
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
V.D.I. MultiMedia, Inc.
-----------------------
Senior Secured Credit Facilities and
------------------------------------
Senior Subordinated Facility Commitment Letter
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Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that Bain
Capital, Inc. (the "Investors"), proposes to create a newly formed entity
reasonably satisfactory to CSFB, which will merge (the "Merger") into V.D.I.
MultiMedia, Inc., a Delaware corporation (the "Company"), in a transaction (the
"Recapitalization") that is intended to provide for recapitalization accounting
treatment. The Company is a wholly-owned subsidiary of V.D.I. MultiMedia, a
California corporation (the "Parent Company"), and prior to consummation of the
Recapitalization, the Company will be merged with and into the Parent Company
with the Company as the surviving corporation. We understand that the
Recapitalization will be accomplished through the Merger, substantially in
accordance with the provisions of the Recapitalization Agreement (as defined in
Exhibit A attached hereto) and the sources and uses set forth in Annex II to
Exhibit A attached hereto. You have further advised us that in connection with
the Recapitalization (i) the Investors will make or cause to be made an equity
contribution of approximately $65 million to the Company, (ii) the Company will
obtain senior secured credit facilities (the "Senior Facilities") in an
aggregate principal amount of up to $110 million (as more fully described in the
Summary of Principal Terms and Conditions attached hereto as Exhibit A (the
"Senior Term Sheet"), and (iii) the Company will obtain senior subordinated loan
financing (the "Senior Subordinated Facility") of $40 million, (the
Recapitalization, the Merger, the equity
<PAGE>
investment by the Investors and management, the existing shareholder rollover
equity and the transactions referred to in the immediately preceding clauses (i)
through (iii) are collectively referred to herein as the "Transactions"). The
approximate sources and uses of the funds necessary to consummate the
Transactions are set forth on Annex II to the Senior Term Sheet.
You have requested that CSFB (i) agree to structure, arrange and
syndicate the Senior Facilities, (ii) commit to provide the Senior Facilities
and to serve as advisor, arranger, administrative agent and collateral agent
therefor, (iii) agree to structure, arrange and syndicate the Senior
Subordinated Facility (together with the Senior Facilities, the "Facilities")
and (iv) commit to provide the Senior Subordinated Facility and to serve as
advisor, arranger and administrative agent therefor. CSFB is pleased to advise
you of (i) its willingness to act as exclusive advisor, arranger, administrative
agent and collateral agent for the Senior Facilities, (ii) its commitment to
provide the entire amount of the Senior Facilities upon the terms and subject to
the conditions set forth or referred to in this commitment letter and the
exhibits hereto (the "Commitment Letter") (including, without limitation, the
conditions set forth in Exhibit C attached hereto applicable thereto) and in the
Senior Term Sheet, (iii) its willingness to act as exclusive advisor, arranger
and administrative agent for the Senior Subordinated Facility and (iv) its
commitment to provide the entire amount of the Senior Subordinated Facility upon
the terms and subject to the conditions set forth or referred to herein
(including, without limitation, the conditions set forth in Exhibit C attached
hereto applicable thereto) and in the Summary of Principal Terms and Conditions
attached as Exhibit B hereto (the "Senior Subordinated Term Street"; together
with the Senior Term Sheet, the "Term Sheets").
CSFB reserves the right and intends, prior to or after the execution
of the definitive documentation with respect to the Facilities (the "Facilities
Documents"), to syndicate all or a portion of its commitments to one or more
financial institutions (such financial institutions, together with CSFB, the
"Lenders") identified by CSFB in consultation with, and reasonably acceptable
to, you, which Lenders will become parties to the Facilities Documents. It is
agreed that CSFB will act as the sole administrative agent and advisor for, and
sole arranger and syndication manager of, the Facilities and that no additional
agents or co-agents or co-arrangers will be appointed without the prior written
consent of CSFB. CSFB hereby acknowledges that its commitment to provide the
Facilities is not subject to the completion of a successful syndication of the
Facilities; provided, however, that (i) the foregoing acknowledgment by CSFB
-------- -------
shall not affect the application or interpretation of any of the terms and
conditions set forth or referred to herein (including, without limitation, the
conditions
2
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set forth in Exhibit C attached hereto) or the discretion or ability
of CSFB to exercise any rights, powers or actions available to it set forth or
referred to herein (including, without limitation, as set forth in the exhibits
attached hereto), and (ii) the inability of CSFB to successfully syndicate any
of the Facilities (A) may be considered in determining whether any of the other
terms and conditions set forth or referred to herein (including, without
limitation, the conditions set forth in Exhibit C attached hereto) have been
complied with or satisfied, in CSFB's reasonable judgment, and (B) shall be a
factor in CSFB's discretion to exercise any rights, powers or actions available
to it set forth or referred to herein (including, without limitation, as set
forth in the exhibits attached hereto).
CSFB also reserves the right to require Company to issue, in lieu of
the Senior Subordinated Facility (and, at the option of CSFB in lieu of all or a
portion of the Senior Facilities) high-yield debt securities (the "Alternative
Securities"); provided that such issuances shall be made in consultation with,
--------
and with the consent of, the Investors and Company, not to be unreasonably
withheld, it being understood that (x) the issuance of Alternative Securities in
an amount equal to at least $40 million (with any excess thereof being applied
solely to reduce the total amount of the Senior Facilities) in lieu of the
Senior Subordinated Facility shall be deemed to satisfy any condition precedent
to the Senior Facilities relating to the funding of the Senior Subordinated
Facility and (y) except as provided in this paragraph, the issuance of
Alternative Securities is not a condition for the obligations of CSFB hereunder.
In addition, CSFB also reserves the right to employ the services of
Credit Suisse First Boston Corporation ("CSFBC") in providing services
incidental to the provision of the Senior Subordinated Facility or the
Alternative Securities and any resale or refinancing of the Senior Subordinated
Loans (as defined in the Senior Subordinated Term Sheet), and you agree that,
solely in connection with the provision of such services, CSFB and CSFBC may
share with each other any confidential or other information relating to the
Investors and the Company and its subsidiaries and their respective affiliates
as from time to time they may possess.
CSFB will manage 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
identified by us in consultation with, and reasonably acceptable to you and the
Company, will participate in the allocations of the commitments among the
Lenders and the amount and distribution of fees among the Lenders. The
Investors understand that the Senior Facilities and the Senior Subordinated
Facility will be separately syndicated. You agree to assist CSFB
3
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in forming any such syndicate and to provide the potential Lenders, promptly
upon request, with all information reasonably requested by them to complete
successfully the syndication, including but not limited to (a) an information
package, including a Confidential Information Memorandum for each of the
Facilities and other marketing materials for delivery to potential Lenders and
participants, and (b) all information and projections prepared by you or your
advisors relating to the Transactions. You also agree to participate in, and to
make appropriate senior officers and representatives of the Investors, available
(and to use commercially reasonable efforts to make senior officers and
representatives of Company available) to participate in, informational meetings
for potential Lenders and participants at such times and places as CSFB may
reasonably request and to use commercially reasonable efforts to ensure that
CSFB's syndication efforts materially benefit from the Investors and the
Company's existing lending relationships.
The Investors represent and warrant and covenant that, to the best of
their knowledge:
(a) all written information (other than financial projections) which
has been or is hereafter furnished to CSFB by you or any of your
representatives in connection with the Transactions is complete and correct
as of the date thereof in all material respects and does not 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 misleading
in light of the circumstances under which such statements were or are made;
and
(b) all financial projections that have been or are hereafter prepared
by you or on your behalf and made available to CSFB have been or will be
prepared in good faith based upon what you believe to be reasonable
assumptions (it being understood that such projections are subject to
significant uncertainties and contingencies, many of which are beyond your,
or the Company's, control and that no assurance can be given that the
projections will be realized).
The Investors agree to supplement the information and projections referred to in
clauses (a) and (b) above from time to time until completion of the syndication
so that the representations and warranties in the preceding sentence remain
correct without regard to when such information and projections were furnished.
In arranging and syndicating the Facilities, CSFB will be entitled to use and
rely on such information and projections without independent verification
thereof.
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In connection with the syndication of the Facilities, CSFB may, in its
discretion, allocate to other Lenders portions of any fees payable to CSFB in
connection with the Facilities. You agree that neither you nor the Company nor
any of your or its affiliates will pay to any Lender any compensation or titles
of any kind for its participation in the Facilities except as expressly provided
for in this letter or in the fee letter dated the date hereof between you and
CSFB (the "Fee Letter").
The Investors agree, jointly and severally, to (or to cause Company
to) reimburse CSFB and its affiliates, upon request made from time to time, for
their reasonable out-of-pocket fees and expenses incurred in connection with the
preparation, execution and delivery of this letter, the Fee Letter, the Warrant
Letter (as defined below) and the Facilities Documents and the activities
thereunder or contemplated thereby, including without limitation syndication
expenses (other than fees allocated in accordance with the preceding paragraph)
and the reasonable fees and expenses of Skadden, Arps, Slate, Meagher & Flom LLP
and such other outside counsel and advisors to CSFB and its affiliates approved
by you (such approval not to be unreasonably withheld) payable on the earlier of
(i) the date the commitment of CSFB hereunder is terminated or (ii) the Closing
Date. Notwithstanding the foregoing, in the event the Recapitalization is not
consummated, the Investors shall only be obligated to reimburse the foregoing
fees and expenses of CSFB to the extent the Investors are reimbursed therefore
by the Company.
The Investors also agree, jointly and severally, to (or to cause the
Company to) indemnify and hold harmless CSFB and each other Lender, their
respective affiliates and each of their respective directors, officers,
employees, agents and advisors (each, an "Indemnified Party"), from and against
any and all claims, damages, liabilities (including securities law liabilities),
losses and expenses, including reasonable fees, expenses and disbursements of
counsel, which may be incurred by or asserted against an Indemnified Party in
connection with CSFB's or any Lender's commitment or participation in the
transactions contemplated by this letter, the Facilities or any related matter
or any investigation, litigation or proceeding in connection therewith and
whether or not the Recapitalization is consummated or the Facilities are drawn
upon, except to the extent such claim, damage, loss, liability or expense is
found to have resulted from such Indemnified Party's own bad faith, gross
negligence or willful misconduct; provided, however, that in connection with any
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such third party claim, you shall not be responsible for, or required to hold
harmless any Indemnified Party from and against, the reasonable fees, expenses
and disbursements of more than one counsel for all of the Indemnified Parties
taken together, except to the extent any such Indemnified Party requires its own
counsel in order to be adequately represented
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in the reasonable judgment of such Indemnified Party. No Indemnified Party shall
be responsible or liable to any other party hereto or any other person for
consequential damages that may be alleged as a result of this letter or the
breach of any party's obligations hereunder.
The Investors also hereby agree, in accordance with the terms of a
separate letter dated the date hereof between you and CSFB (the "Warrant
Letter"), to make available to CSFB and the holders of Senior Subordinated
Loans, Exchange Notes or Alternative Securities, as the case may be, warrants
to acquire equity in the Company to assist in the syndication of the Senior
Subordinated Loans, Exchange Notes or Alternative Securities.
The Investors also hereby agree that CSFB shall be entitled, (i) with
your consent, not to be unreasonably withheld, to change the structure, terms,
or amounts, and (ii) in CSFB's reasonable judgment, to change the pricing, in
each case, of any or all of the facilities comprising the Senior Facilities, the
Senior Subordinated Facility or the Exchange Notes if CSFB determines that such
changes are necessary to insure the successful syndication of the Senior
Facilities or the Senior Subordinated Facility, as the case may be; provided
that the total amount of the Facilities remains unchanged.
This letter is delivered to you on the understanding that neither this
letter nor any other agreement between us related to this letter or the
Transactions, including the Term Sheets, the other exhibits hereto, the Fee
Letter, the Warrant Letter and the letter of even date herewith regarding the
engagement of CSFBC with respect to the financing and structure of the
Transactions (the "Engagement Letter"), nor any of their terms or substance
shall be disclosed, directly or indirectly, to any other person except (a) to
your officers, directors, agents and advisors who are directly involved in the
consideration of this matter (and then only on a confidential basis) 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, however, that you may disclose (and then only on a confidential basis)
- -------- -------
this letter, the term sheets and the other exhibits hereto and their terms and
substance (but not the Fee Letter, the Warrant Letter or the Engagement Letter
or their respective terms and substance) to the Company and its officers,
directors agents and advisors who are directly involved in this matter so long
as they agree to the confidentiality requirements of this letter, upon your
acceptance of this letter; provided, further, that you may disclose (and then
-------- -------
only on a confidential basis) the Fee Letter and its terms and substance solely
to Board of Directors of the Company and its legal counsel so long as they agree
to the confidentiality requirements of this letter, upon your acceptance of this
letter and the Fee Letter.
6
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Our offer to provide the Facilities will terminate at 5:00 P.M., New
York time, (i) on December 24, 1999, unless on or before that time you accept
this letter by signing and returning an enclosed counterpart of this letter, the
Fee Letter, the Warrant Letter and the Engagement Letter and (ii) if so accepted
by you on or prior to such time, on April 30, 2000. Subject to the immediately
succeeding sentence, your obligations with respect to indemnification and
confidentiality shall remain in full force and effect, regardless of any
termination of the commitment of CSFB made hereunder. You agree to cause the
Company to become a party to this letter, the Fee Letter, the Warrant Letter and
the Engagement Letter on the date that the Recapitalization is consummated and
thereby assume your obligations thereunder, at which time the Investors shall be
released from such obligations.
This letter is intended to be solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any person other than the parties hereto. This letter and CSFB's
commitments hereunder may not be assigned by you without the prior written
consent of CSFB, and any attempted assignment without such consent shall be
void. CSFB's commitments hereunder may be assigned by CSFB to any of its
affiliates or any Lender. Any such assignment to an affiliate shall not relieve
CSFB from any of its obligations hereunder unless and until the Facilities
Documents with respect to such assigned commitment shall have been executed and
delivered by the parties thereto, but any assignment to a Lender shall be by
novation and shall release CSFB from its commitment hereunder pro tanto. This
--- -----
letter may not be amended or modified or any provision hereof waived except in
writing signed by you and CSFB. This letter shall be governed by and construed
in accordance with the internal laws of the State of New York without giving
effect to the conflicts of laws principles thereof. This letter may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original and all of which together shall constitute one and
the same instrument. Delivery of an executed counterpart of a signature page of
this letter by facsimile transmission shall be effective as delivery of a
manually signed counterpart hereof.
[Remainder of this page intentionally left blank]
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We appreciate the opportunity to assist you in this very important
transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ Christopher Cunningham
-----------------------------
Name: Christopher Cunningham
Title: Director
By: /s/ Richard Carey
--------------------------
Name: Richard Carey
Title: Director
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST WRITTEN ABOVE,
BAIN CAPITAL, INC.
By: /s/ Joseph Pretlow
---------------------------
Name:
Title:
8
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EXHIBIT A
V.D.I. MultiMedia
-----------------
Senior Secured Credit Facilities
--------------------------------
Summary of Principal Terms and Conditions
-----------------------------------------
<TABLE>
<S> <C>
Borrower: V.D.I. MultiMedia, Inc., a Delaware corporation
- -------- (the "Company"), currently a wholly-owned
subsidiary of V.D.I. MultiMedia, a California
corporation (the "Parent Company"). Prior to
consummation of the Recapitalization, the
Company will be merged with and into the Parent
Company with the Company as the surviving
corporation.
Recapitalization: Pursuant to an Agreement and Plan of Merger
- ---------------- (the "Recapitalization Agreement"), a
corporation to be established by the Investors
will merge (the "Merger") into the Company in a
transaction (the "Recapitalization") that is
intended to provide for recapitalization
accounting treatment, all substantially in
accordance with the provisions of the
Recapitalization Agreement and the sources and
uses set forth in Annex II attached hereto. In
connection with the Recapitalization, (a) the
Company will obtain the senior secured credit
facilities (the "Senior Facilities") as
described below under the caption "Senior
Facilities" in an aggregate principal amount of
$110 million; (b) an equity contribution of
approximately $65 million will be made to the
Company by the Investors (c) the Company will
obtain senior subordinated financing
structured, arranged and syndicated by CSFB
(the "Senior Subordinated Facility") of
</TABLE>
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/1/ All capialized terms used but not defined herein have the meanngs given
to them in the Commitment Letter to which this term sheet is attached.
A-1
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<TABLE>
<S> <C>
$40 million; (d) the Company will pay
reasonable fees and expenses
(including, without limitation, reasonable
fees of outside counsel) in connection
with the foregoing in an amount
not to exceed approximately $14.0 million and
(e) the Company will refinance certain existing
indebtedness in an aggregate principal amount
of approximately $30 million (the
Recapitalization, the Merger, the equity
investment by the Investors and management, the
existing shareholder rollover equity and the
foregoing transactions are collectively
referred to herein as the "Transactions").
Sources and Uses: The approximate sources and uses of funds
- ---------------- necessary to consummate the Transactions are
set forth on Annex II attached hereto.
Agent: CSFB will act as administrative agent (the
- ----- "Agent") for a syndicate of financial
institutions identified by CSFB in consultation
with, and reasonably acceptable to, the Company
(the "Lenders"), and will perform the duties
customarily associated with such role.
Advisor and Arranger: CSFB will act as advisor and arranger for the
- -------------------- Senior Facilities (the "Arranger"), and will
perform the duties customarily associated with
such roles.
Senior Facilities: (A) Senior secured term loan facility in an
- ----------------- aggregate principal amount of up to $65.0
million (the "Term Facility'').
(B) Senior secured revolving credit facility
(the "Revolving Facility") in an amount equal
to $45.0 million, of which up to an amount
</TABLE>
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<TABLE>
<S> <C>
to be agreed upon will be available in the
form of letters of credit.
Purpose: (A) The proceeds of the Term Facility will be
- ------- used by the Company on the date of the initial
funding under the Senior Facilities (the
"Closing Date"), together with the proceeds of
the Senior Subordinated Facility and all of the
equity sources solely (i) to finance the
Purchase Price, (ii) to repay the existing
indebtedness and (iii) to pay related fees
and expenses.
(B) The proceeds of loans under the Revolving
Facility in an amount not to exceed
approximately $17.2 million may be used,
together with the proceeds of the Equity
Contribution and the Senior Subordinated
Facility to finance the Recapitalization, repay
existing indebtedness and pay related fees and
expenses. The proceeds of any subsequent
borrowings under the Revolving Facility will be
used for general corporate purposes.
(C) Letters of credit will be used by the
Company solely for general corporate purposes.
Availability: (A) Loans under the Term Facility will be made
- ------------ available only on the Closing Date. Such
loans, once repaid may not be reborrowed.
(B) Loans under the Revolving Facility will be
available at any time prior to the final
maturity of the Revolving Facility. Amounts
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
repaid under the Revolving Facility may be
reborrowed.
(C) Letters of Credit will be available at any
time before the fifth business day prior to the
final maturity of the Revolving Facility.
Default Rate: The applicable interest rate plus 2% per annum
- ------------ (charged only at the written election of the
Lenders and only for amounts in payment
default).
Letters of Credit: Letters of credit under the Revolving Facility
- ----------------- will be issued by a New York-based Lender, as
issuing bank (in such capacity, the "Issuing
Bank"), agreed upon by the Company and the
Agent. Each letter of credit shall expire no
later than the earlier of (a) 12 months after
its date of issuance (but may, under terms to
be agreed upon, be automatically renewed) 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 Company on the same business
day. To the extent that the Company does not
reimburse the Issuing Bank on the same business
day, the Lenders shall be irrevocably obligated
to reimburse the Issuing Bank pro rata based
upon their respective Revolving Facility
commitments, with the amount of such
reimbursement payment being deemed to be a
drawing under the Revolving Facility.
The issuance of all letters of credit shall be
subject to the customary procedures of the
Issuing Bank.
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
Final Maturity and (A) Term Facility
- ------------------ -------------
Commitment Loans made under the Term Facility ("Term
- ---------- Loans") will mature on the seventh anniversary,
Reductions: of the Closing Date, and will amortize in equal
- ---------- quarterly installments in the aggregate annual
amounts (expressed as a percentage of the
original principal amount thereof) as set forth
below:
</TABLE>
<TABLE>
<CAPTION>
===============================
Year Term
Loan
===============================
<S> <C>
1 1%
-------------------------------
2 1%
-------------------------------
3 1%
--------------------------------
4 1%
--------------------------------
5 1%
--------------------------------
6 47.5%
--------------------------------
7 47.5%
================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(B) Revolving Facility
------------------
The Revolving Facility will mature on the
fifth anniversary of the Closing Date.
Guarantees: All obligations of the Company under the
- ---------- Senior Facilities will be unconditionally
guarantteed by (i) each existing and
subsequently acquired or organized domestic
subsidiary of the Company, and (ii) if there
is a parent holding company of the
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
Company, such parent holding company (in which
case, the capital stockof the Company held
by such parent holding company shall be
pledged as Collateral as provided below).
Security: The Senior Facilities and the related
- -------- guarantees will be secured by substantially
all the assets of the Company and each
existing and subsequently acquired or
organized domestic subsidiary of the Company
(collectively, the "Collateral"), including
but not limited to (a) a first priority pledge
of all the capital stock of each existing and
subsequently acquired or organized domestic
subsidiary of the Company (65% of material
foreign subsidiaries of the Company) and (b)
perfected first priority (subject to customary
exceptions) security interests in, and
mortgages on, substantially all tangible and
intangible assets of the Company and each
existing and subsequently acquired or
organized domestic subsidiary of the Company
(including but not limited to accounts
receivable, inventory, general intangibles,
intellectual property, real property, cash and
proceeds of the foregoing).
All the above-described pledges, security
interests and mortgages shall be created on
terms, and pursuant to documentation,
reasonably satisfactory to the Lenders and the
Company, and, subject to limited customary
exceptions to be agreed upon, none of the
Collateral shall be subject to any other
pledges, security interests or mortgages.
Interest Rates As set forth on Annex I hereto.
- --------------
and Fees:
- --------
</TABLE>
A-6
<PAGE>
<TABLE>
<S> <C>
Mandatory Loans under the Term Facility shall be prepaid
- --------- with (a) commencing with the 2001 fiscal year,
Prepayment: 50% of Consolidated Excess Cash Flow (to be
- ---------- defined) for each fiscal year so long as the
Leverage Ratio (as defined below) is greater
than or equal to 2.5:1 (provided that in
--------
marketing and syndicating the Senior
Facilities, such Leverage Ratio shall
initially be stated to be 3.0:1 and may be
included (in lieu of a Leverage Ratio equal
to 2.5:1) in definitive documentation only if
CSFB determines in its reasonable judgment
that a Leverage Ratio equal to 2.5:1 is not
required to successfully syndicate the
Facilities), (b) 100% of the net cash proceeds
of all non-ordinary-course asset sales or
other dispositions of property by the Company
and its subsidiaries (including insurance and
condemnation proceeds), subject to exceptions
to be agreed upon (including the right to
reinvest such proceeds in the Company's
business under certain circumstances), (c)
100% of the net cash proceeds of issuances of
debt obligations of the Company and its
subsidiaries, subject to exceptions (including
the Senior Subordinated Facility) to be agreed
upon, and (d) 50% of the net cash proceeds of
issuances of equity securities of the Company
and its subsidiaries, subject to exceptions to
be agreed upon, so long as the Leverage Ratio
is greater than or equal to 3.0:1.
Voluntary Prepayment: Voluntary prepayments will be permitted in
- -------------------- whole or in part, at the option of the
Company, in minimum principal amounts to be
agreed upon, without premium or penalty, other
than payment of breakage costs (excluding
profits and Applicable Margins) and
reimbursement of the Lenders' actual
re-employment costs in the case of prepayment
of Adjusted LIBOR borrowings other than on the
last
</TABLE>
A-7
<PAGE>
<TABLE>
<S> <C>
day of the relevant Interest Period (such
breakage costs and re-employment costs,
collectively "Breakage Costs").
Application of Voluntary and mandatory prepayments shall be
- -------------- made, without premium or penalty (but with
Prepayments: Breakage Costs (as defined above), and shall
- ----------- be applied to the Term Loans first, to
-----
amortization payments on the Loans due during
the immediately succeeding twelve month period
as directed by the Company, and second, pro
------
rata to the remaining amortization payments of
such Term Loans;
Representations Usual for facilities and transactions of this
- --------------- type and others to be agreed upon by the Agent
and Warranties: and the Company (the Company's agreement not
- -------------- to be unreasonably withheld), including but
not limited to accuracy of financial
statements; no material adverse change;
absence of litigation; no violation of
agreements or instruments; compliance with
laws (including employee benefits, margin
regulations and environmental laws); payment
of taxes; ownership of properties; solvency;
effectiveness of regulatory approvals; labor
matters; environmental matters; accuracy of
information; and validity, priority and
perfection of security interests in the
Collateral, in each case, if appropriate as
reasonably determined by CSFB, subject to
certain materiality qualifications reasonably
acceptable to CSFB.
Conditions Precedent The obligations of CSFB and the Lenders to
- -------------------- make the Senior Facilities available on the
to Initial Borrowing: Closing Date are subject to the satisfaction
- -------------------- or waiver of the
</TABLE>
A-8
<PAGE>
<TABLE>
<S> <C>
conditions set forth in Exhibit C to the
Commitment Letter.
Subject to the foregoing, the Lenders shall
make the initial Loans available to the
Company on the Closing Date bearing interest
at Adjusted LIBOR (with an interest period of
one month until syndication of the Senior
Facilities, as determined by CSFB, has been
substantially completed) plus the then
Applicable Margin so long as, on or prior to
the day that is three days prior to the
Closing Date, the Company shall have delivered
to CSFB, the other Lenders and the Agent an
executed indemnity for any Breakage Costs with
respect to such Loans that is in form and
substance reasonably satisfactory to CSFB, the
other Lenders and the Agent.
Affirmative Usual for facilities and transactions of this
- ----------- type and others to be agreed upon by the
Covenants: Company and the Agent (the Company's agreement
- --------- not to be unreasonably withheld) (to be
applicable to the Company and its subsidiaries),
including, but not limited to, maintenance of
corporate existence and rights; performance of
obligations; delivery of audited financial,
statements other financial information and notices
of default and litigation; maintenance of
properties in good working order; maintenance
of reasonably satisfactory insurance; compliance
with laws; inspection of books and properties;
further assurances; and payment of taxes.
Negative Covenants: Usual for facilities and transactions of this
- ------------------ type and others to be agreed upon by the
Company and the Agent (the Company's agreement
not to be
</TABLE>
A-9
<PAGE>
<TABLE>
<S> <C>
unreasonably withheld) (to be applicable to the
Company and its subsidiaries), including, but not
limited to, limitations on dividends on, and
redemptions and repurchases of, capital stock;
limitations on prepayments, redemptions and
repurchases of subordinated debt; limitations
on liens and sale-leaseback; transactions
limitations on loans and investments;
limitations on debt; limitations on asset
sales, mergers and acquisitions (with
exceptions for certain acquisitions so
long as (i) no Default or Event of Default
is then continuing or would result therefrom,
(ii) after giving effect thereto, the
Company is in pro forma compliance with each
of the financial covenants assuming that
the maximum Leverage Ratios were 0.25x lower
(provided that in marketing and syndicating
--------
the Senior Facilities, such assumption shall
initially not be included and may be omitted
from definitive documentation only if CSFB
determines in its reasonable judgment that
such assumption is not required to
successfully syndicate the Facilities), and
(iii) after giving effect thereto, the pro
forma EBITDA attributable to the acquired
company does not exceed 25% of the pro forma
consolidated EBITDA of the Company and its
Subsidiaries); limitations on transactions
with affiliates; limitations on changes in
business conducted; limitations on amendment
of debt and other material agreements; and
limitations on capital expenditures.
Pro forma compliance with all financial
covenants and their components shall be
determined on a basis consistent with Article
11 of Regulation S-X under the Securities Act
of 1933, as amended from time to time,
together with such other pro forma adjustments
as may be reasonably acceptable to the
Administrative Agent.
</TABLE>
A-10
<PAGE>
<TABLE>
<S> <C>
Selected Financial The credit agreement relating to the Senior
- ------------------ Facilities (the "Credit Agreement") will
Covenants: contain financial covenants determined on a
- --------- consolidated basis with respect to the Company
and its subsidiaries (with definitions of
financial terms and levels to be agreed upon),
consisting of (a) maximum ratio of Total Debt
to EBITDA ("Leverage Ratio"), (b) minimum
ratio of EBITDA to Interest Expense ("Interest
Coverage Ratio"), (c) minimum EBITDA and (d) a
capital expenditures covenant.
Events of Default: Usual for facilities and transactions of this
- ----------------- type (with customary cure periods) and others
to be agreed upon by the Company and the Agent
(the Company's agreement not to be
unreasonably withheld), including but not
limited to nonpayment of principal or
interest, violation of covenants,
incorrectness of representations and
warranties in any material respect, cross
default and cross-acceleration, bankruptcy,
material judgments, employee benefits, actual
or asserted invalidity of the guarantees or
the security documents and Change in Control
(the definition of which will be agreed upon).
Voting: Amendments and waivers of the Credit Agreement
- ------- and the other definitive credit documentation
will require the approval of the Company
and Lenders holding more than 50% of
the aggregate amount of the loans and
commitment under the Senior Facilities
(the "Required Lenders"), except that the
consent of each Lender adversely affected
thereby shall be required with respect
to (a) increases in such Lender's
commitments, (b) reductions of principal,
</TABLE>
A-11
<PAGE>
<TABLE>
<S> <C>
interest or fees, (c) extensions of scheduled
amortization or final maturity and
(d) releases of all or substantially
all of the Collateral or certain guarantors
(except where the release of Collateral or
a guarantor is made pursuant to a
transaction approved by Required Lenders
or otherwise permitted by the Loan Documents).
Cost and Yield Usual for facilities and transactions of this
- -------------- type on terms to be agreed upon. In addition, the
Protection: Company will obtain interest rate hedging on not
- ---------- less than 30% of outstandings under the Term Facility
for a period of at least two years, in form
and substance reasonably satisfactory to Agent
and Company.
Assignments and The Lenders will be permitted to assign loans
- --------------- and commitments to other financial
Participations: institutions in minimum amounts of $2.5
- -------------- million without restriction (other than with
the approval of the Company (not to be
unreasonably withheld) in the case of
assignments occurring when no Event of Default
exists to any person other than a Lender or an
affiliate of the assignor). The 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 to other financial
institutions without restriction. Voting
rights of participants shall be limited to
matters in respect of (a) reductions of
principal, interest or fees, (b) extensions of
scheduled amortization or final maturity and
(c) releases of all or substantially all of
the Collateral or certain guarantors (except
where the release of collateral or a guarantor
is
</TABLE>
A-12
<PAGE>
<TABLE>
<S> <C>
made pursuant to a transaction approved by
the Required Lenders or otherwise permitted by
the Loan Documents).
Expenses and In addition to those reasonable out-of-pocket
- ------------ expenses reimbursable under the Commitment
Indemnification: Letter, all reasonable out-of-pocket costs of
- --------------- the Agent (and, in the case of enforcement
costs and documentary taxes, the Lenders)
associated with the Senior Facilities are to
be paid by the Company.
The Company will indemnify the Arranger, the
Agent, the Lenders and their respective
officers, directors, employees, affiliates and
agents collectively ("indemnified persons")
and hold them harmless from and against all
reasonable costs, expenses (including
reasonable fees, disbursements and other
charges of counsel) and liabilities of any
such indemnified person arising out of or
relating to those matters set forth in the
Commitment Letter, including, without
limitation, any claim or any litigation or
other proceedings (regardless of whether any
such indemnified person is a party thereto)
that relate to the Transactions or any
transactions connected therewith, provided
--------
that none of the indemnified persons will be
indemnified for its bad faith, gross
negligence or willful misconduct.
Counsel for the Arranger Skadden, Arps, Slate, Meagher & Flom LLP
- ------------------------
and the Agent:
- -------------
Governing Law New York.
- -------------
and Forum:
- ---------
</TABLE>
A-13
<PAGE>
ANNEX I
TO EXHIBIT A
Interest Rates and Fees
-----------------------
Interest Rates: The interest rates under the Senior Facilities
- -------------- will be, at the Company's option, either the Base
Rate or the Adjusted LIBOR plus, in each case, the
Applicable Margin. The Applicable Margin shall be
initially as set forth in the following table, and
subsequently, as set forth below under the caption
"Changes in Commitment Fees and Interest Rates":
<TABLE>
<CAPTION>
==================================================
Applicable Margin
--------------------------------------------------
Adjusted
Base Rate LIBOR
--------------------------------------------------
<S> <C> <C>
Revolving Facility 2.50% 3.50%
--------------------------------------------------
Term Loans 3.00% 4.00%
==================================================
</TABLE>
The Company may elect interest periods of 1, 2, 3,
6 months (or, if generally made available by all
Lenders, 2 weeks or 9-or 12-months) 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
Base Rate loans based on the Prime Rate) and
interest shall be payable at the end of each
interest period and, for interest periods of six
months or longer, at least every 3 months.
A-I-1
<PAGE>
The Base Rate will be defined as the higher of the
Agent's prime lending rate and the rate 1/2 of 1%
in excess of the Federal funds effective rate.
Adjusted LIBOR will at all times include statutory
reserves.
Letter of Credit Fee: A per annum participation fee equal to the spread
- -------------------- over Adjusted LIBOR from time to time in effect for
loans under the Revolving Facility will accrue on
the aggregate face amount of outstanding letters of
credit under the Revolving Facility, payable in
arrears at the end of each quarter and upon the
termination of the Revolving Facility, in each case
for the actual number of days elapsed over a 360-
day year. Such fees shall be distributed to the
Lenders pro rata in accordance with the amount of
each such Lender's Revolving Facility commitment.
In addition, the Issuing Bank shall receive a
fronting fee equal to 0.25% per annum on all
outstanding letters of credit, payable quarterly in
arrears.
Commitment Fees: Initially, 0.50% per annum of the undrawn portion
- --------------- of the commitments in respect of the Revolving
Facility (subject to reduction as set forth below
under the caption "Changes in Commitment Fees and
Interest Rates''), commencing to accrue upon the
execution and delivery of the Credit Agreement and
payable quarterly in arrears and upon the
termination of any commitment.
Tax Gross Up: All payments shall be made without withholding or
- ------------ deduction for, or on account of, any present or
future taxes or duties imposed or levied by or on
behalf of any governmental taxing authority or, if
any such withholding or deductions are required to
be made by law, with the payment of such additional
amounts as will
A-I-2
<PAGE>
result in holders receiving such amounts as they
would have received had no such withholding or
reduction been required. In connection with its
becoming a party to the Credit Agreement, each
Lender shall deliver such forms regarding the
applicability of U.S. withholding taxes to it as
are usual for facilities of this type. In addition,
each Lender, at the cost and expense of the
Company, shall agree, on customary terms, to take
such actions to mitigate withholdings taxes as are
not adverse to it in its sole judgment.
Changes in Commencing the date of delivery of the first
- ---------- quarterly financial statements after the Closing
Commitment Fees and Date, so long as no event of default shall have
- ------------------- occurred and be continuing, Applicable Margins in
Interest Rates: respect of Loans and commitment fees under the
- -------------- Senior Facilities will be determined by reference
to the Leverage Ratio as set forth in a performance
pricing grid to be determined.
The Applicable Margin for any Base Rate Loan shall
be equal to (i) the Base Rate plus the then
Applicable Margin for that tranche of Adjusted
LIBOR Loan, minus (ii) 1.00%.
Commencing the date of delivery of the first
quarterly financial statements after the Closing
Date, the commitment fees with respect to the
undrawn portion of the commitments in respect of
the Revolving Facility will be determined by
reference to the Leverage Ratio as set forth in a
performance pricing grid to be determined.
The Leverage Ratio shall be determined as at the
last day of each fiscaL quarter; changes in
interest rates and commitment fees resulting from
changes in such ratio shall become effective on the
first day on which the financial statements
covering the quarter-end date as of which such
ratio is computed are available.
A-I-3
<PAGE>
ANNEX II
TO EXHIBIT A
Sources and Uses of Funds
-------------------------
(in millions)
(all figures are approximate)
<TABLE>
<CAPTION>
Uses of Funds Sources of Funds
- ------------- ----------------
<S> <C> <C> <C>
Purchase Price of Cash On Hand
Equity and Equity 149.0 0
Options
Revolving Facility/1/ 17.2
Transaction Expenses
14.0 Term Facility 65.0
Senior Subordinated 40.0
Facility
Repayment of 30.0 Investor Equity 65.0
Indebtedness Contribution
Management Equity TBD/2/
Contribution
Rollover Equity TBD/3/
Total Uses $193.0 Total Sources $193.0
</TABLE>
- -----------------------------
/1/ $45.0 million Revolving Facility of which approximately $17.2
million will be drawn at Closing.
/2/ The amount of the Management Equity will be determined as soon as
reasonably practicable and shall be in an amount reasonably acceptable to CSFB.
/3/ The amount of the Rollover Equity will be determined as soon as
reasonably practicable. In the event that the amount of the Rollover Equity is
such that the Total Sources would (a) exceed $193.0, the amount of the Revolver
Facility drawn at Closing will be reduced such that the Total Sources equal
$193.0, and (b) be less than $193.0, the amount of the Revolver Facility drawn
at Closing will not be changed but either the Investor Equity Contribution or
the Management Equity Contribution or a combination of both such equity
contributions will be increased such that the Total Sources equal $193.0.
A-II-1
<PAGE>
EXHIBIT B
Senior Subordinated Facility
----------------------------
Summary of Principal Terms and Conditions/1/
-----------------------------------------
Arranger and Credit Suisse First Boston ("CSFB" or the "Agent").
- ------------
Administrative Agent:
- --------------------
Lenders: A syndicate of lenders (the "Lenders") identified
- ------- in consultation with and reasonably acceptable to
the Company. At the option of CSFB, the Senior
Subordinated Loans may be sold to "qualified
institutional buyers" as defined in Rule 144A of
the Securities Act of 1933 and otherwise in
compliance with Rule 144A. In such event, Company
shall fully cooperate with CSFB to consummate such
sale.
Borrower: V.D.I. MultiMedia, Inc., a Delaware corporation
- -------- (the "Company"), currently a wholly-owned
subsidiary of V.D.I. MultiMedia, a California
corporation (the "Parent Company"). Prior to
consummation of the Recapitalization, the Company
will be merged with and into the Parent Company
with the Company as the surviving corporation.
Amount: $40 million aggregate principal amount.
- ------
Rank: The loans to be made hereunder by each of the
- ---- Lenders
- -------------------------
/1/ All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
B-1
<PAGE>
(the"Senior Subordinated Loans") will be senior
subordinated, unsecured debt of the Company,
subordinated in right of payment to the Senior
Facilities (as defined in the Commitment Letter)
and to all other existing and future senior
indebtedness of the Company pursuant to customary
subordination and standstill provisions.
Guarantees: The obligations of the Company under the Senior
- ---------- Subordinated Loans will be unconditionally
guaranteed on a senior subordinated basis by (i)
each existing and subsequently organized domestic
subsidiary of the Company that guarantees the
Senior Facilities, and (ii) if there is a parent
holding company of the Company, such parent holding
company.
Use of Proceeds: The proceeds of the Senior Subordinated Loans will
- --------------- be used by the Company, together with up to $82.2
million of the proceeds of the Senior Facilities
and the proceeds of the Equity Contribution and
cash on hand at the Company, solely (i) to finance
the Recapitalization, (ii) to repay the existing
indebtedness and (iii) to pay related fees and
expenses.
Funding: The Lenders will make the Senior Subordinated
- ------- Loans available on a date simultaneous with the
consummation of the other Transactions (the
"Closing Date").
Refinancing: The Company will use all reasonable best efforts
- ----------- to refinance the Senior Subordinated Loans as
promptly as practicable after the Closing Date,
including, without limitation, by taking the
actions described under "Affirmative
Covenants".
B-2
<PAGE>
Maturity: The Senior Subordinated Loans will mature on the
- -------- date which is 364 days after the Closing Date (as
may be extended from time to time as provided
herein, the "Senior Subordinated Maturity Date").
If any Senior Subordinated Loan is not repaid in
in full on or prior to the Senior Subordinated
Maturity Date, the Lender thereof will have the
option at any time or from time to time to
receive, in exchange for such Senior Subordinated
Loan or portion thereof, exchange notes of the
Company (the "Exchange Notes") ranking pari passu
---- -----
with the Senior Subordinated Loans and having the
terms set forth in the term sheet attached as
Annex I to this Exhibit B. If any Lender does not
exchange its Senior Subordinated Loan for Exchange
Notes on the Senior Subordinated Maturity Date,
such Lender shall be required to extend the
maturity of such loan to another date selected by
such Lender. If, on or prior to such extended
maturity, such Lender does not exchange its Senior
Subordinated Loan, such Lender shall be required
again to extend the maturity of such Senior
Subordinated Loan to another date selected by such
Lender (provided, however, that such Lender shall
-------- -------
not be required to extend the maturity of its
Senior Subordinated Loans beyond the tenth
anniversary of the Closing Date (the "Final
Maturity Date")) and this sentence shall apply to
each extended maturity of its Senior Subordinated
Loan prior to the Final Maturity Date (it being
understood that, except to the extent specifically
set forth herein, the substantive economic terms
of the Senior Subordinated Loans and the Exchange
Notes are intended to be the same). Lenders shall
not be required to exchange their respective Senior
Subordinated Loans for Exchange Notes only upon the
determination by such Lender that such exchange is
prohibited by law, rule, regulation or order
applicable to such Lender or that such exchange
would reasonably be expected to have an adverse
effect on such Lender or would otherwise be
inconsistent with such Lender's business
objectives.
B-3
<PAGE>
Interest Rates: The Senior Subordinated Loans will bear interest
- -------------- at a rate equal to the greater of (a) 13.0% per
annum and (b) Adjusted LIBOR plus 8.00%, in either
----
case, increasing by .50% at the end of each quarter
thereafter; provided, that (i) the interest rate on
--------
the Subordinated Loans in effect at any time shall
not exceed 18% per annum, and (ii) cash interest on
the Subordinated Loans shall not exceed 16% per
annum. To the extent the applicable interest rate
on the Subordinated Loans is in excess of 16% per
annum, such excess interest will be capitalized and
added to the principal amount of the Senior
Subordinated Loans.
In no event shall the interest rate on the Senior
Subordinated Loans exceed the highest lawful rate
permitted under applicable law.
Following the Senior Subordinated Maturity Date,
all outstanding Senior Subordinated Loans will
accrue interest at the rate provided for the
Exchange Notes in Annex I hereto.
Calculation of interest shall be on the basis of
actual days elapsed in a year of 360.
Interest Payments: Interest will be payable quarterly in arrears.
- -----------------
Tax Gross Up: All payments shall be made without withholding or
- ------------ deduction for, or on account of, any present or
future taxes or duties imposed or levied by or on
behalf of any governmental taxing authority or, if
any such withholding or deductions are required to
be made by law, with the payment of such additional
amounts as will result in holders receiving such
amounts as they would have received had no such
withholding or reduction been required. In
connection with its making or acquisition of
B-4
<PAGE>
Senior Subordinated Loans, each Lender shall
deliver such forms regarding the applicability of
U.S. withholding taxes to it as are usual for
facilities of this type. In addition, each Lender,
at the reasonable cost and expense of the Company,
shall agree, on customary terms, to take such
actions to mitigate withholding taxes as are not
adverse to it in its reasonable discretion.
Mandatory Subject to compliance with the Senior Facilities,
- --------- the Senior Subordinated Loans will be required to
Prepayments: be prepaid (subject to exceptions to be agreed
- ----------- upon) with:
(a) subject to exceptions to be agreed upon,
100% of the net cash proceeds of the
issuance or incurrence of debt by the
Company or its subsidiaries (subject to
customary exceptions to be agreed on,
including with respect to the Senior
Facilities and certain earn-outs);
(b) a percentage to be agreed on of the net
cash proceeds from any issuance of equity
securities of the Company or its
subsidiaries in any public offering or
private placement or from any capital
contribution (subject to customary exceptions
to be agreed on, including with respect to
certain issuances to management); and
(c) certain asset sales.
Optional Prepayments: Senior Subordinated Loans may be repaid upon five
- -------------------- days' prior notice to the Agent, in whole or in
part at the option of the Company, in a minimum
principal amount and in multiples to be agreed
upon, at any time on or prior to the first
anniversary of the Closing Date, at the principal
amount thereof, plus accrued and unpaid
B-5
<PAGE>
interest, if any, to the repayment date, and
without premium or penalty at any time thereafter.
Conditions to Closing: The obligations of CSFB and the Lenders to make
- --------------------- the Senior Subordinated Loans on the Closing Date
are subject to the satisfaction or waiver of the
conditions set forth in Exhibit C to the
Commitment Letter.
Representations and Customary for loans similar to the Senior
- ------------------- Subordinated Loans and such additional
Warranties: representations and warranties as may be agreed
- ---------- upon by the Agent and the Company, including: no
Default or Event of Default; absence of material
adverse change; financial statements; absence of
undisclosed material liabilities or material
contingent liabilities; compliance with laws;
solvency; no conflicts with laws, charter documents
or agreements; good standing; payment of taxes:
and ownership of properties, in each case, if
appropriate as reasonably determined by CSFB,
subject to certain materiality qualifications
reasonably acceptable to CSFB.
Affirmative Customary for loans similar to the Senior
- ----------- Subordinated Loans and such others as may
Covenants: reasonably be required by the Agent, including:
- --------- maintenance of corporate existence and rights;
compliance with laws; performance of obligations;
maintenance of properties in good repair;
maintenance of appropriate and adequate insurance;
inspection of books and properties; payment of
taxes and other liabilities; notice of defaults,
litigation and other adverse action; delivery of
financial statements, financial projections and
compliance certificates; and further assurances.
In addition, the Company will agree to file a
registration statement under the Securities Act or
prepare an offering
B-6
<PAGE>
memorandum covering senior notes or other debt or
equity securities of the Company (the "Refinancing
Securities") to be issued in a public offering or
private placement to refinance in full the Senior
Subordinated Facility (the "Loan Refinancing") and
to consummate such Loan Refinancing as soon as
reasonably possible after the Closing Date in an
amount sufficient to refinance all amounts
outstanding under the Senior Subordinated Facility
and on such terms and conditions (including
interest rate, yield, redemption prices and dates)
as CSFB may in its reasonable judgment determine
to be appropriate in light of prevailing
circumstances and market conditions and the
financial condition and prospects of the Company.
The indenture for the Refinancing Securities will
be substantially in the form of CSFB's standard
indenture for high-yield senior unsecured debt
securities, modified as appropriate to reflect the
terms of this transaction and the financial
condition and prospects of the Company and its
subsidiaries, and in form and substance reasonably
satisfactory to CSFB and the Company. If any
Refinancing Securities are issued in a transaction
not registered under the Securities Act to effect
the Loan Refinancing, all such Refinancing
Securities shall be entitled to the benefit of
registration rights agreements to be entered into
by the Company in customary form reasonably
acceptable to CSFB.
Negative Covenants: Customary for loans similar to the Senior
- ------------------ Subordinated Loans and such others as may be
agreed upon by the Agent and the Company,
including: limitations on incurrence of
indebtedness (including no senior subordinated
debt other than the Senior Subordinated Loans);
limitations on loans, liens, investments and joint
ventures; limitations on guarantees or other
contingent obligations; limitations on restricted
payments (including dividends, redemptions and
repurchases of capital stock);
B-7
<PAGE>
limitations on fundamental changes (including
limitations on mergers, acquisitions and asset
sales); limitations on transactions with
affiliates; limitations on dividend and other
payment restrictions affecting subsidiaries;
limitations on lines of business; limitations on
amendment of indebtedness and other material
documents; and limitations on prepayment or
repurchase of other indebtedness.
Events of Default: Customary for loans similar to the Senior
- ----------------- Subordinated Loans and others to be agreed upon by
the Agent and the Company, including: nonpayment
of principal, interest, fees or other amounts when
due; violation of covenants; failure of any
representation or warranty to be true in all
material respects; cross-default and
cross-acceleration; Change in Control; bankruptcy
events; material judgments; ERISA; and actual or
asserted invalidity of any Senior Subordinated Loan
Document.
Yield Protection and Customary for facilities of this type.
- --------------------
Increased Costs:
- ---------------
Assignments and The Company may not assign its rights or
- --------------- obligations in connection with the definitive
Participations: documentation relating to the Participations:
- -------------- Senior Subordinated Loans (the "Senior
Subordinated Loan Documents") without the prior
written consent of all the Lenders.
Lenders will have the right to assign the Senior
Subordinated Loans and their commitments (with,
so long as no Default or Event of Default has
occurred and is continuing, the consent of the
Company, such consent not to be unreasonably
withheld) and such assignments will be by
novation which will release the obligation of the
assigning Lender.
B-8
<PAGE>
Lenders will be permitted to participate their
Senior Subordinated Loans to other financial
institutions; provided, however, that the Lenders
-------- -------
granting participations retain the voting rights
to such participated amounts. Participants will
have the same benefits as the selling Lenders
would have with regard to yield protection and
increased costs, and provision of information on
the Company and its subsidiaries.
Voting: Amendments and waivers of any provision of any
- ------ Senior Subordinated Loan Documents will require
the approval of the Company and Lenders holding
commitments or loans, as the case may be,
representing a majority of the aggregate amount of
commitments or loans, respectively, under the
Senior Subordinated Loan Documents, except that
the consent of all affected Lenders shall be
required with respect to (a) increases in
commitments, (b) reductions of principal, interest
or fees, (c) extensions of the maturity date and
(d) releases of certain guarantors (except where
the release of a guarantor is made pursuant to a
transaction approved by requisite Lenders or
otherwise permitted by the Senior Subordinated
Loans Documents).
Expenses and In addition to those reasonable out-of-pocket
- ------------ expenses reimbursable under the Commitment Letter,
Indemnification: all reasonable out-of-pocket expenses of the Agent
- --------------- (and the Lenders for enforcement costs and
documentary taxes) associated with the
preparation, execution and delivery of any waiver
or modification requested by or for the benefit of
the Company (whether or not effective) of, and the
enforcement of, any Senior Subordinated Loan
Document or any document relating to the
refinancing of the Senior Subordinated Loans
(including the reasonable fees, disbursements and
other charges of counsel for the Agent) are to be
paid by the Company. The Company
B-9
<PAGE>
will indemnify the Agent and the other Lenders and
hold them harmless from and against all reasonable
costs, expenses (including reasonable fees and
disbursements of counsel) and liabilities arising
out of or relating to those matters set forth in
the Commitment Letter, including, without
limitation, any litigation or other proceeding
(regardless of whether the Agent or any such other
Lender is a party thereto) that relate to the
Transactions, the Senior Subordinated Loans or
refinancing thereof; provided, however, that
-------- -------
neither the Agent nor any such other Lender will
be indemnified for any costs, expense or liability
to the extent resulting from such person's bad
faith, gross negligence or willful misconduct.
Counsel for the Skadden, Arps, Slate, Meagher & Flom LLP.
- ---------------
Arranger and the
- ----------------
Administrative Agent:
- --------------------
Governing Law and New York.
- -----------------
Forum:
- -----
B-10
<PAGE>
ANNEX I
TO EXHIBIT B
Exchange Notes
--------------
Summary of Principal Terms and Conditions /1/
------------------------------------------
Issuer: The Company will issue Exchange Notes under an
- ------ indenture that complies with the Trust Indenture
Act (the "Indenture").
Principal Amount: The Exchange Notes will be available only in
- ---------------- exchange for the Senior Subordinated Loans. The
face amount of any Exchange Note will equal the
aggregate principal amount (including any accrued
interest not required to be paid in cash) of the
Senior Subordinated Loans for which it is
exchanged.
Maturity: The Exchange Notes will mature on the tenth
- -------- anniversary of the Closing Date.
Interest Rate: The Exchange Notes will bear interest at a rate
- ------------- equal to the Initial Rate (as defined below),
increasing by .50% at the end of each quarter
thereafter; provided, that (i) the interest rate
on the Exchange Notes in effect at any time shall
not exceed 18% per annum, and (ii) cash interest
on the Exchange Notes shall not exceed 16% per
annum. To the extent the applicable interest rate
on the Exchange Notes is in excess of 16% per
annum, such excess interest will be paid by
- ---------------------
/1/ All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
B-I-1
<PAGE>
issuing additional Exchange Notes in a principal
amount equal to such excess portion of interest.
"Initial Rate" shall be determined on the Senior
Subordinated Maturity Date and shall be equal to
the greatest of (a) the interest rate borne by
the Senior Subordinated Loans on the day
immediately preceding the Senior Subordinated
Maturity Date, (b) the Treasury Rate (as defined
below) on the Senior Subordinated Maturity Date
plus 7.00% and (c) the Credit Suisse First Boston
Corporation High Yield Single B Index Rate on the
Senior Subordinated Maturity Date plus 2.00%.
"Treasury Rate" means (i) the rate borne by direct
obligations of the United States maturing on the
tenth anniversary of the Closing Date and (ii) if
there are no such obligations, the rate determined
by linear interpolation between the rates borne by
the two direct obligations of the United States
maturing closest to, but straddling, the tenth
anniversary of the Closing Date, in each case as
published by the Board of Governors of the Federal
Reserve System.
In no event shall the interest rate on the Exchange
Notes exceed the highest lawful rate permitted
under applicable law.
Tax Gross Up: Same as Senior Subordinated Loans.
- ------------
Rank: Exchange Notes will rank pari passu with Senior
- ---- ---- -----
Subordinated Loans but will be subordinated in
right of payment to all existing and future senior
indebtedness of the Company.
Mandatory Redemption: Same as Senior Subordinated Loans.
- --------------------
B-I-2
<PAGE>
Optional Redemption: The Exchange Notes will be redeemable at the
- ------------------- option of the Company, in whole or in part, at any
time after the fifth anniversary of the Closing
Date at par plus accrued and unpaid interest to the
----
redemption date and a call premium to be
determined; provided that a portion (to be
--------
determined) of the proceeds of a public offering
of Common Stock by the Company may be used to
redeem the Exchange Notes prior to the fifth
anniversary of the Closing Date on terms to be
agreed upon.
Registration Rights: The Company will use its reasonable best efforts to
- ------------------- cause to become effective an exchange offer
registration statement or a shelf registration
statement no later than 120 days from the date of
issuance of the Exchange Notes, and the Company
will use its reasonable best efforts to keep such
registration statement effective and available
(subject to customary exceptions) until it is no
longer needed to permit unrestricted resales of
such Exchange Notes, but in no event longer than
one year from the date of issuance of any such
Exchange Notes. If the registration statement
ceases to be effective or ceases to be useable in
connection with resales of such Exchange Notes
(subject to customary exceptions), cash interest
will accrue and be payable (in addition to
interest otherwise accruing on the Exchange Notes)
at a rate of 0.50% per annum until such default
shall be cured.
The Company agrees, at its expense, to assist CSFB
in connection with resales of any of the Exchange
Notes, including making its senior officers
available to CSFB, including making them available
to assist in the preparation of
B-I-3
<PAGE>
marketing materials relating to any resales, to
participate in due diligence sessions and to
participate in road shows or other presentations to
prospective purchasers of such Exchange Notes.
Exchange Notes Escrowed: The Exchange Notes will be delivered on the Closing
- ----------------------- Date and held, undated, in escrow by a mutually
agreeable fiduciary.
Right to Transfer The holders of the Exchange Notes shall have
- ----------------- the absolute and unconditional right to transfer
Exchange Notes: such Exchange Notes to any third parties in
- -------------- compliance with applicable law.
Covenants: Those typical for an indenture governing a high-
- --------- yield senior subordinated note issue, including a
"change in control" put provision, and, to the
extent deemed reasonably necessary by CSFBC and
reasonably satisfactory to the Company, certain
covenants contained in the Senior Subordinated Loan
documentation.
Events of Default: Those typical for an indenture governing a high-
- ----------------- yield senior subordinated note issue.
Governing Law New York.
- -------------
and Forum:
- ---------
B-I-4
<PAGE>
EXHIBIT C
CONDITIONS/1/
----------
CSFB has conducted its due diligence with respect to the Facilities
and the Transactions and is pleased to inform you that it is satisfied with the
results thereof; however, the commitments of CSFB pursuant to the Commitment
Letter are subject to the condition that after the date of the Commitment Letter
nothing becomes known to CSFB that is inconsistent in a material and adverse
manner with anything disclosed to CSFB by or at the direction of the Investors
or the Company or any of their respective affiliates, agents, advisors or other
representatives prior to the date of the Commitment Letter or anything
previously obtained by CSFB from or at the direction of the Investors or the
Company or any of their respective affiliates, agents, advisors or other
representatives during such due diligence.
With respect to all periods prior to the merger of the Company with
and into the Parent Company with the Company as the surviving corporation, the
term "Company" shall be deemed to be, or to include, as the context may require,
-------
the Parent Company.
In addition to the foregoing, the commitments of CSFB pursuant to the
Commitment Letter are also subject to the following conditions:
(i) the preparation, execution and delivery of definitive
documentation in connection with the Facilities reasonably satisfactory to
CSFB, and the satisfaction (as reasonably determined by CSFB) of customary
closing conditions for transactions similar to the Senior Facilities and
the Senior Subordinated Facility, as applicable;
(ii) CSFB and the Lenders shall be reasonably satisfied (A) as of
the date the Recapitalization Agreement is signed (the "Signing Date"),
with the material terms and conditions of the Recapitalization Agreement
(to the extent that such terms and conditions have been provided to CSFB)
and with the form and substance of any other agreements to be executed
after the Signing Date
- -----------------
/1/ All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this Exhibit C is attached.
C-1
<PAGE>
solely to the extent that such forms have been provided to CSFB and
CSFB has acknowledged the same and (B) as of the Closing Date, with the
material terms and conditions of the Recapitalization Agreement
(including, without limitation, any schedules, disclosure schedules,
exhibits, appendices or attachments thereto) not provided to CSFB prior to
the Signing Date, with the material terms and conditions of each amendment,
modification, waiver and other change to the Recapitalization Agreement,
with the material terms and conditions of each other agreement entered into
in connection with the Transactions (other than agreements, the form and
substance of which CSFB has acknowledged as being satisfactory to it as of
the Signing Date under clause (A) above) and with all legal, tax and
accounting matters (it being understood that a failure to obtain
recapitalization accounting treatment with respect to the Transactions will
not give rise to rights on the part of CSFB hereunder) relating to the
Transactions that would reasonably be expected to have a Material Adverse
Effect, including without limitation, any such matters pertaining to
pending or potential litigation with respect to the Transactions and
requisite stockholder or governmental consents or approvals;
(iii) after giving effect to the Transactions and the other
transactions contemplated by the Commitment Letter, neither any Loan Party
nor any of their subsidiaries shall have outstanding any indebtedness for
borrowed money and/or with respect to capitalized leases or preferred
stock other than (a) the loans under the Senior Facilities, (b) the
Alternative Securities or the loans under the Senior Subordinated
Facility, and (c) other indebtedness for borrowed money and/or with
respect to capitalized leases or preferred stock to be agreed upon;
(iv) there shall not have occurred and be continuing after the date
of this letter (a) any general suspension of trading in securities on the
New York or American Stock Exchange or in the NASDAQ National Market
System (other than circuit breakers), (b) the declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States, or (c) any other material adverse change in banking or capital
market conditions that has had a material adverse effect on the
syndication of leveraged bank credit facilities or the consummation of
high yield offerings, as the case may be, that CSFB reasonably determines
makes it impracticable to consummate the Alternative Securities Offering
(to the extent that Alternate Securities are to be issued as required
pursuant to the Commitment Letter) or successfully syndicate the Senior
Facilities or the Senior Subordinated Facility;
C-2
<PAGE>
(v) CSFB's satisfaction that, immediately prior to and during the
marketing period for either the syndication of (a) the Senior Facilities or
(b) the Senior Subordinated Facility, there shall be no competing issues
of debt securities or commercial bank facilities (other than the Senior
Facilities and the Senior Subordinated Facility, or other permitted
indebtedness thereunder) of any Loan Party or any of their affiliates (it
being understood that any company other than the Company and its
subsidiaries in which Bain Capital, Inc. has an investment shall not
constitute an affiliate of a Loan Party under this clause (v) so long as
such company would not, but for such investment, otherwise be an
affiliate of a Loan Party);
(vi) the receipt by CSFB and, if applicable, the Lenders, on or
before the closing of the Transactions, of financial statements of the
Company (including notes thereto), consisting of (a) audited and pro forma
balance sheets as of the end of each period in the 3 fiscal-year period
ended December 31, 1998 or, if such financial statements are then
available, December 31, 1999, (b) audited and pro forma statements of
operations and cash flows for each period in the 3 fiscal-year period
ended December 31, 1998 or, if such financial statements are then
available, December 31, 1999, (c) consolidated financial statements for
each period in the 3 fiscal-year period ended December 31, 1998 or, if
such financial statements are then available, December 31, 1999 and
supporting documentation satisfactory to CSFB, (d) comparable unaudited
historical and pro forma interim financial statements covering all
quarterly or other appropriate periods subsequent to the fiscal year most
recently ended, and (e) such final projections in respect of the Loan
Parties and their respective subsidiaries as CSFB may reasonably request;
and all such financial statements, historical or pro forma, delivered
pursuant to this paragraph (vi) shall be in compliance with the
requirements of Regulation S-X for a public offering registered under the
Securities Act of 1933, and all financial statements and projections
referred to in this paragraph (vi) shall not be materially inconsistent
in an adverse manner with financial statements, projections and estimates
previously provided to CSFB and, if applicable, the Lenders;
(vii) payment of fees and expenses;
(viii) since December 31, 1998, there shall not have occurred or
become known to CSFB any event or events, adverse condition or change
that,
C-3
<PAGE>
individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect;
(ix) the Closing Date shall occur on or before April 30, 2000; and
(x) each of the Transactions shall have been consummated on the
Closing Date, substantially as contemplated by the Recapitalization
Agreement and the Commitment Letter (including, without limitation,
Annex II to Exhibit A), subject to documentation (except as expressly
provided in clause (ii) above) reasonably satisfactory in form and
to CSFB; provided, that with the consent of CSFB or after termination of
--------
CSFB's commitment by the Investors with respect to the Senior Subordinated
Facility, the Investors or the Company may seek unsecured subordinated
financing ("Other Subordinated Financing") in lieu of the Senior
Subordinated Facility or Alternative Securities so long as (a) the terms
(including, without limitation, the pricing and payment terms, maturity,
covenants, subordination provisions and defaults), documentation relating
to such Other Subordinated Financing and the resulting capital structure
of the Company and the persons providing such financing are reasonably
acceptable to CSFB in all material respects, (b) the proceeds of such Other
Subordinated Financing shall be at least $40 million, with any excess
thereof being applied solely to reduce the total amount of the Senior
Facilities, and (c) all fees and expenses required to be paid pursuant to
the Fee Letter shall have been paid; provided, further, the foregoing
-------- -------
proviso shall not release CSFB from its commitment to provide the Senior
Subordinated Facility upon the terms and subject to the conditions set
forth or referred to in the Commitment Letter (including, without
limitation, the exhibits attached to the Commitment Letter applicable
thereto) until the Investors shall have terminated such commitment or CSFB
and the Investors shall have otherwise agreed in writing.
In the event that anything arising under the first paragraph of this
Exhibit C comes to the attention of CSFB or that any of the other conditions
set forth above or in the Facilities Documents are not satisfied, CSFB reserves
the right, in its sole discretion, to either (x) suggest alternative financing
amounts or structures that ensure adequate protection for CSFB and the Lenders
(in consultation with, and as approved by, the Investors and the Company) or (y)
decline to participate in the proposed financings.
C-4
<PAGE>
As used herein, a "Material Adverse Effect" shall mean the result of
one or more events, changes or effects which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on (i) the
business, results of operations, financial condition or prospects of the Company
and its subsidiaries, in each case, taken as a whole, or (ii) the validity or
enforceability of any of the documents entered into in connection with the
Transactions or the other transactions contemplated by the Commitment Letter or
the rights, remedies and benefits available to the parties thereunder.
C-5
<PAGE>
Exhibit B(2)
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
Two Copley Place
Boston, Massachusetts 02116
December 28, 1999
Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Re: Recapitalization of VDI MultiMedia, Inc.
----------------------------------------
Ladies and Gentlemen:
You have advised Sankaty High Yield Asset Partners, L.P. ("Sankaty")
-------
that Bain Capital, Inc. proposed to create a newly formed entity reasonably
satisfactory to Sankaty, which will merge (the "Merger") into VDI MultiMedia,
------
Inc. (the "Company"), which is the surviving entity of a merger between VDI
-------
MultiMedia, a California corporation and VDI MultiMedia, Inc., a Delaware
corporation, in a transaction (the "Recapitalization") that is intended to
----------------
provide for recapitalization accounting treatment. You have further advised
Sankaty that in connection with the Recapitalization, (i) you will or will cause
to be made equity contributions of approximately $80 million to the Company (the
"Equity Contribution"), (ii) certain management will make an equity contribution
-------------------
to the Company and certain existing shareholders will roll all or a portion of
their existing equity holdings into the Company, (iii) the Company will obtain
senior secured credit facilities (the "Senior Facilities") in an aggregate
-----------------
principal amount of up to $110 million and (iv) the Company will obtain senior
subordinated financing of $25 million (the Merger, the Recapitalization, the
Equity Contribution, the equity contribution by management and rollover of
equity by certain existing shareholders and the transactions described in items
(iii) and (iv) are collectively referred to herein as the "Transactions").
------------
Sankaty (together with any additional participants, the "Mezzanine
---------
Investors") is pleased to enter into this Put Agreement pursuant to which you
- ---------
may put the Mezzanine Securities (as defined below) to the Mezzanine Investors
for an aggregate purchase price of $24 million. The "Mezzanine Securities" will
--------------------
consist of (i) Senior Subordinated Notes of the Company having an aggregate
principal amount of $25,000,000 (the "Subordinated Debt"), (ii) warrants to
-----------------
purchase 2.5% of each class of fully diluted equity of the Company as of the
closing of the Transactions with a nominal exercise price, (iii) warrants to
purchase 1.0% of each class of the fully diluted equity of the Company as of the
closing of the Transactions with an exercise price equal to three times the
value at which equity is purchased in the Recapitalization, and (iv) warrants to
purchase 1.0% of each class of the fully diluted equity of the Company as of the
<PAGE>
closing of the Transactions with an exercise price equal to five times the value
at which equity is purchased in the Recapitalization.
The purchase and sale of the Mezzanine Securities will be subject to
the execution of documentation relating to the Mezzanine Securities (the
"Agreements") in form and substance consistent with the terms set forth in the
----------
term sheet attached hereto as Annex A (the "Term Sheet") and otherwise
------- ----------
satisfactory to the Mezzanine Investors. You acknowledge that (i) the
Agreements will contain customary additional provisions that are not in the Term
Sheet and (ii) the Mezzanine Investors reserve the right in their discretion to
vary or change the terms outlined in the Term Sheet if the Mezzanine Investors
should decide that changes are necessary or desirable in order to protect their
interests in the course of preparing the definitive form of the Agreements or if
further information regarding the Company and its affairs should come to the
attention of the Mezzanine Investors that warrants such changes. Unless
extended by the Mezzanine Investors in writing, the Mezzanine Investors'
commitment to purchase the Mezzanine Securities will terminate automatically if
you have not put the Mezzanine Securities to the Mezzanine Investors on or
before April 30, 2000.
The Mezzanine Investors' obligation to purchase the Mezzanine
Securities is further subject to the conditions described in Annex B hereto.
-------
If the Recapitalization is consummated and you do not put the
Mezzanine Securities to the Mezzanine Investors, then the Mezzanine Investors
will have the right to call the Mezzanine Securities from you at the price
described above at any time from and after the closing of the Recapitalization.
Please confirm your agreement with the foregoing by signing and
returning to us the enclosed copy of this letter no later than December 30,
1999.
SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By: /s/ Jonathan Levine
____________________________
Its: Managing Director
The above is accepted and agreed to
this 28th day of December, 1999.
BAIN CAPITAL, INC.
By: /s/ Joseph Pretlow
__________________________
Its: Managing Director
-2-
<PAGE>
ANNEX A
Mezzanine Securities
--------------------
Summary of Principal Terms and Conditions
-----------------------------------------
Mezzanine Investors: Sankaty High Yield Asset Partners, L.P., together
- ------------------- with any additional participants identified by
Sankaty Advisors, Inc. (the "Mezzanine
Investors").
Issuer: V.D.I. MultiMedia, Inc. (the "Company").
- ------
Amount: $25 million, to be issued at a discount equal to
- ------ four percent (4%) of the aggregate principal
amount.
Rank: The notes to be purchased hereunder by each of
- ---- the Mezzanine Investors (the "Subordinated Debt")
will be senior subordinated, unsecured debt of the
Company, subordinated in right of payment to the
Senior Facilities.
Guarantees: The obligations of the Company under the
- ---------- Subordinated Debt will be unconditionally
guaranteed on a senior subordinated basis by (i)
each existing and subsequently organized domestic
subsidiary of the Company that guarantees the
Senior Facilities, and (ii) if there is a parent
holding company of the Company, such parent
holding company.
Use of Proceeds: The proceeds of the Subordinated Debt will be
- --------------- used by the Company, together with up to $85
million of the proceeds of the Senior Facilities,
the proceeds of the Equity Contribution, the
contribution of equity by management and the
rollover of equity by certain existing
shareholders, as well as cash on hand at the
Company solely (i) to finance the
Recapitalization, (ii) to repay the existing
indebtedness and (iii) to pay related fees and
expenses.
Funding: The Mezzanine Investors will purchase the
- ------- Subordinated Debt on a date simultaneous with the
consummation of the Transactions (the "Closing
Date").
Maturity: The Subordinated Debt will mature on the date
- -------- which is the eighth anniversary of the Closing
Date (as may be extended from time to time as
provided herein, the "Subordinated Maturity
Date").
A-1
<PAGE>
Interest Rates: The Subordinated Debt will bear interest at a
- -------------- rate equal to 12.0% per annum of cash pay
interest, plus 3% per annum of pay-in-kind
interest, provided, however, if the Company shall
fail to meet its financial plan, as delivered to
the lenders on or prior to the Closing Date in
connection with the Senior Facilities, an
additional 3% per annum of pay-in-kind interest
will also accrue on the Subordinated Debt.
In no event shall the interest rate on the
Subordinated Debt exceed the highest lawful rate
permitted under applicable law.
Calculation of interest shall be on the basis of
actual days elapsed in a year of 360.
Interest Payments: Interest will be payable quarterly in arrears.
- -----------------
Mandatory Subject to compliance with the Senior Facilities,
- --------- the Subordinated Debt will be required to be
Prepayments/Redemption: prepaid/redeemed (subject to exceptions to be
- ---------------------- agreed upon):
(a) with, subject to exceptions to be agreed
upon, 100% of the net cash proceeds of the
issuance or incurrence of debt by the
Company or its subsidiaries (subject to
customary exceptions to be agreed on,
including with respect to the Senior
Facilities and certain earn-outs);
(b) with a percentage to be agreed on of the net
cash proceeds from any issuance of equity
securities of the Company or its
subsidiaries in any public offering or
private placement or from any capital
contribution (subject to customary
exceptions to be agreed on, including with
respect to certain issuances to management);
(c) with 100% of the net proceeds from certain
asset sales; and
(d) in the event of change of control.
All such mandatory prepayments/redemptions are
subject to the same prepayment/redemption premiums
as are set forth below under the Optional
Redemption section.
A-2
<PAGE>
Optional Redemption: Subordinated Debt will be redeemable at the
- ------------------- option of the Company, in a minimum principal
amount and in multiples to be agreed upon, at any
time after the Closing Date, at the principal
amount thereof, plus accrued and unpaid interest,
if any, to the repayment date, and with the
following premiums:
Closing through year 1 (not including
1st anniversary) 15%
Year 1 through year 2 (not including
2nd anniversary) 12.85%
Year 2 through year 3 (not including
3rd anniversary) 10.7%
Year 3 through year 4 (not including
4th anniversary) 8.55%
Year 4 through year 5 (not including
5th anniversary) 6.4%
Year 5 through year 6 (not including
6th anniversary) 4.25%
Year 6 through year 7 (not including
7th anniversary) 2.1%
Year 7 through year 8 (including
the Subordinated Maturity Date) 0%
Conditions to Closing: The obligations of the Mezzanine Investors to
- --------------------- purchase the Mezzanine Securities on the Closing
Date is subject to the satisfaction or waiver of
the conditions set forth in Annex B to the Put
-------
Agreement.
A-3
<PAGE>
Representations and Customary for notes similar to the Subordinated
- ------------------- Debt and such additional representations and
Warranties: warranties as may be agreed upon by the Mezzanine
- ---------- Investors and the Company, including: no Default
or Event of Default; absence of material adverse
change; financial statements; absence of
undisclosed material liabilities or material
contingent liabilities; compliance with laws;
solvency; no conflicts with laws, charter
documents or agreements; good standing; payment of
taxes: and ownership of properties, in each case,
if appropriate, as reasonably determined by
Mezzanine Investors, subject to certain
materiality qualifications reasonably acceptable
to Mezzanine Investors.
Affirmative Covenants: Customary for notes similar to the Subordinated
- --------------------- Debt and such others as may be agreed upon by the
Mezzanine Investors and the Company, including:
maintenance of corporate existence and rights;
compliance with laws; performance of obligations;
maintenance of properties in good repair;
maintenance of appropriate and adequate insurance;
inspection of books and properties; payment of
taxes and other liabilities; notice of defaults,
litigation and other adverse action; delivery of
financial statements, financial projections and
compliance certificates; and further assurances.
Negative Covenants: Customary for notes similar to the Subordinated
- ------------------ Debt and such others as may be agreed upon by the
Mezzanine Investors and the Company, including:
limitations on incurrence of indebtedness
(including no senior subordinated debt other than
the Subordinated Debt); limitations on loans,
liens, investments and joint ventures; limitations
on guarantees or other contingent obligations;
limitations on restricted payments (including
dividends, redemptions and repurchases of capital
stock); limitations on fundamental changes
(including limitations on mergers, acquisitions
and asset sales); limitations on transactions with
affiliates; limitations on dividend and other
payment restrictions affecting subsidiaries;
limitations on lines of business; limitations on
amendment of indebtedness and other material
documents; and limitations on prepayment or
repurchase of other indebtedness.
A-4
<PAGE>
Events of Default: Customary for notes similar to the Subordinated
- ----------------- Debt and others to be agreed upon by the Mezzanine
Investors and the Company, including: nonpayment
of principal, interest, fees or other amounts when
due; violation of covenants; failure of any
representation or warranty to be true in all
material respects; cross-default and cross-
acceleration; change in control; bankruptcy
events; material judgments; ERISA; and actual or
asserted invalidity of any Subordinated Debt
Document (as defined below).
Yield Protection and Customary for facilities of this type.
- --------------------
Increased Costs:
- ---------------
Assignments: The Company may not assign its rights or
- ----------- obligations in connection with the definitive
documentation relating to the Subordinated Debt
(the "Subordinated Debt Documents'') without the
prior written consent of all the Mezzanine
Investors.
The Mezzanine Investors will have the right to
assign the Subordinated Debt and their obligations
to purchase Subordinated Debt (with, so long as no
Default or Event of Default has occurred and is
continuing, the consent of the Company, such
consent not to be unreasonably withheld) and such
assignments will be by novation which will release
the obligation of the assigning Mezzanine
Investors.
Voting: Amendments and waivers of any provision of any
- ------ Subordinated Debt Documents will require the
approval of the Company and Mezzanine Investors
holding obligations to purchase Subordinated Debt
or Subordinated Debt, as the case may be,
representing a majority of the aggregate amount of
obligations to purchase Subordinated Debt or
Subordinated Debt, respectively, under the
Subordinated Debt Documents, except that the
consent of all affected Mezzanine Investors shall
be required with respect to (a) increases in
obligations to purchase Subordinated Debt, (b)
reductions of principal, interest or fees, (c)
extensions of the maturity date and (d) releases
of certain guarantors (except where the release of
a guarantor is made pursuant to a transaction
approved by requisite Mezzanine Investors or
otherwise permitted by the Subordinated Debt
Documents).
A-5
<PAGE>
Expenses and All reasonable out-of-pocket expenses of Sankaty
- ------------ (and the Mezzanine Investors for enforcement
Indemnification: costs and documentary taxes) associated with the
- --------------- preparation, execution and delivery of any waiver
or modification requested by or for the benefit of
the Company (whether or not effective) of, and the
enforcement of, any Subordinated Debt Document or
any document relating to the refinancing of the
Subordinated Debt (including the reasonable fees,
disbursements and other charges of counsel for
Sankaty) are to be paid by the Company. The
Company will indemnify Sankaty and the other
Mezzanine Investors and hold them harmless from
and against all reasonable costs, expenses
(including reasonable fees and disbursements of
counsel) and liabilities arising out of or
relating to those matters set forth in the Put
Agreement and herein, including, without
limitation, any litigation or other proceeding
(regardless of whether Sankaty or any such other
Mezzanine Investors is a party thereto) that
relate to the Transactions or the Mezzanine
Securities; provided, however, that neither
-------- -------
Sankaty nor any such other Mezzanine Investors
will be indemnified for any costs, expense or
liability to the extent resulting from such
person's bad faith, gross negligence or willful
misconduct.
Warrants: Warrants for common equity of the Company will be
- -------- issued to the Mezzanine Investors with the
following terms:
Amount and Exercise Price: (i) 2.5% of each class
-------------------------
of fully diluted equity of the Company as of the
Closing Date with a nominal exercise price, (ii)
1.0% of each class of the fully diluted equity of
the Company as of the Closing Date with an
exercise price equal to three times the value at
which equity is purchased in the Recapitalization,
and (iii) 1.0% of each class of the fully diluted
equity of the Company as of the Closing Date with
an exercise price equal to five times the value at
which equity is purchased in the Recapitalization.
Expiration Date: 10 years from closing.
---------------
Other: Terms and conditions customary for an
-----
investment of this type, including, but not
limited to, piggy back registration rights, tag-
along rights, and anti-dilution provisions to be
mutually agreed upon by Sankaty and the Company.
Governing Law and Forum: New York.
- -----------------------
A-6
<PAGE>
ANNEX B
CONDITIONS/1/
----------
Sankaty has conducted its due diligence with respect to the issuance
of the Mezzanine Securities and the Transactions and is pleased to inform you
that it is satisfied with the results thereof; however, the agreement of Sankaty
to buy the Mezzanine Securities pursuant to the Put Agreement is subject to the
condition that after the date of the Put Agreement nothing becomes known to
Sankaty that is inconsistent in a material and adverse manner with anything
disclosed to Sankaty by or at the direction of Bain Capital, Inc. or the Company
or any of their respective affiliates, agents, advisors or other representatives
prior to the date of the Put Agreement or anything previously obtained by
Sankaty from or at the direction of Bain Capital, Inc. or the Company or any of
their respective affiliates, agents, advisors or other representatives during
such due diligence.
In addition to the foregoing, the agreement of Sankaty to buy the
Mezzanine Securities pursuant to the Put Agreement is also subject to the
following conditions:
(i) the preparation, execution and delivery of definitive
documentation in connection with the issuance of the Mezzanine Securities
reasonably satisfactory to Sankaty, and the satisfaction (as reasonably
determined by Sankaty) of customary closing conditions for transactions
involving instruments similar to the Mezzanine Securities;
(ii) Sankaty shall be reasonably satisfied (A) as of the date the
Agreement and Plan of Merger by and among VDI MultiMedia, VDI MultiMedia,
Inc. and VMM Merger Corp. (the "Recapitalization Agreement") is signed (the
"Signing Date"), with the material terms and conditions of the
Recapitalization Agreement (to the extent that such terms and conditions
have been provided to Sankaty) and with the form and substance of any other
agreements to be executed after the Signing Date solely to the extent that
such forms have been provided to Sankaty and Sankaty has acknowledged the
same and (B) as of the Closing Date, with the material terms and conditions
of the Recapitalization Agreement (including, without limitation, any
schedules, disclosure schedules, exhibits, appendices or attachments
thereto) not provided to Sankaty prior to the Signing Date, with the
material terms and conditions of each amendment, modification, waiver and
other change to the Recapitalization Agreement, with the material terms and
conditions of each other agreement entered into in connection with the
Transactions (other than agreements, the form and substance of which
Sankaty has acknowledged as being satisfactory to it as of the Signing Date
under clause (A) above) and with all legal, tax and accounting matters (it
being understood that a failure to
- ------------------------
/1/ All Capitalized terms used but not defined herein have the
meanings given to them in the Put Agreement and related Term Sheet ("Annex A")
-------
to which this Annex B is attached.
B-1
<PAGE>
obtain recapitalization accounting treatment with respect to the
Transactions will not give rise to rights on the part of Sankaty hereunder)
relating to the Transactions that would reasonably be expected to have a
Material Adverse Effect, including without limitation, any such matters
pertaining to pending or potential litigation with respect to the
Transactions and requisite stockholder or governmental consents or
approvals;
(iii) after giving effect to the Transactions and any other
transactions contemplated by the Put Agreement and Annex A, neither the
-------
Company, any guarantor of the Subordinated Debt nor any of their
subsidiaries shall have outstanding any indebtedness for borrowed money
and/or with respect to capitalized leases or preferred stock other than (a)
the loans under the Senior Facilities (in an amount not to exceed $85
million drawn on the Closing Date), (b) the Subordinated Debt, and (c)
other indebtedness for borrowed money and/or with respect to capitalized
leases or preferred stock to be agreed upon;
(iv) there shall not have occurred and be continuing after the date
of this letter (a) any general suspension of trading in securities on the
New York or American Stock Exchange or in the NASDAQ National Market System
(other than circuit breakers), (b) the declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States, or
(c) any other material adverse change in banking or capital market
conditions that has had a material adverse effect on the consummation of
high yield offerings that Sankaty reasonably determines makes it
impracticable to consummate the closing of the Subordinated Debt;
(v) the receipt by Sankaty, and if applicable, the Mezzanine
Investors, on or before the Closing Date, of financial statements of the
Company (including notes thereto), consisting of (a) audited and pro forma
balance sheets as of the end of each period in the 3 fiscal-year period
ended December 31, 1998 or, if such financial statements are then available
, December 31, 1999, (b) audited and pro forma statements of operations and
cash flows for each period in the 3 fiscal-year period ended December 31,
1998 or, if such financial statements are then available, December 31,
1999, (c) consolidated financial statements for each period in the 3
fiscal-year period ended December 31, 1998 or, if such financial statements
are then available, December 31, 1999 and supporting documentation
satisfactory to Sankaty, (d) comparable unaudited historical and pro forma
interim financial statements covering all quarterly or other appropriate
periods subsequent to the fiscal year most recently ended, and (e) such
final projections in respect of the Company, any guarantors of the
Subordinated Debt and their respective subsidiaries as Sankaty may
reasonably request; and all such financial statements, historical or pro
forma, delivered pursuant to this paragraph (vi) shall be in compliance
with the requirements of Regulation S-X for a public offering registered
under the Securities Act of 1933, and all financial statements and
projections referred to in this paragraph (vi) shall not be materially
inconsistent in an adverse manner with financial statements, projections
and estimates previously provided to Sankaty and, if applicable, the
Mezzanine Investors;
B-2
<PAGE>
(vi) payment of fees and expenses;
(vii) since December 31, 1998, there shall not have occurred or
become known to Sankaty any event or events, adverse condition or change
that, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect; and
(viii) the Closing Date shall occur on or before April 30, 2000.
In the event that anything arising under the first paragraph of this
Annex B comes to the attention of Sankaty or that any of the other conditions
- -------
set forth above or in the documents for the Mezzanine Securities are not
satisfied, Sankaty reserves the right, in its sole discretion, to either (x)
suggest alternative financing amounts or structures that ensure adequate
protection for Sankaty and the Mezzanine Investors (in consultation with, and as
approved by, Bain Capital, Inc. and the Company) or (y) decline to participate
in the proposed financings.
As used herein, a "Material Adverse Effect" shall mean the result of
one or more events, changes or effects which, individually or in the aggregate,
would reasonably be expected to have a material adverse effect on (i) the
business, results of operations, financial condition or prospects of the Company
and its subsidiaries, in each case, taken as a whole, or (ii) the validity or
enforceability of any of the documents entered into in connection with the
Transactions or the other transactions contemplated by the Put Agreement or
Annex A or the rights, remedies and benefits available to the parties
- -------
thereunder.
B-3
<PAGE>
Exhibit B(3)
Bain Capital Fund VI, L.P.
Two Copley Place
Boston, Massachusetts 02116
Telephone (617) 572-3000
Telecopier (617) 572-3274
December 24, 1999
VMM Merger Corp.
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Ladies and Gentlemen:
You have advised us of the planned recapitalization (the
"Recapitalization") of VDI MultiMedia, a California corporation (the "Company"),
---------------- -------
which will be accomplished through the merger of the Company with and into VDI
MultiMedia, Inc., a Delaware corporation and a wholly owned subsidiary of the
Company ("Company Sub") and the subsequent merger of VMM Merger Corp., a
-----------
Delaware corporation ("Merger Corp."), with and into the Company Sub, to be
------------
effected pursuant to an Agreement and Plan of Merger, dated as of the date
hereof, by and among Merger Corp., the Company and Company Sub (as so amended or
modified in accordance with the terms thereof, the "Merger Agreement").
----------------
Capitalized terms used herein without definition shall have the respective
meanings set forth in the Merger Agreement.
We are pleased to advise you that Bain Capital Fund VI, L.P., a
Delaware limited partnership (the "Investor") is committed to invest (the
--------
"Investment") $65 million in cash to purchase common equity in Merger Corp. to
- -----------
permit Merger Corp. to merge with and into Company Sub in connection with the
Recapitalization, all as provided in the Merger Agreement. We agree to increase
our Investment on a dollar-for-dollar basis in the event that the "rollover"
equity from management and other existing stockholders in the Acquisition Merger
is less than $5.8 million (with each Share valued at $15.00 per share). Our
commitment is conditioned solely on the fulfillment in accordance with the terms
thereof of all the conditions to Merger Corp.'s obligations to consummate the
Acquisition Merger under the Merger Agreement.
In consideration of our making this commitment to you, you agree,
whether or not definitive documentation with respect to the financing is
executed, (a) to pay, indemnify, and hold the Investor (and its respective
affiliates, directors, partners, officers, employees, agents and advisors)
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to or arising out of the
Recapitalization, this letter, or the execution, delivery, enforcement and
performance, or consummation, of the agreements and financings and other
transactions referred to herein or in any agreements executed in connection
herewith and (b) to pay upon demand the costs
<PAGE>
VMM Merger Corp.
December 24, 1999
Page 2
and expenses of the Investor (including the fees and disbursements of counsel to
the Investor) arising in connection with the preparation, execution and delivery
of this letter and the definitive documentation, so long as in the case of each
of the foregoing clauses (a) and (b), any such payment would not materially
adversely affect your ability to obtain the financing necessary to consummate
the Acquisition Merger.
Our obligations under this letter will expire on the earlier of (i)
the consummation of the Acquisition Merger and (ii) the expiration or
termination of the Merger Agreement in accordance with the terms thereof;
provided that nothing herein shall discharge us of any obligations for our
breach of this letter agreement.
This commitment letter shall be governed by and construed in
accordance with the internal laws of the State of New York (excluding the
provisions of such laws regarding conflicts of law).
This commitment letter may be signed in two or more counterparts, any
one of which need not contain the signature of more than one party, but all such
counterparts taken together shall constitute one and the same agreement. This
commitment letter may not be assigned without the other party's written consent.
The parties hereto acknowledge and agree that the Company is a third
party beneficiary of this letter agreement. This letter agreement will inure to
the benefit of and be enforceable by the Company; provided that this letter
agreement may not be amended, modified or waived in any manner materially
adverse to the Company without the prior written consent of the Company.
Investor shall cause you to perform your pre-Effective Time
obligations under the Merger Agreement prior to the consummation of the
Acquisition Merger in accordance with the terms of the Merger Agreement. From
and after the earlier of (i) the expiration or termination of this letter and
(ii) the consummation of the Acquisition Merger in accordance with the terms of
the Merger Agreement, Investor will have no further liability or obligation to
any person or entity as a result of this letter agreement; provided that nothing
herein shall relieve Investor of any obligations for any breach of this letter
agreement.
* * * * *
<PAGE>
VMM Merger Corp.
December 24, 1999
Page 3
If you are in agreement with the terms of this letter agreement,
please forward an executed copy of this letter to the undersigned. We appreciate
the opportunity to work with you on this transaction.
Yours sincerely,
BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors VI, Inc.
Its: General Partner
By: /s/ Joseph Pretlow
-----------------------------
Its: Managing Director
Accepted and Agreed to as of
the date first above written.
VMM MERGER CORP.
By: /s/ Joseph Pretlow
--------------------------
Its: _________________________
<PAGE>
Exhibit B(4)
Bain Capital Fund VI, L.P.
Two Copley Place
Boston, Massachusetts 02116
Telephone (617) 572-3000
Telecopier (617) 572-3274
December 30, 1999
VMM Merger Corp.
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Ladies and Gentlemen:
Reference is made to that certain letter dated December 24, 1999 from
the undersigned to you in which the undersigned has committed to make a cash
equity investment of $65 million (the "Original Equity Investment") in
--------------------------
connection with the planned recapitalization (the "Recapitalization") of VDI
----------------
MultiMedia, a California corporation (the "Company"), which Recapitalization
-------
will be accomplished through the merger of the Company with and into VDI
MultiMedia, Inc., a Delaware corporation and a wholly owned subsidiary of the
Company ("Company Sub") and the subsequent merger of VMM Merger Corp., a
-----------
Delaware corporation ("Merger Corp."), with and into the Company Sub, to be
------------
effected pursuant to an Agreement and Plan of Merger, dated December 24, 1999,
by and among Merger Corp., the Company and Company Sub (as so amended or
modified in accordance with the terms thereof, the "Merger Agreement").
----------------
Capitalized terms used in this letter without definition shall have the
respective meanings set forth in the Merger Agreement.
We are pleased to advise you that Bain Capital Fund VI, L.P., a
Delaware limited partnership (the "Investor") is committed to invest (the
--------
"Investment") an additional $15 million in connection with the
- -----------
Recapitalization. It is understood and agreed that the Investment is in
addition to, and not in substitution of, the Original Equity Investment. The
commitment contained in this letter is conditioned solely on the fulfillment in
accordance with the terms thereof of all the conditions to Merger Corp.'s
obligations to consummate the Acquisition Merger under the Merger Agreement.
In consideration of our making this commitment to you, you agree,
whether or not definitive documentation with respect to the financing is
executed, (a) to pay, indemnify, and hold the Investor (and its respective
affiliates, directors, partners, officers, employees, agents and advisors)
harmless from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to or arising out of the
Recapitalization, this letter, or the execution, delivery, enforcement and
performance, or consummation, of the agreements and financings and other
transactions referred
<PAGE>
VMM Merger Corp.
December 30, 1999
Page 2
to herein or in any agreements executed in connection herewith and (b) to pay
upon demand the costs and expenses of the Investor (including the fees and
disbursements of counsel to the Investor) arising in connection with the
preparation, execution and delivery of this letter and the definitive
documentation, so long as in the case of each of the foregoing clauses (a) and
(b), any such payment would not materially adversely affect your ability to
obtain the financing necessary to consummate the Acquisition Merger.
Our obligations under this letter will expire on the earlier of (i)
the consummation of the Acquisition Merger and (ii) the expiration or
termination of the Merger Agreement in accordance with the terms thereof;
provided that nothing herein shall discharge us of any obligations for our
breach of this letter agreement.
This commitment letter shall be governed by and construed in
accordance with the internal laws of the State of New York (excluding the
provisions of such laws regarding conflicts of law).
This commitment letter may be signed in two or more counterparts, any
one of which need not contain the signature of more than one party, but all such
counterparts taken together shall constitute one and the same agreement. This
commitment letter may not be assigned without the other party's written consent.
This letter is intended to be solely for the benefit of you and the
undersigned and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto.
* * * * *
<PAGE>
VMM Merger Corp.
December 30, 1999
Page 3
If you are in agreement with the terms of this letter agreement, please forward
an executed copy of this letter to the undersigned. We appreciate the
opportunity to work with you on this transaction.
Yours sincerely,
BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.
Its: General Partner
By: Bain Capital Investors VI, Inc.
Its: General Partner
By: /s/ Joseph Pretlow
_________________________
Its: Managing Director
Accepted and Agreed to as of
the date first above written.
VMM MERGER CORP.
By: /s/ Joseph Pretlow
___________________________
Its: President
<PAGE>
EXHIBIT D(2)
SHAREHOLDERS AGREEMENT
SHAREHOLDERS AGREEMENT (this "Agreement"), dated as of December 24, 1999,
between VMM Merger Corp., a Delaware corporation (the "Merger Sub") and the
Shareholders named on Exhibit A hereto (each a "Shareholder").
WHEREAS, each Shareholder is, as of the date hereof, the record and
beneficial owner of the number of shares of common stock, no par value (the
"Common Stock"), of VDI MultiMedia, a California corporation (the "Company"),
set forth next to such Shareholder's name on Exhibit A attached hereto; and
WHEREAS, Merger Sub, the Company and VDI MultiMedia, Inc., a Delaware
corporation ("Company Sub"), concurrently herewith are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"; capitalized terms used herein without definition shall have the
respective meanings set forth in the Merger Agreement), which provides, among
other things, for the acquisition of the Company by Bain and certain other
investors by means of a merger of the Company with and into Company Sub followed
by the merger of Merger Sub with and into Company Sub, each upon the terms and
subject to the conditions set forth in the Merger Agreement (the "Mergers"); and
WHEREAS, as a condition to the willingness of Merger Sub to enter into the
Merger Agreement, and in order to induce Merger Sub to enter into the Merger
Agreement, each Shareholder has agreed to enter into this Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Merger
Sub of the Merger Agreement and the foregoing and the mutual representations,
warranties, covenants and agreements set forth herein and therein, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Representations and Warranties of the Shareholders. Each
--------------------------------------------------
Shareholder hereby severally represents and warrants, as to such Shareholder, to
Merger Sub as follows:
a. Except as described on Schedule I hereto, such Shareholder is the
record and beneficial owner of the shares of Common Stock ("Shares") set forth
next to such Shareholder's name on Exhibit A attached hereto and such Shares
constitute all of the shares of capital stock of the Company owned by such
Shareholder as of the date hereof.
b. This Agreement has been duly authorized, executed and delivered by
such Shareholder and constitutes the legal, valid and binding obligation of such
Shareholder, enforceable against such Shareholder in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to creditors' rights generally and to
general principles of equity.
<PAGE>
c. Neither the execution and delivery of this Agreement nor the
consummation by such Shareholder of the transactions contemplated hereby will
result in a violation of, or a default (or an event that with notice or lapse of
time or both would become a default) under, or conflict with, any contract,
trust, commitment, agreement, understanding or arrangement of any kind to which
the Shareholder is a party or bound or to which such Shareholder's Shares are
subject or result in the creation of any Lien (as defined below) on any of such
Shareholder's Shares. Consummation by such Shareholder of the transactions
contemplated hereby will not violate, or require any consent, approval, or
notice under any provision of any judgment, order, decree, writ, injunction,
statute, law, rule or regulation applicable to such Shareholder or such
Shareholder's Shares, except for any necessary filing under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act").
d. Except as described on Schedule I attached hereto, such Shareholder's
Shares and the certificates representing such Shareholder's Shares are now and
at all times during the term hereof will be held by such Shareholder, or by a
nominee or custodian for the benefit of such Shareholder, free and clear of all
liens, claims, security interests, proxies, voting trusts or agreements,
understandings or arrangements or any other encumbrances whatsoever
(collectively, "Liens"), except for any such encumbrances or proxies arising
hereunder or otherwise disclosed to Merger Sub; provided, however, that such
Shareholder may transfer all or a portion of the Shares in accordance with
Section 3 of this Agreement.
SECTION 2. Representations and Warranties of Merger Sub. Merger Sub
--------------------------------------------
hereby represents and warrants to each Shareholder as follows:
a. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement.
b. This Agreement has been duly authorized, executed and delivered by
Merger Sub and constitutes the legal, valid and binding obligation of it,
enforceable against Merger Sub in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to creditors' rights generally and to general principles
of equity.
c. Neither the execution and delivery of this Agreement nor the
consummation by Merger Sub of the transactions contemplated hereby will result
in a violation of, or a default (or an event that with notice or lapse of time
or both would became a default) under, or conflict with, any contract, trust,
commitment, agreement, understanding or arrangement of any kind to which Merger
Sub is a party or bound. The consummation by Merger Sub of the transactions
contemplated hereby will not violate, or require any consent, approval, or
notice under any provision of any judgment, order, decree, writ, injunction,
statute, law, rule or regulation applicable to Merger Sub, except for any
necessary filing under the HSR Act.
2
<PAGE>
SECTION 3. Transfer of the Shares.
----------------------
a. Prior to the termination of this Agreement, except as otherwise
provided herein or as described on Schedule I attached hereto, each Shareholder
agrees that it shall not: (i) sell, transfer, assign, gift, pledge,
hypothecate, encumber or dispose of any or all of such Shareholder's Shares and
any shares subsequently acquired after the date hereof (the "Subject Shares");
(ii) grant any proxies or enter into any voting trust or other agreement or
arrangement with respect to the voting of the Subject Shares except as
contemplated hereby or as not otherwise inconsistent herewith; or (iii) enter
into any contract, option or other agreement or understanding with respect to,
or consent to, the sale, transfer, assignment, gift, pledge, hypothecation,
encumbrance or other disposition of any or all of such Shareholder's Subject
Shares or any interest therein; provided, however, that a Shareholder may sell,
transfer, assign, gift, pledge, hypothecate, encumber or otherwise dispose of
all or a portion of such Shareholder's Subject Shares to a person or entity who
(x) is either another Shareholder, a member of the Family Group of such
Shareholder or who is otherwise approved by Merger Sub (such approval not to be
unreasonably withheld or delayed) and (y) agrees to be bound, by a written
instrument reasonably acceptable in form and substance to Merger Sub (whose
approval shall not be unreasonably withheld or delayed), by each of the terms of
this Agreement.
b. As used herein, "Family Group" means, with respect to any Shareholder,
(A) such Shareholder, (B) the spouse and issue (whether natural or adopted) of
such Shareholder, (C) the parents or step-parents of such Shareholder (whether
natural or adopted), (D) the siblings of such Shareholder (whether natural or
adopted), (E) in the event such Shareholder is deceased, the heirs or
descendants of such Shareholder and (F) any one or more trusts or other entities
for the benefit of any one or more of the persons described in clause (A)
through clause (E) above.
c. In addition, notwithstanding anything to the contrary contained
herein, if any term or provision of this Agreement triggers, or is deemed to
trigger, the application of the last paragraph of Section 1101 of the California
Corporations Code, (x) "Subject Shares" shall mean that number of shares of
Common Stock, together with all shares of Common Stock covered by agreements
similar hereto, which aggregate 49% of the then issued and outstanding Shares of
Common Stock and (y) each Shareholder's "Subject Shares" shall mean that number
of shares of Common Stock equal to the aggregate number of Subject Shares as
determined by item (x) above multiplied by a fraction, the numerator of which is
equal to such Shareholder's Subject Shares and the denominator of which is equal
to the aggregate Subject Shares of all Shareholders party hereto.
SECTION 4. Voting of Shares.
----------------
a. Each Shareholder hereby agrees that, during the term of this
Agreement, at any meeting (whether annual or special and whether or not an
adjourned or postponed meeting) of the holders of Common Stock, however called,
or in connection with any written consent of the holders of Common Stock
solicited by the Board of Directors, such Shareholder will appear at the meeting
or otherwise cause its Subject Shares to be counted as present thereat for
purposes of
3
<PAGE>
establishing a quorum and vote or consent (or cause to be voted or consented)
such Shareholder's Subject Shares (i) in favor of the Mergers, the Merger
Agreement and all other Transactions, (ii) against any action or agreement that
such Shareholder is advised by the Board of Directors of the Company in the
applicable proxy materials would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement, and (iii) against any Competing Transaction and any
action in furtherance of a Competing Transaction, in each case during the term
of this Agreement.
b. Merger Sub agrees that each Shareholder shall retain the right to vote
such Shareholder's Subject Shares for the election of directors of the Company
and for or against any other matter other than as to those specified in clause
(a) of this Section 4.
SECTION 5. Irrevocable Proxy. Each Shareholder hereby grants an
-----------------
irrevocable proxy during the term of this Agreement to, and hereby constitutes
and appoints, Merger Sub as such Shareholder's attorney-in-fact and proxy, with
full power of substitution, for and in such Shareholder's name, to vote (by
written consent or otherwise) the Subject Shares, which such holder is entitled
to vote at any meeting of Shareholders of the Company (whether annual or special
and whether or not an adjourned or postponed meeting) on the matters and in the
manner specified in Section 4 above. THIS PROXY IS IRREVOCABLE AND COUPLED WITH
AN INTEREST. Each Shareholder hereby revokes all previous proxies granted with
respect to the Subject Shares that such Shareholder may have heretofore
appointed or granted that are inconsistent herewith, and no subsequent proxy
shall be given (and if given or executed, shall not be effective) by such
Shareholder with respect thereto. All authority herein conferred or agreed to
be conferred shall survive the death or incapacity of such Shareholder.
SECTION 6. Competing Transactions. Each Shareholder will not, and will
----------------------
instruct its officers, directors, employees, investment banker, attorney,
financial advisor or other representatives or agents (the "Representatives")
during the term of the Agreement not to, initiate, solicit or encourage
(including by way of furnishing information or assistance) any Competing
Transaction, or enter into or maintain discussions or negotiate with any person
or entity in furtherance of or relating to or to obtain a Competing Transaction,
or agree to or endorse any Competing Transaction, or authorize or permit any
Representative to take any such action, and such Shareholder shall use its
reasonable best efforts to cause its Representatives not to take any such
action.
SECTION 7. Appraisal Rights. Each Shareholder agrees not to exercise
----------------
any rights (including without limitation, under Chapter 13 of the California
General Corporation Law) to demand appraisal of any Subject Shares which may
arise with respect to the Mergers.
SECTION 8. Stock Legend. At the request of Merger Sub, each
------------
Shareholder agrees to allow to be stamped, printed or typed on the face of his
or her certificates evidencing the Subject Shares, the following legend:
"THE VOTING, SALE, ASSIGNMENT, TRANSFER, GIFT, PLEDGE, HYPOTHECATION,
ENCUMBRANCE OR
4
<PAGE>
DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO A SHAREHOLDERS AGREEMENT DATED AS OF DECEMBER 24, 1999 BY AND
BETWEEN VMM MERGER CORP. AND THE RECORD OWNER HEREOF, COPIES OF WHICH
ARE ON FILE AT THE OFFICES OF VDI MULTIMEDIA."
SECTION 9. Further Assurances; Shareholder Capacity.
----------------------------------------
a. Each Shareholder shall, upon request of Merger Sub, execute and
deliver any additional documents and take such further actions as may reasonably
be deemed by Merger Sub to be necessary or desirable to carry out the provisions
hereof and to vest the power to vote the Shares as contemplated by Section 5
hereof in Merger Sub.
b. Nothing in this Agreement shall be construed to prohibit any
Shareholder or any affiliate of any Shareholder who is or becomes or has
designated a member of the Board of Directors of the Company from taking any
action solely in his or her capacity as a member of the Board of Directors of
the Company or from exercising his or her fiduciary duties as a member of such
Board of Directors.
c. Each Shareholder hereby consents to the entry into this Agreement by
any other Shareholder with respect to all interests of such Shareholders.
SECTION 10. Termination. This Agreement and all rights and obligations
-----------
of the parties hereunder shall terminate immediately upon the earlier of (the
"Termination Date"): (a) the date upon which the Merger Agreement is terminated
in accordance with its terms or (b) the Effective Time. The provisions set
forth in Section 10 shall survive any termination of this Agreement.
SECTION 11. Expenses. Except as provided in Section 11.1 of the Merger
--------
Agreement, all fees and expenses incurred by any one party hereto shall be borne
by the party incurring such fees and expenses.
SECTION 12. Public Announcements. Merger Sub and each Shareholder
--------------------
agrees that it will not issue any press release or otherwise make any public
statement with respect to this Agreement or the transactions contemplated hereby
without the prior consent of the other party, which consent shall not be
unreasonably withheld or delayed; provided, however, that such disclosure can be
made without obtaining such prior consent if (i) the disclosure is required by
law or regulation or by obligations imposed pursuant to any listing agreement
with the NASDAQ National Market and (ii) the party making such disclosure has
first used its reasonable best efforts to consult with the other party about the
form and substance of such disclosure.
5
<PAGE>
SECTION 13. Miscellaneous.
-------------
a. Capitalized terms used and not otherwise defined in this Agreement
shall have the respective meanings assigned to such terms in the Merger
Agreement.
b. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed given (and shall be deemed to
have been duly received if so given) by delivery in person, by facsimile
transmission , by registered or certified mail (postage prepaid, return receipt
requested) or courier service providing proof of delivery to the respective
parties, addressed at the following addresses (or at such other address for a
party as shall be specified in a notice in accordance with this Section 13(b)):
i. If to the Merger Sub, to the address set forth on Exhibit B:
ii. If to any Shareholder, to the address set forth next to such
Shareholder's name on Exhibit A hereto.
c. The Section captions herein are for convenience of reference only and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
d. This Agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
e. This Agreement (including the Merger Agreement and any other documents
and instruments referred to herein) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties, with respect to the subject matter hereof.
f. This Agreement shall be governed by, and construed in accordance with
the laws of the State of California without giving effect to the principles of
conflicts of laws thereof.
g. Except as provided in Section 3 hereof, neither this Agreement nor any
of the rights, interests, or obligations hereunder shall be assignable by
operation of law or otherwise without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by, the parties and their
respective successors and assigns. This Agreement is not intended to be for the
benefit of, and shall not be enforceable by, any person or entity not a party
hereto.
h. If any term, provision, covenant or restriction herein is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable or against its regulatory policy, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
6
<PAGE>
i. Each of the parties hereto acknowledges and agrees that in the event
of any breach or failure of performance of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto shall be
entitled to injunctive relief and to compel specific performance of this
Agreement in addition to any other remedy to which they are entitled to at law
or in equity.
j. No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and signed by
such party.
IN WITNESS WHEREOF, Merger Sub and each Shareholder has executed and
delivered or caused this Agreement to be duly executed and delivered as of the
date first written above.
VMM MERGER CORP.
By: /s/ Joseph Pretlow
----------------------------
Name: Joseph Pretlow
Title: Vice President
/s/ R. Luke Stefanko
-------------------------------
R. Luke Stefanko
/s/ Julia Stefanko
-------------------------------
Julia Stefanko
7
<PAGE>
EXHIBIT A
Ownership of Outstanding
------------------------
Shares of Common Stock
----------------------
<TABLE>
<CAPTION>
Name Record Ownership Beneficial Ownership
<S> <C> <C>
R. Luke Stefanko 5,321,400 3,104,505
Address for Notice:
c/o Daniel Jaffe, Esq.
Jaffe & Clemens
433 North Camden Drive
Suite 1000
Beverly Hills, CA 90210
Julia Stefanko -- 2,216,895
Address for Notice:
c/o Harvey Sitzer, Esq.
Law Offices of Harvey Sitzer
1888 Century Park East
Suite 1700
Los Angeles, CA 90067
</TABLE>
A-2
<PAGE>
EXHIBIT B
To the Merger Sub:
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Facsimile: (617) 572-3274
Attention: Joseph Pretlow
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Facsimile: (312) 861-2200
Attention: Jeffrey C. Hammes, P.C.
Gary M. Holihan
B-1
<PAGE>
SCHEDULE I
All or a substantial portion of Luke Stefanko's Shares are pledged as
security for a margin account (and subject to customary rights of the broker-
dealers with respect thereto) maintained at one or more broker-dealers. The
aggregate amount borrowed against such Shares as of December 3, 1999 was
approximately $8,000,000. Mr. Stefanko may borrow up to an additional $2.0
million against such Shares prior to the Effective Time.
<PAGE>
Exhibit D(3)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
---------
as of December 24, 1999, between VMM Merger Corp., a Delaware corporation (the
"Company") and Donald R. Stine ("Executive"). As of the Effective Date (as
------- ---------
defined below), this Agreement shall amend, restate and replace that certain
Employment Agreement, dated as of April 11, 1999, as the same may have been
amended or modified from time to time, by and between VDI MultiMedia, a
California corporation ("VDI") and Executive. This Agreement shall become
---
effective (the "Effective Date") only upon the consummation of the transactions
--------------
contemplated by that certain Agreement and Plan of Merger dated as of the date
hereof (the "Merger Agreement"), by and among the Company, VDI and VDI
----------------
MultiMedia, Inc., a Delaware corporation (the "Surviving Corporation"), and this
---------------------
Agreement shall terminate on a co-terminous basis upon the termination or
expiration of the Merger Agreement. In connection with the transactions
contemplated by the Merger Agreement, (i) VDI shall merge with and into the
Surviving Corporation and (ii) the Company shall merge with and into the
Surviving Corporation.
In addition, on or about the Effective Date, the Company and Executive
shall become parties to certain executive stock and/or option arrangements in
accordance with the terms and conditions of the attached Equity Term Sheet and
such other terms and conditions negotiated by the parties in good faith (the
"Executive Stock Agreements") pursuant to which, among other matters, the
--------------------------
Company shall grant certain stock options to Executive. The Company and
Executive are also parties to that certain Non-Compete Agreement dated as of the
date hereof (the "Non-Compete Agreement"). Effective as of the closing of the
---------------------
transactions contemplated by the Merger Agreement, Executive, the Surviving
Corporation, R. Luke Stefanko and the escrow agent named therein shall enter
into that certain Escrow Agreement dated as of the closing date of the
transactions under the Merger Agreement (the "Escrow Agreement").
----------------
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment. The Company shall employ Executive, and Executive
----------
hereby accepts employment with the Company, upon the terms and conditions set
forth in this Agreement for the period beginning and ending as provided in
paragraph 4 hereof (the "Employment Period").
-----------------
2. Position and Duties.
-------------------
(a) During the Employment Period, Executive shall serve as the
President and Chief Executive Officer of the Company and shall have the normal
duties, responsibilities and authority of the President and Chief Executive
Officer, subject to the overall direction and authority of the Company's board
of directors (the "Board").
-----
(b) Executive shall report only to the Board, and Executive shall
devote his best efforts and his full business time and attention to the business
and affairs of the Company and its
<PAGE>
Subsidiaries; provided that nothing in this paragraph 2(b) shall prohibit
Executive from devoting, on average, not more than 20 hours per month to the
continued operation of Cahill Venture Capital Fund, LLC.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
------------
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company or
its successors, directly or through one or more Subsidiaries.
(d) With respect to all regular elections of directors during the
Employment Period, the Company shall nominate, and use its best efforts to
elect, Executive to serve as a member of the Board. Upon the termination of the
Employment Period, Executive shall resign as a director of the Company and its
Subsidiaries, as the case may be.
3. Base Salary and Benefits.
------------------------
(a) During the Employment Period, Executive's base salary shall be
$350,000 per annum and shall be subject to review by the Board for purposes of
its potential increase on an annual basis (the "Base Salary"), which salary
-----------
shall be payable in regular installments in accordance with the Company's
general payroll practices and shall be subject to customary withholding. In
addition, during the Employment Period, Executive shall be entitled to
participate in all of the Company's employee benefit programs for which senior
executive employees of the Company and its Subsidiaries are generally eligible.
(b) Executive shall be entitled to four weeks of paid vacation per
calendar year during the Employment Period.
(c) During the Employment Period, to the extent Executive is
insurable, the Company shall pay the premium for a term life insurance policy in
the amount of $3 million for Executive, the beneficiaries of such policy to be
designated by Executive.
(d) During the Employment Period, the Company shall pay 50% of the
dues and fees related to Executive's membership in the Calabassas Country Club,
or its equivalent.
(e) During the Employment Period, the Company shall provide Executive
with a leased automobile of his choice at a cost not to exceed $1,000 per month.
(f) The Company shall reimburse Executive for all reasonable expenses
incurred by him in the course of performing his duties under this Agreement
which are consistent with the Company's policies in effect from time to time
with respect to travel, entertainment and other business expenses, subject to
the Company's requirements with respect to reporting and documentation of such
expenses.
(g) In addition to the Base Salary, Executive will be eligible for an
annual bonus based upon specific bonus targets established in Exhibit A. The
---------
attainment of such EBITDA levels
- 2 -
<PAGE>
will not include any expenses related to any advisory or management fees paid or
payable to Bain Capital, Inc. or any of its designees or affiliates or to any
other shareholder. To the extent significant corporate events occur (including,
without limitation, acquisitions, divestitures and capital investments that
impact the EBITDA levels upon which the Board determined such bonus targets),
the Board may reasonably modify such bonus targets to reflect the pro forma
effect of such corporate events. The calendar year 2000 annual bonuses
identified in Exhibit A shall be pro rated based upon a 360-day year and for the
actual number of days elapsed from the Effective Date through December 31, 2000.
(h) If an excise tax under Section 4999 of the Internal Revenue Code
of 1986, as amended, is assessed against Executive solely as a result of (i.e.,
disregarding any payments made to Executive, or acceleration of any of
Executive's other rights, by any person or entity other than the Company) any
payments made to Executive by the Company or acceleration of rights granted by
the Company to Executive with respect to his Rollover Options, the Deferred
Compensation Amount or the New Stock Option Program (as each such term is
defined in the attached Equity Term Sheet), and no such excise tax would have
been assessed but for (i.e., disregarding any payments made to Executive, or
acceleration of any of Executive's other rights, by any person or entity other
than the Company) such payments and acceleration of rights by the Company, then
the Company shall pay Executive such amounts, within 10 days after notice from
Executive of such assessment, such that Executive shall have, after payment of
all taxes, interest and penalties, the same amount of funds as if such
assessment had not been made. This obligation shall survive until the applicable
statute of limitations has expired.
4. Term.
----
(a) The Employment Period shall commence as of the Effective Date and
shall terminate as of December 31, 2003; provided, that the Employment Period
--------
(including, without limitation, any extensions of the Employment Period pursuant
to the provisions below or otherwise) (i) shall terminate upon Executive's
resignation without Good Reason (as defined below), death or Disability (as
defined below), (ii) may be terminated by the Company at any time for Cause (as
defined below) or without Cause and (iii) shall terminate upon Executive's
resignation for Good Reason; provided further, that the Employment Period shall
-------- -------
automatically renew for successive periods of one (1) year each, unless either
party delivers written notice to the other of its intention not to renew the
Employment Period for such successive one (1) year period at least 90 days prior
to the commencement of any such renewal period.
(b) Subject to the other terms and conditions of this Section 4(b),
if the Employment Period is terminated by the Company without Cause or if
Executive shall terminate the Employment Period for Good Reason during the term
of this Agreement, Executive shall be entitled to receive (y) the Base Salary
which Executive would have otherwise been entitled to receive had he not been
terminated without Cause or resigned for Good Reason and (z) the bonus described
in Section 3(g) above for the calendar year in which such termination occurs if
Executive would have otherwise been entitled to receive such bonus had he not
been terminated; provided that if such termination occurs prior to the last day
of the calendar year in respect of which such bonus is awarded, then such bonus
shall be prorated based upon the number of days elapsed prior to
- 3 -
<PAGE>
Executive's date of termination. Any such amounts payable under this Section
4(b) will be payable at such times as such amounts would have been payable had
Executive not been terminated. Notwithstanding anything in this Agreement to the
contrary, the Company shall have no obligation to pay any amounts payable under
this Section 4(b) during such times as Executive is in material breach of
paragraph 5, 6, or 7 hereof or any provision of the Executive Stock Agreements
or the Non-Compete Agreement. As a condition to the Company's obligations (if
any) to make payments pursuant to this paragraph 4(b), Executive will execute
and deliver a general release in form and substance reasonably satisfactory to
the Company.
(c) If the Employment Period is terminated by the Company for Cause
or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to
receive his Base Salary through the date of termination.
(d) Except as otherwise provided in Section 4(b) or in this Section
4(d), all of Executive's rights to fringe benefits and bonuses hereunder (if
any) which accrue or become payable after the termination of the Employment
Period shall cease upon such termination. The Company may offset any amounts
Executive owes it or its Subsidiaries against any amounts it owes Executive
hereunder. After the termination of the Employment Period, Executive will also
be entitled to receive health benefits coverage for his dependents and himself
(in accordance with the terms and conditions of this Section 4(d)) under health
plan(s) or arrangement(s) made available by the Company to its employees from
time to time. Such health benefits coverage shall be paid for by the Company to
the same extent as if Executive were still employed by the Company. The health
benefits provided under this Section 4(d) shall continue until the earlier of
(i) the expiration of two years following the date of termination of Executive's
employment and (ii) the date Executive becomes covered under any other group
health plan not maintained by the Company which plan waives any pre-existing
condition of Executive and his dependents.
(e) For purposes of this Agreement, "Disability" (i) shall mean any
----------
physical or mental incapacitation which results in Executive's inability to
perform his duties and responsibilities for the Company for a total of 90 days
during any twelve-month period, as determined by the Board in its good faith
judgment and (ii) shall be deemed to have occurred on the 90th day of such
inability to perform.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
-----
conviction of a felony, or any willful act or omission involving dishonesty or
fraud with respect to the Company or any of its Subsidiaries or any of their
customers or suppliers, (ii) substantial and repeated failure, after delivery of
written notice from the Board to Executive and a 10 day period to effect a cure,
to perform duties as reasonably directed by the Board, (iii) gross negligence or
willful misconduct with respect to the Company or any of its Subsidiaries, after
delivery of written notice from the Board to Executive and a 10 day period to
effect a cure or (iv) any other material breach of this Agreement, the Executive
Stock Agreements or the Non-Compete Agreement, after delivery of written notice
from the Board to Executive and a 10 day period to effect a cure.
(g) For purposes of this Agreement, "Good Reason" shall mean the
-----------
occurrence, without Executive's consent, of any of the following: (i) unless
corrected within 10 days after
- 4 -
<PAGE>
delivery by Executive of written notice to the Board of Executive's objection
thereto, the assignment to Executive of any significant duties materially
inconsistent with Executive's status as a senior executive officer of the
Company or a substantial adverse alteration in the nature or status of
Executive's responsibilities for the Company, (ii) a reduction by the Company in
Executive's Base Salary in effect from time to time pursuant to this Agreement,
(iii) the Board requires Executive to relocate from the Los Angeles area or (iv)
any other material breach of this Agreement or the Executive Stock Agreements by
the Company, after delivery of written notice by Executive to the Board and a 10
day period to effect a cure.
5. Confidential Information. Executive acknowledges that the
------------------------
information, observations and data (including, without limitation, trade
secrets, know-how, research and product plans, customer lists, software,
inventions, processes, formulas, technology, designs, drawings, specifications,
marketing and advertising materials, distribution and sales methods and systems,
sales and profit figures and other technical and business information)
concerning the business or affairs of the Company or any of its Subsidiaries
disclosed or otherwise revealed to him, or discovered or otherwise obtained by
him, directly or indirectly, while employed by the Company and its Subsidiaries
or while serving as a director of the Company and its Subsidiaries
("Confidential Information") are the property of the Company or such Subsidiary.
------------------------
Therefore, Executive agrees that, during the Employment Period and for a period
of five years thereafter, he shall not disclose to any unauthorized person or
use for his own purposes any Confidential Information without the prior written
consent of the Board. The confidentiality and non-disclosure obligations of this
Section 5 shall not apply if, and to the extent that: (i) the Confidential
Information was known to the receiving party prior to its receipt from
Executive, other than by the fault of Executive, (ii) the Confidential
Information is or becomes part of the public domain, other than by the fault of
Executive, (iii) the Confidential Information is rightfully disclosed to the
receiving party by a third party that is legally free to disclose such
Confidential Information or (iv) the Confidential Information is disclosed
pursuant to subpoena or other compulsory legal process, or in connection with
proceedings to enforce any rights under this Agreement. Executive shall deliver
to the Company at the termination of the Employment Period, or at any other time
the Company may request, all memoranda, notes, plans, records, reports, computer
tapes, printouts and software and other documents and data (and copies thereof)
relating to the Confidential Information, Work Product (as defined below) or the
business of the Company or any Subsidiary which he may then possess or have
under his control.
6. Inventions and Patents. Executive acknowledges that all
----------------------
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) which relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and which are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
------------
such Subsidiary. Executive shall reasonably disclose (as promptly as
practicable) such Work Product to the Board and perform all actions reasonably
requested by the Board (whether during or after the Employment Period) to
establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
7. Non-Solicitation; Noncompete.
----------------------------
- 5 -
<PAGE>
(a) Each of the parties hereto acknowledges and agrees that VDI is,
among other things, engaged in the business of providing post production
services (as defined in this Agreement) for video, audio, streamed video or
streamed audio or digitized video or digitized audio or any combination of the
foregoing, which business is conducted (including production, promotional and
marketing activities and sales activities) throughout the United States.
Executive possesses extensive knowledge and proprietary information with respect
to VDI and its Subsidiaries, which, if disclosed or made available to VDI's or
its successors' competitors, would have a material adverse effect on VDI and its
successors, and Executive has been responsible for the creation of goodwill
inherent in VDI and its Subsidiaries. In connection with the transactions
contemplated by the Merger Agreement, (i) Executive will sell or otherwise
dispose of all of his shares of capital stock of VDI within the meaning of
Section 16601 of the California Business and Professions Code and (ii) Executive
will receive substantial amounts of consideration in connection with the
transactions contemplated by the Merger Agreement.
(b) In light of Executive's ownership of outstanding shares of
capital stock of VDI and Executive's contributions to the growth and development
of VDI and its Subsidiaries, including the creation of goodwill, Confidential
Information and Work Product of VDI and its Subsidiaries, in order to induce the
Company to execute and deliver the Merger Agreement, Executive shall execute and
deliver this Agreement for the purpose of preserving for the Company's, its
successors' and their respective Subsidiaries' benefit the goodwill,
Confidential Information, Work Product, proprietary rights and going concern
value of the Company, its successors and their respective Subsidiaries, and to
protect the Company's, its successors' and their respective Subsidiaries'
business opportunities. The covenants contained in this Section 7 are integral
to the transactions contemplated by the Merger Agreement (including the sale or
disposition of the capital stock of VDI (within the meaning of Section 16601 of
the California Business and Professions Code) owned by Executive) and the
Company would not enter into and deliver the Merger Agreement absent Executive's
execution and delivery of this Agreement and the Company would not consummate
the transactions contemplated by the Merger Agreement unless this Agreement is
in full force and effect and valid, binding and enforceable against Executive as
of the closing of the mergers contemplated by the Merger Agreement.
(c) In order to protect the value of the capital stock of VDI
acquired by the Company's stockholders pursuant to the Merger Agreement
(including the goodwill, Confidential Information and Work Product of VDI, its
successors and their respective Subsidiaries), Executive agrees that during the
Employment Period and, as long as the Company is making payments to Executive
(whether required pursuant to Section 4(b) or otherwise elected to be made by
the Company) of not less than Executive's Base Salary during any such month, on
a month to month basis thereafter for a period not to exceed twenty-four months
(the "Noncompete Period"), he shall not, directly or indirectly, either for
-----------------
himself or for any other person, partnership, corporation, company or other
entity, own, manage, control, participate in, consult with, render services for,
or in any other manner engage in any business or enterprise which manufactures,
designs, produces, renders or sells products or services anywhere in the
Restricted Territory (as defined below) which compete with (including products
or services manufactured, produced or rendered by an entity for its own internal
use) the products or services of VDI, its successors or any of their respective
Subsidiaries (or any products or services VDI, its successors or any of their
respective Subsidiaries
- 6 -
<PAGE>
are then currently actively in process of developing or planning for),
including, without limitation, the business of providing post production
services (whether for internal use or for sale to third parties) for video,
audio, streamed video or streamed audio or digitized video or digitized audio or
any combination of the foregoing ("Media Content"). Executive agrees that the
-------------
aforementioned covenant is reasonable with respect to its duration, geographical
area and scope. In particular, Executive acknowledges and agrees that VDI
currently conducts its business on a nationwide scale throughout the United
States and that the geographic scope of this restriction is necessary to protect
the goodwill and Confidential Information being sold. Neither the provision of
employment services to the Company, its successors or their respective
Subsidiaries pursuant to this Agreement nor the ownership of any securities of
the Surviving Corporation, its successors or their respective Subsidiaries shall
be deemed a violation of this Section 7(c). Notwithstanding the foregoing, after
the termination of the Employment Period, Executive shall be entitled to engage
in the activities described on the attached Exhibit A without violation of
---------
Section 7 of this Agreement (subject to the other obligations of Executive under
this Agreement).
For purposes of this Agreement,
(i) "post production services" shall include the duplication,
distribution, editing, mastering, storage or manipulation of
Media Content, whether physical or electronic, used in
broadcasting, television (including HDTV services), film,
advertising or the Internet (including on behalf of customers
involved in the sale or distribution of original or third party
content) and any other services provided by the Company with
respect to such Media Content, however, "post production
services" shall not include the primary production of (i.e.,
the initial creation of) or the purchase of original television
or film programming to the extent not involving post-production
services.
(ii) "Restricted Territory" shall mean the entire United States
including all of the counties located in the state of
California, including, but not limited to, the counties listed
on the attached Schedule I.
----------
(ii) "participate" includes any direct or indirect interest in any
enterprise, whether as an officer, director, employee, partner,
sole proprietor, agent, representative, independent contractor,
executive, franchisor, franchisee, creditor, owner or
otherwise; provided that the foregoing activities shall not
include the passive ownership (i.e., Executive does not
directly or indirectly participate in the business or
management of the applicable entity) of (i) less than 2% of the
stock of a publicly-held corporation whose stock is traded on a
national securities exchange and which is not primarily engaged
in a business of providing products or services which are
similar to or compete with the products and services of VDI,
its successors or any of their respective Subsidiaries (or any
products or services VDI, its successors or any of their
respective Subsidiaries are then in process of developing) or
(ii) with respect to any investments owned by Executive as of
the date of this
- 7 -
<PAGE>
Agreement, less than 2% of the stock of a publicly-held
corporation whose stock is traded on a national securities
exchange.
(d) During the Noncompete Period, Executive shall not directly or
indirectly through another person or entity (i) induce or attempt to induce any
employee of the Company or any Subsidiary to leave the employ of the Company or
such Subsidiary, or in any way interfere with the relationship between the
Company or any Subsidiary and any employee thereof, (ii) hire any person who was
an employee of the Company or any Subsidiary at any time during the Employment
Period, (iii) induce or attempt to induce any customer (including, without
limitation, any subsidiaries, divisions or affiliates thereof), supplier,
licensee, licensor, franchisee or other business relation of the Company or any
Subsidiary to cease doing business with the Company or such Subsidiary, or in
any way interfere with the relationship between any such customer (including,
without limitation, any subsidiaries, divisions or affiliates thereof),
supplier, licensee, licensor, franchisee or business relation and the Company or
any Subsidiary (including, without limitation, making any negative statements or
communications about the Company or its Subsidiaries) or (iv) service, engage in
business with or provide products or services to any customer (including,
without limitation, any subsidiaries, divisions or affiliates thereof) of the
Company or any Subsidiary with respect to post production services or any other
products or services then provided or rendered by the Company or any of its
Subsidiaries or which the Company or any of its Subsidiaries is then in process
of developing.
(e) Executive acknowledges that, in connection with the
consummation of the transactions contemplated by the Merger Agreement, he will
sell or otherwise dispose of (within the meaning of Section 16601 of the
California Business and Professions Code) all of his shares of capital stock of
VDI owned beneficially or of record by him, and that the Company would not
consummate the transactions contemplated by the Merger Agreement unless this
Agreement shall be in full force and effect and be a binding and enforceable
contract of Executive. Executive also acknowledges that, in the course of
serving as a director of VDI, its successors and their respective Subsidiaries
and during his employment as a senior executive officer of VDI, its successors
and their respective Subsidiaries, he has become and will continue to become
familiar with the Confidential Information and Work Product of VDI, its
successors and their respective Subsidiaries. Executive further acknowledges
that the scope of the business of VDI, its successors and their respective
Subsidiaries is independent of location (such that it is not practical to limit
the restrictions contained in this Section 7 to only certain specified counties,
cities or parts thereof) and that, therefore, as a senior executive officer and
director of VDI, its successors and their respective Subsidiaries, Executive has
had and will continue to have direct or indirect responsibility, oversight or
duties with respect to all of the businesses of VDI, its successors and their
respective Subsidiaries and its and their employees, vendors, customers, clients
and other business relations, and that, accordingly, the geographical
restriction contained in this Section 7 is reasonable in all respects and
necessary to protect the goodwill and Confidential Information and Work Product
of VDI, its successors and their respective Subsidiaries and that, without such
protection, VDI's, its successors' and their respective Subsidiaries' customer
and client relations and competitive advantage would be materially adversely
effected. It is specifically recognized by Executive that the Company would not
have entered into the Merger Agreement or engaged in the transactions
contemplated thereby without the restrictions contained in this Section 7.
Executive further acknowledges that the restrictions contained in this
- 8 -
<PAGE>
Section 7 do not impose an undue hardship on him due to the fact that (i) he has
general business skills which may be used in industries other than that in which
each of VDI, its successors and their respective Subsidiaries conduct their
business and do not deprive Executive of his livelihood and (ii) in connection
with the transactions contemplated by the Merger Agreement, Executive has
received substantial amounts of consideration which will enable Executive to
conduct business in businesses other than that in which each of VDI, its
successors and their respective Subsidiaries conduct their business. Executive
agrees that the covenants made in Section 7(c) and Section 7(d) shall be
construed as agreements independent of any other provision(s) of this Agreement
and shall survive any order of a court of competent jurisdiction terminating any
other provision(s) of this Agreement.
8. Enforcement. If, at the time of enforcement of paragraph 5, 6 or
-----------
7 of this Agreement, a court holds that the restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum period, scope or geographical area reasonable under such
circumstances shall be substituted for the stated period, scope or area. Because
Executive's services are unique and because Executive has access to Confidential
Information and Work Product, the parties hereto agree that money damages would
not be an adequate remedy for any breach of this Agreement. Therefore, in the
event a breach or threatened breach of this Agreement, the Company or its
successors or assigns may, in addition to other rights and remedies existing in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof. In addition, in the event of an
alleged breach or violation by Executive of paragraph 7, the Noncompete Period
shall be tolled until such breach or violation has been duly cured. Executive
agrees that the restrictions contained in paragraph 7 are reasonable.
9. Security for Obligations; No Limitation of Liability. In order
----------------------------------------------------
to secure (i) Executive's faithful performance and observation of his
obligations under paragraphs 5, 6 and 7 of this Agreement, (ii) Executive's
faithful performance and observation of his obligations under the Non-Compete
Agreement and (iii) the faithful performance and observation by R. Luke Stefanko
("Stefanko") of his obligations under that certain Non-Compete Agreement dated
--------
as of the date hereof, by and between Stefanko and the Company (the "Stefanko
--------
Non-Compete"), effective as of the closing of the merger transactions under the
- -----------
Merger Agreement, the Surviving Corporation, Executive, Stefanko and the escrow
agent named therein shall enter into and deliver the Escrow Agreement, which
shall provide for the payment of the Escrow Fund (as defined in the Escrow
Agreement) to the Surviving Corporation upon the terms and conditions specified
in the Escrow Agreement. Each of the parties hereto expressly acknowledges and
agrees (i) that nothing in this Agreement shall be interpreted to limit the
liability of Executive or Stefanko for any breaches of this Agreement, the Non-
Compete Agreement or the Stefanko Non-Compete, including, but not limited to,
the ability of the Company or its successors to obtain injunctive relief against
Executive or Stefanko under this Agreement, the Non-Compete Agreement or the
Stefanko Non-Compete; and (ii) that the Escrow Fund is not intended, and shall
not be construed to be, liquidated damages to the Company or its successors for
any breaches by Executive or Stefanko of this Agreement, the Non-Compete
Agreement or the Stefanko Non-Compete.
- 9 -
<PAGE>
10. Other Businesses. As long as Executive is employed by the
----------------
Company or any of its Subsidiaries, Executive agrees that he will not, except
with the express written consent of the Board and except as provided in Section
2(b) hereof with respect to Cahill Venture Capital Fund, LLC, become engaged in,
or render services for, any business other than the business of the Company or
any of its Subsidiaries.
11. Executive's Representations. Executive hereby represents and
---------------------------
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (ii) Executive is
not a party to or bound by any employment agreement, noncompete agreement or
confidentiality agreement with any other person or entity (other than the
employment agreement described in the recitals to this agreement) and (iii) upon
the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and binding obligation of Executive, enforceable in
accordance with its terms. Executive hereby acknowledges and represents that he
has consulted with independent legal counsel regarding his rights and
obligations under this Agreement and that he fully understands the terms and
conditions contained herein.
12. Survival. Paragraphs 5, 6 and 7 shall survive and continue in
--------
full force in accordance with their terms notwithstanding any termination of the
Employment Period.
13. Notices. Any notice provided for in this Agreement shall be in
-------
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notices to Executive:
--------------------
Donald Stine
24612 Palermo Drive
Calabassas, CA 91302
With copies to:
--------------
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067
Attn: Elliot Freier
Notices to the Company:
----------------------
VMM Merger Corp.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Joe Pretlow
- 10 -
<PAGE>
Prescott Ashe
With copies to:
--------------
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Jeffrey C. Hammes, P.C.
Gary M. Holihan
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or received.
14. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. In the event
that any ruling of any court or governmental authority calls into question the
validity of any portion of this Agreement, the parties hereto shall consult with
each other concerning such matters and shall negotiate in good faith a
modification to this Agreement which would obviate any such questions as to
validity while preserving, to the extent possible, the intent of the parties and
the economic and other benefits of this Agreement and the portion thereof whose
validity is called into question.
15. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
16. No Strict Construction. The language used in this Agreement
----------------------
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
17. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
18. Successors and Assigns. This Agreement is intended to bind and
----------------------
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
his rights or delegate his obligations hereunder without the prior written
consent of the Company.
- 11 -
<PAGE>
19. Choice of Law. All issues and questions concerning the
-------------
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California, without giving effect to any choice
of law or conflict of law rules or provisions (whether of the State of
California or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of California. Each of the parties
hereto maintains substantial contacts with the State of California, and a
significant portion of the parties' employment relationship shall be carried out
in the State of California. Each party agrees that the covenant providing for
California law to govern this Agreement is a material inducement to each party
to enter into this Agreement, and each party relied on such covenant to enter
into this Agreement.
20. Amendment and Waiver. The provisions of this Agreement may be
--------------------
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
21. References to the Company. From and after the effectiveness of
-------------------------
the transactions contemplated by the Merger Agreement, all references to the
Company shall be deemed to be references to the Surviving Corporation.
22. Expenses. As of the Effective Date, the Company agrees to pay
--------
all reasonable attorneys fees incurred by Executive in connection with the
creation, execution and delivery of this Agreement and the Executive Stock
Agreements; provided, that the Company's obligations pursuant to this Section 22
shall not exceed $35,000 in the aggregate.
23. Dispute Resolution.
------------------
(a) Notwithstanding any provision to the contrary in this Agreement,
the provisions of this Section 23 shall not apply to any dispute, claim or
controversy involving any of the covenants set forth in Section 5, 6 or 7 of
this Agreement. Any dispute, claim or controversy arising out of any of the
covenants set forth in Section 5, 6 or 7 of this Agreement shall be adjudicated
in any court of competent jurisdiction.
(b) Each of the parties hereto agrees that they will attempt to
settle any dispute, claim or controversy arising out of this Agreement through
good faith negotiations in the spirit of mutual cooperation.
(c) Any dispute, claim or controversy that cannot be resolved by the
parties through good faith negotiations within 30 days of the notification to
the other party of the commencement of the dispute resolution procedures of this
Section 23 will then, upon the written request of any party hereto, be resolved
by binding arbitration conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association by a sole arbitrator. Such
arbitrator shall be mutually agreeable to the parties. If the parties cannot
mutually agree upon the
- 12 -
<PAGE>
selection of an arbitrator, the arbitrator shall be selected in accordance with
the then effective Commercial Arbitration Rules of the American Arbitration
Association. To the extent not governed by such rules, such arbitrator shall be
directed by the parties to set a schedule for determination of such dispute,
claim or controversy that is reasonable under the circumstances. Such arbitrator
shall be directed by the parties to determine the dispute in accordance with
this Agreement and the substantive rules of law (but not the rules of procedure
or evidence) that would be applied by a federal court required to apply the
internal law (and not the law of conflicts) of the State of California. The
arbitration will be conducted in Los Angeles, California. Judgment upon the
award rendered by the arbitrator may be entered by any court having
jurisdiction.
(d) Nothing contained in this Section 23 shall prevent any party
hereto from resorting to judicial process if injunctive or other equitable
relief from a court is necessary to prevent injury to such party or its
affiliates. The use of arbitration procedures will not be construed under the
doctrine of laches, waiver or estoppel to affect adversely the rights of any
party to assert any claim or defense.
* * * * *
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
VMM MERGER CORP.
By: /s/ Joseph Pretlow
--------------------------
Its:
--------------------------
/s/ Donald R. Stine
-----------------------------
DONALD R. STINE
- 14 -
<PAGE>
EXHIBIT A
---------
1. Warehouse based storage and non-electronic distribution for non-media
companies, such as Wal-Mart, of pre-existing, pre-packaged physical
products (as opposed to electronic) for which neither Executive nor any of
its Affiliates has provided or will provide any post production services.
2. Sales of pre-existing, pre-packaged physical products (as opposed to
electronic) for which neither Executive nor any of its Affiliates has
provided or will provide any post production services or services (other
than post production services) over the Internet that are not related to
Media Content.
3. Document (other than documents containing or referencing any Media Content
(other than minor amounts of graphics or still photographs incident to the
content of such documents)) storage and distribution (via Internet, server
based or via satellite).
4. Database management excluding databases or data consisting of or derived
from Media Content.
5. Content licensing and marketing for exhibition through resale/re-licensing
arrangements, including the purchasing original television or film
programming not requiring future post production services; provided,
however that Executive may purchase original television or film programming
which may require future post production services so long as Executive
gives Merger Sub a right of first refusal (that is a right to make the
first offer to provide such services and to match any competing offer made
any another supplier for the applicable service) to provide such post
production services to Executive with respect to such programming.
- 15 -
<PAGE>
SCHEDULE I
----------
Alameda Orange
Alpine Placer
Amador Plumas
Butte Riverside
Calaveras Sacramento
Colusa San Benito
Contra Costa San Bernardino
Del Norte San Diego
El Dorado San Francisco
Fresno San Joaquin
Glenn San Luis Obispo
Humboldt San Mateo
Imperial Santa Barbara
Inyo Santa Clara
Kern Santa Cruz
Kings Shasta
Lake Sierra
Lassen Siskiyou
Los Angeles Solano
Madera Sonoma
Marin Stanislaus
Mariposa Sutter
Mendocino Tehama
Merced Trinity
Modoc Tulare
Mono Tuolumne
Monterey Ventura
Napa Yolo
Nevada Yuba
- 16 -
<PAGE>
DONALD R. STINE - EQUITY TERM SHEET
-----------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Existing Equity in VDI MultiMedia 44,044 shares of common stock owned
179,000 options @ $4.56/1/
250,000 options @ $8.31/2/
100,000 options @ $10.00/3/
150,000 options @ $15.00 (out of the money
-- to be canceled at no cost to the Company)
- --------------------------------------------------------------------------------------------------
Rollover Notwithstanding anything contained in the
Employment Agreement or the Non-Compete
Agreement to the contrary, all shares of
owned common stock and all in the money
stock options will be rolled over into the
stock and options, respectively, of the
recapitalized Company at per share values
equal to the Merger Consideration and the
Intrinsic Value, respectively (each as defined
below). "Merger Consideration" means the
per share price payable pursuant to the
Merger Agreement. "Intrinsic Value" means
the Embedded Value (as defined below) less
the Deferred Compensation Amount (as
defined in the paragraph entitled "Deferred
Compensation") per share. "Embedded
Value" means the per share price equal to the
Merger Consideration less the applicable
exercise price per share.
- --------------------------------------------------------------------------------------------------
</TABLE>
- ---------------------------
/1/Vesting in 3 equal tranches on 2/19/00, 2/19/01 and 2/19/02
/2/Vesting in 3 equal tranches on 7/29/00, 7/29/01 and 7/29/02
/3/Vesting in 3 equal tranches on 2/19/00, 2/19/01 and 2/19/02
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Invested Equity of the Recapitalized The invested equity (i.e., before any dilution
Company: for financing sources), including the
management rollover of stock and options, is
assumed to be $70 million (subject to change
at Bain's discretion), split among Class L
Common stock and Class A Common stock
as follows:
# shares Dollars
-------- -------
Class L 2mm $63mm
Class A 18mm $7mm
The following splits imply per share prices
for the Class L Common and Class A
Common of $31.50 and $0.39 per share,
respectively (as so adjusted for any overall
change in the aggregate invested equity
account of the recapitalized Company,
hereafter referred to as the "Deal Prices").
Shares of common stock will be rolled over
proportionately into shares of Class L
Common and Class A Common.
- --------------------------------------------------------------------------------------------------
Treatment of Rollover Stock Options: The existing stock options to be rolled over
(the "Rollover Options") will be rolled over
into new stock options with an aggregate in
the money value equal to the aggregate
Intrinsic Value. The Rollover Options will be
split proportionately between options for
Class L Common and Class A Common,
respectively (10% for shares of Class L
Common (representing 90% of the Intrinsic
Value) and 90% for shares of Class A
Common (representing 10% of the Intrinsic
Value), at exercise prices equal to 25% of the
respective Class L Common and Class A
Common Deal Prices.
- --------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Upon the consummation of the transactions
contemplated by the Merger Agreement (the
"Transactions"), the vesting of the Rollover
Options shall be accelerated (starting with
options vesting on 7/29/02 and working back
chronologically in time) to vest on such date
up to the point (and not in excess thereof) at
which approximately $100,000 (to establish
an adequate cushion) of additional value
(including any other parachute payments to
Executive paid directly by the Company in
connection with such change in control as
reasonably agreed by Company and
Executive) would trigger an excise tax under
the provisions of Section 4999 of the Internal
Revenue Code (the "4999 Limitation"). All
of the Rollover Options, the vesting of which
has not been accelerated upon the
consummation of the Transactions because of
the 4999 Limitation, shall continue to vest in
accordance with their original vesting
schedule (subject to further accelerated
vesting upon (i) any subsequent change in
control or (ii) Executive's termination without
Cause or Executive's termination for Good
Reason).
- --------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Deferred Compensation "Deferred Compensation Amount" means the
aggregate amount of the exercise prices on
the Rollover Options, which exercise prices
will be equal to 25% of the respective Class L
Common and Class A Common Deal Prices.
The Deferred Compensation Amount will be
an unfunded liability of the Company. Such
amount shall be payable in full at the earlier
of (a) 10 years, (b) consummation of an IPO,
(c) consummation of a change of control, (d)
10 days prior to expiration of exercisability of
any Rollover Options and (e) 60 days after
termination of employment. Except for any
vesting required to comply with the 4999
Limitation (which vesting shall be identical to
the related options), the amount of the
deferred compensation obligation shall be
fully vested with no forfeiture provision.
- --------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
New Stock Option Program: The following non-qualified stock option
program (all exercisable for 10 years) will be
made available to the Company management
team (all amounts indicated are before any
pro rata dilution for equity granted to
financing sources):
Tranche I stock options exercisable for Class
A Common for 5% of the Company on a fully
diluted basis as of the closing, exercisable at
the Class A Deal Price, 25% of which will
vest at the end of year 1 and the balance of
which will vest monthly in years 2, 3 and 4.
Tranche II stock options exercisable for Class
A Common for 2.5% of the Company on a
fully diluted basis as of the closing,
exercisable at the Class A Deal Price, which
will vest in 10 years, and will be subject to
accelerated vesting upon Bain's achievement
of a 3.5 times return on its invested capital,
after giving effect to the new options.
Tranche III stock options exercisable for
Class A Common for 2.5% of the Company
on a fully diluted basis as of the closing,
exercisable at the Class A Deal Price, which
will vest in 10 years, and will be subject to
accelerated vesting upon Bain's achievement
of a 4.5 times return on its invested capital,
after giving effect to the new options.
One third (33.33%) of each of the foregoing
tranches of options will be granted to
Executive.
Vesting of all of Executive's new options
shall be accelerated upon a change in control.
In addition, if Executive is terminated without
Cause or if Executive resigns for Good
Reason, the three tranches of options will be
subject to accelerated vesting as follows:
- --------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------
Tranche I: 50% of all unvested options will
immediately vest upon any such termination
and all remaining unvested options will vest
if, within 365 days from the termination date,
the Company or its stockholders enter into a
binding agreement with respect to a
transaction (and such transaction is in fact
consummated) in which Bain has achieved a
3.5 times return on its invested capital, after
giving effect to the new options.
Tranche II: all unvested options will
immediately vest if, within 365 days from the
termination date, the Company or its
stockholders enter into a binding agreement
with respect to a transaction (and such
transaction is in fact consummated) in which
Bain has achieved a 3.5 times return on its
invested capital, after giving effect to the new
options.
Tranche III: all unvested options will
immediately vest if, within 365 days from the
termination date, the Company or its
stockholders enter into a binding agreement
with respect to a transaction (and such
transaction is in fact consummated) in which
Bain has achieved a 4.5 times return on its
invested capital, after giving effect to the new
options.
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After Executive's termination, Executive shall
have a period of 90 days (or, in connection
with any accelerated vesting of any options
upon the consummation of a transaction as
described in the three preceding paragraphs,
upon the consummation of any such
transaction, so long as Executive is permitted
to exercise such options simultaneously with
the consummation of such transaction) to
exercise any vested and previously
unexercised stock options. Except as
provided in the immediately preceding
sentence with respect to options which may
be accelerated upon the consummation of a
transaction, upon termination, any unvested
options shall be canceled.
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Section 280G With respect to the grants to be made to
Executive, the Bain investor group will, upon
the making of such grants by the Company,
approve such grants to Executive in
accordance with Code Section 280G(b)(5),
such that the provisions of Code Section
280G may not apply to such options.
Executive shall take all necessary actions in
connection with such approval.
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Put Rights; Call Rights on the Rollover Executive shall have no put rights with
Equity: respect to any portion of his equity (either the
rollover equity or the new options). In
addition, Executive's rollover equity shall not
be subject to any call by the Company or the
Bain investor group.
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Call Rights on the New Equity: In the event of Executive's termination
without Cause or termination for Good
Reason, the Company and the Bain investor
group shall have call rights (exercisable
within 90 days of Executive's termination) on
up to 50% of any vested options and up to
50% of any stock issued in connection with
the new option program, at the fair market
value thereof (taking into account any unpaid
exercise price with respect to the value of
unexercised options). In the event of
Executive's cessation of employment for any
other reason, the Company and the Bain
investor group shall have call rights
(exercisable within 90 days of Executive's
termination) on up to 100% of any vested
options and up to 100% of any stock issued in
connection with the new option program, at
the fair market value thereof (less any unpaid
exercise price with respect to unexercised
options). Fair market value shall be
determined jointly by Executive and the
Company's board of directors, or if such
parties cannot agree, fair market value shall
be determined by a mutually agreeable
business appraiser.
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Pre-IPO Liquidity Executive shall have customary tag along
rights on any private sale by the Bain investor
group (subject to customary exceptions for
transfers to affiliates, etc.) prior to an IPO or a
sale of the Company (irrespective of whether
Executive is still an employee of the
Company). Bain will provide a side letter or
sign off on the tag along provisions of the
definitive agreement to evidence such tag
along rights. Except as set forth above and in
the immediately following paragraph,
Executive will agree to be bound by Bain's
customary transfer restrictions limiting
Executive's ability to transfer any of his
equity in the Company (subject to customary
exceptions for family planning, etc.).
Subject to a right of first refusal in favor of
the Company and the Bain investors, as long
as Executive is still employed by the
Company (or if Executive was terminated
without Cause or resigned for Good Reason),
commencing on the fifth anniversary and the
sixth anniversary of the closing under the
Merger Agreement, Executive shall be
entitled to sell capital stock of the Company
with a fair market value not to exceed $1
million in each such year.
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Post-IPO Liquidity The Company will use best efforts to register
for resale Executive's rollover equity and new
equity on Form S-8. To the extent the
Company is unable to register such equity for
resale on Form S-8 and Executive is unable to
sell such equity pursuant to Rule 144,
commencing 180 days after the Company's
initial public offering, the Company will
provide Executive with up to two demand
registrations to sell such equity. In addition,
Executive will have customary piggyback
registration rights, pro rata with the other
holders of the Company's registrable
securities.
Executive will be bound by a customary
holdback agreement, in which no sale of any
of Executive's equity shall be permitted
during the seven day period prior to and the
180 day period beginning on the effective
date of any underwritten public offering,
except as part of such offering.
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Drag Along Rights All of the Company's capital stock and
options issued or granted to Executive will be
subject to Bain's customary drag along
agreement upon any sale of the Company.
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Executive Exclusivity; Board Appointment Prior to the closing of the Transactions, Bain
will provide Executive a side letter
confirming that Executive will operate all
Bain-controlled (i.e., in which Bain and its
affiliates own 50% or more of the voting
common stock) businesses in the "post-
production field" (to be defined by mutual
agreement, but which, in concept, shall be
limited to the Company's current competitors
and those entities which the Company
currently contemplates competing with).
The Bain side letter will also confirm the
agreement of the Bain investor group to
appoint Executive to the Company's board of
directors, so long as Executive is an employee
of the Company or its subsidiaries. The
Company will not take a tax deduction with
respect to payments made by any
shareholders to Stine on the Effective Date.
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