<PAGE>
Exhibit (b)(2)
PRIVILEGED AND CONFIDENTIAL
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March 30, 2000
Green Equity Investors III, L.P.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard Suite 2000
Los Angeles, CA 90025
Attention: Mr. John G. Danhakl
John Baumer
Gentlemen:
We understand that Vicar Recap, Inc., a Delaware corporation ("Recap") wholly
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owned by Green Equity Investors III, L.P. ("Parent"), is proposing to effect a
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recapitalization (the "Recapitalization") pursuant to an Agreement and Plan of
----------------
Merger (the "Recapitalization Agreement"), among Recap, Veterinary Centers of
--------------------------
America, Inc., a Delaware corporation ("VCA"), and Vicar Operating, Inc., a
---
Delaware corporation and a wholly-owned subsidiary of VCA ("Opco"). Prior to
----
the Recapitalization, Rollover Holders (as defined in the Recapitalization
Agreement) will exchange a portion of their Existing Shares (as defined in the
Recapitalization Agreement) of VCA for shares of Recap. Pursuant to the
Recapitalization Agreement, (1) VCA will transfer all of its assets and
liabilities to Opco, and (2) Recap will be merged (the "Merger") with and into
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VCA, with VCA as the surviving corporation in the Merger (such surviving
corporation "Holdco" or the "Company"). Pursuant to the Merger, each holder of
------ -------
shares of Common Stock of VCA, par value $.001 per share (the "VCA Common
----------
Shares"), other than the shares held in VCA's treasury, shares held by Recap and
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Dissenting Shares (as defined in the Recapitalization Agreement), will be
converted into the right to receive $15.00 in cash (the "Merger Price"). After
giving effect to the Merger, Opco will be a wholly-owned subsidiary of Holdco,
and all of the outstanding equity interests of Holdco will be owned by Parent
and Rollover Holders.
We further understand that, in order to finance the Recapitalization and other
transactions (collectively, the "Transactions") contemplated by the
Recapitalization Agreement and to pay related transaction costs, the Company
will require financing consisting of: (a) the issuance of $70 million in
original principal amount of senior notes of Holdco (the "Holdco Notes"), (b)
------------
the issuance of $50 million in original principal amount of senior subordinated
notes of Opco (the "h", and collectively with Holdco Notes, the "Notes"; the
- -----
Holdco Notes and the Opco Notes are each sometimes referred to as a class of
Notes), (c) the incurrence of $250 million aggregate principal amount of term
loans and $75 million principal amount of revolving credit facilities (such term
loans and revolving credit facilities the "Senior Facilities") pursuant to the
-----------------
commitment letter, dated the date hereof (the "Bank Commitment Letter") issued
----------------------
by Goldman Sachs Credit Partners, L.P. "GSCP"), and (d) $156 million of equity
----
financing (the "Equity Financing") through (i) the issuance for at least $152
----------------
million in cash to Green Equity Investors III, L.P. (the "Sponsor") or
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affiliates thereof (the "Sponsor Investors") of shares of Common Stock, par
-----------------
value $.01 per share (the "Holdco Common Stock") of Holdco, shares of Junior
-------------------
Preferred Stock par value $.01 per share (the "Holdco Junior Preferred Stock"),
-----------------------------
of Holdco, at $25.00 per share in cash, and shares of Senior Preferred Stock,
par value $.01 per share (the "Holdco Senior Preferred Stock", and, together
-----------------------------
with the Holdco
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Green Equity Investors, III, L.P. March 30, 2000
Common Stock and Holdco Junior Preferred Stock, the "Holdco Stock") of Holdco,
------------
at $25.00 per share in cash, and (ii) the rollover of the Rollover Holders of
not less than $3.5 million in value (valued at the Merger Price) of VCA Common
Shares or options.
This letter confirms the terms and conditions pursuant to which (i) GS Mezzanine
Partners II, L.P. and its affiliated investment funds (together, the
"Purchasers") commit to purchase in connection with the Transactions (x) from
Holdco $70 million in original principal amount of the Holdco Notes and (y) from
Opco $50 million in original principal amount of the Opco Notes, and (ii) Holdco
is willing to issue to the Purchasers warrants representing the right to
acquire, at $.01 per share, up to 5.75%, calculated on a fully-diluted basis, of
each of the Holdco Common Stock, the Holdco Junior Preferred Stock and the
Holdco Senior Preferred Stock (the "Warrants", and collectively with the Notes,
--------
the "Securities").
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1. Purchase and Sale. The purchase and sale of the Securities shall be
-----------------
at the price and subject to the terms and conditions specified herein
and in the term sheet attached hereto as Annex B (the "Term Sheet").
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2. Closing Date. The date of the closing (sometimes referred to herein
------------
as "Closing") of the Merger and the financing contemplated hereby (the
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"Closing Date") will be on the date of the closing of the Merger and
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the other transactions contemplated by the Recapitalization Agreement,
but in no event later than September 30, 2000 unless the Purchasers
otherwise agree. The commitment of the Purchasers-hereunder shall
terminate on September 30, 2000 unless the Closing shall have
previously occurred.
3. Definitive Agreements. As soon as reasonably practicable after the
---------------------
execution of this letter, the Sponsor and the Purchasers shall
commence the negotiation of definitive agreements and documents (the
"Definitive Agreements") relating to the issuance of the Securities
---------------------
and other related matters, including:
(a) a Purchase Agreement between Holdco and the Purchasers which
shall set forth the terms and conditions upon which the Holdco
Notes will be purchased by the Purchasers, and a Purchase
Agreement between Opco and the Purchasers which shall set forth
the terms and conditions upon which the Opco Notes will be
purchased by the Purchasers;
(b) an indenture with respect to each class of Notes between the
issuer of each such class of Notes and a trustee reasonably
satisfactory to the Sponsor and the Purchasers;
(c) an Exchange and Registration Rights Agreement with respect to
each class of Notes between the issuer of each such class of
Notes and the Purchasers;
(d) a Warrant Agreement between Holdco and the Purchasers providing
for the issuance of the Warrants and the terms and conditions
thereof; and
(e) a Registration Rights Agreement and a Stockholders Agreement
between Holdco and the Purchasers with respect to the Warrants
pursuant to which the holders of the Warrants and the shares of
Holdco Stock issuable upon
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Green Equity Investors, III, L.P. March 30, 2000
exercise thereof are granted registration rights and are subject
to the restrictions on transfer set forth therein.
Each of the Definitive Agreements (other than the Stockholders Agreement)
referred to above with respect to the Notes and the Warrants will initially be
prepared by counsel to the Purchasers. The Definitive Agreements will include
the terms summarized in the Term Sheet and such other representations,
warranties, conditions, covenants, indemnities and other terms, in each case
typical for financings of this sort, determined by the Purchasers in their sole
reasonable judgment and are not inconsistent with the Term Sheet.
4. Certain Conditions. The commitment of the Purchasers hereunder is
------------------
subject, in their sole discretion, to the conditions (in addition to
the conditions set forth elsewhere herein and in the Term Sheet) that
there shall not have been, since December 31, 1999, any material
adverse change in or affecting the business, financial condition,
results of operations or prospects of VCA and its subsidiaries, taken
as a whole, in each case other than pursuant to or as disclosed in the
Recapitalization Agreement and other than as contemplated by this
letter. The commitment of the Purchasers hereunder is also subject to
the accuracy in all material respects of all information heretofore
furnished to the Purchasers and the Purchasers not becoming aware
after the date hereof of any information or other matters affecting
the Company and its subsidiaries or the transactions contemplated
hereby which is inconsistent in a material and adverse manner with any
information disclosed to the Purchasers prior to the date hereof.
5. Inspection and Access to Information. From and after the date of
------------------------------------
execution of this letter by the parties hereto, the Sponsor shall, and
shall use reasonable efforts to cause VCA to, permit access to, and
make available to the Purchasers' representatives and their accounting
and legal advisors for inspection and review, the properties, books,
records, accounts, and documents of or relating to VCA and the Sponsor
Investors, and the Sponsor shall, and shall use reasonable efforts to
cause VCA to, make available at reasonable times and to a reasonable
extent officers and employees of Sponsor, the Sponsor Investors and
the Company to discuss with the Purchasers' representatives and their
accounting and legal advisors the business, affairs, properties and
prospects of VCA, such inspection and discussion to be undertaken
prior to and after the execution of the Definitive Agreements.
Notwithstanding the foregoing, Purchasers will complete all remaining
due diligence within five business days after the date of the public
announcement of the Recapitalization, subject to compliance by Sponsor
and VCA with their obligations under this paragraph 5.
6. No-Shop; Ordinary Course. From the date hereof until the earliest
------------------------
of: (a) the mutual agreement of the parties not to pursue the
execution of the Definitive Agreements, (b) the termination of such
Definitive Agreements in accordance with the terms thereof, (c) the
Closing Date and (d) if the Closing Date shall not have theretofor
occurred, September 30, 2000 (or such later date as the Company and
the Purchasers shall have mutually agreed to extend the Purchasers'
commitment hereunder), the Sponsor shall not, and shall cause its
affiliates, agents, representatives, and any other person acting on
their behalf not to, directly or indirectly solicit, participate in
any
3
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Green Equity Investors, III, L.P. March 30, 2000
negotiations or discussions with or provide or afford access to
information to any third party with respect to, or otherwise
facilitate, encourage or accept any offers for the purchase of the
Securities or any alternative mezzanine financing arrangements in
connection with the Transactions (other than the transactions
contemplated by the Bank Commitment Letter and the Holdco Stock) and
shall terminate or have terminated prior to the date hereof any
agreement or arrangement related to the foregoing to which the Sponsor
or its affiliates are parties, as well as any of the foregoing
activities and discussions as may be continuing on the date hereof
with any party other than the Purchasers and their representatives,
and Sponsor shall promptly advise the Purchasers of any inquiry or
proposal relating thereto that may be received, including the terms of
the proposal and the identity of the inquirer or offeror.
7. Fees and Expenses. In consideration of the Purchasers' agreements
-----------------
hereunder, the Sponsor agrees at the Closing Date to pay or cause to
be paid (without duplication) in cash in immediately available funds a
funding fee equal to 3.0% of the aggregate original principal amount
of the Notes of each class issued at the Closing, which amount will be
deducted from the purchase price paid by the Purchasers for the
Securities at the Closing. In addition, and whether or not the
proposed Transactions are consummated, the Sponsor agrees to reimburse
(or to cause VCA or Opco to reimburse) the Purchasers at the Closing
or upon termination of this letter or the transactions contemplated by
the Recapitalization Agreement for (i) their reasonable and documented
out-of-pocket expenses, including the reasonable and documented fees
and disbursements of their attorneys, plus (ii) any sales, use or
similar taxes (including additions to such taxes, if any) arising in
connection with any matter referred to in this letter. In addition, if
the Sponsor or any of its affiliates enters into any agreement to
acquire VCA and such agreement provides for payment at any time to the
Sponsor or any of its affiliates in the event the transaction
contemplated thereby is terminated or otherwise not consummated, the
Sponsor acknowledges that any fee payable by the Sponsor to GSCP in
connection with such termination pursuant to the Bank Commitment
Letter may be shared with the Purchasers. Sponsor's obligations and
liabilities under this Section 7 will terminate to the extent that the
Merger and Recapitalization have occurred and VCA or Opco has assumed
such obligations and liabilities.
8. Confidentiality. This letter and its terms and the transactions
---------------
contemplated hereby shall be kept confidential by the parties hereto
until the parties mutually agree upon the language and timing of a
press release or until such time as one such party determines, based
upon the advice of counsel, that a public announcement is required by
law, in which case the parties hereto shall in good faith attempt to
agree on any public announcements or publicity statements with respect
thereto. Notwithstanding the foregoing, the parties may disclose this
letter and its terms (i) to their officers, employees, attorneys and
advisors on a confidential and need-to-know basis, (ii) as required by
applicable law or compulsory legal process or in the prosecution of
any proceeding initiated by one or more of the parties hereto and
(iii) to the Company, GSCP, the Management Shareholders and their
respective
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Green Equity Investors, III, L.P. March 30, 2000
attorneys and advisors, on a confidential basis in connection with the
transactions contemplated hereby.
9. Conditions to Closing. Purchaser's commitment to purchase the
---------------------
Securities at closing hereunder is subject to: (i) the closing of the
Merger on the terms set forth in the Recapitalization Agreement or on
other terms reasonably satisfactory to Purchaser; (ii) the
negotiation, execution and delivery on or before the Closing Date of
the Definitive Agreements; (iii) the satisfaction of the conditions
set forth in paragraph 4 above; (iv) the Sponsor's performance of its
obligations under paragraphs 5 through 8 hereof; (v) the conditions
set forth in the Term Sheet; (vi) delivery of customary closing and
solvency certificates and legal opinions; and (vii) the issuance of
the Securities being in compliance with the law.
10. Indemnification. In connection with arrangements such as this, it is
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our policy to receive indemnification. Effective upon execution of
this letter, the Sponsor hereby agrees to the provisions with respect
to our indemnity and other matters set forth in Annex A which are
incorporated by reference into this letter. Sponsor's obligations and
liabilities under this Section 10 will terminate to the extent that
the Merger and Recapitalization have occurred and VCA or Opco has
assumed such obligations and liabilities.
11. Other Activities. As you know, The Goldman Sachs Group, Inc. is a
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full service securities firm and as such may from time to time effect
transactions, for its own account or the account of customers, and
hold positions in securities or options on securities of the Company
and other companies which may be the subject of the arrangements
contemplated by this letter.
12. Governing Law. This letter shall be governed by the internal laws of
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the State of New York without regard to principles of conflicts of
laws.
13. No Beneficiaries; Assignments. This letter has been and is made
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solely for the benefit of the Sponsor and the Purchasers, and no other
person will acquire or have any right under or by virtue of this
letter. The Sponsor may not assign any of its rights or obligations
hereunder without the prior written consent of the Purchasers. The
Purchasers may not assign any of its rights or obligations hereunder
prior to the Closing without prior written consent of Holdco.
14. Entire Agreement. This letter constitutes the entire agreement
----------------
between the parties hereto with respect to the matters covered hereby
and supersedes all prior communications, written and oral, between the
Sponsor and the Purchasers.
15. Termination. The obligations and representations of the parties
-----------
hereto, automatically terminate and be superseded by the provisions of
the Definitive Agreements at the Closing and the consummation of the
Recapitalization.
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Green Equity Investors, III, L.P. March 30, 2000
16. Counterparts. This letter may be executed in counterparts, each of
------------
which shall be deemed to constitute an original but all of which shall
constitute one and the same instrument.
If the foregoing terms and conditions are acceptable to you, please so indicate
by signing both of the enclosed copies of this letter where indicated and
returning one to the undersigned on or prior the third business day after the
date hereof, whereupon this letter shall become binding agreements between us.
If this letter is not signed and returned as described in the preceding sentence
by such date, this letter will terminate on such date.
Very truly yours,
GS MEZZANINE PARTNERS II, L.P.
BY: GS MEZZANINE ADVISORS II, L.L.C.,
its general partner
By: /s/ John Bowman
---------------------------------
Name: John Bowman
Title: Vice President
Agreed To And Accepted As
Of The Date First Above Written
GREEN EQUITY INVESTORS III, L.P.
By: GEI Capital III, LLC
Its: General Partner
By: /s/ John Danhakl
---------------------------
Name: John Danhakl
Title: Manager
6
<PAGE>
Annex A
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In the event that the Purchasers become involved in any capacity in any action,
proceeding or investigation brought by or against any person, including
stockholders or investors in the Sponsor or VCA, in connection with or as a
result of the Purchasers' agreements contained or any matter referred to in this
letter, the Sponsor periodically will reimburse the Purchasers for their
reasonable and documented legal and other expenses (including the reasonable and
documented cost of any investigation and preparation) incurred in connection
therewith unless indemnity is not available under the terms of this Annex A.
The Sponsor also will indemnify and hold the Purchasers harmless against any and
all losses, claims, damages or liabilities to any such person in connection with
or as a result of the Purchasers' agreements contained or any matter referred to
in this letter, except to the extent that any such loss, claim, damage or
liability results from the gross negligence or bad faith of the Purchasers in
performing the obligations that are the subject of this letter or failure to
fund in breach of the Purchasers' obligations under this letter. If for any
reason the foregoing indemnification is unavailable to the Purchasers or
insufficient to hold them harmless, then the Sponsor shall contribute to the
amount paid or payable by the Purchasers as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative
economic interests of the Sponsor on the one hand and the Purchasers on the
other hand in the matters contemplated by this letter as well as the relative
fault of the Sponsor and the Purchasers with respect to such loss, claim, damage
or liability and any other relevant equitable considerations unless indemnity is
not available under the terms of this Annex A. The reimbursement, indemnity and
contribution obligations of the Sponsor under this paragraph shall be in
addition to any liability which the Sponsor may otherwise have, shall extend
upon the same terms and conditions to (i) any affiliate of the Purchasers
(including The Goldman Sachs Group, Inc.), and (ii) the partners, stockholders,
members, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Sponsor, the Purchasers, any such affiliate and any such
person. The Sponsor also agrees that neither the Purchasers nor any of such
affiliates, partners, stockholders, members, directors, agents, employees or
controlling persons shall have any liability to the Sponsor or any person
asserting claims on behalf of or in the right of the Sponsor in connection with
or as a result of the Purchasers' agreements contained or any matter referred to
in this letter except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Sponsor result from the gross negligence
or bad faith of the Purchasers in performing the obligations that are the
subject of this letter or by reason of Purchasers' failure to fund in breach of
Purchasers' obligations under this letter. Any right to trial by jury with
respect to any action or proceeding arising in connection with or as a result of
the letter to which this Annex A is attached and is made part of or any matter
referred to in this letter is hereby waived by the parties hereto. Except as
set forth in the commitment letter to which this Annex A is attached, the
provisions of this Annex A shall survive any termination or completion of this
letter to which this Annex A is attached and is made part of.
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Annex B
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VETERINARY CENTERS OF AMERICA, INC
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Summary of Terms and Conditions of the Securities
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Holdco
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$70 Million Senior Notes
Opco
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$50 Million Senior Subordinated Notes
This Summary of Terms and Conditions outlines certain terms of the Facilities
referred to in the letter (the "Commitment Letter"), of which this Annex B is a
part. Certain capitalized terms used herein are defined in such Commitment
Letter.
Securities: $70 million Senior Notes ("Holdco Notes")
$50 million Senior Subordinated Notes ("Opco Notes", and
collectively with Holdco Notes, the "Notes").
Issuers: Holdco Notes: Veterinary Centers of America, Inc., as the
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surviving entity in the Merger ("Holdco" or the "Company")
Opco Notes: Vicar Operating, Inc., a wholly-owned
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subsidiary of Holdco ("Opco" and together with Holdco, the
"Issuers")
Guarantors: Holdco Notes: None.
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Opco Notes: All present and future direct and indirect
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domestic subsidiaries of Opco.
Purchaser: GS Mezzanine Partners II, L.P., GS Mezzanine Partners
Offshore II, L.P. and/or their affiliates ("Purchaser").
Financing Fee: Holdco Notes: 3% of the initial purchase price for the
------------
Holdco Notes("Holdco Fee")
Opco Notes: 3% of the initial purchase price for the Opco
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Notes ("Opco Fee")
Interest: Holdco Notes: Interest on the Notes shall accrue at a rate
------------
of 14.5% per annum, based on a 360-day year of twelve 30-
day months and shall be payable semi-annually, in arrears;
provided that on any semiannual interest payment date on or
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prior to the 5th anniversary of the Closing Date, Holdco
will have the option to pay all or any portion of the
interest payable on such date by issuing additional Holdco
Notes ("PIK Notes") in a principal amount equal to the
---------
interest Holdco elects not to pay in cash. After the 5th
anniversary of the Closing Date, all of the interest will
be payable in cash semiannually, in arrears.
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Opco Notes: Interest on the Notes shall accrue at
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a rate of 13.5% per annum, based on a 360-day
year of twelve 30-day months. All of the interest
will be payable in cash semiannually, in arrears.
Final Maturity/Redemption: The Notes shall mature 10 years from the closing.
Use of Proceeds: Fund the recapitalization of VCA by the Sponsor
and management and pay transaction costs.
Voluntary Prepayment: Holdco Notes: Except as provided below with
------------
respect to an IPO or a change in control (to be
defined) of Holdco, prepayment of the Notes will
be permitted at any time after three years from
the closing, in whole or in part, at the prices
listed below (expressed as a percentage of the
principal amount of the Notes being prepaid as of
the redemption date) plus accrued interest to the
date of prepayment:
In the 4th year after closing: 107.25%
In the 5th year after closing: 107.25%
In the 6th year after closing: 107.25%
In the 7th year after closing: 105.80%
In the 8th year after closing: 104.35%
In the 9th year after dosing: 102.90%
In the 10th year after closing: 101.45%
Opco Notes: Except as provided below with respect
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to an IPO or a change in control of Holdco,
prepayment of the Notes will be permitted at any
time after three years from the closing, in whole
or in part, at the prices listed below (expressed
as a percentage of the principal amount of the
Notes being prepaid as of the redemption date)
plus accrued interest to the date of prepayment:
In the 4th year after closing: 106.75%
In the 5th year after closing: 106.75%
In the 6th year after closing: 106.75%
In the 7th year after closing: 105.40%
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In the 8th year after closing: 104.05%
In the 9th year after closing: 102.70%
In the 10th year after closing: 101.35%
At any time during the third year after closing,
the entire aggregate principal amount of the
Notes then outstanding may be prepaid
concurrently with the consummation of an IPO or a
change in control of Holdco at a price of 110% of
the principal amount plus accrued interest. At
any time prior to two years from the closing, up
to 35% of the aggregate principal amount of the
Notes then outstanding may be prepaid from the
proceeds of an IPO of common stock of Holdco at a
price of 110% of the principal amount thereof
plus accrued interest; provided that any such
proceeds shall be applied first to the prepayment
of the Holdco Notes, and if no Holdco Notes are
then outstanding to the prepayment of the Opco
Notes; provided further that, after giving effect
to any such prepayment, at least 65% of the
original principal amount of the Notes plus the
aggregate principal amount of PIK Notes issued
since the Closing Date remains outstanding. Each
prepayment must relate to an aggregate principal
amount of Notes of at least $5 million.
Change of Control: Upon the occurrence of a change of control, the
Issuers will be required to offer to purchase the
Notes at 101% of the outstanding principal amount
of the Notes (including any PIK Notes) then
outstanding, plus accrued interest to the date of
payment.
Subordination: Holdco Notes: None.
------------
Opco Notes: Subordinated to the Senior Facilities
----------
on customary terms for public high yield issues.
Without limiting the generality of the foregoing,
the Opco Notes shall not be subject to any
remedies blockage.
Conditions Precedent: Customary conditions, and the following: (i)
negotiation and execution of Definitive
Agreements reasonably satisfactory to the
Purchaser; (ii) the terms of the other debt, the
Holdco Stock and capital structure of the Issuers
and related entities reasonably satisfactory to
the Purchaser, Opco being and remaining a wholly-
owned subsidiary of Holdco after the Merger, and
a minimum aggregate equity contribution for
Holdco Stock by the Sponsor and management to
Holdco of at least $152 million in cash and, as
to the Management
3
<PAGE>
Shareholders, not less than $3.5 million in
shares of (or options for) VCA Common Stock;
(iii) no material adverse change in or affecting
the business, operations, assets, management,
condition (financial or otherwise), prospects or
results of operations of the Issuers and their
subsidiaries taken as a whole; (iv) accounting,
legal and regulatory due diligence reasonably
satisfactory to the Purchaser; (v) receipt of all
necessary third party and governmental consents
and approvals for the acquisition and related
financing; (vi) closing of the Merger on terms
set forth in the Recapitalization Agreement or on
other reasonably satisfactory terms; (vii) pro
forma EBITDA for VCA and its subsidiaries for the
twelve month period ending March 31, 2000 not
less than $63.0 million; (viii) the ratio of (a)
total consolidated debt at the Holdco as of March
31, 2000 (determined on a pro forma basis for the
Company and its subsidiaries giving effect to the
acquisition and the transactions contemplated in
connection therewith) to (b) pro forma EBITDA for
the twelve month period ending March 31, 2000 not
greater than 5.9:1.0 and (ix) other customary
closing conditions including being addressees of
any solvency or other consultants' reports
delivered pursuant to the Bank Commitment Letter.
Representations, Warranties Customary representations, warranties and
and Indeminities: indemnities.
Covenants: Customary covenants for public high yield issues,
including restrictions (subject to customary
exceptions and baskets and subject to agreed
parameters permitting add-on acquisitions,
including acquired debt and seller paper related
thereto) on debt incurrence (including earn-
outs), dividends and restricted payments,
investments, dividend and other payment
restrictions affecting subsidiaries, affiliate
transactions, incurrence of any subordinated debt
by Opco that is senior to the Opco Notes, change
of business, liens and negative pledge clauses,
sale leasebacks, mergers, consolidations, asset
sales and changes in control, prepayment of debt
(or reinvestment in the Issuer's business) using
the proceeds of asset sales. Holdco will not
incur any debt or other liabilities other than
the Notes and will not own any assets or engage
in any business other than the ownership of 100%
of the capital stock of Opco (which ownership
Holdco will maintain so long as any Notes remain
outstanding).
Financial Covenants: Holdco Notes: None
Opco Notes: None
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Events of Default: Customary events of default, including failure to
make interest or principal payments,
bankruptcy/insolvency, cross-acceleration and
cross payment (at maturity) default for Senior
Debt, cross default for pari passu, junior and
other debt in excess of an agreed upon threshold
amount, material uninsured judgments, violation
of covenants and material inaccuracy of
representations and warranties.
In the event of a default in payment on the Notes
or an event of default occurs, the interest rate
on the Notes shall increase by 200 basis points
above the otherwise applicable rate for any
period that includes such a default or event of
default which remains uncured and such increase
shall be payable in cash.
Registration Rights: The Purchaser shall receive demand registration
rights on the outstanding Notes and Exchange
Notes (as defined below) of each class
exercisable on or after the second anniversary of
closing of the Merger on terms reasonably
acceptable to the Purchaser, which shall include
the customary agreement of the Issuers with
respect to the payment of expenses, provision of
indemnities, selection of the underwriters and
other matters. Management will use its
commercially reasonable efforts to assist in the
marketing of the Notes and Exchange Notes of each
class.
Rule 144A/Private Resales: At any time after two years from the closing,
each Issuer will take all reasonable actions to
enable the Purchaser to sell the Notes and
Exchange Notes issued by it without registration
under the Securities Act of 1933 from time to
time under Rule 144A and, if requested by the
Purchaser, will agree to make an exchange offer
that will permit purchasers in such Rule 144A
transactions to exchange such Notes and Exchange
Notes for identical and freely transferable
notes. In addition, the Notes and Exchange Notes
can be sold, pledged or otherwise transferred by
the Purchaser on any other private market basis
at any time in accordance with applicable
securities laws.
Exchange Rights: The Purchaser will have the right to exchange all
or part of the outstanding Notes of each class
for one or more series of new Notes ("Exchange
Notes") of such class having identical terms
provided that the different series of Exchange
Notes may differ as to relative ranking and
interest rate or yield, provided the aggregate
cost to the Issuer is not increased.
Equity: In connection with its purchase of the Notes, the
Purchaser will receive warrants ("Warrants"),
each of which is exercisable at
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any time at an exercise price of $0.01 per share,
representing the right to acquire 5.75%,
calculated on a fully diluted basis, of each
class of Holdco Stock.
The Warrants shall have customary anti-dilution
rights for sales and issuances at other than fair
market value, redemption, dividends, tender
offers and distributions and upon certain
business combinations.
The Warrants and shares issuable upon exercise of
the Warrants will be separately transferable and
salable from the Notes. Upon an IPO, the warrants
will be automatically exercised. The Warrants and
shares issuable upon exercise of the Warrants can
be sold, pledged or otherwise transferred by the
Purchaser in accordance with applicable
securities laws and any applicable shareholders'
agreement.
The shares issuable upon exercise of the Warrants
shall have preemptive rights and customary
liquidity rights, such as registration rights
following an IPO and piggyback and tag-along
rights (and corresponding bring-along rights in
favor of the Sponsor).
Board Representation: The Purchaser will have the right to appoint one
director to the board of directors of Holdco,
Opco and each subsidiary of any Issuer (as
applicable).
Expenses: Without limiting the Sponsor's obligations as set
forth in the Commitment Letter, on the Closing
Date, all costs, fees, expenses and other
compensation contemplated hereby payable to
Purchaser shall have been paid to the extent due.
Access to Information: The Purchaser shall receive prior to and after
closing monthly reporting packages contemplated
in the Recapitalization Agreement, and after
closing shall receive quarterly unaudited
financial statements, audited annual financial
statements, and other financial and operational
information to be determined, including
information and access the Purchaser requires to
comply with VCOC regulations. The Purchaser's
rights to receive monthly financial information
shall not be transferable.
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