<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
TUESDAY MORNING CORPORATION
(Name of Issuer)
MADISON DEARBORN PARTNERS II, L.P.
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
MADISON DEARBORN PARTNERS, INC.
MR. LLOYD L. ROSS
MR. JERRY M. SMITH
(Name of Persons Filing Statement)
COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
89903710
(CUSIP Number of Class of Securities)
Jerry M. Smith Benjamin D. Chereskin
President Vice President
Tuesday Morning Corporation Madison Dearborn Partners II, L.P.
14621 Inwood Rd. Madison Dearborn Capital Partners II, L.P.
Dallas, Texas 75244 Madison Dearborn Partners, Inc.
(972) 387-3562 Three First National Plaza
Chicago, Illinois 60602
(312) 732-5115
Lloyd L. Ross
Chief Executive officer
Tuesday Morning Corporation
14621 Inwood Rd.
Dallas, Texas 75244
(972) 387-3562
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
Copies to:
Bruce Hallet, Esq. Carter W. Emerson, P.C.
Crouch & Hallet, L.L.P. Kirkland & Ellis
717 N. Harwood Suite 1400 200 East Randolph Drive
Dallas, TX 775201 Chicago, Illinois 60601
(214) 953-0053 (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 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: [X]
CALCULATION OF FILING FEE
________________________________________________________________________________
Transaction Valuation* Amount of Filing Fee
--------------------- --------------------
$314,417,070 $62,883
________________________________________________________________________________
*The transaction valuation has been calculated by multiplying $23.88, the
average of the high and low sale price for shares of Common Stock on September
19, 1997 on the Nasdaq National Market, by 13,166,544, the number of shares of
Common Stock estimated to be outstanding at the time of the transaction
(includes 1,248,863 underlying options to purchase shares of Common Stock).
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting 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: $62,883
Form or Registration No.: Schedule 14A
Filing Party: Tuesday Morning Corporation
Date Filed: September 24, 1997
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<PAGE>
INTRODUCTION
This Rule 13E-3 Transaction Statement (this "Statement") relates to the
---------
solicitation of proxies by Tuesday Morning Corporation, a Delaware corporation
("Issuer"), in connection with a Special Meeting of Issuer's stockholders at
------
which such stockholders will be asked to consider the approval of, among other
things, an Agreement and Plan of Merger (the "Merger Agreement"), dated as of
----------------
September 12, 1997, by and among Issuer, Madison Dearborn Partners II, L.P., a
Delaware limited partnership ("Madison Dearborn"), and Tuesday Morning
----------------
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Madison Dearborn ("Merger Subsidiary"). Under the Merger Agreement, Merger
-----------------
Subsidiary will merge with and into Issuer (the "Merger") and Issuer will
------
become a wholly owned subsidiary of Madison Dearborn Capital Partners II, L.P.,
a Delaware limited partnership and an affiliate of Madison Dearborn (the
"Fund"). As a result of the Merger, the entire equity interest in Issuer will
----
be owned by the Fund, Mr. Lloyd L. Ross, Issuer's Chief Executive Officer and
Chairman of the Board of Directors of Issuer, Mr. Jerry M. Smith, Issuer's
President and Chief Operating Officer, and certain other members of Issuer's
management.
The cross reference sheet on the following pages, which is being supplied
pursuant to General Instruction F to Schedule 13E-3, shows the location in the
Preliminary Proxy Statement of Issuer (the "Proxy Statement") of the information
---------------
required to be included in response to the items of this Statement. The
information set forth in the Proxy Statement, which is attached hereto as
Exhibit (d)(1), is incorporated herein by reference in its entirety, and
responses to each item herein are qualified in their entirety by such reference.
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to General Instruction F to Schedule 13E-3)
All references are to portions of the Proxy Statement which are
incorporated herein and made a part hereof by reference.
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM RESPONSE / CAPTION IN
NUMBER AND CAPTION PROXY STATEMENT
------------------ ---------------
<S> <C>
1. Issuer and Class of Security
Subject to the Transaction.
(a) "SUMMARY -- Parties to the Merger"
(b) "SUMMARY -- Special Meeting"; "SUMMARY -- Market
Prices for Common Stock and Dividends"; "THE SPECIAL
MEETING -- Record Date"; THE SPECIAL MEETING --
Quorum"
(c) "SUMMARY -- Market Prices for Common Stock and
Dividends"
(d) *
(e) *
(f) *
2. Identity and Background.
(a) - (g) See Annex 1 to this Statement. Also see "SUMMARY --
Parties to the Merger"
3. Past Contacts, Transactions or Negotiations.
(a) (1) *
(2) "SUMMARY -- Conflicts of Interest"; "THE MERGER --
Background of the Merger"; "THE MERGER -- Conflicts
of Interest"; "THE MERGER -- Effective Time and
Consequences of the Merger"
(b) "SUMMARY -- Conflicts of Interest"; "THE MERGER --
Background of the Merger"
4. Terms of the Transaction.
(a) "SUMMARY -- The Merger"; "SUMMARY -- Conflicts of
Interest"; "THE MERGER"
(b) "SUMMARY -- Conflicts of Interest"; "THE MERGER --
Background of the Merger"; "THE MERGER -- Conflicts of
Interest"
5. Plans or Proposals of the Issuer or Affiliate.
(a) *
(b) *
(c) "THE MERGER -- Effective Time and Consequences of the
Merger"
(d) "THE MERGER -- Financing"
(e) "THE MERGER -- Effective Time and Consequences of the
Merger"
</TABLE>
________________
* Not applicable or answer is negative.
i
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM RESPONSE / CAPTION IN
NUMBER AND CAPTION PROXY STATEMENT
------------------ ---------------
<S> <C>
(f) "SUMMARY -- The Merger"; "THE MERGER -- Effective Time
and Consequences of the Merger"
(g) *
6. Source and Amount of Funds or Other
Consideration.
(a) "SUMMARY -- Financing of the Merger"; "THE MERGER
-- Financing"
(b) "THE MERGER -- Fees and Expenses"
(c) (1) and (2) "SUMMARY -- Financing of the Merger"; "THE MERGER
-- Financing"
(d) *
7. Purpose(s), Alternatives, Reasons and Effects.
(a) "THE MERGER -- Madison Dearborn's Reasons for the
Merger"; "THE MERGER -- Reasons for the Merger and
Recommendation of the Company's Board of Directors"
(b) *
(c) "THE MERGER -- Madison Dearborn's Reasons for the
Merger"
(d) "SUMMARY"; "THE MERGER -- Conflicts of Interest";
"THE MERGER -- Effective Time and Consequences of the
Merger"; "THE MERGER -- Federal Income Tax Consequences";
"THE MERGER -- Accounting Treatment";
"THE MERGER -- Reasons for the Merger and Recommendation
of the Company's Board of Directors";
"THE MERGER -- Madison Dearborn's Reasons for the Merger"
8. Fairness of the Transaction.
(a) "THE MERGER -- Madison Dearborn's Reasons for the
Merger"; "THE MERGER -- Reasons for the Merger and
Recommendation of the Company's Board of Directors"
(b) "THE MERGER -- Reasons for the Merger and
Recommendations of the Company's Boards of Directors";
"THE MERGER -- Opinion of Financial Advisors"
(c) "SPECIAL MEETING -- Vote Required"
(d) *
(e) "THE MERGER -- Reasons for the Merger and
Recommendation of the Company's Board of Directors"
(f) *
9. Reports, Opinions, Appraisals and Certain
Negotiations.
(a) "THE MERGER -- Opinion of Financial Advisor"
(b) "THE MERGER -- Opinion of Financial Advisor"
(c) "THE MERGER -- Opinion of Financial Advisor"
10. Interest in Securities of the Issuer.
</TABLE>
__________________
* Not applicable or answer is negative.
ii
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM RESPONSE / CAPTION IN
NUMBER AND CAPTION PROXY STATEMENT
------------------ ---------------
<S> <C>
(a) "BENEFICIAL OWNERSHIP OF COMMON STOCK"
(b) "SUMMARY -- Special Meeting"; "SUMMARY -- Conflicts
of Interest"; "THE MERGER -- Background of the Merger";
"THE MERGER -- Conflicts of Interest"
11. Contracts, Arrangements or Understandings "THE MERGER"
with Respect to the Issuer's Securities.
12. Present Intention and Recommendation of
Certain Persons with Regard to the Transaction.
(a) "SUMMARY -- The Special Meeting"; "SUMMARY -- Conflicts
of Interest"; "THE MERGER -- Background of the Merger";
"THE MERGER -- Conflicts of Interest"
(b) "THE MERGER -- Reasons for the Merger and Recommendation
of the Company's Board of Directors"
13. Other Provisions of the Transaction.
(a) "SUMMARY" -- Rights of Dissenting Stockholders"; "THE
MERGER -- Appraisal Rights of Dissenting Stockholders"
(b) *
(c) *
14. Financial Information.
(a) "SUMMARY -- Summary Financial Information"
(b) *
15. Persons and Assets Employed, Retained or
Utilized.
(a) "THE MERGER -- Conflicts of Interest"
(b) "THE SPECIAL MEETING -- Solicitation of Proxies"
16. Additional Information. *
</TABLE>
_________________
* Not applicable or answer is negative.
iii
<PAGE>
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.
October 30, 1997
_________________________________________
(Date)
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By: Madison Dearborn Partners II, L.P.
Its: General Partner
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
MADISON DEARBORN PARTNERS II, L.P.
By: Madison Dearborn Partners, Inc.
Its: General Partner
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
MADISON DEARBORN PARTNERS, INC
By: /s/ Benjamin D. Chereskin
-------------------------
Name: Benjamin D. Chereskin
Title: Vice President
/s/ Lloyd L. Ross
----------------------------------------
Lloyd L. Ross
/s/ Jerry M. Smith
----------------------------------------
Jerry M. Smith
iv
<PAGE>
ANNEX 1
ITEM 2 (A)-(G). IDENTITY AND BACKGROUND.
This Statement is being jointly filed by each of the following persons:
Madison Dearborn Capital Partners II, L.P., a Delaware limited partnership
(the "Fund"); Madison Dearborn
----
Partners II, L.P., a Delaware limited partnership and the general partner of the
Fund ("Madison Dearborn"); Madison Dearborn Partners, Inc., a Delaware
----------------
corporation and the general partner of Madison Dearborn ("MDP, Inc." and,
---------
collectively with the Fund and Madison Dearborn, the "MDP Entities"); Lloyd L.
------------
Ross; and Jerry M. Smith (collectively, the "Affiliates"). Information with
----------
respect to each of the Affiliates is given solely by such Affiliate, and no
Affiliate assumes responsibility for the accuracy or completeness of information
given by another Affiliate. By their signature on this Statement, each of the
Affiliates agrees that this Statement is filed on behalf of such Affiliate.
Mr. Ross is Issuer's Chief Executive Officer and Chairman of the Board of
Directors of Issuer. He has served in such capacity with Issuer during the past
five years. His business address is: 14621 Inwood Road, Dallas, Texas 75244. He
is a citizen of the United States.
Mr. Smith is Issuer's President and Chief Operating Officer. He has served
in such capacity with Issuer during the past five years. His business address
is: 14621 Inwood Road, Dallas, Texas 75244. He is a citizen of the United
States.
The MDP Entities are engaged in the private equity investment business.
Dispositive and voting power of securities owned by Madison Dearborn is shared
by MDP, Inc. and an advisory committee of limited partnership of Madison
Dearborn (the "L.P. Committee"). Mr. John A. Canning, Jr. serves as the sole
--------------
director of MDP, Inc. The address of the principal business and principal
office of each of the MDP Entities and each member of the L.P. Committee is
Three First National Plaza, Chicago, Illinois 60602. Set forth below with
respect to each member of the L.P. Committee is such individual's business
experience during the last five years. All such members are citizens of the
United States. In addition to the affiliations mentioned below, the members of
the L.P. Committee are active in many local and national cultural, charitable,
professional, and trade organizations.
Name Business Experience
- ---- -------------------
John A. Canning, Jr. Principal at MDP, Inc. since January 1993;
formerly Executive Vice President of The First
National Bank of Chicago and President of First
Chicago Venture Capital ("FCVC").
----
Paul J. Finnegan Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
William J. Hunckler,III Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Samuel M. Mencoff Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Paul R. Wood Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Justin S. Huscher Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Benjamin D. Chereskin Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Thomas R. Reusche Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
James N. Perry, Jr. Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Nicholas W. Alexos Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Timothy P. Sullivan Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Gary J. Little Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
<PAGE>
David F. Mosher Principal at MDP, Inc. since January 1993;
formerly served in a similar capacity with FCVC.
Robin P. Selati Principal at MDP, Inc. since 1993; formerly with
Alex. Brown & Sons Incorporated in the
consumer/retailing investment group.
None of the persons with respect to whom information is provided in
response to this Item was, during the past five years, convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) or was, during
the past five years, a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining further
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ------------- -----------
(a) Commitment letter for bank financing.
(b)(1) Opinion of SBC Warburg Dillon Read Inc. Included
as Appendix "B" to Exhibit (d) hereto.
(b)(2) Report of SBC Warburg Dillon Read Inc.**
(c)(1) Agreement and Plan of Merger, dated as of
September 12, 1997, by and among Madison Dearborn
Partners II, L.P., Tuesday Morning Acquisition
Corp. and Tuesday Morning Corporation. Included as
Appendix "A" to Exhibit (d) hereto.
(c)(2) Option agreements, dated as of August 13, 1997, by
and between Madison Dearborn Partners II, L.P. and
each of Lloyd L. Ross and Jerry M. Smith.
Incorporated herein by reference to Exhibit "A" to
the Schedule 13D filed with the Securities and
Exchange Commission on August 25, 1997 by Madison
Dearborn Capital Partners II, L.P., Madison
Dearborn Partners II, L.P. and Madison Dearborn
Partners, Inc.
(d) Preliminary Proxy Statement of Tuesday Morning
Corporation. Incorporated herein by reference as
filed with the Securities and Exchange Commission
on October 31, 1997 by Tuesday Morning
Corporation.
(e) Text of Section 262 of the Delaware General
Corporate Law Included as Appendix "C" to Exhibit
(d) hereto.
(f) Not applicable.
- --------------
**To be filed by amendment.
<PAGE>
MERRILL LYNCH CAPITAL CORPORATION
World Financial Center
North Tower
250 Vesey Street
New York, New York 10281
October 21, 1997
Madison Dearborn Partners II, L.P.
c/o Madison Dearborn Partners, Inc.
Three First National Plaza
Suite 1330
Chicago, Illinois 60602
Attention: Benjamin D. Chereskin
Re: Credit Facilities Commitment Letter
-----------------------------------
Ladies and Gentlemen:
You have advised Merrill Lynch Capital Corporation ("Merrill Lynch")
that Madison Dearborn Partners, Inc. ("Madison") intends to form a new
corporation ("Newco") which will enter into a merger agreement (the "Merger
Agreement") with Tuesday Morning Corporation, a Delaware corporation ("Company"
or "Borrower") pursuant to which Newco will acquire (the "Acquisition") not less
than 80% (on a fully diluted basis) of the capital stock of Company after giving
effect to the consummation of the transactions described herein. It is
currently anticipated that management of Company would continue their equity
interest in Company after giving effect to the Merger in an amount of capital
stock of Company such that after giving effect to the Merger such management
would continue to have an equity interest in New Company on a fully diluted
basis as of the date of consummation of the Merger in an amount reasonably
acceptable to Merrill Lynch (the "Management Rollover"). Pursuant to the Merger
Agreement, Newco will merge (the "Merger") with and into Company and Company
will be the survivor ("New Company" or "New Borrower"). Pursuant to the Merger
Agreement, the consideration per share to be paid to the holders of Company's
common stock which are cashed out in the Merger shall not exceed $25 per share
and $325 million in the
<PAGE>
-2-
Merger shall not exceed $25 per share and $325 million in the aggregate.
You have advised Merrill Lynch that in connection with the
consummation of the Acquisition (i) Newco will raise gross proceeds of $115
million (less the amount of the Management Rollover) from the issuance by it to
one or more of affiliates of Madison of common equity of Newco or pay-in-kind
preferred equity of Newco having terms and conditions satisfactory to Merrill
Lynch (the "Equity Financing"), (ii) Company will raise gross cash proceeds of
$100 million from the issuance by Company of unsecured senior subordinated notes
(the "Senior Subordinated Notes") on terms and conditions and pursuant to
documentation satisfactory to Merrill Lynch and with no scheduled payments of
principal prior to scheduled maturity (the "Senior Subordinated Financing"), and
(iii) Company will enter into the Credit Facilities described herein. In
addition, upon consummation of the Merger, Company intends to repay all
indebtedness and terminate all commitments to make extensions of credit under
the existing credit facilities of Company and its subsidiaries (the "Existing
Debt") (it being understood that certain other debt, such as trade debt, capital
leases and certain other debt reasonably acceptable to Merrill Lynch (including
the outstanding mortgage debt not to exceed an aggregate principal amount of
$5.0 million) shall remain in place, and the term "Existing Debt" shall not
include any such debt). The Acquisition, the Merger, the Equity Financing, the
Senior Subordinated Financing, the repayment of all debt and cancellation of all
commitments to make extensions of credit under the Existing Debt (the "Existing
Debt Repayment"), and the entering into and borrowings under the Credit
Facilities by the parties herein described are herein referred to as the
"Transactions".
We further understand that the precise structure of the Transactions
will be under continuing consideration, may vary from the foregoing and will be
subject to our mutual agreement.
You have requested that Merrill Lynch commit to provide to the Company
$200 million aggregate principal amount of senior credit facilities (the "Credit
Facilities") to finance the Merger and the Existing Debt Repayment and to pay
certain related fees and expenses, such Credit Facilities comprising (a) two
senior term loan facilities in an aggregate principal amount of $110 million
(the "Term Loan Facilities"), such aggregate principal amount to be allocated
among (i) a Term Loan A Facility in an aggregate principal amount of $40 million
<PAGE>
-3-
(the "Term Loan A Facility"), and (ii) a Term Loan B Facility in an aggregate
principal amount of $70 million (the "Term Loan B Facility"), and (b) a
borrowing base revolving credit facility in an aggregate principal amount of $90
million (the "Revolving Facility"). A portion of the Revolving Facility to be
mutually determined will be available as a letter of credit subfacility.
You have advised Merrill Lynch that immediately after giving effect to
the Transactions, New Company and its subsidiaries will have no indebtedness or
preferred stock outstanding, except the Senior Subordinated Notes, the Credit
Facilities, any pay-in-kind preferred stock of Newco issued as part of the
Equity Financing and certain other existing debt (such as trade debt, capital
leases and outstanding mortgage debt not to exceed an aggregate principal amount
of $5.0 million) disclosed to Merrill Lynch and reasonably acceptable to Merrill
Lynch.
Accordingly, subject to the terms and conditions set forth below,
Merrill Lynch hereby agrees with you as follows:
1. Commitment. Merrill Lynch hereby commits to provide the Credit
Facilities to Company upon the terms and subject to the conditions set forth or
referred to herein, in the fee letter (the "Fee Letter") dated the date hereof
and delivered to you, and in the Summary of Terms and Conditions attached hereto
(and incorporated by reference herein) as Exhibit A (the "Term Sheet"). The
initial extensions of credit under the Credit Facilities will occur
simultaneously with the consummation of the other Transactions.
It is a condition of Merrill Lynch's commitment hereunder that Merrill
Lynch (or at Merrill Lynch's election, one of its affiliates) act as sole and
exclusive arranger of and syndication agent for (the "Arranger") the Credit
Facilities, it being understood and agreed that the Arranger will perform all
functions and exercise all authority (including, without limitation, (a) serving
as sole manager of the syndication effort, (b) selecting counsel for the
Arranger, and (c) negotiating definitive documentation for the Credit Facilities
(the "Credit Documents")) customarily performed and exercised by agent banks in
such capacity. The appointment of any co-agents for the Credit Facilities would
be subject to the prior approval of Merrill Lynch (not to be unreasonably
withheld). The co-agent title and other titles awarded to syndicate
participants would not entail any role with respect to the matters referred to
in this paragraph without the prior consent of Merrill Lynch (not to be
unreasonably withheld). Merrill
<PAGE>
-4-
Lynch may select, after consultation with you, a Lender reasonably acceptable to
you to act as an administrative agent (in such capacity, the "Administrative
Agent") to perform such ministerial and administrative functions as Merrill
Lynch, in its reasonable discretion, may desire.
2. Syndication. Merrill Lynch reserves the right and intends, prior
to or after the execution of the Credit Documents, to syndicate all or a portion
of its commitment to one or more financial institutions reasonably acceptable to
you (Merrill Lynch and such financial institutions being referred to herein as
the "Lenders") that will become parties to the Credit Documents, and in that
connection, promptly following your acceptance of Merrill Lynch's commitment
hereunder, Merrill Lynch will commence the syndication of the Credit Facilities
to such Lenders. Upon your acceptance of the commitment of any Lender to provide
a portion of the Credit Facilities, Merrill Lynch shall be released from a
portion of its commitment hereunder in an aggregate amount equal to 100% of the
commitment of such Lender. You agree that no Lender will receive compensation
outside the terms contained herein and in the Fee Letter in order to obtain its
commitment to participate in the Credit Facilities. It is understood and agreed
that, except as otherwise provided in the Fee Letter, the amount and
distribution of the fees and other compensation referred to herein among the
Lenders and to any Administrative Agent (or any co-agent) will be at Merrill
Lynch's discretion, in consultation with you. It is understood and agreed that
Merrill Lynch will manage all aspects of the syndication (but will consult with
you in such matters), including, without limitation, decisions as to the
selection of potential Lenders reasonably acceptable to you to be approached and
when they will be approached, when their commitments will be accepted, which
Lenders will participate, any naming rights (including the naming of co-agents,
subject to your reasonable approval) and the final allocations of the
commitments among the Lenders (which are likely not to be pro rata across
facilities among Lenders).
You agree actively to assist Merrill Lynch in achieving a timely
syndication that is reasonably satisfactory to Merrill Lynch. The syndication
efforts will be accomplished by a variety of means, including direct contact
during the syndication between senior management (including, but not limited to,
the chief executive officer, chief financial officer and treasurer of Newco
and/or Company) and advisors and affiliates of Newco and/or Company and Madison
and their respective affiliates on the one hand and proposed syndicate Lenders
on the other hand. To assist Merrill Lynch in its syndication ef-
<PAGE>
-5-
forts, you agree that you will, promptly, upon Merrill Lynch's reasonable
request, (a) provide, and cause your affiliates and advisors to provide to
Merrill Lynch all information reasonably deemed necessary by Merrill Lynch to
complete successfully the syndication, including but not limited to, information
and projections (including, without limitation, any updated projections
requested by Merrill Lynch) prepared by you or on your behalf relating to the
transactions contemplated hereby, and (b) reasonably assist, and cause your
affiliates and advisors reasonably to assist Merrill Lynch in the preparation of
a confidential information memorandum and other marketing materials to be used
in connection with the syndication, including making available at reasonable
times and places representatives of Newco and/or Company and Madison and their
respective affiliates and their respective subsidiaries. You also agree to use
your reasonable best efforts to ensure that Merrill Lynch's syndication efforts
benefit from your existing lending relationships. It is understood and agreed
that Merrill Lynch shall be entitled, with your prior written consent, to change
the structure of the Credit Facilities as described herein and in the Term Sheet
(provided that the aggregate principal amount of the Credit Facilities, taken as
a whole, remains the same) if Merrill Lynch deems such action advisable in order
to ensure a successful syndication or an optimal credit structure.
3. Fees. As consideration for Merrill Lynch's commitment hereunder
and its agreement to arrange, manage, structure and syndicate the Credit
Facilities, Company will pay to Merrill Lynch the fees as set forth in the Term
Sheet and in the Fee Letter. All such fees shall be paid by wire transfer of
immediately available funds in United States dollars.
4. Conditions. Merrill Lynch's commitment hereunder is subject to
the negotiation, execution and delivery of definitive Credit Documents
reasonably satisfactory in all respects to Merrill Lynch and its counsel. Such
definitive documentation shall reflect the terms and conditions set forth herein
and in the Term Sheet and contain such other indemnities, covenants,
representations and warranties, events of default, conditions precedent,
security arrangements and other terms and conditions as are reasonably
satisfactory to Merrill Lynch and you. Those matters that are not covered by or
made clear under the provisions hereof or of the Term Sheet are subject to the
approval and agreement of Merrill Lynch and you (it being understood that the
terms and conditions of the Credit Documents shall not be inconsistent with the
terms and conditions set forth herein or in the Term Sheet).
<PAGE>
-6-
Merrill Lynch's commitment hereunder is also subject to (a) no
material adverse change shall have occurred in the loan syndication or
financial, banking or capital market conditions generally from those in effect
on the date hereof that, individually or in the aggregate, in the reasonable
judgment of Merrill Lynch could reasonably be expected to adversely affect the
consummation of the Transactions or the other transactions contemplated by this
Commitment Letter or adversely affect the ability of Merrill Lynch to syndicate
the Credit Facilities; no banking moratorium shall have been declared by federal
or New York State banking authorities and shall be continuing; (b) from the date
hereof through the syndication of the Credit Facilities none of Newco, Company
or any of Company's subsidiaries shall have syndicated or issued, attempted to
syndicate or issue, announced or authorized the announcement of the syndication
or issuance of, or engaged in discussion concerning the syndication or issuance
of (by private or public offering or otherwise), any debt facility or debt
security of Newco, Company, New Company or any of Company's or New Company's
subsidiaries, including renewals thereof, other than the Senior Subordinated
Notes; and (c) the satisfaction of the other terms and conditions set forth or
referred to herein (including, without limitation, those set forth in Sections
1, 2 and 5) and in the Term Sheet. For purposes of this Commitment Letter and
the Term Sheet, the "subsidiaries" of Newco or Company shall be deemed to
include those who will become subsidiaries of Newco or Company in connection
with the Transactions.
5. Information and Investigations. You hereby represent and covenant
that (a) all information and data (excluding financial projections) concerning
Madison, Newco, Company, New Company and Company's or New Company's
subsidiaries, the Transactions and the other transactions contemplated hereby
(the "Information") that have been made or will be prepared by or on behalf of
you or any of your affiliates or authorized representatives or advisors and that
have been or will be made available to Merrill Lynch by you or on your behalf in
connection with the transactions contemplated hereby, taken as a whole, is and
will be complete and correct in all material respects and does not and will not,
taken as a whole, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which such statements
are made, and (b) all financial projections concerning Newco and New Company and
their respective subsidiaries and the transactions contemplated hereby (the
"Projections") that have been prepared by or on behalf of you or any of your
affiliates or authorized representatives and that have been or will be made
available to
<PAGE>
-7-
Merrill Lynch by you or on behalf of you or any of your affiliates or authorized
representatives or advisors in connection with the transactions contemplated
hereby have been and will be prepared in good faith based upon assumptions
believed by you to be reasonable. You agree to supplement the Information and
the Projections from time to time until the date of execution and delivery of
the Credit Documents (the "Closing Date") and, if requested by Merrill Lynch, to
cause New Company to do the same for a reasonable period thereafter necessary to
complete the syndication of the Credit Facilities so that the representation and
covenant in the preceding sentence remain correct. In arranging the Credit
Facilities, including the syndication thereof, Merrill Lynch will be using and
relying primarily on the Information and the Projections without independent
check or verification thereof.
Merrill Lynch's commitment hereunder is based upon the accuracy and
completeness of the financial and other information provided to us by or on
behalf of you. If Merrill Lynch becomes aware of material facts or information,
or Merrill Lynch otherwise discovers, during its ongoing investigation of the
legal, factual and financial premises on which the commitment herein is based,
material information not previously disclosed to it, or Merrill Lynch discovers
or otherwise learns of new material information or additional material
developments concerning conditions or events previously disclosed to it, that
Merrill Lynch believes (x) has had or could have, individually or in the
aggregate, a material adverse effect on the Transactions or the business,
assets, liabilities (contingent or otherwise), operations, condition (financial
or otherwise), solvency, properties or material agreements of Newco, Company or
New Company, together with Company's or New Company's subsidiaries taken as a
whole, as the case may be (and before and after giving effect to the
Transactions), or (y) would be materially inconsistent with the assumptions
underlying the Projections, then Merrill Lynch (a) shall be entitled to decline
to participate in the financing contemplated hereby or (b) may, in its sole
discretion, suggest alternative financing amounts or structures that ensure
adequate protection for Merrill Lynch and the other Lenders (it being understood
that you are not obligated to agree to any such suggested alternative financing
amounts or structures). In any such event, Merrill Lynch shall not be
responsible or liable for any damages which may be alleged as a result of its
failure, in accordance with the terms of this Commitment Letter, to provide the
Credit Facilities.
6. Indemnification and Contribution. By executing this Commitment
Letter, you agree to indemnify and hold harmless
<PAGE>
-8-
Merrill Lynch and each of the other Lenders and their respective officers,
directors, employees, affiliates, agents and controlling persons (Merrill Lynch
and each such other person being an "Indemnified Party") from and against any
and all losses, claims, damages and liabilities, joint or several, to which any
such Indemnified Party may become subject arising out of or in connection with
or relating to this Commitment Letter, the Fee Letter, the Term Sheet, the
Credit Facilities, the loans under the Credit Facilities, the use of proceeds of
any such loan, any of the Transactions or any related transaction and the
performance by Merrill Lynch or any of its affiliates of the services
contemplated by this Commitment Letter and will reimburse any Indemnified Party
for any and all reasonable expenses (including counsel fees and expenses) as
they are incurred in connection with the investigation of or preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by or on behalf of
Madison, Newco, Company, New Company, any of Company's or New Company's
subsidiaries or affiliates and whether or not any of the transactions
contemplated hereby are consummated or this Commitment Letter is terminated. You
will not be liable under the foregoing indemnification provision to an
Indemnified Party to the extent that any loss, claim, damage, liability or
expense is found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's bad faith or gross
negligence. Neither Merrill Lynch nor any other Indemnified Party shall be
responsible or liable to you or any other person for any consequential damages
which may be alleged as a result of this Commitment Letter or any of the
transactions referred to herein.
You agree that, without Merrill Lynch's prior written consent, neither
you nor any of your affiliates or subsidiaries will settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding in respect of which indemnification has been or could be sought
under the indemnification provisions of this Commitment Letter (whether or not
Merrill Lynch or any other Indemnified Party is an actual or potential party to
such claim, action or proceeding), unless such settlement, compromise or consent
(i) includes an unconditional written release in form and substance satisfactory
to the Indemnified Parties of each Indemnified Party from all liability arising
out of such claim, action or proceeding and (ii) does not include any statement
as to or an admission of fault, culpability or failure to act by or on behalf of
any Indemnified Party.
<PAGE>
-9-
You shall not be required to indemnify an Indemnified Party or provide
contribution to any Indemnified Party with respect to any settlement made by an
Indemnified Party without your consent, which consent shall not be unreasonably
withheld, delayed or conditioned. You shall not be required to pay the fees and
expenses of separate counsel for an Indemnified Party after you have undertaken
the defense of the claim with counsel selected by you, which counsel is
reasonably satisfactory to the Indemnified Party unless in the opinion of
counsel to the Indemnified Party the counsel so selected has a conflict of
interest or such selected counsel's representation of the Indemnified Party
would otherwise be inappropriate. In any event, you shall not be required
hereunder to pay the fees and expenses of more than one separate firm (plus
local counsel if required) for all Indemnified Parties.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against you or
any of your subsidiaries or affiliates in which such Indemnified Party is not
named as a defendant, you agree to reimburse Merrill Lynch for all reasonable
out-of-pocket expenses incurred by it in connection with such Indemnified
Party's appearing and preparing to appear as such a witness, including, without
limitation, the reasonable fees and expenses of its legal counsel.
The provisions of this Section 6 shall be superseded by the definitive
Credit Documents.
7. Costs and Expenses. By executing this Commitment Letter, you
agree to reimburse Merrill Lynch and its affiliates upon request made from time
to time for their reasonable out-of-pocket expenses (including, without
limitation, expenses of Merrill Lynch's due diligence investigation,
consultants' fees (if such consultants are engaged by Merrill Lynch with your
consent (which consent shall not be unreasonably withheld, delayed or
conditioned)), syndication expenses, appraisal and valuation fees and expenses,
reasonable travel expenses, and the reasonable fees, disbursements and other
charges of counsel) incurred in connection with the Credit Facilities and the
negotiation, preparation, execution and delivery, waiver or modification,
administration, collection and enforcement of this Commitment Letter, the Term
Sheet, the Fee Letter, the Credit Documents and the security arrangements in
connection therewith. The provisions of this Section 7 shall be superseded by
the definitive Credit Documents.
<PAGE>
-10-
8. Confidentiality. You agree that this Commitment Letter, the Term
Sheet, the Fee Letter, the contents of any of the foregoing and Merrill Lynch's
and/or its affiliates' activities pursuant hereto or thereto is confidential and
shall not be disclosed by you to any person without the prior written consent of
Merrill Lynch and any such affiliate, other than your officers, directors,
employees, accountants, attorneys and other advisors, and then only in
connection with the Transactions and on a confidential and need-to-know basis,
except that you may disclose the Commitment Letter and the Term Sheet (but not
the Fee Letter or any matter related to information in the Fee Letter) to
Company on a confidential basis and, following your acceptance hereof (and
payment of any fees due and payable upon such acceptance as set forth in the Fee
Letter), you may disclose this Commitment Letter and the Term Sheet (but not the
Fee Letter or any matter related to any information in the Fee Letter), and you
may make such other public disclosures of the terms and conditions hereof as you
are required by applicable law or compulsory legal process to make. You agree
that you will permit Merrill Lynch to review and approve any reference to
Merrill Lynch in connection with the Credit Facilities or the transactions
contemplated hereby contained in any press release or similar public disclosure
prior to public release.
9. Termination. In the event that (i) you have not accepted this
Commitment Letter by October 25, 1997 or Newco and Company have not executed a
definitive Merger Agreement in form and substance acceptable to Merrill Lynch on
or prior to December 1, 1997; (ii) the initial extensions of credit under the
Credit Facilities do not occur on or before March 31, 1998; (iii) any
circumstance described in clause (a), (b), or (c) of the second paragraph of
Section 4 shall have occurred; (iv) the Merger Agreement is terminated; or (v)
Company accepts an acquisition or recapitalization proposal other than that
contained in the Merger Agreement (as amended from time to time), this
Commitment Letter and Merrill Lynch's commitment hereunder shall terminate (upon
written notice by Merrill Lynch with respect to clause (ii) of this sentence)
unless, at your request, Merrill Lynch shall, in its sole discretion, agree to
an extension. Notwithstanding the foregoing, the reimbursement, indemnification
and confidentiality provisions hereof and of the Term Sheet and the Fee Letter
and Sections 11 and 14 of this Commitment Letter shall survive any termination
of this Commitment Letter or Merrill Lynch's commitment hereunder.
10. Assignment, etc. This Commitment Letter and Merrill Lynch's
commitment hereunder shall not be assignable by either party hereto without the
prior written consent of the
<PAGE>
-11-
other party hereto, and any attempted assignment shall be void and of no effect;
provided, however, that nothing contained in this Section 10 shall prohibit
Merrill Lynch (in its sole discretion) from (i) performing any of its duties
hereunder through any of its affiliates, including Merrill Lynch, Pierce, Fenner
& Smith Incorporated, and you will owe any related duties (including those set
forth in Section 2 above) to any such affiliate, and (ii) granting
participations in, or selling assignments of all or a portion of, the
commitments or the loans under the Credit Facilities as contemplated in and
subject to the terms of Section 2 of this Commitment Letter and the relevant
provisions of the Term Sheet. This Commitment 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.
11. GOVERNING LAW. THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO PRINCIPLES OF CONFLICTS OF LAW).
12. Execution in Counterparts. This Commitment Letter may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Commitment Letter by
telecopier shall be effective as delivery of a manually executed counterpart of
this Commitment Letter.
13. Amendments, etc. No amendment or waiver of any provision of this
Commitment Letter, nor any consent or approval to any departure therefrom, shall
in any event be effective unless the same shall be in writing and signed by the
parties hereto and then any such waiver, consent or approval shall be effective
only in the specific instance and for the specific purpose for which given. By
executing this Commitment Letter, you acknowledge that this Commitment Letter,
the Term Sheet and the Fee Letter are the only agreements between you and
Merrill Lynch with respect to the Credit Facilities and set forth the entire
understanding of the parties with respect thereto.
14. Waiver of Jury Trial. Each of you and Merrill Lynch (in each
case on its own behalf and, to the extent permitted by applicable law, on behalf
of its shareholders) waives all right to trial by jury in any action, proceeding
or counterclaim (whether based upon contract, tort or otherwise) related to or
arising out of any of the Transactions, the other
<PAGE>
-12-
transactions contemplated by this Commitment Letter, or the performance by
Merrill Lynch or any of its affiliates of the services contemplated by this
Commitment Letter.
15. Public Announcements. You acknowledge that Merrill Lynch may, at
its option and expense, after the consummation of the Merger place an
announcement (in form and substance reasonably satisfactory to you) in such
newspapers and periodicals as it may choose, stating that Merrill Lynch has
acted in the capacity set forth in this Commitment Letter.
16. Notices. Any notice given pursuant to any of the provisions of
this Commitment Letter shall be in writing and shall be mailed or delivered, if
to you, at your address set forth on page one of this Commitment Letter to the
attention of Benjamin D. Chereskin, with a copy to William J. Hunkler, III, also
with a copy to Andrew M. Kaufman, Esq. at Kirkland & Ellis, 200 E. Randolph
Drive, Chicago, Illinois 60601; and if to Merrill Lynch, at the offices of
Merrill Lynch, World Financial Center, North Tower, 250 Vesey Street, New York,
New York 10281, Attention: Brian E. O'Callahan, with a copy to Michael E.
Michetti, Esq., at Cahill Gordon & Reindel, 80 Pine Street, New York, New York
10005.
17. Release of Madison. Upon the execution and delivery by Company
of definitive documentation in respect of the Credit Facilities and the
occurrence of the initial borrowing thereunder and Company's assumption of your
obligations hereunder, you shall be released from your obligations set forth in
this Commitment Letter.
18. Documents Read as an Entirety. Notwithstanding any other
provision set forth herein as in the Fee Letter or the Term Sheet, the parties
hereby agree that this Commitment Letter, the Fee Letter and the Term Sheet are
to be construed together.
[Signature Page Follows]
<PAGE>
-13-
Please confirm that the foregoing correctly sets forth our agreement
of the terms hereof and the Fee Letter by signing and returning to Merrill Lynch
the duplicate copy of this Commitment Letter and the Fee Letter enclosed
herewith. Upon your acceptance hereof, this Commitment Letter shall constitute
a binding agreement between you and Merrill Lynch; provided Merrill Lynch shall
have received your executed duplicate copies not later than 5:00 p.m., New York
City time, on October 25, 1997, at which time Merrill Lynch's commitment
hereunder will expire in the event Merrill Lynch has not received such executed
duplicate originals.
We are pleased to have this opportunity and we look forward to working
with you on this transaction.
This letter amends and restates the Credit Facilities Commitment
Letter dated September 11, 1997 between you and Merrill Lynch and the Term Sheet
attached thereto, and upon execution and delivery hereof such prior Credit
Facilities Commitment letter and prior Term Sheet are terminated and void.
Very truly yours,
MERRILL LYNCH CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
Accepted and agreed to as of
the date first written above:
MADISON DEARBORN PARTNERS II, L.P.
By: MADISON DEARBORN PARTNERS, INC.
------------------------------
Name:
Title:
<PAGE>
CONFIDENTIAL EXHIBIT A
SUMMARY OF TERMS AND CONDITIONS/a/
Borrower: Tuesday Morning Corporation, a Delaware corporation
("Company" or "Borrower").
Arranger: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") will act as
sole and exclusive arranger, syndication agent and
documentation agent (the "Arranger") for a
syndicate of financial institutions (the
"Lenders").
Administrative Agent: A Lender or other financial institution to be
selected by Merrill Lynch in consultation with
Borrower and reasonably acceptable to Borrower.
Facilities: Credit facilities (the "Credit Facilities") to be
made available to Borrower, such Credit Facilities
comprising:
(A) Term Loan Facilities. Term loan facilities
in an aggregate principal amount of $110 million
(the "Term Loan Facilities"), such aggregate
principal amount to be allocated among (i) a Term
Loan A Facility in an aggregate principal amount
of $40 million (the "Term Loan A Facility"), and
(ii) a Term Loan B Facility in an aggregate
principal amount of $70 million (the "Term Loan B
Facility"). Loans under the Term Loan Facilities
are herein referred to as "Term Loans."
- ------------------------
/a/ Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the attached Commitment Letter. References herein
to "$" or "US$" are to United States Dollars. For all purposes of this Term
Sheet, the "subsidiaries" of Newco or Company shall be deemed to include
those entities that will become subsidiaries of Newco or Company in
connection with the Transactions.
<PAGE>
-2-
(B) Revolving Facility. Borrowing base revolving
credit facility (the "Revolving Facility") in an
aggregate principal amount of $90 million. Loans
under the Revolving Facility are herein referred
to as "Revolving Loans"; the Term Loans and the
Revolving Loans are herein referred to
collectively as "Loans". A portion of the
Revolving Facility to be mutually determined will
be available to Borrower as a letter of credit
subfacility.
The Arranger will have the right to reallocate
commitment amounts among the facilities in
consultation with and on a basis reasonably
acceptable to Borrower.
After the Closing Date, Borrower may request that
any of the Lenders agree (or to the extent that the
existing Lenders decline to provide the Increased
Facility Amount, new Lenders ("New Lenders")
reasonably acceptable to the Arranger and the
Administrative Agent) to increase the Revolving
Facility by up to $25 million (the "Increased
Facility Amount"), which increase shall not require
the consent of any Lender (other than any Lender
(or New Lender) agreeing to make available the
increase in the Revolving Facility), if no default
or event of default has occurred and is continuing
and the ratio of total debt to EBITDA for the most
recent trailing four quarter period is less than or
equal to a ratio to be negotiated and certain other
credit statistics to be determined are satisfied.
Documentation: Usual for facilities and transactions of this type
and reasonably acceptable to Borrower and the
Arranger. The documentation for the Credit
Facilities will include, among others, a credit
agreement (the "Credit Agreement"), guarantees and
appropriate collateral documents (collectively, the
"Credit Documents"). Newco, Borrower and each of
Borrower's subsidiaries party to the Credit
Documents are herein referred to as the "Credit
Parties."
<PAGE>
-3-
Transactions: Madison Dearborn Partners, Inc. ("Madison") intends
to form a new corporation ("Newco") which will
enter into a merger agreement (the "Merger
Agreement") with Borrower pursuant to which Newco
will acquire (the "Acquisition") not less than 80%
(on a fully diluted basis) of the capital stock of
Borrower after giving effect to the consummation of
the transactions described herein. It is currently
anticipated that management of Borrower would
continue their equity interest in Borrower after
giving effect to the Merger in an amount of capital
stock of Borrower such that after giving effect to
the Merger such management would continue to have
an equity interest in New Borrower (as defined
below) on a fully diluted basis as of the date of
consummation of the Merger in an amount reasonably
acceptable to the Arranger (the "Management
Rollover"). Pursuant to the Merger Agreement, Newco
will merge (the "Merger") with and into Borrower
and Borrower will be the survivor ("New Company" or
"New Borrower"). Pursuant to the Merger Agreement,
the consideration per share to be paid to the
holders of Borrower's common stock which are cashed
out in the Merger shall not exceed $25 per share
and $325 million in the aggregate. In connection
with the consummation of the Acquisition (i) Newco
will raise gross proceeds of $115 million (less the
amount of the Management Rollover) from the
issuance by it to one or more of affiliates of
Madison of common equity of Newco or pay-in-kind
preferred equity of Newco (the "PIK Preferred")
having terms and conditions satisfactory to the
Arranger (the "Equity Financing"), (ii) Borrower
will raise gross cash proceeds of $100 million from
the issuance by Borrower of unsecured senior
subordinated notes (the "Senior Subordinated
Notes") on terms and conditions and pursuant to
documentation satisfactory to the Arranger and with
no scheduled payments of principal prior to
scheduled maturity (the "Senior Subordinated
Financing"), and (iii) Borrower will enter into the
Credit Facilities described herein.
<PAGE>
-4-
In addition, upon consummation of the Merger,
Borrower intends to repay all other indebtedness
and terminate all commitments to make extensions of
credit under the existing credit facilities of
Borrower and its subsidiaries (the "Existing Debt")
(it being understood that certain other debt, such
as trade debt, capital leases and certain other
debt reasonably acceptable to the Arranger
(including the outstanding mortgage debt not to
exceed an aggregate principal amount of $5 million)
shall remain in place and the term "Existing Debt"
shall not include any such debt). The Acquisition,
the Merger, the Equity Financing, the Senior
Subordinated Financing, the repayment of all debt
and cancellation of all commitments to make
extensions of credit under the Existing Debt (the
"Existing Debt Repayment"), and the entering into
and borrowings under the Credit Facilities by the
parties herein described are herein referred to as
the "Transactions".
Availability/Purpose: (A) Term Loan Facilities. Loans under the Term
Loan Facilities shall be available, subject to the
conditions set forth herein, in a single draw on
the date on which the Merger is consummated and all
other conditions to closing have been met (the
"Closing Date"), to finance the Merger and the
Existing Debt Repayment and to pay related fees and
expenses. Amounts borrowed under the Term Loan
Facilities that are repaid or prepaid may not be
reborrowed.
(B) Revolving Facility. The Revolving Facility
will be available, subject to the conditions set
forth herein, for the purposes described above in
the form of revolving loans and letters of credit
on and after the Closing Date until the Revolving
Loan Maturity Date (as defined below under "Final
Maturity and Amortization") in an amount equal to
the lesser of (x) the commitments thereunder then
in effect, and (y) the Borrowing Base then in
effect. Amounts repaid under the Revolving Facility
may, subject to the
<PAGE>
conditions set forth herein, be reborrowed to the
extent of the commitments under the Revolving
Facility then in effect. The "Borrowing Base" shall
be defined in a manner reasonably satisfactory to
Borrower and the Arranger.
Annual Cleandown: For a consecutive 30-day period during each
calendar year beginning in 1998, the aggregate
principal amount of Loans outstanding under the
Revolving Facility shall be reduced to an amount to
be determined.
Termination of The commitments in respect of the Credit Facilities
Commitments: will terminate in their entirety on March 31, 1998
if the initial funding under the Credit Facilities
does not occur on or prior to such date. The unused
commitments in respect of the Term Loan Facilities
shall terminate in their entirety on the Closing
Date immediately after the making of the Term Loans
on such date. Commitments once terminated or
reduced may not be reinstated.
Guarantors: Each of Borrower's and New Borrower's direct and
indirect domestic subsidiaries existing on the
Closing Date or thereafter created or acquired
shall unconditionally guarantee, on a joint and
several basis, all obligations of Borrower (and
after the Merger, of New Borrower) under the Credit
Facilities and under each interest rate protection
agreement entered into with a Lender or an
affiliate thereof.
Each guarantor of any of the Credit Facilities is
herein referred to as a "Guarantor" and its
guarantee is referred to herein as a "Guarantee."
Security: The Credit Facilities, the Guarantees, and the
obligations of Borrower under each interest rate
protection agreement entered into with a Lender or
an affiliate thereof will be secured by (A) a
perfected first priority lien on, and pledge of,
all of the capital stock and intercompany notes of
each of the
<PAGE>
-6-
direct and indirect subsidiaries of Borrower and
New Borrower existing on the Closing Date or
thereafter created or acquired, except that to the
extent that the pledge thereof would cause material
adverse tax consequences, such pledge with respect
to foreign subsidiaries shall be limited to 65% of
the capital stock of "first tier" foreign
subsidiaries, and (B) a perfected first priority
lien on, and security interest in, all of the
tangible and intangible properties and assets
(including all real property interests, contracts
and contract rights) of Borrower and New Borrower
and their respective direct and indirect domestic
subsidiaries existing on the Closing Date or
thereafter created or acquired, except for those
properties and assets which the Arranger shall
determine in its sole discretion that the costs of
obtaining such security interest are excessive in
relation to the value of the security to be
afforded thereby (it being understood that none of
the foregoing shall be subject to any other liens
or security interests, except for certain customary
exceptions to be agreed upon) (all of such
collateral, the "Collateral"). The Credit Documents
will provide for the release at the expense of
Borrower of the lien on the Collateral in respect
of the Credit Facilities upon (x) any sale or
consensual disposition thereof permitted by the
Credit Documents and (y) any mortgage or sale-
leaseback of the existing warehouse as and to the
extent described herein and permitted by the Credit
Documents.
Final Maturity and
Amortization: (A) Term Loan Facilities. The Term Loan A Facility
will mature on the date which is five years after
Closing Date, and the Term Loan B Facility will
mature on the date which is seven years after the
Closing Date. Amounts outstanding under the Term
Loan Facilities will amortize on a quarterly basis
beginning at the end of the first full fiscal
quarter after the Closing Date in aggregate
principal amounts to be determined and
<PAGE>
-7-
acceptable to Borrower and the Arranger.
(B) Revolving Facility. The Revolving Facility will
mature on the date which is five years after the
Closing Date (the "Revolving Loan Maturity Date").
Letters of Credit: Letters of credit under the Revolving Facility
("Letters of Credit") will be issued by a Lender
selected by the Arranger and reasonably
satisfactory to Borrower thereof (in such capacity,
the "L/C Lender"). Each standby letter of credit
shall expire no later than the earlier of (a)
twelve months after its date of issuance or (b) the
fifth business day prior to the Revolving Loan
Maturity Date. Each trade letter of credit shall
expire no later than the earlier of (a) 180 days
after its date of issuance, or (b) the fifth
business day prior to the Revolving Loan Maturity
Date. In the case of any letter of credit,
notwithstanding the foregoing, such Letter of
Credit may continue beyond the Revolving Loan
Maturity Date if the cash collateralization thereof
or other arrangements therefor in each case
reasonably satisfactory to the Administrative Agent
are provided pursuant to documentation reasonably
satisfactory to the Administrative Agent. The
issuance of all Letters of Credit shall be subject
to the customary procedure of the L/C Lender.
Drawings under any Letter of Credit shall be
reimbursed by Borrower thereof on the same business
day. To the extent that Borrower does not reimburse
the L/C Lender on the same business day, there
shall be an automatic draw made under the Revolving
Facility from the Lenders thereunder pro rata
(subject to the conditions set forth in the Credit
Agreement). Absent such a draw, the Lenders under
the Revolving Facility shall be irrevocably
obligated to reimburse the L/C Lender pro rata
based upon their respective commitments, with the
amount of such reimbursement payment being deemed
to be a drawing under the Revolving Facility.
<PAGE>
-8-
Letter of Credit Fees: Letter of Credit fees will be payable on the daily
average undrawn face amount of each Letter of
Credit at a rate per annum equal to the applicable
margin for Revolving Loans which are LIBOR loans in
effect at such time (but in no event less than an
amount to be agreed upon per Letter of Credit),
which fees shall be paid quarterly in arrears, plus
an issuing fee on the face amount of each Letter of
Credit equal to 0.25% per annum (but not less than
an amount to be agreed upon per Letter of Credit)
shall be payable to the L/C Lender for its own
account, which fee shall be paid upon issuance.
Interest Rates and Fees: Interest rates and fees in connection with the
Credit Facilities will be as specified on Annex I
attached hereto.
Borrower will be entitled to make borrowings based
on the ABR plus the applicable margin or LIBOR plus
the applicable margin. Borrower may select interest
periods for LIBOR loans of one, two, three or six
months for LIBOR borrowings. Interest on ABR loans
will be paid quarterly in arrears and interest on
LIBOR loans will be payable at the end of each
interest period and, in the case of any interest
period longer than three months, no less frequently
than three months. Interest on all borrowings shall
be calculated on the basis of the actual number of
days elapsed over a 360-day year in the case of
LIBOR Loans and 365 or 366-day year in the case of
ABR Loans.
Default Rate: The applicable interest rate (including applicable
margin) plus 2.00% per annum.
Mandatory Prepayments/ The Term Loan Facilities will be required
Reductions in Commitments: to be prepaid with (a) 75% of annual Excess Cash
Flow (to be defined) (such percentage to be reduced
to 50% upon achievement of a ratio of total senior
debt to trailing four quarter EBITDA of less than
or equal to 3.50 to 1.0), (b) 100% of the net
proceeds (including casualty insurance proceeds) if
not reinvested within a specified time pe-
<PAGE>
-9-
riod of asset sales and other asset dispositions
for proceeds in excess of a certain threshold to be
mutually agreed (subject to customary exceptions
for inventory, used or obsolete equipment, etc.),
(c) 100% of the net proceeds of the issuance or
incurrence of debt or of any sale and lease-back
for proceeds in excess of a certain threshold to be
mutually agreed, and (d) 50% of the net proceeds
from any issuance of equity securities in any
public offering or private placement or from any
capital contribution. Notwithstanding clause (c) of
the preceding sentence (or clause (b) with respect
to a sale-leaseback), in the event that (i) no
Default or Event of Default shall have occurred and
be continuing or arise therefrom, (ii) Borrower is
in compliance with all covenants under the Credit
Agreement, and (iii) Borrower has achieved certain
credit measures to be mutually agreed upon, then of
the net cash proceeds of up to an amount to be
agreed upon of new indebtedness incurred by
Borrower (or sale-leaseback proceeds) in accordance
with the Credit Agreement and secured by the
existing warehouse facility of Borrower, only 50%
need be applied to prepay the Term Loan Facilities
(and such 50% not so applied may be used by
Borrower in any manner permitted by the Credit
Agreement).
The Credit Documents shall permit, so long as no
Default or Event of Default then exists or would
arise therefrom, the sale of the existing warehouse
facility after the construction or acquisition of a
new warehouse facility so long as the net proceeds
of such sale are applied as follows: (I) Within 30
days some or all of such net proceeds may be
applied either (1) to pay off the amount of any
financing permitted by the Credit Documents
incurred in connection with the acquisition or
construction of, or permanent refinancing of
indebtedness incurred for acquisition or
construction of, the new warehouse facility (the
"New Warehouse Financing") (and such amount so
applied need not be applied to prepay the Term
Loans) or
<PAGE>
-10-
(2) to prepay the Term Loans; (II) Within two
business days after such 30th day an amount of the
net proceeds of the sale of the existing warehouse
facility equal to the remainder, if any, of (1) the
amount of the New Warehouse Financing, less (2) the
amount of such net proceeds of such sale applied
during such 30 day period to repay the New
Warehouse Financing or to prepay the Term Loans
shall be applied to prepay the Term Loans; and
(III) In addition, on such second business day the
Term Loan Portion (as defined below) of any net
proceeds of the sale of the existing warehouse
facility remaining after the foregoing permitted
and required applications (the "Remaining Amount"),
shall be applied to prepay the Term Loans. The
"Term Loan Portion" shall be 50% of the Remaining
Amount if (i) no Default or Event of Default shall
have occurred and be continuing or would arise
therefrom, (ii) Borrower is in compliance with all
covenants under the Credit Documents, and (iii)
Borrower has achieved certain credit measures to be
mutually agreed upon, and shall be 100% of the
Remaining Portion if each of the foregoing
conditions are not satisfied as of such second
business day. If the Term Loan Portion is 50%, then
the remaining 50% of the Remaining Amount may be
used by Borrower in any manner permitted by Credit
Documents.
"Net proceeds" shall be defined in a manner
reasonably acceptable to the Arranger and Borrower
and shall include deductions such as amounts
applied to debt secured by the asset sold, taxes,
costs of sale, underwriting expenses, offering
expenses, etc.
Mandatory prepayments will be applied pro rata
among the Term Loan Facilities based on the
aggregate principal amount of Term Loans then
outstanding under each such Term Loan Facility. Any
application to any Term Loan Facility shall be
applied pro rata to the remaining scheduled
amortization payments under such Term Loan
Facility, as the case may be. Notwithstanding the
foregoing, any holder of
<PAGE>
-11-
Term Loans under the Term Loan B Facility may, to
the extent that Term Loans are outstanding under
the Term Loan A Facility, elect not to have
mandatory prepayments applied to such holder's
Loans under the Term Loan B Facility, in which case
the aggregate amount of such prepayment to be
applied to such holder's Loans under the Term Loan
B Facility shall be applied to the Term Loans under
the Term Loan A Facility pro rata. If no Term Loans
are outstanding under the Term Loan A Facility,
such election to decline prepayments shall not be
available. To the extent that the amount to be
applied to the prepayment of Term Loans exceeds the
aggregate amount of Term Loans then outstanding,
such excess shall be applied to the Revolving
Facility to permanently reduce the commitments
thereunder.
Revolving Loans will be immediately prepaid to the
extent that the aggregate extensions of credit
under the Revolving Facility exceed the lesser of
(x) commitments then in effect under the Revolving
Facility, and (y) the Borrowing Base then in
effect. To the extent that the amount to be applied
to the repayment of the Revolving Loans exceeds the
amount thereof then outstanding, Borrower shall
cash collateralize outstanding Letters of Credit.
Voluntary Prepayments/
Reductions in Commitments: (A) Term Loan Facilities. Borrowings under the
Term Loan Facilities may be prepaid at any time in
whole or in part at the option of Borrower, in a
minimum principal amount and in multiples to be
agreed upon, without premium or penalty except, in
the case of LIBOR borrowings, prepayments not made
on the last day of the relevant interest period.
Voluntary prepayments under the Term Loan
Facilities will be applied pro rata among the Term
Loan Facilities and as to any Term Loan Facility
pro rata against the remaining scheduled
amortization payments under such Term Loan
Facility.
<PAGE>
-12-
Notwithstanding the foregoing, any holder of Term
Loans under the Term Loan B Facility may, to the
extent that Term Loans are outstanding under the
Term Loan A Facility, elect not to have voluntary
prepayments applied to such holder's Loans under
the Term Loan B Facility, in which case the
aggregate amount of such prepayment to be applied
to such holder's Loans under the Term Loan B
Facility shall be applied to the Term Loans under
the Term Loan A Facility. If no Term Loans are
outstanding under the Term Loan A Facility, such
election to decline prepayments shall not be
available.
(B) Revolving Facility. The unutilized portion of
the commitments under the Revolving Facility may be
reduced and loans under the Revolving Facility may
be repaid at any time, in each case, at the option
of Borrower, in a minimum principal amount and in
multiples to be agreed upon, without premium or
penalty (except, in the case of LIBOR borrowings,
prepayments not made on the last day of the
relevant interest period).
Conditions to Effectiveness The effectiveness of the Credit Documents
and to Initial Loans: and the making of the initial Loans shall be
subject to conditions precedent that are usual for
facilities and transactions of this type, to those
specified below and in the Commitment Letter and to
such additional conditions precedent as may
reasonably be required by the Arranger (all such
conditions to be satisfied in a manner reasonably
satisfactory in all respects to the Arranger),
including, but not limited to, execution and
delivery of the Credit Documents reasonably
acceptable in form and substance to the Lenders;
delivery of satisfactory borrowing certificates;
receipt of valid security interests as contemplated
hereby; accuracy of representations and warranties
in all material respects; absence of defaults and
material litigation; evidence of authority;
compliance with laws in all material respects; and
adequate insurance and payment of fees.
<PAGE>
-13-
The effectiveness of the Credit Documents and the
making of the initial Loans will be subject to the
following additional conditions:
(A) The delivery, prior to the Closing Date of (i)
legal opinions in form and substance reasonably
satisfactory to the Arranger, (ii) officers'
certificates, together with the accompanying
charter documents and corporate resolutions, in
form and substance reasonably satisfactory to the
Arranger, (iii) a certificate from the chief
financial officer of Borrower and, at Borrower's
expense (not to exceed 50% thereof up to $25,000),
an opinion of a nationally recognized appraisal
firm or valuation consultant reasonably
satisfactory to the Arranger in form and substance
reasonably satisfactory to the Arranger with
respect to the solvency of each Credit Party
immediately after the consummation of the
Transactions to occur on the Closing Date, and (iv)
other closing documents customary for such
agreements or reasonably requested by the Arranger.
(B) The Board of Directors of Newco and Borrower
shall have authorized and approved the Transactions
and the Arranger shall have received satisfactory
evidence of the same. Newco and Borrower shall have
entered into the Merger Agreement, which shall be
in full force and effect. The terms, conditions and
structure of the Acquisition and the Merger
Agreement, including any amendments thereto (and
the documentation therefor (including all proxy
solicitation materials)) shall be in form and
substance reasonably satisfactory to the Arranger
and the Required Lenders. The Acquisition, the
Merger and the Existing Debt Repayment and the
financing therefor shall be in compliance in all
material respects with all laws and regulations
including any state antitakeover laws applicable to
such transactions. Borrower shall not have any
"poison pill" rights or shall have redeemed such
rights at a nominal price, or the Arranger shall
otherwise be reasonably satisfied that such rights
are null and void as
<PAGE>
-14-
applied to the Merger. The Arranger shall have
received copies, certified by Borrower, of all
filings made with any governmental authority in
connection with the Merger and the other
Transactions. The Merger shall have been
consummated.
(C) All material conditions to the Merger shall
have been satisfied in all material respects, and
not waived, amended, supplemented or otherwise
modified in any material respect except with the
consent of the Arranger and the Required Lenders
(not to be unreasonably withheld or delayed), to
the reasonable satisfaction of the Arranger and the
Required Lenders. The consideration per share of
common stock in the Merger shall not exceed $25 per
share and an aggregate of $325 million for all
shares. The nature and amount of the Management
Rollover shall be reasonably satisfactory to the
Arranger. The Arranger shall have received
satisfactory evidence that fees and expenses in
connection with the Transactions will not exceed
$20 million.
(D) Borrower shall have received aggregate gross
proceeds (i.e., before payment of expenses,
underwriting fees, discounts and the like) of at
least $100 million from the Senior Subordinated
Financing pursuant to agreements, and terms and
conditions thereunder, in form and substance
reasonably satisfactory to the Arranger.
(E) Newco shall have received aggregate gross
proceeds (i.e., before payment of expenses,
underwriting fees, discounts and the like) from the
Equity Financing of at least $115 million pursuant
to agreements, and terms and conditions thereunder,
in form and substance reasonably satisfactory to
the Arranger. The terms and conditions, and the
documentation therefor, of any PIK Preferred shall
be reasonably satisfactory to the Arranger.
(F) Each of the Transactions (other than extensions
of credit under the Credit Facili-
<PAGE>
-15-
ties) shall have been consummated in all material
respects in accordance with the terms hereof and
the terms of documentation therefor (without the
waiver of any material condition unless consented
to by the Arranger and the Required Lenders) that
are in form and substance reasonably satisfactory
to the Arranger.
(G) Immediately after the consummation of the
transactions, Madison shall own at least 80% (on a
fully diluted basis) of the voting common equity of
Borrower and 80% of the economic interest in
Borrower.
(H) All obligations of Borrower and its
subsidiaries with respect to the Existing Debt
shall be repaid in full (or provisions made
therefor satisfactory to the Arranger) and all
lending commitments thereunder terminated to the
reasonable satisfaction of the Arranger with all
security interests in favor of existing lenders
being unconditionally released and evidence thereof
reasonably satisfactory to the Arranger shall have
been provided in writing. The Arranger shall have
received a "pay-off" letter with respect to all
such debt repaid to the extent "pay-off" letters
are customarily issued with respect to such debt.
(I) All requisite third parties and governmental
authorities (domestic and foreign) shall have
approved or consented to the Transactions and the
other transactions contemplated hereby (without the
imposition of any materially burdensome or
materially adverse conditions) and all such
approvals and consents shall be in full force and
effect (or there shall be a plan reasonably
satisfactory to the Arranger for the obtaining
thereof). All applicable waiting periods shall have
expired without any action being taken by any
competent authority which restrains, prevents, or
imposes materially adverse conditions upon the
Transactions.
<PAGE>
-16-
(J) The Arranger shall be reasonably satisfied with
the employment and consultant status (as well as
employment agreements) of Jerry M. Smith (President
and CEO) and Lloyd Ross (Chairman), and the
Arranger shall be reasonably satisfied with the
amount and terms and conditions of current
management's equity interest in Borrower after
giving rise to the transactions.
(K) There shall not have occurred or become known
(i) any material adverse change or any condition or
event that could reasonably be expected to result
in a material adverse change in the business,
assets, liabilities (contingent or otherwise),
operations, condition (financial or otherwise),
solvency, properties, prospects or material
agreements (each, a "Material Adverse Change" (it
being understood that the definition of Material
Adverse Change shall not include "prospects" after
the Closing Date)) of Newco, Borrower or New
Borrower, together with Borrower's or New
Borrower's subsidiaries taken as a whole, as the
case may be (and before and after giving effect to
the Transactions) since December 31, 1996, (ii) any
facts or circumstances discovered by the Lenders in
the course of their ongoing due diligence
investigation of the Transactions, Newco, Borrower,
New Borrower and Borrower's and New Borrower's
subsidiaries after giving effect to the
Transactions, and the other transactions
contemplated hereby, which would be materially
inconsistent with the assumptions underlying the
projections delivered to the Lenders in
syndication, (iii) any transaction (other than the
Transactions) entered into by Newco, Borrower or
any of Borrower's subsidiaries, whether or not in
the ordinary course of business, that, in the
reasonable judgment of the Required Lenders, would
be materially adverse to Newco or Borrower,
together with Borrower's subsidiaries taken as a
whole, or (iv) any dividend or distribution of any
kind declared or paid by Borrower on its capital
stock.
<PAGE>
-17-
(L) There shall not exist any threatened or pending
action, proceeding or counterclaim by or before any
court or governmental, administrative or regulatory
agency or authority, domestic or foreign, (i)
challenging the consummation of any of the
Transactions or which would restrain, prevent or
impose materially burdensome conditions on the
Transactions, individually or in the aggregate, or
any other transaction contemplated hereunder, (ii)
seeking to prohibit the ownership or operation by
Borrower or any of its subsidiaries of all or a
material portion of any of their businesses or
assets or (iii) seeking to obtain, or having
resulted in the entry of, any judgment, order or
injunction that (a) would restrain, prohibit or
impose materially adverse conditions on the ability
of the Lenders to make the Loans under the Credit
Facilities, (b) could be reasonably expected to
result in a Material Adverse Change with respect to
Newco, Borrower or New Borrower, together with
Borrower's or New Borrower's subsidiaries taken as
a whole, as the case may be (and before and after
giving effect to the Transactions), (c) could
reasonably be expected to affect the legality,
validity or enforceability of any Credit Document
or any documents relating thereto or could
reasonably be expected to have a material adverse
effect on the ability of any Credit Party to fully
and timely perform their obligations under the
Credit Documents or the rights and remedies of the
Lenders, or (d) is seeking any material damages as
a result thereof.
(M) The Arranger and the Required Lenders shall be
satisfied (in their reasonable judgment) with the
proposed and actual capitalization and corporate
and organizational structure of Newco, Borrower,
New Borrower and New Borrower's subsidiaries (after
giving effect to the Transactions), including as to
direct and indirect ownership and as to the terms
of the indebtedness and capital stock of Newco, New
Borrower, and their respective subsidiaries.
Immediately after giving ef-
<PAGE>
-18-
fect to the Transactions, New Borrower shall have
no outstanding indebtedness or preferred stock
other than the Loans, the Senior Subordinated
Notes, any PIK Preferred issued as part of the
Equity Financing and certain other debt reasonably
acceptable to the Arranger (such as trade debt,
capital leases and other debt disclosed to the
Arranger (including outstanding mortgage debt not
to exceed an aggregate principal amount of $5.0
million)).
(N) Any material defaults in any material
agreements of Newco, Borrower or New Borrower or
any of Borrower's or New Borrower's subsidiaries
that may result from the Transactions shall have
been resolved or otherwise addressed in a manner
reasonably satisfactory to the Arranger; and no law
or regulation adopted, proposed or applicable after
the date of the Commitment Letter shall be
applicable in the reasonable judgment of the
Arranger that restrains, prevents or imposes
materially adverse conditions upon any material
component of the Transactions or the financing
thereof, including the extensions of credit under
the Credit Facilities.
(O) All other material documentation and agreements
related to the Transactions or which, in the
judgment of the Arranger, affects the extension of
credit under the Credit Facilities in any material
respect shall be in form and substance reasonably
satisfactory to the Arranger; and all material
conditions precedent under all documentation
relating to the consummation of the Transactions
(other than the conditions precedent set forth in
the Credit Agreement) or the financing or
refinancing thereof as the case may be shall have
been satisfied in all material respects (except to
the extent such conditions have been waived with
the prior consent of the Arranger and the Required
Lenders (such consent not to be unreasonably
withheld or delayed)).
<PAGE>
-19-
(P) All loans and other financing to Newco and
Borrower shall be in full compliance with all
applicable requirements of Regulations G, T, U and
X of the Board of Governors of the Federal Reserve
System.
(Q) All accrued fees and expenses then due and
payable (including the reasonable fees and expenses
of counsel to the Lenders, the Arranger and the
Administrative Agent) of the Lenders, the Arranger
and the Administrative Agent in connection with the
Credit Documents shall have been paid.
(R) The Arranger shall have received reasonably
satisfactory third-party environmental reports
(including Phase 1 reports) of Newco, Borrower, New
Borrower and Borrower's and New Borrower's
subsidiaries. The Arranger shall have determined
that reasonably satisfactory insurance relating to
Borrower and its subsidiaries will be in place on
and after the Closing Date.
(S) The Arranger shall be reasonably satisfied as
to the amount and nature of all tax, ERISA,
employee retirement benefit, and other contingent
liabilities to which Newco, Borrower, New Borrower
or any of Borrower's or New Borrower's subsidiaries
may be subject, and the plans of Newco, Borrower,
New Borrower and Borrower's or New Borrower's
subsidiaries with respect thereto.
(T) The Lenders shall have received a reasonably
satisfactory pro forma balance sheet of New
Borrower and its subsidiaries as at the Closing
Date and after giving effect to the Transactions
and the financings contemplated hereby, which pro
forma balance sheet shall be substantially in
conformity with that delivered to the Lenders
during syndication. The Lenders shall have received
projected cash flows and income statements for the
period of seven years following the Closing Date,
which projections shall be (i) based upon
reasonable assumptions made in good faith, (ii)
reasonably satisfactory to
<PAGE>
-20-
the Lenders and (iii) substantially in conformity
with those projections delivered to the Lenders
during syndication. The Lenders shall have received
(i) audited financial statements of Borrower for
1994 through 1996 and (ii) unaudited interim
combined financial statements of Borrower for each
fiscal month and quarterly period ended subsequent
to June 30, 1997 as to which such financial
statements are available, and such financial
statements shall not, in the reasonable judgment of
the Lenders, reflect any Material Adverse Change
with respect to Borrower as compared with the
financial statements or projections previously
furnished to the Lenders.
(U) The Lenders shall have received a reasonably
satisfactory business plan or budget for Borrower
and its subsidiaries after giving effect to the
Transactions for the remainder of the 1997 fiscal
year and the fiscal year 1998.
(V) The Lenders shall have received the results of
a recent lien, tax and judgment search in each of
the jurisdictions and offices where assets of each
of Newco, Borrower and their respective
subsidiaries are located or recorded, and such
search shall reveal no liens on any of their assets
except for liens permitted by the Credit Documents
or liens to be discharged in connection with the
transactions contemplated hereby.
(W) For the trailing four quarter period
immediately prior to the Closing Date Borrower's
EBITDA shall not be less than $33.5 million, and
the Arranger shall have received a satisfactory
officers' certificate certifying as to the same
(including satisfactory schedules and other
supporting data).
(X) The Lenders shall have received the report of
an independent field examination, reasonably
satisfactory in form and substance to the Lenders,
with respect to the inventory of Borrower and its
subsidiaries and shall be reasonably satisfied with
the results thereof
<PAGE>
-21-
(it being understood that Borrower shall not be
responsible for more than $10,000 of expenses for
such field examination).
(Y) The Lenders shall have received such other
legal opinions, corporate documents and other
instruments and/or certificates as the Arranger or
the Required Lenders may reasonably request.
Conditions to All Each extension of credit under the Credit
Extensions of Credit: Facilities will be subject to the (i) absence of
any Default or Event of Default, and (ii) continued
accuracy of representations and warranties in all
material respects (except representations and
warranties which are made only as of a prior date).
Representations and Customary for facilities similar to the Credit
Warranties: Facilities and such additional representations and
warranties as may be reasonably required by the
Arranger, including, but not limited to, no Default
or Event of Default; absence of Material Adverse
Change; receipt of financial statements (including
pro forma financial statements); absence of
undisclosed liabilities or material contingent
liabilities not disclosed in writing to Arranger
prior to the date hereof; compliance with laws;
solvency; no conflicts with laws, charter documents
or agreements; good standing; payment of taxes;
ownership of properties; corporate power and
authority; no burdensome restrictions; ERISA
matters; environmental matters; labor matters;
absence of material litigation; use of proceeds and
margin regulations; no material misstatement or
omission; validity and perfection of security
interests; absence of liens and security interests;
and accuracy of Newco's and Borrower's
representations and warranties in the Merger
Agreement.
Affirmative Covenants: Customary for facilities similar to the Credit
Facilities and such others as may be reasonably
required by the Arranger, including, but not
limited to, maintenance of corporate existence and
rights; compliance with
<PAGE>
-22-
laws; performance of obligations; maintenance of
material rights and privileges; 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, borrowing base
certificates and compliance certificates; borrowing
base reports and audits; maintenance of interest
rate protection; ERISA compliance; environmental
compliance; and further assurances. The financial
reporting covenant will require monthly, quarterly
and annual financial statements showing comparison
to plan for the current year and actual for the
corresponding period in the prior year, as well as
an annual budget showing plan for each monthly and
quarterly period in the next fiscal year as well as
for such fiscal year. Quarterly and annual
financial statements shall be on a consolidated and
consolidating basis.
Negative Covenants: Customary for facilities similar to the Credit
Facilities and such others as may be reasonably
required by the Arranger, including, but not
limited to, limitation on indebtedness; limitation
on liens; limitation on further negative pledges;
limitation on loans, investments and joint
ventures; limitation on guarantee or other
contingent obligations; limitation on restricted
payments (including dividends, redemptions and
repurchases of equity interests); limitation on
fundamental changes (including limitation on
mergers, acquisitions and asset sales); limitation
on restrictions on amending Credit Documents;
limitation on issuance, sale or other disposition
of subsidiary stock; limitation on capital
expenditures; limitation on operating leases;
limitation on sale-leaseback transactions;
limitation on sale or discount of receivables;
limitation on transactions with affiliates;
limitation on dividend and other payment
restrictions affecting subsidiaries; limitation on
changes in business conducted; limitation on
amendment of
<PAGE>
-23-
documents relating to other indebtedness (including
the Senior Subordinated Notes and the Existing
Debt) and other material documents; limitation on
creation of subsidiaries; and limitation on
prepayment or repurchase of other indebtedness.
The limitation on debt incurrence covenant and the
limitation on lien covenant shall, subject to pro
forma covenant compliance and other conditions to
be mutually agreed, permit (x) the incurrence of a
mortgage on the existing warehouse facility in an
amount to be mutually agreed and (y) the incurrence
of secured New Warehouse Financing in an amount to
be agreed; provided, however, that in each case (x)
and (y) (i) such debt is secured solely by the
relevant warehouse and no other Collateral and (ii)
the amount of the New Warehouse Financing shall be
net of (or reduced by) the aggregate net amount of
the proceeds of the mortgage or sale-leaseback of
the existing warehouse not required to be applied
to the prepayment of the Term Loans.
The limitation on asset sale covenant shall,
subject to no Default or Event of Default then
existing or arising therefrom, permit the sale of
the existing warehouse facility after the
construction or acquisition of a new warehouse
facility, and the proceeds thereof shall be applied
as required by "Mandatory Prepayments/Reductions in
Commitments" above.
The limitation on indebtedness and lien covenant
will permit (x) Indebtedness of Borrower in an
aggregate principal amount that does not exceed an
amount to be negotiated (but in any event not
greater than the Revolving Facility) (the
"Replacement Indebtedness") in the form of
revolving loans and/or letters of credit, and the
guaranty of such Indebtedness by domestic
subsidiaries of Borrower (but only to the extent
such domestic subsidiaries also guaranty the
obligations of Borrower under the Credit Documents
on a pari passu and equal and ratable basis);
provided, however,
<PAGE>
-24-
that the Replacement Indebtedness shall only be
incurred (i) on terms and conditions reasonably
satisfactory to the Lenders holding at least a
majority of the then outstanding principal amount
of Term Loans; (ii) if all Loans and other
extensions of credit under the Revolving Facility
shall have been repaid, or will simultaneously be
repaid, in cash in full and each of the Commitments
under the Revolving Facility, have been permanently
terminated (or have expired); and (iii) if no
default or event of default would result from the
incurrence of the Replacement Indebtedness; and (y)
Liens on the assets of Borrower and any subsidiary
in favor of the lenders of the Replacement
Indebtedness, but only to the extent that such
Liens (i) rank pari passu and equal and ratable (or
are subordinate) to the Liens granted in favor of
the Lenders pursuant to the Credit Documents and
encumber only those assets in which the Lenders
also have been granted a valid and existing Lien
pursuant to the Credit Documents, and (ii) are
spread between the obligations under the Credit
Documents and obligations in respect of the
Replacement Indebtedness on a pari passu basis and
are subject to an intercreditor agreement
reflecting the foregoing and reasonably
satisfactory to the Arranger and the Administrative
Agent and the Lenders holding at least a majority
of the then outstanding principal amount of the
Term Loans.
Financial Covenants: The Credit Facilities will contain financial
covenants appropriate in the context of the
proposed transaction based upon the financial
information provided to the Arranger, including,
but not limited to (definitions and numerical
calculations to be set forth in the Credit
Agreement): minimum interest coverage ratio,
minimum fixed charge coverage ratio, minimum
trailing four quarter EBITDA, and maximum ratio of
total debt to trailing four quarter EBITDA. The
financial covenants contemplated above will be
tested on a quarterly basis and will apply to
Borrower and its subsidiaries on a consolidated
basis. The cov-
<PAGE>
-25-
erage tests will include rental expense on terms
mutually agreed by Borrower and the Arranger.
Interest Rate Management: An amount reasonably designated by the Arranger of
the projected outstandings under the Term Loan
Facilities must be hedged on terms, by such date
and for a period of time as is satisfactory to the
Arranger and Borrower.
Events of Default: Customary for facilities similar to the Credit
Facilities and others to be specified by the
Arranger, including, but not limited to, 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 (to be defined);
material adverse change; bankruptcy and insolvency
events; material judgments; ERISA events;
environmental events; change of control under any
other indebtedness; and actual or asserted (by any
Credit Party) invalidity of any Credit Document or
security interest. Events of default will be
subject to customary grace periods to be mutually
agreed upon by Borrower and the Arranger.
Yield Protection and Usual for facilities and transactions of this type,
Increased Costs: including, but not limited to, in respect of
reimbursement of redeployment costs in the case of
prepayments (or conversion into ABR Loans) of LIBOR
Loans other than at the end of an interest period,
taxes (including but not limited to gross-up
provisions for withholding taxes imposed by any
governmental authority), indemnity for breakage
costs, changes in capital requirements, guidelines
or policies or their interpretation or application,
illegality, changes in circumstances, increased
costs as a result of change in law or
administration thereof, as a result of regulatory
guidelines or requests, changes in reserves (to the
extent not included in the interest rate) and other
provisions reasonably deemed necessary by the Ar-
<PAGE>
-26-
ranger or the other Lenders to provide customary
protection for Lenders.
Assignments and No Credit Party may assign its rights or
Participations: obligations in connection with the Credit
Facilities without the prior written consent of all
of the Lenders.
Lenders shall be permitted to assign and
participate Loans, notes and commitments. Non-pro
rata assignments of Loans, notes, and commitments
of the Credit Facilities shall be permitted. Each
assignment (unless to another Lender or its
affiliates) shall be in a minimum amount of $10
million (unless Borrower and the Administrative
Agent otherwise consents or unless the assigning
Lender's exposure is reduced to $0). All
assignments, whether through novation or otherwise,
shall be permitted with Borrower's consent (not to
be unreasonably withheld or delayed), except that
no such consent need be obtained to effect an
assignment to any Lender (or any of its affiliates)
or if any event of default has occurred and is
continuing. Participations shall be permitted
without restriction and participants will have the
same benefits as the original syndicate Lenders
with regard to yield protection and increased
costs, collateral benefits and provision of
information on the Credit Parties (it being
understood that with respect to yield protection
and increased cost provisions, such shall be
applicable to the participant only if the Lender
effecting such participation would have been
entitled thereto). Voting rights of participants
will be limited to proposed increases in amount,
release of all or substantially all Collateral
(except as permitted by the Credit Documents),
decreases in interest rate or fees and extensions
of scheduled final maturity date. In the case of
the Revolving Facility, assignments will require
the consent of the L/C Lender. Assignees will
assume all of the rights and obligations of the
assigning Lender. Assignments to any Credit Party
or any of its af-
<PAGE>
-27-
filiates are prohibited without consent of all of
the Lenders.
Voting: Amendments to and waivers of any provision of any
Credit Document will require the approval of
Lenders holding at least a majority of the
extensions of credit and commitments (the "Required
Lenders"), except that (i) the consent of all
affected Lenders shall be required with respect to
(a) reductions of principal, interest rates or
fees, (b) extensions of scheduled interest payments
or final maturity or termination of commitments,
(c) change in any provisions requiring the consent
of all of the Lenders, (d) any reduction in the
percentage referred to in the definition of
Required Lenders, (e) except as provided in the
Credit Documents, any release of any Guarantor from
its guarantee, and (f) any release of all or
substantially all Collateral securing the Credit
Facilities or the effectiveness of any arrangement
providing that any obligation other than
obligations under the Credit Documents to the
Lenders and the Increased Facility Amount (or
interest rate hedges with Lenders or their
affiliates) will be secured by the collateral
securing the Credit Facilities, (ii) no Lender's
commitment shall be increased without the consent
of such Lender, (iii) subject to clause (i)(b), the
consent of Lenders holding at least 66-2/3% of the
affected extensions of credit and commitments shall
be required with respect to extensions of scheduled
amortization or reductions in the amount of any
amortization payment, and (iv) no waiver or
amendment (or change to the application to
scheduled amortization payments) of the application
of any prepayment as among the Term Loans under the
Term Loan A Facility and the Term Loans under the
Term Loan B Facility may be effected without the
consent of the Lenders holding at least 66-2/3% of
the commitments and/or loans of the affected
tranche. No consent of any Lender other than the
Lender (or New Lender) providing the commitment
therefor shall be required for the Increased
Facility Amount to be part of the
<PAGE>
-28-
Credit Facilities on the terms set forth earlier
herein.
Expenses and In addition to those out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter, all
reasonable out-of-pocket expenses of the Arranger
and the Administrative Agent (and the Lenders for
enforcement costs and documentary taxes) associated
with the preparation, execution and delivery of any
waiver or modification (whether or not effective)
of, and the enforcement of, any Credit Document
(including the reasonable fees, disbursements and
other charges of counsel for the Arranger and the
Administrative Agent) are to be paid by the Credit
Parties. The Credit Parties will indemnify each of
the Arranger, the Administrative Agent and the
other Lenders and hold them harmless from and
against all costs, expenses (including fees,
disbursements and other charges of counsel) and
liabilities arising out of or relating to any
litigation or other proceeding (regardless of
whether the Arranger, the Administrative Agent or
any such other Lender is a party thereto) that
relate to the Transactions or any transactions
related thereto; provided, however, that none of
the Arranger, the Administrative Agent or any such
other Lender will be indemnified for any cost,
expense or liability to the extent such cost,
expense or liability resulted from such person's
gross negligence or bad faith.
Governing Law and Forum: New York.
Waiver of Jury Trial: All parties to the Credit Agreement waive right to
trial by jury.
Counsel for Arranger: Cahill Gordon & Reindel.
<PAGE>
ANNEX I
-------
Interest Rates and Fees: Borrower will be entitled to make borrowings at
either the LIBOR or ABR, plus (A) with respect to
LIBOR Loans, (i) in the case of Loans under the
Revolving Facility, 2.500% per annum; (ii) in the
case of Loans under the Term Loan A Facility,
2.500% per annum; and (iii) in the case of Loans
under the Term Loan B Facility, 3.000% per annum;
and (B) with respect to ABR Loans, (i) in the case
of Loans under the Revolving Facility, 1.500% per
annum; (ii) in the case of Loans under the Term
Loan A Facility, 1.500% per annum; and (iii) in the
case of Loans under the Term Loan B Facility,
2.000% per annum. A pricing grid showing stepdowns
in such rates for Loans under the Revolving
Facility and the Term Loan A Facility shall be
negotiated based upon improved credit measures. Two
stepdowns in such rates for loans under the Term
Loan B Facility shall be negotiated based on
improved credit measures.
"ABR" means the corporate base rate of interest
announced by the Administrative Agent from time to
time, changing when and as said corporate base rate
changes. The corporate base rate is not necessarily
the lowest rate charged by the Administrative Agent
to its customers.
"LIBOR" means the rate determined by the
Administrative Agent to be available to the Lenders
in the London interbank market for deposits in the
amount of, and for a maturity corresponding to, the
amount of the applicable LIBOR Loan, as adjusted
for maximum statutory reserves.
Commitment fees accrue on the undrawn amount of the
Credit Facilities, commencing on the Closing Date.
The commitment fee in respect of the Credit
Facilities will be 0.50% per annum.
<PAGE>
-2-
All commitment fees will be payable in arrears at
the end of each quarter and upon any termination of
any commitment, in each case for the actual number
of days elapsed over a 365-day year.
