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May 20, 2000
Watson Pharmaceuticals, Inc.
311 Bonnie Circle
Corona, California 91720
Attn: Allen Y. Chao
Chairman, President and Chief Executive Officer
Michael E. Boxer
Chief Financial Officer
Re: $1,100,000,000 Senior Secured Credit Facilities
COMMITMENT LETTER
Gentlemen:
You have advised Societe Generale ("SG") and SG Cowen Securities
Corporation ("SG Cowen") that Watson Pharmaceuticals, Inc. (the "Company")
proposes to acquire Schein Pharmaceuticals, Inc. ("Schein", the acquisition of
Schein being the "Acquisition") and that the total consideration will be no more
than $975,000,000 (excluding transaction costs) for the Acquisition and the
refinancing of certain outstanding indebtedness of Schein. In connection with
the foregoing transactions, you have advised us that you desire to establish
senior secured credit facilities in an aggregate amount of $1,100,000,000 (the
"Facilities") to finance the Acquisition and the related transaction fees and
costs, to refinance certain existing indebtedness of Schein, and to finance
working capital and other general corporate needs of the Company and its
subsidiaries.
SG Cowen agrees to act as the arranger and sole book runner (the
"Arranger") and is pleased to inform you that SG agrees to be a Lender (as
defined below) under the Facilities and hereby commits to provide 100% of the
Facilities and to act as Administrative Agent and Syndication Agent, subject to
the terms and conditions described in this letter, the attached Annex I and the
Fee Letter (this letter, Annex I and the Fee Letter being collectively referred
to herein as the "Commitment Letter").
The anticipated sources and uses of funds for the closing of the
Acquisition and the related transactions are set forth on the attached Schedule.
SYNDICATION
SG and the Arranger reserve the right, prior to or after the execution of
definitive documentation with respect to the Facilities, to syndicate all or a
portion of the commitment to one or more banking or financial institutions or
institutional lenders that will become parties to such definitive documentation
pursuant to a syndication to be managed by the Arranger (the banking or
financial institutions and institutional lenders becoming parties to such
definitive documentation being collectively referred to herein as the
"Lenders"). You understand that the Arranger intends to commence syndication
efforts promptly.
The Arranger will manage the syndication in consultation with you,
including the timing of all offers to potential Lenders, the acceptance of
commitments, and the determination of the amounts offered and the compensation
provided.
You agree to take all action as the Arranger may reasonably request to
assist it in forming a syndicate acceptable to the Arranger and you. Your
assistance to the Arranger in forming such a syndicate shall include but not be
limited to: (i) making senior management and representatives of Schein and the
Company available to participate in informational meetings with potential
Lenders at such times and places as the Arranger may reasonably request; (ii)
using your best efforts to ensure that the syndication efforts benefit from your
lending relationships; (iii) providing the Arranger with all information deemed
necessary by it to successfully complete the syndication; and (iv) assisting in
the preparation of a confidential information memorandum.
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To ensure an orderly and effective syndication of the Facilities, you agree
that, except for any syndication managed by the Arranger or any of its
affiliates, you will not, and will not permit any of your affiliates to,
syndicate or issue, attempt to syndicate or issue, announce or authorize the
announcement of the syndication or issuance of, or engage in discussions
concerning the syndication or issuance of, any debt facility or debt security
(including any renewals thereof) until the sixtieth day following the closing of
the Facilities, without the prior written consent of the Arranger.
SG reserves the right at any time, after consultation with you, to change
any or all of the terms (but not the aggregate amount of the Facilities),
structure (including, without limitation, allocation of the Facilities among the
tranches), tenor and/or pricing of the Facilities if such changes are necessary,
in SG's reasonable judgment, to ensure that the Facilities are successfully
syndicated to prospective Lenders.
CONDITIONS PRECEDENT
In addition to the conditions precedent set forth in Annex I attached
hereto, the commitment of SG hereunder is subject to: (i) the preparation,
execution and delivery of mutually acceptable loan documentation, including a
credit agreement incorporating substantially the terms and conditions outlined
in this Commitment Letter; (ii) the absence of (A) a material adverse change in
or affecting the business, assets, properties, liabilities (actual or
contingent), operations, conditions (financial or otherwise) or prospects of the
Company and its subsidiaries and Schein and its subsidiaries, taken as a whole,
since their last respective audited financial statements and (B) any change in
loan syndication, financial or capital market conditions generally that, in the
Arranger's judgment, would materially impair syndication of the Facilities;
(iii) the accuracy and completeness, in all material respects, of all
representations that the Company makes to us and all information that you
furnish to us and your compliance, in all material respects, with the terms of
this Commitment Letter; (iv) the payment in full of all fees, expenses and other
amounts payable under this Commitment Letter and the Fee Letter; and (v) a
closing of the Facilities on or prior to July 31, 2000.
COMMITMENT TERMINATION
SG's commitment set forth in this Commitment Letter will terminate on July
31, 2000, unless the Facilities close on or before such date. Prior to such
date, this Commitment Letter may be terminated (i) by you at any time at your
option upon payment of all fees, expenses and other amounts then payable under
this Commitment Letter, (ii) by SG if any event occurs or information has become
available that, in SG's judgment, results in the inability to satisfy any
condition set forth in the immediately preceding paragraph on or prior to July
31, 2000, or (iii) as provided in the last paragraph of the foregoing section
captioned "Syndication".
FEES
In addition to the fees described in Annex I, you agree to pay the fees set
forth in that certain letter between you and us dated the date hereof (the "Fee
Letter") on the dates set forth therein. The terms of the Fee Letter are an
integral part of SG's commitment hereunder and constitute part of this
Commitment Letter for all purposes hereof. Each of the fees described in the Fee
Letter shall be nonrefundable when paid.
INDEMNIFICATION
You agree to indemnify and hold harmless SG, SG Cowen and each of their
respective affiliates and each of their respective officers, directors,
employees, agents, advisors, attorneys and representatives (each, an
"Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, fees and disbursements
of counsel), that may be incurred by or asserted or awarded against any
Indemnified Party arising in each case out of or in connection with or relating
to any investigation, litigation or proceeding or the preparation of any defense
with respect thereto, arising out of or in connection with or relating to this
Commitment Letter or the loan documentation or the transactions contemplated
hereby or thereby, or any use made or proposed to be made with the proceeds of
the Facilities, whether or not such investigation, litigation or proceeding is
brought by you, any of your shareholders or creditors, an
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Indemnified Party or any other person, or an Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claim, damage, loss, liability or expense
is found in a judgment of a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence, willful misconduct or fraud. You
further agree that no Indemnified Party shall have any liability (whether
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direct or indirect, in tort or otherwise) to you or any of your subsidiaries or
any of your shareholders or creditors for or in connection with the transactions
contemplated hereby, except to the extent such liability is found in a judgment
of a court of competent jurisdiction to have resulted from such Indemnified
Party's gross negligence, willful misconduct or fraud. You also agree that no
Indemnified Party shall be liable under this Commitment Letter, or in respect of
any act, omission or event relating to the Facilities or any of the transactions
contemplated hereby, on any theory of liability, for any special, indirect,
consequential or punitive damages.
COSTS AND EXPENSES
In further consideration of the commitment of SG hereunder, and recognizing
that in connection herewith SG, the Arranger and its affiliates are incurring
costs and expenses (including, without limitation, fees and disbursements of
counsel and other reasonable costs and expenses), you hereby agree to pay, or
reimburse SG, the Arranger and such affiliates for, all such reasonable costs
and expenses (whether incurred before or after the date hereof), regardless of
whether any of the transactions contemplated hereby is consummated. You also
agree to pay on demand all costs and expenses of SG, the Arranger and such
affiliates (including, without limitation, fees and disbursements of counsel)
incurred in connection with the enforcement of any of their rights and remedies
hereunder.
CONFIDENTIALITY
By accepting delivery of this Commitment Letter, you agree that this
Commitment Letter is for your confidential use only and that neither its
existence nor the terms hereof will be disclosed by you to any person other than
your officers, employees, attorneys, advisors and representatives, and the
officers, employees, attorneys, advisors and representatives of the seller under
the Acquisition, and then, in each case, only on a "need to know" basis in
connection with the transactions contemplated hereby and on a confidential
basis. Notwithstanding the foregoing, following your acceptance of the
provisions hereof and your return of an executed counterpart of this Commitment
Letter and the Fee Letter to us as provided below, (i) you may make public
disclosure of the existence and amount of SG's commitment hereunder and of SG
Cowen's identity as the Arranger, (ii) you may file a copy of this Commitment
Letter (other than the Fee Letter unless specifically required by law) in any
public record in which it is required by law to be filed and (iii) you may make
such public disclosures of the terms and conditions hereof as you are required
by law, in the opinion of your counsel, to make.
REPRESENTATIONS AND WARRANTIES
You represent and warrant that, to the best of your knowledge, (i) all
information that has been or will hereafter be made available to SG, the
Arranger, any Lender or any potential Lender by you or any of your
representative in connection with the transactions contemplated hereby is and
will be complete and correct in all material respects with respect to the
matters such information purports to cover and does not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading in light of the
circumstances under which such statements were or are made and (ii) all
financial projections that have been or will be prepared by you and made
available to SG, the Arranger, any Lender or any potential Lender have been or
will be prepared in good faith based upon reasonable assumptions as of the time
of their preparation. You agree to supplement the information and projections
from time to time so that the representations and warranties contained in this
paragraph remain correct.
In issuing this commitment, SG and the Arranger are relying on the accuracy
of the information furnished to them by or on behalf of the Company, Schein and
their respective affiliates without independent verification thereof.
NO THIRD PARTY RELIANCE, ETC.
The agreements of SG and the Arranger hereunder are made solely for your
benefit and may not be relied upon or enforced by any other person. Please note
that those matters that are not covered or made clear herein, in the Fee Letter
or in Annex I are subject to mutual agreement of the parties. The terms and
conditions of this commitment may be modified only in writing.
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GOVERNING LAW
This Commitment Letter shall be governed by, and construed in accordance
with, the laws of the State of New York. This Commitment Letter sets forth the
entire agreement between the parties with respect to the matters addressed
herein and supersedes all prior communications, written or oral, with respect
hereto. This Commitment Letter may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all of
which, taken together, shall constitute one and the same Commitment Letter.
Delivery of an executed counterpart of a signature page to this Commitment
Letter by telecopier shall be as effective as delivery of a manually executed
counterpart of this Commitment Letter. The rights of the Company hereunder, or
any interest therein, may not be assigned without the prior written consent of
SG and SG Cowen. Your obligations under the paragraphs captioned "Fees",
"Indemnification", "Costs and Expenses" and "Confidentiality" shall survive the
expiration or termination of this Commitment Letter; provided, however, that
notwithstanding the foregoing, upon (a) the execution and delivery of definitive
credit documentation by the Borrower, the Lenders and the Administrative Agent
and (b) the making of the initial loans under the Facilities, the terms of this
Letter, including the preceding paragraph, shall be superseded in their entirety
by the terms and provisions of such credit documentation and the terms and
provision hereof shall have no further force or effect.
WAIVER OF JURY TRIAL
EACH PARTY HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS COMMITMENT LETTER OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE ARRANGER OR SG AS LENDER,
IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.
Please indicate your acceptance of the provisions hereof by signing the
enclosed copies of this letter and the Fee Letter and returning them, together
with $1,000,000 of the Upfront Fee referred to in the Fee Letter, to David
Apple, Vice President, SG Cowen Securities Corporation, 1221 Avenue of the
Americas, New York, New York 10020, (telecopier: 212 278-6418) at or before 5:00
p.m. (New York time) on May 26, 2000, the time at which the commitment
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of SG set forth above (if not so accepted prior thereto) will expire. If you
elect to deliver this Commitment Letter by telecopier, please arrange for the
executed original to follow by next-day courier.
Very truly yours,
SOCIETE GENERALE
By
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Title: Director
SG COWEN SECURITIES CORPORATION
By
------------------------------------
Title: Director
Accepted and Agreed to
this day of May, 2000:
WATSON PHARMACEUTICALS, INC.
By
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Title:
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SOURCES AND USES
TOTAL USES
<TABLE>
<S> <C>
Purchase of Equity................. $ 702.6
Refinance Existing Debt............ 261.3
Transaction Fees................... 88.6
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$1,052.5
</TABLE>
TOTAL SOURCES
<TABLE>
<S> <C>
Cash on Hand....................... $ 18.3
Senior Facilities.................. 1,034.2
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$1,052.5
</TABLE>
(with Dollars in millions)
