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EXHIBIT B-3
GOLDMAN SACHS CREDIT PARTNERS L.P. WELLS FARGO BANK, N.A.
85 BROAD STREET 333 SOUTH GRAND AVENUE
NEW YORK, NEW YORK 10004 SUITE 900
LOS ANGELES, CA 90071
PERSONAL AND CONFIDENTIAL
May 17, 2000
Green Equity Investors III, L.P.
c/o Leonard Green & Partners, L.P.
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, CA 90025
Attention: Mr. John G. Danhakl
Mr. John Baumer
TPG Partners III, L.P.
c/o Texas Pacific Group
345 California Street
Suite 3300
San Francisco, CA 94104
Attention: Mr. Jonathan Coslet
PETCO ANIMAL SUPPLIES, INC.
Ladies and Gentlemen:
We are pleased to confirm the arrangements under which (i) Goldman Sachs Credit
Partners L.P. ("GSCP") is exclusively authorized by Green Equity Investors III,
L.P. and TPG Partners III, L.P. (the "SPONSORS") to act as Joint Lead Arranger,
Joint Book-runner and Sole Syndication Agent in connection with, (ii) Wells
Fargo Bank, N.A. ("Wells") is exclusively authorized by the Sponsors to act as
Joint Lead Arranger, Joint Book-runner and Sole Administrative Agent in
connection with and (iii) each of GSCP and Wells commits to provide the
financing for, certain loans described herein, in each case on the terms and
subject to the conditions set forth in this letter, the attached Annex A and the
attached Annex B (together, the "COMMITMENT LETTER").
You have advised us that the Sponsors intend to consummate a leveraged
acquisition (the "ACQUISITION") of Petco Animal Supplies, Inc. (the "COMPANY").
While the structure and certain terms of the Acquisition have yet to be finally
determined, it is anticipated that the Sponsors will create a holding company
subsidiary ("HOLDCO"), which, in turn, will create a merger subsidiary
("MERGERCO"). MergerCo would merge with the Company, with the
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Company being the surviving corporation. You have also advised us that you
propose to finance the Acquisition (which includes the refinancing of the
Company's and its subsidiaries' existing indebtedness (except capital lease
obligations estimated at approximately $17 million)), including transaction
costs, and provide financing for the Company's and its subsidiaries' working
capital and general corporate needs after the consummation of the Acquisition
with the proceeds of (i) up to $400.0 million of senior secured credit
facilities (the "FACILITIES") to be made available to the Company, (ii) a
private placement by the Company of $125.0 million of senior subordinated
unsecured debt securities (the "SUBORDINATED DEBT") and (iii) common and
cumulating and compounding preferred cash equity contributions by Sponsors and
their respective affiliates of approximately $185 million (the "SPONSOR EQUITY")
and "rollovers" by existing management of Company (the "ROLLOVER EQUITY") of
their equity interests or options valued at approximately $3.3 million; PROVIDED
that, in any event the aggregate of the Sponsor Equity and the Rollover Equity
shall be approximately $188.3 million. Upon consummation of the Acquisition, the
Sponsors will own, through their 100% ownership of the equity of HoldCo,
approximately 75% of the fully diluted common stock of the Company.
GSCP is pleased to confirm its commitment to act as Joint Lead Arranger and
Joint Book-runner to provide you and the Company with structuring advice in
connection with the Facilities and as Sole Syndication Agent (the "SYNDICATION
AGENT ") to provide you and the Company with syndication advice in connection
with the Facilities. Wells is pleased to confirm its commitment to act as Joint
Lead Arranger and Joint Book-runner to provide you and the Company with
structuring advice in connection with the Facilities and as Sole Administrative
Agent (the "ADMINISTRATIVE AGENT ", and together with the Syndication Agent, the
"AGENTS ") in connection with the administration of the Facilities. In addition,
each of GSCP and Wells is pleased to confirm, severally, its commitment to
provide the Company one-half of the full $400.0 million of the Facilities, in
each case on the terms and subject to the conditions contained in this
Commitment Letter. Our fees for such services are set forth in a separate fee
letter (the "FEE LETTER") entered into by the Sponsors and the Agents on the
date hereof, PROVIDED, that GSCP will be listed on the "left-hand side" (or
first, as the context requires), in all materials relating to the Facilities.
Our several commitments are subject, in our reasonable discretion, to the
following conditions: (i) there shall not have been, since January 29, 2000, any
material adverse change in or affecting the business, financial condition,
results of operations or prospects of the Company and its subsidiaries, taken as
a whole, in each case other than pursuant to or disclosed in the Agreement and
Plan of Merger (the "AGREEMENT AND PLAN OF MERGER") with respect to the Company
dated as of even date herewith, (ii) there shall not exist material adverse
conditions in the financial or capital markets generally, or in the market for
loan syndications in particular, which in any such case under clause (i) or (ii)
we, in our reasonable judgment, deem material and (iii) the Facilities being
assigned a credit rating by two nationally recognized rating agencies (which
agencies must be acceptable to us). Our several commitments are also subject, in
our reasonable discretion, to the satisfactory negotiation, execution and
delivery of appropriate loan documents relating to the Facilities, including,
without limitation, a credit agreement, guaranties, security agreements, pledge
agreements, real property security agreements, opinions of counsel and other
related definitive documents (collectively, the "LOAN DOCUMENTS") to be based
upon and substantially consistent with the terms set forth in this Commitment
Letter. In addition, our several commitments are subject, in our reasonable
discretion, to our being satisfied with the results of our due diligence (to be
completed within 2 weeks after your acceptance of this Commitment
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Letter assuming we are provided promptly with all requested information and
access we deem necessary to complete such due diligence) with respect to the
tax, accounting, legal and regulatory issues relevant to the Acquisition and the
Company and its subsidiaries.
The terms of this Commitment Letter are intended as an outline of certain of the
material terms of the Facilities, but do not include all of the terms,
conditions, covenants, representations, warranties, default clauses and other
provisions that will be contained in the Loan Documents. The Loan Documents
shall include, in addition, provisions that are customary or typical for
financings of this type and other provisions that the Agents may reasonably
determine to be appropriate in the context of the proposed transactions.
GSCP and Wells intend and reserve the right to syndicate the Facilities to the
Lenders (as defined in the attached Annex B) and the several commitments of GSCP
and Wells hereunder shall be reduced dollar-for-dollar (on a 50/50 basis) as and
when corresponding commitments are received from the Lenders. In consultation
with you, GSCP and Wells shall select the Lenders with your consent, not to be
unreasonably withheld. GSCP and Wells will jointly lead the syndication,
including determining the timing of all offers to potential Lenders, any title
of agent or similar designations awarded to any Lender and the acceptance of
commitments, the amounts offered and the compensation provided to each Lender
from the amounts to be paid to the Agents pursuant to the terms of this
Commitment Letter and the Fee Letter. GSCP and Wells will jointly determine the
final commitment allocations and will notify the Sponsors of such
determinations. To ensure an orderly and effective syndication of the
Facilities, you agree that, until the later of the termination of the
syndication as determined by GSCP and Wells jointly and 90 days following the
date of initial funding under the Facilities, you will not, and will not permit
any of your affiliates (including HoldCo, the Company and its subsidiaries) 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 of
HoldCo, the Company or any of its subsidiaries (other than the Facilities, the
Subordinated Debt and other indebtedness contemplated hereby), including any
renewals or refinancings of any existing debt facility or debt security, without
the prior written consent of the Agents. You also agree that the Agents shall be
entitled, but not obligated, after consultation with you, to change the terms,
conditions, pricing and/or structure of the Facilities if the Agents determine
in their reasonable discretion that such changes are advisable to insure the
successful syndication of all of the Facilities; PROVIDED that (i) the aggregate
amount of the Term Facilities remains unchanged, (ii) the total amount of the
Revolving Facility remains unchanged, (iii) the pricing with respect to loans
made under the Facilities shall not be increased by more than .75% per annum in
excess of the rates set forth in Annex B and (iv) the fees set forth in the
accompanying Fee Letter shall not change.
You agree to cooperate and to use best efforts to cause the Company to cooperate
with the Agents in connection with (i) the preparation of an information package
regarding the business, operations and prospects of the Company and HoldCo
including, without limitation, the delivery of all information relating to the
transactions contemplated hereunder prepared by or on behalf of the Sponsors,
the Company or HoldCo deemed reasonably necessary by the Agents to complete the
syndication of the Facilities and (ii) the presentation of such information
package in bank meetings and other communications with prospective Lenders in
connection with the syndication of the Facilities. The Company shall be solely
responsible for the contents of any such information package and presentation
and you acknowledge that the Agents will be using and
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relying upon the information contained in such information package and
presentation without independent verification thereof. In addition, you
represent and covenant that all information about the Sponsors, HoldCo or
MergerCo provided by you to the Agents or the Lenders in connection with the
transactions contemplated hereunder is and will be complete and correct in all
material respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein not misleading; and that to the best of your knowledge all
information provided by or about the Company to the Agents or the Lenders in
connection with the transactions contemplated hereunder is and will be complete
and correct in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained therein not misleading. We acknowledge that
projections or other forward looking statements do not constitute "information"
and that you represent and covenant that such projections and other forward
looking statements will have been prepared in good faith based on assumptions
believed by you to be reasonable.
In connection with arrangements such as this, it is the policy of our respective
firms to receive indemnification. You agree to the provisions with respect to
our indemnity and other matters set forth in Annex A which is incorporated by
reference into this Commitment Letter. The Agents agree that your obligations
and liabilities under this Commitment Letter, including Annex A hereto, and the
Fee Letter shall terminate to the extent that both the Acquisition has been
consummated and the Company has assumed such obligations and liabilities.
Please note that this Commitment Letter, the Fee Letter and any written or oral
advice provided by the Agents in connection with this arrangement is exclusively
for your information and may not be disclosed to any third party or circulated
or referred to publicly without our prior written consent, except, after
providing written notice to the Agents, pursuant to a subpoena or order issued
by a court of competent jurisdiction or by a judicial, administrative or
legislative body or committee. In addition, we hereby consent to your disclosure
of (i) such advice, this Commitment Letter and the Fee Letter to your officers,
directors, agents, advisors and other providers of financing who are directly
involved in the consideration of the Facilities to the extent such persons are
obligated to hold such advice in confidence, and (ii) this Commitment Letter
(but not the Fee Letter) or the information contained herein (but not in the Fee
Letter) (x) to the Company and the Company's financial and legal advisors to the
extent you notify such persons of their obligations to keep such material
confidential and (y) after your acceptance of this Commitment Letter and the Fee
Letter, as required in filings with the Securities and Exchange Commission and
other applicable regulatory authorities.
Our several commitments hereunder shall terminate on November 1, 2000 unless the
closing of the Facilities, on the terms and subject to the conditions contained
herein, shall have been consummated.
As you know, each of GSCP and Wells may from time to time effect transactions,
for its own account or the account of customers, and hold positions in loans or
options on loans of HoldCo, the Company and other companies that may be the
subject of this arrangement. In addition, Goldman, Sachs & Co. is a full service
securities firm and as such may from time to time effect transactions, for its
own account or the account of customers, and hold positions in securities or
options on securities of HoldCo, the Company and other companies that may be the
subject of this arrangement. In addition, each of GSCP and Wells may employ the
services of its affiliates
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in providing certain services hereunder and may exchange with such affiliates
information concerning HoldCo and the Company and other companies that may be
the subject of this arrangement in providing such services, and such affiliates
shall be entitled to the benefits afforded to GSCP and Wells hereunder.
This Commitment Letter and the Fee Letter may be executed in counterparts which,
taken together, shall constitute an original. Delivery of an executed
counterpart of this Commitment Letter or the Fee Letter by telecopier shall be
effective as delivery of a manually executed counterpart thereof. This letter
shall be governed by and construed in accordance with the laws of the State of
New York.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to us the enclosed copy of this Commitment Letter,
together, if not previously executed and delivered, with the Fee Letter, on or
before the close of business on the third business day following the date of
this letter, whereupon this Commitment Letter and the Fee Letter shall become
binding agreements between us. If not signed and returned as described in the
preceding sentence by such date, this offer will terminate on such date. We look
forward to working with you on this assignment.
Very truly yours,
GOLDMAN SACHS CREDIT WELLS FARGO BANK, N.A.
PARTNERS L.P.
By /s/ R.T. WAGNER By /s/ KEVIN MEKHANN
------------------------------ ------------------------------
Authorized Signatory Name: Kevin Mekhann
Title: Vice President
ACCEPTED AS OF THE DATE HEREOF:
GREEN EQUITY INVESTORS III, L.P.
By: GEI CAPITAL III, LLC
its General Partner
By /s/ JOHN DANHAKL
------------------------------
Name: John Danhakl
Title Manager
TPG PARTNERS III, L.P.
By: TPG GenPar III, L.P.
By: TPG Advisors III, Inc.
By /s/ JONATHAN J. COSLET
------------------------------
Name: Jonathan Coslet
Title Vice President
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ANNEX A
IN THE EVENT THAT EITHER AGENT BECOMES INVOLVED IN ANY CAPACITY IN ANY ACTION,
PROCEEDING OR INVESTIGATION BROUGHT BY OR AGAINST ANY PERSON, INCLUDING
STOCKHOLDERS OR OTHER OWNERS OF EITHER SPONSOR, HOLDCO OR THE COMPANY, IN
CONNECTION WITH OR AS A RESULT OF EITHER THIS ARRANGEMENT OR ANY MATTER REFERRED
TO IN THIS COMMITMENT LETTER OR THE FEE LETTER (TOGETHER, THE "LETTERS"), THE
SPONSORS, SEVERALLY AND NOT JOINTLY, PERIODICALLY WILL REIMBURSE SUCH AGENT FOR
ITS REASONABLE AND DOCUMENTED LEGAL AND OTHER EXPENSES (INCLUDING THE REASONABLE
AND DOCUMENTED COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN CONNECTION
THEREWITH; PROVIDED, HOWEVER, THAT IF IT IS FOUND IN ANY SUCH ACTION, PROCEEDING
OR INVESTIGATION THAT ANY LOSS, CLAIM, DAMAGE OR LIABILITY OF SUCH AGENT HAS
RESULTED FROM THE GROSS NEGLIGENCE OR BAD FAITH OF SUCH AGENT IN PERFORMING THE
SERVICES WHICH ARE THE SUBJECT OF THIS LETTER, SUCH AGENT SHALL REPAY SUCH
PORTION OF THE REIMBURSED AMOUNTS THAT IS ATTRIBUTABLE TO EXPENSES INCURRED IN
RELATION TO THE ACT OR OMISSION OF SUCH AGENT WHICH IS THE SUBJECT OF SUCH
FINDING. THE SPONSORS, SEVERALLY AND NOT JOINTLY, ALSO WILL INDEMNIFY AND HOLD
EACH AGENT HARMLESS AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES OR LIABILITIES
TO ANY SUCH PERSON IN CONNECTION WITH OR AS A RESULT OF EITHER THIS ARRANGEMENT
OR ANY MATTER REFERRED TO IN THE LETTERS, EXCEPT TO THE EXTENT THAT ANY SUCH
LOSS, CLAIM, DAMAGE OR LIABILITY RESULTS FROM THE GROSS NEGLIGENCE OR BAD FAITH
OF SUCH AGENT IN PERFORMING THE SERVICES THAT ARE THE SUBJECT OF THE LETTERS. IF
FOR ANY REASON THE FOREGOING INDEMNIFICATION IS UNAVAILABLE TO SUCH AGENT OR
INSUFFICIENT TO HOLD IT HARMLESS, THEN THE SPONSORS, SEVERALLY AND NOT JOINTLY,
SHALL CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH AGENT AS A RESULT OF SUCH
LOSS, CLAIM, DAMAGE OR LIABILITY IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT
THE RELATIVE ECONOMIC INTERESTS OF THE SPONSORS AND THEIR RESPECTIVE
STOCKHOLDERS OR OTHER OWNERS ON THE ONE HAND AND SUCH AGENT ON THE OTHER HAND IN
THE MATTERS CONTEMPLATED BY THE LETTERS AS WELL AS THE RELATIVE FAULT OF THE
SPONSORS AND SUCH AGENT WITH RESPECT TO SUCH LOSS, CLAIM, DAMAGE OR LIABILITY
AND ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE REIMBURSEMENT, INDEMNITY
AND CONTRIBUTION OBLIGATIONS OF THE SPONSORS UNDER THIS PARAGRAPH SHALL BE IN
ADDITION TO ANY LIABILITY WHICH THE SPONSORS MAY OTHERWISE HAVE, SHALL EXTEND
UPON THE SAME TERMS AND CONDITIONS TO ANY AFFILIATE OF SUCH AGENT AND THE
PARTNERS, DIRECTORS, AGENTS, EMPLOYEES AND CONTROLLING PERSONS (IF ANY), AS THE
CASE MAY BE, OF SUCH AGENT AND ANY SUCH AFFILIATE, AND SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL
REPRESENTATIVES OF THE SPONSORS, HOLDCO, COMPANY, EACH AGENT, ANY SUCH AFFILIATE
AND ANY SUCH PERSON. THE SPONSORS ALSO AGREE THAT NEITHER AGENT NOR ANY OF SUCH
AFFILIATES, PARTNERS, DIRECTORS, AGENTS, EMPLOYEES OR CONTROLLING PERSONS SHALL
HAVE ANY LIABILITY TO THE SPONSORS OR ANY PERSON ASSERTING CLAIMS ON BEHALF OF
OR IN RIGHT OF EITHER SPONSOR OR ANY OTHER PERSON IN CONNECTION WITH OR AS A
RESULT OF EITHER THIS ARRANGEMENT OR ANY MATTER REFERRED TO IN THE LETTERS
EXCEPT TO THE EXTENT THAT ANY LOSSES, CLAIMS, DAMAGES, LIABILITIES OR EXPENSES
INCURRED BY SUCH SPONSOR RESULT FROM THE GROSS NEGLIGENCE OR BAD FAITH OF SUCH
AGENT IN PERFORMING THE SERVICES THAT ARE THE SUBJECT OF THE LETTERS; PROVIDED,
HOWEVER, THAT IN NO EVENT SHALL SUCH INDEMNIFIED PARTY OR SUCH OTHER PARTIES
HAVE ANY LIABILITY FOR ANY INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN
CONNECTION WITH OR AS A RESULT OF SUCH INDEMNIFIED PARTY'S OR SUCH OTHER
PARTIES' ACTIVITIES RELATED TO THE LETTERS. ANY RIGHT TO TRIAL BY JURY WITH
RESPECT TO ANY ACTION OR PROCEEDING ARISING IN CONNECTION WITH OR AS A RESULT OF
EITHER THIS ARRANGEMENT OR ANY MATTER REFERRED TO IN THE LETTERS IS HEREBY
WAIVED BY THE PARTIES HERETO. EXCEPT AS EXPRESSLY PROVIDED IN THE COMMITMENT
LETTER TO WHICH THIS ANNEX A IS ATTACHED, THE PROVISIONS OF THIS ANNEX A SHALL
SURVIVE ANY TERMINATION OR COMPLETION OF THE ARRANGEMENT PROVIDED BY THE
LETTERS.
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ANNEX B
PETCO ANIMAL SUPPLIES, INC.
SUMMARY OF TERMS AND CONDITIONS OF THE FACILITIES
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THIS SUMMARY OF TERMS AND CONDITIONS OUTLINES CERTAIN TERMS OF THE FACILITIES REFERRED TO IN THE
COMMITMENT LETTER, OF WHICH THIS ANNEX B IS A PART. CERTAIN CAPITALIZED TERMS USED HEREIN ARE
DEFINED IN THE COMMITMENT LETTER.
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BORROWER: Petco Animal Supplies, Inc. (the "COMPANY").
GUARANTORS: HoldCo and each of the Borrower's subsidiaries (other than any
subsidiary that is a "controlled foreign corporation" (a "CFC")
under Section 957 of the Internal Revenue Code) shall guaranty all
obligations under the Facilities; provided that, notwithstanding the
foregoing, any subsidiary of the Borrower providing any guaranty of
any of the Subordinated Debt (defined below) or any refinancings of
any of the foregoing, shall guaranty the Facilities.
JOINT LEAD ARRANGER,
JOINT BOOK-RUNNER AND
SOLE SYNDICATION AGENT: Goldman Sachs Credit Partners L.P. ("GSCP", and in such capacities,
the "SYNDICATION AGENT").
JOINT LEAD ARRANGER,
JOINT BOOK-RUNNER AND
SOLE ADMINISTRATIVE AGENT: Wells Fargo Bank, N.A. ("WELLS ", and in such capacity, the
"ADMINISTRATIVE AGENT").
LENDERS: GSCP, Wells and/or other financial institutions selected by GSCP and
Wells jointly in consultation with the Sponsors, and with the
consent (not to be unreasonably withheld) of the Sponsors (each a
"LENDER" and collectively, the "LENDERS").
AMOUNT OF SENIOR
FACILITIES: Up to $400.0 million of senior secured bank financing (the
"FACILITIES") to include:
(i) $100.0 million senior term loan facility (the "TERM
FACILITY A");
(ii) $200.0 million senior term loan facility (the "TERM
FACILITY B"; and together with Term Facility A, the
"TERM FACILITIES"); and
(iii) $100.0 million senior revolving credit facility (the
"REVOLVING FACILITY").
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AVAILABILITY: Term Facilities: One drawing may be made under the Term
Facilities on the Closing Date.
Revolving Facility: Amounts available under the Revolving
Facility may be borrowed, repaid and reborrowed after the Closing
Date until the maturity date of the Revolving Facility. Up to $8.0
million of the Revolving Facility may be drawn on the Closing Date.
PURPOSE/USE OF
PROCEEDS: Term Facilities: To be used in full to finance the Acquisition, to
repay the Company's and its subsidiaries' outstanding indebtedness and
to pay related fees and expenses.
Revolving Facility: To be used to finance a portion of the
Acquisition and the working capital and general corporate needs of
the Borrower and its subsidiaries.
MATURITIES: Term Facility A: 6th anniversary of the Closing Date
Term Facility B: 8th anniversary of the Closing Date
Revolving Facility: 6th anniversary of the Closing Date
CLOSING DATE: The date on or before November 1, 2000 on which the initial borrowings
under the Facilities are made.
AMORTIZATION: Term Facility A: The outstanding principal amount of the Term Facility
A will be payable in equal quarterly amounts as follows:
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Year 1: $2,000,000
Year 2: $7,000,000
Year 3: $13,000,000
Year 4: $18,000,000
Year 5: $25,000,000
Year 6: $35,000,000
</TABLE>
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Term Facility B: The outstanding principal amount of the Term
Facility B will be payable in equal quarterly amounts to be
determined (it being understood that only minimal amortization will
be required with respect to Term Facility B until after the sixth
anniversary of the Closing Date).
Revolving Facility: The entire outstanding principal of the
Revolving Facility will be due on the sixth anniversary of the
Closing Date.
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LETTERS OF CREDIT: At the Borrower's option, a portion of the Revolving Facility to be
determined will be made available for the issuance of letters of credit
("LETTERS OF CREDIT").
SWINGLINE FACILITY: At the Borrower's option, a portion of the Revolving Facility to be
determined will be made available to the Borrower pursuant to a
swingline facility.
INTEREST RATE: All borrowings under the Facilities shall bear interest, at the
Borrower's option, as follows with respect to all loans made under the
Facilities:
(i) for Term Facility A and the Revolving Facility:
(A) at the Base Rate plus 2.25% per annum; or
(B) at the reserve adjusted Eurodollar Rate plus 3.25% per
annum; and
(ii) for Term Facility B:
(A) at the Base Rate plus 3.00% per annum; or
(B) at the reserve adjusted Eurodollar Rate plus 4.00% per
annum.
Commencing six-months after the Closing Date, after the delivery of
quarterly reports of the Borrower evidencing the calculation of
total debt to EBITDA, the Term Facility A and the Revolving Facility
will bear interest at the Base Rate or the reserve adjusted
Eurodollar Rate, as the case may be, plus in each case an applicable
margin, based upon a performance pricing grid to be determined.
As used herein, the terms "Base Rate" and "reserve adjusted
Eurodollar Rate" shall have meanings customary and appropriate for
financings of this type, and the basis for calculating accrued
interest and the interest periods for loans bearing interest at the
reserve adjusted Eurodollar Rate shall be customary and appropriate
for financings of this type. Interest on outstanding amounts
following the occurrence and during the continuance of an Event of
Default shall accrue at a rate equal to the rate borne from time to
time by the loans plus an additional 2.00% per annum and shall be
payable on demand.
INTEREST PAYMENTS: Quarterly for loans bearing interest with reference to the Base Rate;
on the last day of selected interest periods (which shall be one, two,
three and six months) for loans bearing interest with
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reference to the reserve adjusted Eurodollar Rate (and at the end of
every three months, in the case of interest periods of longer than
three months); and upon prepayment, in each case payable in arrears
and computed on the basis of a 360-day year for Eurodollar Rate
Loans and on the basis of a 365-/366-day year for Base Rate Loans.
INTEREST RATE
PROTECTION: Within 90 days after the Closing Date, the Borrower will obtain
interest rate protection through interest rate swaps, caps or other
agreements reasonably satisfactory to the Agents against increases
in the interest rates with respect to a notional amount equal to not
less than 25% of the Term Facilities for a period of not less than 2
years.
FUNDING PROTECTION: Customary for transactions of this type, including breakage costs,
gross-up for withholding, compensation for increased costs and
compliance with capital adequacy and other regulatory restrictions.
COMMITMENT FEES: Commitment fees on the daily average unused portion of the Revolving
Facility (reduced by the amount of letters of credit issued and
outstanding) shall accrue from the Closing Date at the rate of .50%
per annum, and shall be payable quarterly in arrears.
LETTERS OF CREDIT
FEES: The letter of credit fee shall be a percentage per annum equal to the
applicable margin for Eurodollar Rate loans under the Revolving
Facility, which shall be shared by all Lenders under the Revolving
Facility, and an additional fronting fee of a percentage per annum
to be mutually agreed upon with the Administrative Agent, which
shall be retained by the Lender issuing the letter of credit, in
each case based upon the applicable percentage multiplied by the
amount available from time to time for drawing under such letter of
credit. In addition, certain customary fees assessed by the issuing
Lender shall be payable.
VOLUNTARY
PREPAYMENTS: The Facilities may be prepaid in whole or in part without premium or
penalty (provided that loans bearing interest with reference to the
reserve adjusted Eurodollar Rate shall be prepayable only on the
last day of the related interest period unless the Borrower pays any
related "broken funding" costs). Voluntary prepayments shall be
applied among the Facilities as determined by the Borrower; provided
that any voluntary prepayments of the Term Facility A or Term
Facility B, as the case may be, shall be further applied to the
remaining scheduled amortization payments of such Term Facility on a
pro rata basis.
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MANDATORY
PREPAYMENTS: The Borrower shall make the following mandatory prepayments (subject to
certain basket amounts to be mutually agreed upon in the definitive
Loan Documents):
1. ASSET SALES - prepayments in the amount of all of the net
after-tax cash proceeds of the sale or other disposition of
any property or assets of the Borrower or any of its
subsidiaries, other than net cash proceeds (y) of sales or
other dispositions of inventory or other assets in the
ordinary course of business, and (z) reinvested in long-term
productive assets of the Borrower or its subsidiaries within
270 days of receipt of such net cash proceeds;
2. INSURANCE/CONDEMNATION PROCEEDS -prepayments in the amount
of all of the net cash proceeds received under any casualty
insurance maintained by HoldCo, the Borrower or any of its
subsidiaries or pursuant to the power of eminent domain or
condemnation, other than permitted reinvestments to be
mutually agreed upon in the definitive Loan Documents;
3. EQUITY OFFERINGS - prepayments in an amount equal to 75% of
the net cash proceeds received from the issuance of equity
securities of HoldCo, the Borrower or any of its
subsidiaries;
4. PROCEEDS OF DEBT ISSUANCES -prepayments in the amount of all
of the net cash proceeds received by any of HoldCo, Borrower
or its subsidiaries from issuances of debt securities by
HoldCo, the Borrower or any of its subsidiaries (other than
indebtedness permitted under the Loan Documents);
5. EXCESS CASH FLOW - prepayments in an amount equal to 75% of
excess cash flow (to be defined), payable within 100 days of
each fiscal year-end commencing with the fiscal year ending
January 29, 2002.
The percentage of proceeds required for prepayments in each
of 3 and 5 above shall decrease to 50% when the Borrower's
leverage ratio reaches less than 3.0: 1.0.
All such prepayments shall be applied without premium or penalty
(except for breakage costs, if any) to repay, first, outstanding
loans under the Term Facilities as set forth in the next sentence
and, second, outstanding loans (and to the permanent reduction of
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commitments) under the Revolving Facility. All mandatory prepayments
of the Term Facilities shall be applied to scheduled amortization
prepayments of the Term Facilities pro rata between the Term
Facilities and further applied pro rata to the remaining scheduled
amortization payments thereon; provided that any Lender under Term
Facility B may, so long as there is a corresponding principal amount
outstanding under the Term Facility A, decline to accept any such
prepayment, in which case the amount of such declined payment shall
be applied to the further prepayment of Term Facility A.
SECURITY: The Facilities and each guarantee thereof will be secured by first
priority security interests in substantially all assets, including
without limitation, all personal, real and mixed property of the
Borrower and the subsidiary Guarantors (except as otherwise agreed
to by the Agents including leaseholds which the Agents determine are
immaterial to the collateral package as a whole). In addition, the
Facilities shall be secured by a first priority security interest in
100% of the stock of the Borrower and each of its subsidiaries
(limited, in the case of the voting stock of subsidiaries that are
CFC's, to a pledge of 66% of the stock of each first-tier CFC
subsidiary) and all intercompany debt. All security arrangements
shall be in form and substance reasonably satisfactory to the
Syndication Agent and the Administrative Agent (collectively, the
"AGENTS").
REPRESENTATIONS AND
WARRANTIES: Customary and appropriate including, without limitation, due
organization and authorization, execution, delivery and
enforceability of the Loan Documents, financial condition, no
material adverse change, title to properties, liens, litigation,
payment of taxes, compliance with laws, environmental and ERISA
matters, consents and approvals and full disclosure.
COVENANTS: Customary and appropriate affirmative and negative covenants,
including, without limitation, financial covenants related to
minimum fixed charge coverage, minimum interest coverage, maximum
capital expenditures, total adjusted debt to EBITDAR and senior
leverage tests. Other covenants will include, without limitation,
financial and other reporting requirements, and, subject to
customary exceptions and baskets, limitations on other indebtedness,
liens, negative pledge, investments, guarantees, restricted junior
payments (dividends, redemptions and payments on subordinated debt
and junior capital), mergers and acquisitions, sales or transfers of
assets, sales and leasebacks, transactions with affiliates.
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EVENTS OF DEFAULT: Customary and appropriate including, without limitation, failure to
make payments when due, defaults under other agreements or
instruments of indebtedness, noncompliance with covenants, breaches
of representations and warranties, bankruptcy, uninsured judgments
in excess of specified amounts, ERISA, impairment of security
interests in collateral, invalidity of guarantees, and "changes of
control" (to be defined in a mutually agreed upon manner).
CONDITIONS PRECEDENT
TO INITIAL BORROWINGS: 1. SATISFACTORY DOCUMENTATION. The definitive Loan Documents and
the other documentation evidencing the Facilities shall be
prepared by counsel to the Agents and shall be in form and
substance reasonably satisfactory to the Agents and the
Lenders.
2. ACQUISITION STRUCTURE AND DOCUMENTATION. The structure utilized
to consummate the Acquisition, the terms thereof, the pro
forma capitalization of HoldCo and the Borrower after giving
effect to the Acquisition, and the definitive documentation
relating thereto (the "DEFINITIVE ACQUISITION DOCUMENTS")
shall be in form and substance reasonably satisfactory to
the Agents (it being understood and agreed that the draft of
Agreement and Plan of Merger dated May 15, 2000 is
satisfactory), and the Definitive Acquisition Documents
shall be in full force and effect on the Closing Date.
3. CONSUMMATION OF ACQUISITION. Prior to the initial borrowing
under the Facilities or simultaneously therewith, the
Acquisition shall have been consummated pursuant to the
Definitive Acquisition Documents, no provision of which
shall have been amended, supplemented, waived or otherwise
modified in any material respect without the prior written
consent of the Agents.
4. EQUITY CONTRIBUTIONS. Prior to the initial borrowing under
the Facilities or simultaneously therewith, (i) the Sponsors
shall have consummated the purchase of approximately $185
million of common and/or cumulating and compounding
preferred equity (the "SPONSOR EQUITY") of the Company and
approximately $3.3 million of additional common and/or
cumulating and compounding preferred equity (the "ROLLOVER
EQUITY") shall have been provided through "rollovers" by
existing management shareholders of the Company; PROVIDED
that, in any event the aggregate of the Sponsor Equity and
the Rollover Equity shall be
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approximately $188.3 million, and (ii) the terms and
provisions of the Sponsor Equity and the Rollover Equity
shall be reasonably satisfactory to the Agents.
5. ISSUANCE OF SUBORDINATED DEBT. Prior to the initial
borrowing under the Facilities or simultaneously therewith
(i) the Borrower shall have received the proceeds of a
private placement by the Borrower of $125.0 million of
subordinated unsecured debt securities (the "SUBORDINATED
DEBT"); (ii) the terms and provisions of the Subordinated
Debt shall be reasonably satisfactory to the Agents (it
being acknowledged that the term sheet attached to the
commitment letter dated May 15, 2000 provided by Trust
Company of the West is satisfactory); and (iii) the proceeds
of the Subordinated Debt shall have been applied in full to
finance a portion of the Acquisition, repay existing
indebtedness of the Company and its subsidiaries and to pay
related fees and expenses.
6. DISCHARGE OF EXISTING DEBT. Concurrently with the
consummation of the Acquisition, substantially all
pre-existing indebtedness (including, without limitation,
any earnout obligations and seller paper but excluding
capital lease obligations estimated at approximately $17
million) of the Company and its subsidiaries shall have been
repaid or repurchased in full, all commitments relating
thereto shall have been terminated, and all liens or
security interests related thereto shall have been
terminated or released, in each case on terms reasonably
satisfactory to the Agents.
7. SECURITY. The Administrative Agent, for the benefit of the
Lenders, shall have been granted perfected first priority
security interests in all assets to the extent described
above under the heading "Security" in form and substance
reasonably satisfactory to the Agents.
8. PAYMENTS OF AMOUNTS DUE. On the Closing Date, all costs,
fees, expenses and other compensation contemplated hereby
payable to the Agents or the Lenders shall have been paid to
the extent due.
9. CAPITAL STRUCTURE: RELATED AGREEMENTS. All agreements (other
than the Definitive Acquisition Documents, which are
provided for at paragraph 2 of the Conditions Precedent to
Initial Borrowings) relating to the corporate and capital
structure of the Borrower and the guarantors, all
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organizational documents of such entities and the employment
contracts of key employees and executives shall be
reasonably satisfactory to the Agents (it being acknowledged
that the form of employment agreement attached to the
Agreement and Plan of Merger is satisfactory).
10. SOLVENCY. The Lenders shall have received an opinion from
an independent valuation consultant or appraiser reasonably
satisfactory to the Agents and a certificate of the chief
financial officer of the Borrower, in each case in form and
substance reasonably satisfactory to the Agents, supporting
the conclusions that, after giving effect to the Acquisition
and the related transactions contemplated hereby, the
Borrower will not be insolvent or be rendered insolvent by
the indebtedness incurred in connection therewith, or be
left with unreasonably small capital with which to engage in
its businesses, or have incurred debts beyond its ability to
pay such debts as they mature.
11. ENVIRONMENTAL MATTERS. The Lenders shall have received
reports and other information in form, scope and substance
reasonably satisfactory to the Agents concerning any
material environmental liabilities.
12. CONSENTS AND APPROVALS. All necessary governmental and third
party approvals and consents in connection with the
Facilities, the Acquisition and the other transactions
contemplated by the Facilities shall have been obtained and
remain in effect, and all applicable waiting periods shall
have expired without any action being taken by any
applicable authority.
13. LITIGATION, ETC. There shall not exist any action, suit,
investigation, litigation or proceeding pending or
threatened in any court or before any arbitrator or
governmental authority that materially impairs the
Acquisition, the financing thereof or any of the other
transactions contemplated hereby, or that could have a
material adverse effect on HoldCo, the Borrower, the
Acquisition, the financing thereof or any of the
transactions contemplated hereby.
14. FINANCIAL STATEMENTS AND PERFORMANCE. The Lenders shall
have received the unaudited financial statements for the
most recently concluded quarterly periods and copies of the
monthly reporting package to be provided under the
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Agreement and Plan of Merger. The Lenders shall have
received pro forma consolidated financial statements
satisfactory to the Agents with respect to the Company for
the fiscal year ended January 29, 2000 and with respect to
the most recently concluded fiscal quarter and month,
reflecting the Acquisition and all other acquisitions and
divestitures occurring during such periods and any other
recent or pending acquisitions or divestitures, as of the
beginning of such periods. Such financial statements shall
confirm that pro forma EBITDA (to be calculated on a
mutually satisfactory basis) for the Company and its
subsidiaries for the twelve month period ending April 29,
2000 (or, if later, the most recently ended fiscal quarter
prior to the Closing Date for which financial statements are
available, which financial statements shall in any event be
prepared within thirty (30) days after fiscal quarter end)
shall not be less than $97.0 million.
15. CUSTOMARY CLOSING DOCUMENTS. All documents required to be
delivered under the Loan Documents, including customary
legal opinions, corporate records and documents from public
officials and officers' certificates, shall have been
delivered and shall be reasonably satisfactory to Agents.
CONDITIONS TO ALL
BORROWINGS: The conditions to all borrowings will include requirements relating to
prior written notice of borrowing, the accuracy in all material
respects of representations and warranties, and the absence of any
default or potential event of default, and will otherwise be
customary and appropriate for financings of this type.
ASSIGNMENTS AND
PARTICIPATIONS: The Lenders may assign all, or in an amount of not less than (y) $5
million with respect to the Revolving Facility and/or Term Facility
A and (z) $1.0 million with respect to the Term Facility B any part
of, their respective shares of the Facilities to their affiliates or
one or more banks, financial institutions or other entities that are
eligible assignees (to be described in the Loan Documents) which, in
the case of assignments with respect to the Revolving Facility
(other than the case of assignments made by or to GSCP), are
acceptable to the Administrative Agent and (except during the
existence of an Event of Default) the Borrower, each such consent
not to be unreasonably withheld. Upon such assignment, such
affiliate, bank, financial institution or entity shall become a
Lender for all purposes under the Loan Documents; provided,
assignments made to affiliates and other Lenders shall not be
subject to the
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<PAGE>
above described consent or minimum assignment amount requirements.
The Administrative Agent will receive a processing fee of $2,000
payable by the assignor or assignee, in connection with each
assignment; provided, for any assignments made to affiliates, other
Lenders or made by or to GSCP, the processing fee shall be $500. The
Lenders will also have the right to sell participations, subject to
customary limitations on voting rights, in their respective shares
of the Facilities.
REQUISITE LENDERS: Lenders holding more than 50% of total commitments or exposure under
the Facilities, except that (x) any amendment which would
disproportionately affect the obligation of the Borrower to make
payment of the loans under the Revolving Facility or either of the
Term Facilities shall not be effective without the approval of
holders of more than 50% of such class of loans and (y) with respect
to certain matters relating to the interest rates, maturity,
amortization, release of all or substantially all collateral and the
definition of Requisite Lenders, Requisite Lenders will be defined
as Lenders holding 100% of total commitments or exposure of the
Facilities affected thereby.
TAXES, RESERVE
REQUIREMENTS AND
INDEMNITIES: All payments are to be made free and clear of any taxes (other than
franchise taxes and taxes on overall net income), imposts,
assessments, withholdings or other deductions whatsoever. Foreign
Lenders shall furnish to the Administrative Agent appropriate
certificates or other evidence of exemption from U.S. federal tax
withholding.
INDEMNITY: Customary and appropriate provisions relating to indemnity and
related matters in a form reasonably satisfactory to the Agents and
the Lenders.
GOVERNING LAW AND
JURISDICTION: The Borrower and the guarantors will submit to the non-exclusive
jurisdiction and venue of the federal and state courts of the State
of New York and shall waive any right to trial by jury. New York law
shall govern the Loan Documents.
The foregoing is intended to summarize certain basic terms of the Facilities. It is not intended to
be a definitive list of all of the requirements of the Lenders in connection with the Facilities.
</TABLE>
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