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EXHIBIT B-1
TRUST COMPANY OF THE WEST
11100 SANTA MONICA BOULEVARD, SUITE 2000
LOS ANGELES, CALIFORNIA 90025
(310) 235-5900
May 16, 2000
Mr. John G. Danhakl
Leonard Green & Partners
11111 Santa Monica Blvd., Suite 2000
Los Angeles, CA 90025
Mr. Jonathan Coslet
Texas Pacific Group
345 California Street, Suite 3300
San Francisco, CA 94104
Dear John and Jonathan:
We understand that Green Equity Investors III, LP ("GEI") and TPG Partners III,
LP ("TPG") intend to purchase a control interest of Petco Animal Supplies, Inc.
and its subsidiaries (the "Company") by means of a leveraged buyout (the
"Acquisition"). You have advised us that the Acquisition will be financed with
senior debt facilities of $400.0 million (including a largely undrawn revolver
for approximately $100 million), assumed capital leases of $17.0 million, $125.0
million of senior subordinated notes (the "Notes"), and $169.0 million of
preferred stock and $17.9 million of common equity (collectively, the "Equity").
This letter will confirm the commitment by Trust Company of the West ("TCW"), on
behalf of one or more of its managed accounts, to purchase $125.0 million of the
Notes issued by the Company in connection with the Acquisition, with terms as
described in the attached "Summary of Terms." The foregoing commitment is
conditioned upon the following: (i) completion of definitive documentation,
containing representations, warranties, conditions, covenants, indemnities,
opinions and other terms reasonably satisfactory to TCW and its counsel and
consistent with the terms attached, (ii) the completion of the Acquisition of
the Company as described above, including the financing and equity contributions
described herein, pursuant to a definitive purchase agreement between GEI, TPG
or one of their affiliates and the Company, (iii) the absence of any material
adverse change in the business, operations, prospects or financial condition of
the Company and its direct and indirect subsidiaries, taken as a whole; and (iv)
all governmental and regulatory approvals have been obtained as required by the
definitive purchase agreement.
This commitment will expire at the earlier of (i) 5:00 p.m. Los Angeles time, on
May 19, 2000, unless this letter is accepted prior to such time, or (ii) upon
your being notified by TCW of the failure of any one of the foregoing
conditions. As consideration for the execution of this commitment letter, you
agree, severally and not jointly, to pay TCW a commitment fee (the "Commitment
Fee") equal to $1,250,000 conditioned upon the closing of the Acquisition of the
Company by GEI and TPG, or any of their affiliates, regardless of whether (x)
you utilize the Notes committed to hereunder or (y) this commitment letter
expires or is otherwise terminated in accordance with its terms. You shall not
be obligated to pay TCW the Commitment Fee if you or any of your affiliates do
not acquire the Company or any of its subsidiaries or if TCW terminates this
commitment letter without the fault of GEI, TPG or any of their affiliates.
The Company agrees to pay all reasonable costs, fees and expenses incurred or to
be incurred by TCW in connection with the examination, review, documentation and
closing of the transactions completed hereby, including without limitation
reasonable attorney's fees, rating agency fees and out-of-pocket
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expenses relating to any of the foregoing. The obligation to pay such expenses
shall survive the expiration or termination of this commitment letter and shall
remain in full force and effect whether or not the Acquisition is consummated.
The Commitment Fee and such expenses shall be paid at the closing of the
Acquisition, or if you decide not to proceed with such Acquisition or if this
commitment letter expires or is terminated based upon the fault of TCW, such
expenses will be paid as soon as practicable after being billed.
This commitment is not assignable by you. Nothing in this letter, express or
implied, shall give any person, other than the parties hereto, any benefit or
any legal or equitable right, remedy, or claim under this letter.
During the period that this commitment letter is in effect, you will continue to
make available to TCW all information, financial or otherwise, documents or
other material in your possession or otherwise reasonably requested by TCW in
connection with its due diligence examination of the Company, which shall
include providing TCW with the Company's financial statements and using your
reasonable best efforts to provide access to the Company's management.
Upon the execution by the Company of definitive documentation with respect to
the Notes, GEI and TPG shall be released from all obligations hereunder.
TCW currently manages approximately $1.5 billion in mezzanine capital and is
actively involved in all aspects of the leveraged finance market. Our most
recent fund is TCW/Crescent Mezzanine Partners II, L. P., an $810.0 million
committed fund. As you know, we have the resources and experience to provide you
with capital on a timely basis. We look forward to working with you towards the
successful completion of the acquisition of the Company.
This commitment may be executed in counterparts, each of which will be
considered one and the same instrument. This commitment will be governed by and
construed in accordance with the laws of the state of New York. GEI and TPG may
disclose this letter to the Company, if so requested by the Company. Please
indicate GEI's and TPG's acceptance of this commitment by executing a copy of
this letter where indicated below and returning one original to me no later than
5:00 P.M. on May 19, 2000. If we do not receive an executed copy from you by
such date, this commitment shall automatically terminate.
Sincerely,
/s/ JEAN-MARC CHAPUS
Jean-Marc Chapus
Managing Director
Agreed and Accepted to as of the date first above written.
Green Equity Investors III, LP TPG Partners III, LP
By: GEI CAPITAL III, LLC By: TPG GENPAR III, LP
Its: GENERAL PARTNER By: TPG ADVISORS III, INC.
By: /s/ JOHN DANHAKL By: /s/ JONATHAN J. COSLET
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Title: Title: Vice President
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PETCO ANIMAL SUPPLIES, INC.
SUMMARY OF TERMS
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ISSUER: Petco Animal Supplies, Inc. or the
operating entity (the "Company").
PURCHASERS: Accounts designated by Trust Company
of the West ("TCW").
DEBT SECURITIES: $125,000,000 aggregate principal
amount of Senior Subordinated Notes
due 2010 (the "Notes").
INTEREST RATE: 13.0% per annum, payable
semi-annually in cash.
PRICE: 100%.
WARRANTS: Detachable warrants (the "Warrants")
at no additional cost to purchase
Equity of the Company, representing
5.0% of the fully-diluted Equity
(including dilution for management
stock options) for a nominal price.
Equity shall include common stock and
the accreted value of any preferred
stock of the Company. The Warrants
shall have the customary tag-along,
drag-along, anti-dilution, demand
registration, pre-emptive and
piggy-back rights with respect to the
underlying Equity.
COMMITMENT FEE: Equal to 1.0% of the principal amount
of the Notes payable in cash at the
completion of the acquisition of the
Company by Green Equity Investors III,
LP and TPG Partners III, LP (as
defined in the commitment letter)
regardless of whether the Notes
described herein are utilized.
FUNDING FEE: Equal to 0.5% of the principal amount
of the Notes payable in cash at
closing.
RANKING: The Notes will be general senior
subordinated unsecured obligations of
the Company and will be subordinated
in right of payment to all existing
and future Senior Indebtedness (to be
defined) of the Company. The Company
will not incur any indebtedness senior
to the Notes, which is not Senior
Indebtedness.
OPTIONAL REDEMPTION: Non-call for five years, except that
any time prior to _____, 2003, the
Company may redeem up to 35% of the
Notes with the net cash proceeds of a
Qualified Public Offering, at 113.0%
of principal plus accrued interest.
After five years, the Notes are
redeemable at various premiums
declining ratably to par at maturity
plus accrued interest.
MANDATORY REDEMPTION: $125,000,000 due in 2010.
BOARD REPRESENTATION: Purchasers shall have the right to
appoint one member to the Board of
Directors and to receive copies of
all documents pertaining to any
Board meeting.
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PETCO ANIMAL SUPPLIES, INC.
SUMMARY OF TERMS
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COVENANTS: The agreement governing the Notes will
contain customary covenants including,
but not limited to, Change of Control,
Limitation on Additional Indebtedness,
Limitation on Restricted Payments,
Limitation on Asset Dispositions,
Limitation on Investments, Limitation
on Mergers and Consolidations and
Limitation on Transactions with
Affiliates. The agreement will not
contain any maintenance covenants.
SENIOR CREDIT FACILITY: The Company shall have entered into
a $400.0 million senior credit
facility (the "Senior Credit
Facility") on terms and conditions
acceptable to the Purchasers.
EXPENSES: The Company agrees to reimburse
Purchasers for all reasonable out of
pocket expenses, including without
limitation reasonable attorney's fees,
reasonable accountant's fees, rating
agency fees, and out-of-pocket
expenses incurred in connection with
this transaction whether or not the
transaction described herein is
consummated.
EQUITY COINVESTMENT: TCW shall have the right to purchase
up to $10,000,000 of Equity on the
same terms and conditions as the
Equity being purchased by Green Equity
Investors III, LP and TPG Partners
III, LP.
EXPIRATION: This Summary of Terms expires on May
19, 2000 unless accepted prior to such
date. Once accepted, this Summary of
Terms shall expire on a date
consistent with the final termination
date set forth in the acquisition
agreement.
RELEASE: Upon the execution by the Company of
definitive documentation with respect
to the Notes, Green Equity Investors
III, LP and TPG Partners III, LP shall
be released from all obligations
hereunder.
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ACCEPTED AND AGREED TO ON MAY 17, 2000
Green Equity Investors III, LP
By: GEI CAPITAL III, LLC
Its: GENERAL PARTNER
By: /s/ JOHN DANHAKL
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Title:
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TPG Partners III, LP
By: TPG GENPAR III, LP
By: TPG ADVISORS III, INC.
By: /s/ JONATHAN J. COSLET
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Title: Vice President
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