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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3/A
(AMENDMENT NO. 3)
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
-------------------------
NORWOOD PROMOTIONAL PRODUCTS, INC.
(Name of the Issuer)
NORWOOD PROMOTIONAL PRODUCTS, INC.
FPK, LLC
FRANK P. KRASOVEC
JAMES P. GUNNING, JR.
JOHN H. JOSEPHSON
JOHN FINNELL
(Names of Persons Filing Statement)
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COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class of Securities)
669729-10-5
-------------------------------------
(CUSIP Number of Class of Securities)
Richard J. McMahon, Esquire William R. Volk, Esquire
Blank Rome Comisky & McCauley LLP Hughes & Luce, L.L.P.
One Logan Square 111 Congress Avenue, Suite 900
Philadelphia, PA 19103 Austin, TX 78701
(215) 569-5500 (512) 482-6800
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons filing Statement)
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 a 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. [ ]
CALCULATION OF FILING FEE
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
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$84,855,634 $16,971
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</TABLE>
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* For purposes of calculating fee only. The "Transaction Valuation" amount
is based upon the purchase of 4,099,306 shares of common stock, no par
value ("Common Stock"), of Norwood Promotional Products, Inc. at $20.70,
the cash price per share of Common Stock to be paid in the Merger (the
"Merger Consideration"). The payment of the filing fee, calculated in
accordance with Regulation 240.0-11 under the Securities Exchange Act of
1934, as amended, equals one-fiftieth of one percent of the value of the
Common Stock for which the Merger Consideration will be paid.
[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: $16,971
Form or Registration No.: Schedule 13E-3
Filing Party: Norwood Promotional Products, Inc.
Date Filed: April 29, 1998
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 is being filed
by Norwood Promotional Products, Inc., a Texas corporation (the "Company"),
FPK, LLC, a Delaware limited liability company ("LLC"), Frank P. Krasovec, the
Chairman, President and Chief Executive Officer of the Company and the sole
member and manager of LLC ("Krasovec"), James P. Gunning, Jr., Chief Financial
Officer, Treasurer and Secretary of the Company ("Gunning"), John Finnell,
Senior Vice President of Learning and Performance Enhancement of the Company
("Finnell") and John H. Josephson, a director of the Company ("Josephson"), in
connection with the proposed merger (the "Merger") of Newco, a Texas corporation
to be formed as a wholly-owned subsidiary of LLC ("Newco"), with and into the
Company pursuant to an Agreement and Plan of Merger, dated March 15, 1998, as
amended (the "Merger Agreement"), by and between the Company and LLC.
The Merger Agreement provides for the Merger of Newco with and into
the Company, with the Company being the surviving corporation (the "Surviving
Corporation"). Upon the effectiveness of the Merger (the "Effective Time"),
each share of common stock, no par value per share, of the Company (the "Common
Stock"), issued and outstanding immediately prior to the Effective Time (other
than shares held by the Company or any of its subsidiaries as treasury stock,
shares held by the members of the Buyout Group (as defined in the Proxy
Statement as defined below) and shares held by dissenting shareholders who have
validly exercised and perfected their dissenters' rights under Texas law) will
be converted into the right to receive $20.70 in cash, without interest,
subject to applicable back-up withholding of taxes (the "Merger
Consideration"). Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time will automatically be cancelled.
This Schedule 13E-3 is being filed with the Securities and Exchange
Commission concurrently with a definitive proxy statement filed by the Company
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Proxy Statement"). A copy of the Proxy Statement is attached hereto as
Exhibit (d)(1). The following cross reference sheet is being supplied pursuant
to General Instruction F to Schedule 13E-3 and shows the location in the Proxy
Statement of the information required to be included in this Schedule 13E-3. The
information contained in the Proxy Statement, including all the exhibits
thereto, is expressly incorporated herein by reference and the responses to each
item are qualified in their entirety by reference to the information contained
in the Proxy Statement and the exhibits thereto. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to such terms
in the Proxy Statement.
Subsequent to the Special Meeting of Shareholders held on August 19,
1998 where the shareholders of the Company approved and adopted the Merger
Agreement, new financing to fund the Merger was arranged by LLC and is described
in the Notice to Shareholders dated October 20, 1998 attached hereto as Exhibit
99.(d)(5).
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
1. ISSUER AND CLASS OF SECURITY
SUBJECT TO THE TRANSACTION
(a) "The Parties"
(b) "Summary" and "Market Information"
(c) "Market Information"
(d) "Market Information"
(e) "Market Information"
(f) "Purchases of Common Stock By and Other
Transactions With Certain Persons"
2. IDENTITY AND BACKGROUND "The Parties"
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
3. PAST CONTACTS, TRANSACTIONS
OR NEGOTIATIONS
(a) (1) Not Applicable
(a) (2)* "Special Factors -- Background of the Merger"
"Special Factors -- Purpose of and Reasons
for the Merger; Certain Effects of the
Merger" and "The Merger Agreement"*
(b)* "Special Factors -- Background of the Merger"*
4. TERMS OF THE TRANSACTION
(a) "Summary;" "Special Factors -- Purpose of and
Reasons for the Merger; Certain Effects of the
Merger" and "The Merger Agreement"
(b) "Summary;" "Special Factors -- Purpose of and
Reasons for the Merger; Certain Effects of the
Merger;" and "The Merger Agreement"
5. PLANS OR PROPOSALS OF THE
ISSUER OR AFFILIATE
(a)-(g) "Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger;" and
"Special Factors -- Future Plans of the Company"
6. SOURCE AND AMOUNTS OF FUNDS
OR OTHER CONSIDERATION
(a)-(c)* "Summary;" "Special Factors -- Estimated Fees and
Expenses; Sources of Funds" and "Special Factors --
Expenses"*
(d) Not Applicable
7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
(a)-(c) "Special Factors -- Background of the Merger" and
"Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger"
</TABLE>
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* As modified by the Notice to Shareholders dated October 20, 1998 attached
hereto as Exhibit 99.(d)(5).
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
(d) "Special Factors -- Purpose of and Reasons for the
Merger; Certain Effects of the Merger;" "Special
Factors -- Conflicts of Interest;" "Special Factors
-- Future Plans of the Company;" "The Merger
Agreement -- Material U.S. Federal Income Tax
Consequences of the Merger;" "The Merger Agreement --
Accounting Treatment of the Merger" and Appendix A
(the Merger Agreement)
8. FAIRNESS OF THE TRANSACTION
(a)-(e) "The Meeting -- Required Vote;" "Special Factors --
Background of the Merger;" "Special Factors --
Purpose of and Reasons for the Merger; Certain
Effects of the Merger;" "Special Factors --
Determination of Fairness of the Merger by the
Special Committee and the Board of Directors;"
"Special Factors -- Opinion of the Special
Committee's Financial Advisor;" "Special Factors --
Position of Krasovec, Gunning, Josephson and Finnell as to
Fairness;" "Special Factors --Materials Prepared by
Krasovec's Advisor;" "Special Factors -- Certain
Projections;" and "Special Factors -- Conflicts of
Interest "
(f) Not Applicable
9. REPORTS, OPINIONS, APPRAISALS
AND CERTAIN NEGOTIATIONS
(a)-(c) "Special Factors -- Background of the Merger;"
"Special Factors -- Determination of Fairness of the
Merger by the Special Independent Committee and the
Board of Directors;" "Special Factors -- Opinion of
the Special Committee's Financial Advisor;" "Special
Factors -- Position of Krasovec, Gunning, Josephson and
Finnell as to Fairness;" "Special Factors --
Material Prepared by Krasovec's Advisor;" "Special
Factors -- Certain Projections;" "Special Factors --
Estimated Fees and Expenses; Sources of Funds" and
Appendix B (J.C. Bradford Opinion)
10. INTEREST IN SECURITIES OF THE
ISSUER
(a) "Security Ownership of Certain Beneficial Owners
and Management"
(b) "Purchases of Common Stock by and Other
Transactions with Certain Persons"
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION
IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT
- ---------------------------------- -----------------------------------------
<S> <C> <C>
11. CONTRACTS, ARRANGEMENTS OR "Summary;" "The Meeting -- Voting Rights;" "The
UNDERSTANDINGS WITH RESPECT Meeting -- Required Vote; "Special Factors --
TO THE ISSUER'S SECURITIES Background of the Merger;" "The Merger Agreement --
Conversion of Securities in the Merger; Treatment
of Derivatives;" "The Merger Agreement -- Payment
for and Surrender of Company Common Shares" and
"Security Ownership of Certain Beneficial Owners
and Management"
12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
(a)-(b) "Summary;" "The Meeting -- Required Vote;"
"Special Factors -- Determination of Fairness of the
Merger by the Special Independent Committee and the
Board of Directors" and "Special Factors -- Position
of Krasovec, Gunning, Josephson and Finnell as to Fairness"
13. OTHER PROVISIONS OF THE
TRANSACTION
(a) "Summary" and "Special Factors -- Rights of
Dissenting Shareholders"
(b) Not Applicable
(c) Not Applicable
14. FINANCIAL INFORMATION
(a) "Selected Financial Data"
(b) Not Applicable
15. PERSONS AND ASSETS EMPLOYED,
RETAINED OR UTILIZED
(a)* "Special Factors -- Future Plans of the Company;"
and "Special Factors -- Estimated Fees and
Expenses; Sources of Funds"*
(b) Not Applicable
</TABLE>
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* As modified by the Notice to Shareholders dated October 20, 1998 attached
hereto as Exhibit 99.(d)(5).
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth in "The Parties" in the Proxy
Statement is hereby incorporated herein by reference.
(b) The information set forth in "Summary" and "Market
Information" in the Proxy Statement is hereby incorporated herein by reference.
(c) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(d) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(e) The information set forth in "Market Information" in the Proxy
Statement is hereby incorporated herein by reference.
(f) The information set forth in "Purchases of Common Stock By and
Other Transactions With Certain Persons" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) This Statement is being filed by the Company, LLC,
Krasovec, Gunning, Finnell and Josephson. The Company is the issuer of the
Common Stock which is the subject of the Rule 13e-3 transaction. The
information set forth in "The Parties" in the Proxy Statement is hereby
incorporated herein by reference.
The following is certain information regarding Krasovec, Gunning,
Finnell and Josephson, each an affiliate of the Company:
Frank P. Krasovec, a United States citizen, is the Chairman, President
and Chief Executive Officer of the Company and beneficially owns 660,917 shares
of Common Stock of the Company. Krasovec is also the sole member and manager of
LLC. His business address is c/o the Company, 106 E. Sixth Street, Suite 300,
Austin, Texas 78701.
James P. Gunning, Jr., a United States citizen, is the Chief Financial
Officer, Treasurer and Secretary of the Company and beneficially owns 500 shares
of Common Stock of the Company. His business address is c/o the Company 106 E.
Sixth Street, Suite 300, Austin, Texas 78701.
John Finnell, a United States citizen, is the Senior Vice President of
Learning and Performance Enhancement of the Company and beneficially owns
206,553 shares of Common Stock of the Company. His business address is c/o the
Company, 106 E. Sixth Street, Suite 300, Austin, Texas 78701.
John H. Josephson, a United States Citizen, has served as a director
of the Company since June 1993 and has been employed by Allen & Company
Incorporated ("Allen") since August 1987 and has been a Director of that firm
since February 1995. Allen has been retained by Krasovec as one of his financial
advisors to provide financial advice in connection with the proposed Merger.
Josephson beneficially owns 29,228 shares of Common Stock of the Company. His
business address is Allen & Company Incorporated, 711 Fifth Avenue, New York,
New York 10022.
(e)-(f) During the last five years, none of the Company, LLC, Krasovec,
Gunning, Finnell or Josephson nor, to the best of their knowledge, any of the
other officers or directors of the Company or LLC has been convicted in a
criminal proceeding or has been 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.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) Not Applicable.
(a)(2) The information set forth in "Special Factors -- Background of
the Merger;" "Special Factors -- Purpose of and Reasons for the Merger; Certain
Effects of the Merger" and "The Merger Agreement" in the Proxy Statement is
hereby incorporated herein by reference. The information set forth in the
Notice to Shareholders dated October 20, 1998 which is attached hereto as
Exhibit 99.(d)(5) is hereby incorporated herein by reference.
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(b) The information set forth in "Special Factors -- Background of
the Merger" in the Proxy Statement is hereby incorporated herein by reference.
The information set forth in the Notice to Shareholders dated October 20, 1998
which is attached here to as Exhibit 99.(d)(5) is hereby incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "Summary;" "Special Factors --
Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The
Merger Agreement" in the Proxy Statement is hereby incorporated herein by
reference.
(b) The information set forth in "Summary;" "Special Factors --
Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The
Merger Agreement" in the Proxy Statement is hereby incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger" and "Special Factors
- -- Future Plans of the Company" in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in "Summary;" "Special Factors --
Estimated Fees and Expenses; Sources of Funds" and "Special Factors -- Expenses"
in the Proxy Statement is hereby incorporated herein by reference. The
information set forth in the Notice to Shareholders dated October 20, 1998 which
is attached here to as Exhibit 99.(d)(5) is hereby incorporated herein by
reference.
(d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in "Special Factors -- Background of
the Merger" and "Special Factors -- Purpose of and Reasons for the Merger;
Certain Effects of the Merger" in the Proxy Statement is hereby incorporated
herein by reference.
(d) The information set forth in "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors --
Conflicts of Interest;" "Special Factors -- Future Plans of the Company;" "The
Merger Agreement -- Material U.S. Federal Income Tax Consequences of the
Merger;" "The Merger Agreement -- Accounting Treatment of the Merger" and
Appendix A (the Merger Agreement) in the Proxy Statement is hereby incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in "The Meeting -- Required Vote;"
"Special Factors -- Background of the Merger;" "Special Factors -- Purpose of
and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors --
Determination of Fairness of the Merger by the Special Committee and the Board
of Directors;" "Special Factors -- Opinion of the Special Committee's Financial
Advisor;" "Special Factors -- Position of Krasovec, Gunning, Josephson and
Finnell as to Fairness;" "Special Factors -- Material Prepared by Krasovec's
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Advisor;" "Special Factors -- Certain Projections" and "Special Factors --
Conflicts of Interest" in the Proxy Statement is hereby incorporated herein by
reference.
(f) Not Applicable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(b) The information set forth in "Special Factors -- Background of
the Merger;" "Special Factors -- Determination of Fairness of the Merger by the
Special Committee and the Board of Directors;" "Special Factors -- Opinion of
the Special Committee's Financial Advisor;" "Special Factors -- Position of
Krasovec, Gunning, Josephson and Finnell as to Fairness;" "Special Factors --
Material Prepared by Krasovec's Advisor;" "Special Factors -- Certain
Projections;" "Special Factors -- Estimated Fees and Expenses; Sources of
Funds" and Appendix B (J.C. Bradford Opinion) in the Proxy Statement is hereby
incorporated herein by reference.
(c) The Opinion of J.C. Bradford, financial advisor to the Special
Committee, is included in the information to be circulated to Shareholders and
shall also be made available for inspection and copying at the principal
executive offices of the Company during its regular business hours by any
interested Shareholder of the Company or his or its representative who has been
designated in writing. At the written request of such Shareholder, a copy of
such opinion will be sent, at the Shareholder's expense, to such Shareholder or
his or its representative. The information set forth in Exhibit (b)(2), (b)(3),
b(4) and (b)(5) to this Statement will be made available for inspection and
copying at the principal executive offices of the Company by any interested
Shareholder of the Company or his or its representative who has been designated
in writing. At the written request of such a Shareholder, a copy of each such
Exhibit will be sent, at the Shareholder's expense, to such Shareholder or his
or its representatives.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
herein by reference.
(b) The information set forth in "Purchases of Common Stock by and
Other Transactions with Certain Persons" in the Proxy Statement is hereby
incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "Summary;" The Meeting -- Voting Rights;"
"The Meeting -- Required Vote;" "Special Factors -- Background of the Merger;"
"The Merger Agreement -- Conversion of Securities in the Merger; Treatment of
Derivatives;" "The Merger Agreement -- Payment for and Surrender of Company
Common Shares" and "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a)-(b) The information set forth in "Summary;" The Meeting --
Required Vote;" "Special Factors -- Determination of Fairness of the Merger by
the Special Committee and the Board of Directors" and
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"Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to
Fairness" in the Proxy Statement is hereby incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "Summary" and "Special Factors --
Rights of Dissenting Shareholders" in the Proxy Statement is hereby
incorporated by reference.
(b) Not Applicable.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in "Selected Financial Data" in the
Proxy Statement is hereby incorporated herein by reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) The information set forth in "Special Factors -- Future Plans
of the Company" and "Estimated Fees and Expenses; Sources of Funds" in the Proxy
Statement is hereby incorporated herein by reference. The information set forth
in the Notice to Shareholders dated October 20, 1998 which is attached hereto as
Exhibit 99.(d)(5) is hereby incorporated herein by reference.
(b) Not applicable.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the Proxy Statement and the Appendices
thereto is incorporated herein by reference in its entirety.
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ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation,
NationsBank, N.A. and NationsBanc Montgomery
Securities, LLC.
99.(a)(2)(A) Term Sheet regarding Bank Facilities.
99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and
between FPK, LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between
FPK, LLC and Ares Leveraged Investment Fund, L.P.
99.(a)(5)(A) Term Sheet regarding Preferred Stock.
99.(a)(6) Commitment Letter dated September 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A.
and NationsBanc Montgomery Securities, LLC.
99.(a)(7) Term Sheet regarding new Bank Facilities.
99.(a)(8) Letter of Intent dated September 8, 1998 by and between FPK,
LLC and Liberty Capital Partners, Inc.
99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the
Special Independent Committee of the Board of
Directors of the Company.
99.(b)(2)(C) Written materials prepared by J.C. Bradford for the
Special Independent Committee of the Board of
Directors dated March 7, 1998.
99.(b)(3)(C) Preliminary written materials prepared by J.C. Bradford for
the Special Independent Committee of the Board of Directors
dated February 26, 1998.
99.(b)(4)(C) Written materials prepared by Merrill Lynch for Frank P.
Krasovec dated November 14, 1997.
99.(b)(5)(C) Written materials prepared by Merrill Lynch for Frank P.
Krosevec dated December 5, 1997.
99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15,
1998, by and between the Company and FPK, LLC.
99.(d)(1)(D) Definitive Proxy Statement.
99.(d)(2)(B) Notice of Special Meeting of Shareholders of the
Company.
99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr.,
Secretary of the Company.
99.(d)(4)(B) Proxy Card.
99.(d)(5) Notice to Shareholders dated October 20, 1998.
99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business
Corporation Act.
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(A) Incorporated by reference from Schedule 13D filed March 25,
1998.
(B) Incorporated by reference from the Definitive Proxy Statement
filed July 23, 1998.
(C) Previously filed with Amendment No. 1 to the Schedule 13E-3 on
June 24, 1998.
(D) Previously Filed with Amendment No. 2 to the Schedule 13E-3 on
July 23, 1998.
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SIGNATURE
After due inquiry and to the best of the undersigned's knowledge, each
of the undersigned certifies that the information set forth in this statement
is true, complete and correct.
NORWOOD PROMOTIONAL PRODUCTS, INC.
By: /s/ FRANK P. KRASOVEC
-------------------------------------
Frank P. Krasovec
Chairman, President and Chief
Executive Officer
FPK, LLC
By: /s/ FRANK P. KRASOVEC
-------------------------------------
Frank P. Krasovec
President
/s/ FRANK P. KRASOVEC
------------------------------------------
FRANK P. KRASOVEC
/s/ JOHN H. JOSEPHSON
------------------------------------------
JOHN H. JOSEPHSON
/s/ JAMES P. GUNNING, JR.
------------------------------------------
JAMES P. GUNNING, JR.
/s/ JOHN FINNELL
------------------------------------------
JOHN FINNELL
Dated: October 20, 1998
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation,
NationsBank, N.A. and NationsBanc Montgomery
Securities, LLC.
99.(a)(2)(A) Term Sheet regarding Bank Facilities.
99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and
between FPK, LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between
FPK, LLC and Ares Leveraged Investment Fund, L.P.
99.(a)(5)(A) Term Sheet regarding Preferred Stock.
99.(a)(6) Commitment Letter dated September 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A.
and NationsBanc Montgomery Securities, LLC.
99.(a)(7) Term Sheet regarding new Bank Facilities.
99.(a)(8) Letter of Intent dated September 8, 1998 by and between FPK,
LLC and Liberty Capital Partners, Inc.
99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the
Special Independent Committee of the Board of
Directors of the Company.
99.(b)(2)(C) Written materials prepared by J.C. Bradford for the
Special Independent Committee of the Board of
Directors dated March 7, 1998.
99.(b)(3)(C) Preliminary written materials prepared by J.C. Bradford for
the Special Independent Committee of the Board of Directors
dated February 26, 1998.
99.(b)(4)(C) Written materials prepared by Merrill Lynch for Frank P.
Krasovec dated November 14, 1997.
99.(b)(5)(C) Written materials prepared by Merrill Lynch for Frank P.
Krosevec dated December 5, 1997.
99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15,
1998, by and between the Company and FPK, LLC.
99.(d)(1)(D) Definitive Proxy Statement.
99.(d)(2)(B) Notice of Special Meeting of Shareholders of the
Company.
99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr.,
Secretary of the Company.
99.(d)(4)(B) Proxy Card.
99.(d)(5) Notice to Shareholders dated October 20, 1998.
99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business
Corporation Act.
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(A) Incorporated by reference from Schedule 13D filed March 25,
1998.
(B) Incorporated by reference from the Definitive Proxy Statement
filed July 23, 1998.
(C) Previously filed with Amendment No. 1 to the Schedule 13E-3 on
June 24, 1998.
(D) Previously Filed with Amendment No. 2 to the Schedule 13E-3 on
July 23, 1998.
</TABLE>
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EXHIBIT 99.(a)(6)
MERRILL LYNCH CAPITAL CORPORATION NATIONSBANK, N.A.
World Financial Center 800 Market Street
North Tower St. Louis, Missouri 63101
250 Vesey Street
New York, New York 10281
September 15, 1998
FPK, LLC
106 East 6th Street
Suite 300
Austin, Texas 78216
Attention: Frank P. Krasovec, Chairman & Chief Executive Officer
Re:Commitment Letter
Ladies and Gentlemen:
You have advised Merrill Lynch Capital Corporation ("Merrill
Lynch"), NationsBank, N.A. ("NationsBank") and NationsBanc Montgomery
Securities LLC ("NMS" and together with Merrill Lynch, the "Joint Lead
Arrangers") that (i) FPK, LLC, a Delaware limited liability Company ("LLC")
formed by Frank P. Krasovec intends to form a new corporation ("Newco"); (ii)
LLC has entered into a merger agreement (the "Merger Agreement") with Norwood
Promotional Products, Inc. ("Target" or "Borrower") to effect the
recapitalization of Borrower (the "Recapitalization"); (iii) pursuant to the
Merger Agreement, Newco will merge with and into Borrower with Borrower as the
survivor (the "Merger"); (iv) pursuant to the Merger Agreement, after giving
effect to the Merger and the other transactions contemplated thereby, the
Buyout Group (as defined in the Merger Agreement), Liberty Capital Partners, LP
or its affiliates (collectively, "Liberty") and certain other third parties
will own all of the capital stock of Borrower; (v) the consideration per share
to be paid
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pursuant to the Merger Agreement to the holders of Borrower's common stock that
are cashed out in the Recapitalization shall not exceed $20.70 per share and
$91 million in the aggregate, except as a result of the valid exercise of
appraisal rights in accordance with Texas law.
In addition, you have also advised the Joint Lead Arrangers
and NationsBank that, in connection with and simultaneously with the
Recapitalization, Borrower will (i) raise gross cash proceeds of up to $37
million from the issuance by Borrower of its unsecured subordinated notes due
six months after all the terms loans under the Term Loan Facilities have been
paid in full (the "Subordinated Notes") arranged by Liberty on terms and
conditions and pursuant to documentation reasonably satisfactory to Merrill
Lynch, NationsBank and NMS in their sole discretion (the "Subordinated
Financing"); (ii) raise gross cash proceeds of up to $20 million from the
issuance by Borrower of its pay-in-kind preferred stock (the "PIK Preferred")
to Liberty on terms and conditions and pursuant to documentation reasonably
satisfactory to Merrill Lynch, NationsBank and NMS (the "Preferred Stock
Financing"); (iii) raise gross cash proceeds of up to $3 million from the
issuance by Borrower of its common stock (the "Common Stock") to Liberty on
terms and conditions and pursuant to documentation reasonably satisfactory to
Merrill Lynch, NationsBank and NMS (the "Common Stock Financing"); (iv) raise
gross proceeds of at least $22 million provided by the Buyout Group (including
the amount provided by the Buyout Group by converting their common stock,
valued at the Consideration (as defined in the Merger Agreement) of $20.70 per
share, into Common Shares of Borrower) and certain other third parties
previously disclosed to Merrill Lynch, NationsBank and NMS; and (v) enter into
the Credit Facilities described herein.
In addition, you have advised the Joint Lead Arrangers and
NationsBank that, upon consummation of the Recapitalization, Borrower will
repay (the "Existing Debt Repayment") all indebtedness, and terminate all
commitments to make extensions of credit, under its existing $125.0 million
credit facility arranged by Merrill Lynch (the "Existing Debt").
The Recapitalization, the Merger, the Subordinated Financing,
the Preferred Stock Financing, the Common Stock Financing, 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 the mutual agreement of the parties hereto.
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You have requested that Merrill Lynch and NationsBank commit
to provide to Borrower $100 million aggregate principal amount of senior
secured credit facilities (the "Credit Facilities") (of which $50 million will
be provided by Merrill Lynch and $50 million by NationsBank) comprising (a) a
senior secured term loan A facility in an aggregate principal amount of $35
million (the "Term Loan A Facility"), (b) a senior secured term loan B facility
in an aggregate principal amount of $40 million (the "Term Loan B Facility",
together with the Term Loan A Facility, the "Term Loan Facilities"), and (c) a
senior secured revolving credit facility in an aggregate principal amount of
$25 million (the "Revolving Facility") (of which up to $10 million will be
drawn on the Closing Date (as defined below)). A portion of the Revolving
Facility to be mutually determined will be available as a letter of credit
subfacility.
In addition, you have advised the Joint Lead Arrangers and
NationsBank that the Term Loan Facilities and not more than $10 million of the
Revolving Facility will be used to (i) finance the Recapitalization and the
Existing Debt Repayment, and (ii) pay fees and expenses in connection with the
Recapitalization and the Existing Debt Repayment. Following and including the
date of the initial borrowings under the Credit Facilities (the "Closing
Date"), the Revolving Facility will be available for working capital, capital
expenditures and general corporate purposes of Borrower and its subsidiaries.
Accordingly, subject to the terms and conditions set forth
below, Merrill Lynch, NationsBank and NMS hereby severally agree with you as
follows:
1. Commitment. Merrill Lynch hereby severally commits
to provide $50 million of the Credit Facilities and NationsBank hereby
severally commits to provide $50 million of the Credit Facilities, in each case
to Borrower 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 herewith and in the Summary of Terms and Conditions attached
hereto (and incorporated by reference herein) as Exhibit A (the "Term Sheet").
It is a condition of Merrill Lynch's, NationsBank's and NMS's
respective obligations and commitments hereunder that (a) Merrill Lynch, Pierce
Fenner & Smith Incorporated ("MLPF&S") act as the syndication agent (in such
capacity, the "Syndication Agent") and MLPF&S and NMS act as the Joint Lead
Arrangers for the Credit Facilities, it being understood and agreed that the
Syndication Agent, together with NationsBank as the administrative agent (in
such capacity , the "Administrative Agent") will perform all functions and
exercise all authority (including, without
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limitation, (i) serving as the lead manager of the syndication effort, (ii)
selecting counsel for the Credit Facilities, and (iii) negotiating definitive
documentation for the Credit Facilities (the "Credit Documents")) customarily
performed and exercised by agent banks in such capacities, and (b) NationsBank
will act as the Administrative Agent for the Credit Facilities, it being
understood and agreed that the Administrative Agent will perform all
ministerial and administrative functions and exercise all authority customarily
performed and exercised by agent banks in such capacities.
2. Syndication. Merrill Lynch, NationsBank and NMS
reserve the right and intends, prior to the execution of the Credit Documents,
to syndicate all or a portion of the commitments of Merrill Lynch and
NationsBank to one or more financial institutions (Merrill Lynch, NationsBank
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 and NationsBank's commitments
hereunder, Merrill Lynch, NationsBank and NMS 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 and
NationsBank shall each be released from a portion of its commitment hereunder
in an aggregate amount equal to 50% and 50%, respectively, 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
co-agent will be at the sole discretion of Merrill Lynch, NationsBank and NMS.
It is understood and agreed the Syndication Agent, together with the
Administrative Agent (or one of their respective affiliates) 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, NationsBank and
NMS in achieving a timely syndication that is satisfactory to Merrill Lynch,
NationsBank and NMS. 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 Borrower) and advisors and
affiliates of Newco and Borrower on the one
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hand and the proposed syndicate Lenders on the other hand. To assist Merrill
Lynch, NationsBank and NMS in its syndication efforts, you agree that you will,
with reasonable promptness, upon Merrill Lynch's, NationsBank's and NMS's
request, (a) provide, and cause Borrower and your and Borrower's affiliates and
advisors to provide, to Merrill Lynch, NationsBank and NMS all information
reasonably deemed necessary by Merrill Lynch, NationsBank and NMS to complete
successfully the syndication, including but not limited to, information and
projections (including, without limitation, any updated projections requested
by Merrill Lynch, NationsBank and NMS) prepared by you or Borrower or on your
or Borrower's behalf relating to the transactions contemplated hereby, and (b)
assist, and cause Borrower and your and Borrower's affiliates and advisors to
assist, Merrill Lynch, NationsBank and NMS in the preparation of a confidential
information memorandum and other marketing materials to be used in connection
with the syndication, including making available representatives of Newco and
Borrower and its subsidiaries. You also agree to use your best efforts to
ensure that Merrill Lynch's, NationsBank's and NMS's syndication efforts
benefit from your and Borrower's existing lending relationships. You further
agree that Merrill Lynch, NationsBank and NMS shall have a reasonable period of
time to syndicate the Credit Facilities, but syndication will not delay
Closing. It is understood and agreed that Merrill Lynch, NationsBank and NMS,
shall be entitled, with your prior written consent (which shall not be
unreasonably withheld or delayed), to change the structure and/or pricing 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, NationsBank and NMS deem such action
advisable in order to ensure a successful syndication or an optimal credit
structure.
To ensure an orderly and effective syndication of the Credit
Facilities, you agree that until the termination of the syndication (as
determined by Merrill Lynch), you will not, and will not permit any of your
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 or credit
facility or debt security of Newco, Borrower or any of its subsidiaries,
including any renewals thereof, (other than Subordinated Notes and PIK
Preferred) without the prior written consent of Merrill Lynch, NationsBank and
NMS.
3. Fees. As consideration for Merrill Lynch's,
NationsBank's and NMS's commitments hereunder and their agreement to arrange,
manage, structure and syndicate the Credit Facilities, you agree to pay to
Merrill Lynch (for the account of Merrill Lynch, NationsBank and NMS) the fees
as set forth in the Term Sheet and in the
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Fee Letter. You agree that, once paid, such fees and any part thereof shall be
nonrefundable under any and all circumstances and regardless of whether the
transactions or borrowings contemplated hereby are consummated. All such fees
shall be paid by wire transfer of immediately available funds in United States
dollars at the times specified in the Fee Letter.
4. Conditions. Merrill Lynch's, NationsBank's NMS's
respective obligations and commitments hereunder are subject to the
negotiation, execution and delivery of definitive Credit Documents reasonably
satisfactory in all respects to Merrill Lynch, NationsBank and NMS and their
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
satisfactory to Merrill Lynch, NationsBank, NMS and Borrower, modified as
appropriate to reflect the terms of the Transactions and the financial
condition and prospects of Newco and Borrower and its subsidiaries. Our
willingness to provide the Credit Facilities is further subject to review of
the documents relating to the Transactions and to Merrill Lynch's,
NationsBank's and NMS's reasonable satisfaction with the terms and conditions
thereof. 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, NationsBank 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).
Merrill Lynch's, NationsBank's and NMS's respective
obligations and commitments hereunder are also subject to the following: (a)
there shall not have occurred or become known (i) in the reasonable judgment of
Merrill Lynch, NationsBank or NMS, any material adverse change (or any
development involving a prospective 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 of Borrower, individually or together with its
subsidiaries taken as a whole, as the case may be (and before and after giving
effect to the Transactions), in each case since the date of the latest audited
financial statements of Borrower delivered prior to the execution and delivery
of this letter to Merrill Lynch, NationsBank and NMS, (ii) any facts or
circumstances discovered by Merrill Lynch, NationsBank or NMS in the course of
each of their respective ongoing due diligence investigation of Borrower and
its subsidiaries and the Transactions, including (without limitation) their
review and investigation of acquisition plans, environmental and other
contingent obligations, and the historical, pro forma and
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projected consolidated financial statements of Borrower and its subsidiaries,
which Merrill Lynch, NationsBank or NMS believes could, individually or in the
aggregate, have a material adverse effect on the Transactions or the business,
assets, liabilities (contingent or otherwise), operations, condition (financial
or otherwise), solvency, properties, prospects or material agreements of
Borrower, individually or together with its subsidiaries taken as a whole, as
the case may be (and before and after giving effect to the Transactions), (iii)
any transaction (other than the Transactions) entered into by Borrower or any
of its subsidiaries, whether or not in the ordinary course of business, that in
Merrill Lynch's, NationsBank's or NMS's judgment is materially adverse to
Borrower, individually or together with its subsidiaries, taken as a whole, or
(iv) any dividend or distribution of any kind declared or paid by Borrower on
its capital stock since the date of the latest audited financial statements of
Borrower delivered prior to the execution and delivery of this Commitment
Letter to Merrill Lynch, NationsBank and NMS (other than regular quarterly
dividends in an amount consistent with past practices); (b) no material adverse
change (or development involving a prospective material adverse change) shall
have occurred in the loan syndication or financial, banking, currency or
capital market conditions generally from those in effect on the date hereof
that, individually or in the aggregate, in the judgment of Merrill Lynch,
NationsBank or NMS 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, NationsBank
and NMS to successfully syndicate the Credit Facilities; no banking moratorium
shall have been declared by federal or New York State banking authorities and
shall be continuing; (c) Merrill Lynch's, NationsBank's or NMS's satisfaction
(in their reasonable judgment) with the actual capitalization and corporate and
organizational structure of Newco and Borrower and its 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
and Borrower and its subsidiaries; (d) Borrower and its subsidiaries shall not
have syndicated or issued, attempted to syndicate or issue, announced or
authorized the announcement of the syndication or issuance of, or engaged in
any discussion concerning the syndication or issuance of, any debt facility or
debt security of Borrower or any of its subsidiaries (other than Subordinated
Notes and PIK Preferred), including renewals thereof; and (e) 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 Borrower shall be deemed to include those who will become
subsidiaries of Borrower.
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5. Information and Investigations. You hereby represent
and covenant that (a) all information and data (excluding financial
projections) concerning Newco, Borrower and its 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, NationsBank or NMS 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,
Borrower and its 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 Merrill Lynch, NationsBank or NMS 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
Closing Date and, if requested by Merrill Lynch, NationsBank or NMS, 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, NationsBank and NMS will be using and
relying primarily on the Information and the Projections without independent
check or verification thereof.
Merrill Lynch's, NationsBank's and NMS's respective
obligations and commitments hereunder are based upon the accuracy and
completeness of the financial and other information provided to us by or on
behalf of you and Borrower. If any of the Information proves to have been, or
Merrill Lynch, NationsBank or NMS reasonably concludes that any of the
Information is, inaccurate, incomplete or misleading in any material respect or
if Merrill Lynch's, NationsBank's and NMS's ongoing due diligence investigation
discloses information, or Merrill Lynch, NationsBank or NMS otherwise discovers
information not previously disclosed to it, or Merrill Lynch, NationsBank or
NMS discovers or otherwise learns of new information or additional developments
concerning conditions or events previously disclosed to it, that Merrill Lynch,
NationsBank or NMS believes in their sole discretion, (x) has had or could
have, individually or in the aggregate, a material adverse impact on the
business, assets, liabilities (contingent or otherwise), operations, condition
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(financial or otherwise), solvency, properties, prospects or material
agreements of Borrower, individually or together with its subsidiaries taken as
a whole, as the case may be (and before and after giving effect to the
Transactions), or on the tax or accounting consequences of the Transactions, or
(y) would be materially inconsistent with the assumptions underlying the
Projections, then Merrill Lynch, NationsBank and NMS (a) shall be entitled to
terminate their commitments hereunder (and thereafter have no other or further
obligations hereunder or in connection with the Credit Facilities or any of the
other Transactions) or (b) may, in their sole discretion, suggest alternative
financing amounts, structures or pricing that ensure adequate protection for
Merrill Lynch, NationsBank and the other Lenders. In any such event, Merrill
Lynch, NationsBank and NMS shall not be responsible or liable for any damages
which may be alleged as a result of their failure, in accordance with the terms
of this Commitment Letter, to provide the Credit Facilities.
6. Indemnification. By executing this Commitment
Letter, you agree to indemnify and hold harmless Merrill Lynch, NationsBank,
NMS and each of the other Lenders and their respective officers, directors,
employees, affiliates, agents and controlling persons (Merrill Lynch,
NationsBank, NMS 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, (including the fee letter, term sheet and commitment letter
dated March 12, 1998 between you and us relating to the transactions as
discussed in Borrower's proxy statement dated July 22, 1998) 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, NationsBank, NMS or any of their respective
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, whether or not such claim, action or proceeding
is initiated or brought by or on behalf of Borrower or any of its 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.
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You also agree that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to
Newco, Borrower or their respective security holders or creditors related to or
arising out of or in connection with 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 or the performance by Merrill Lynch, NationsBank or any of their
respective affiliates of the services contemplated by this Commitment Letter,
except to the extent that any loss, claim, damage or liability 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.
You agree that, without Merrill Lynch's, NationsBank's and
NMS's prior written consent, which will not be unreasonably withheld or
delayed, you will not 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 sought under the indemnification provisions of
this Commitment Letter (whether or not Merrill Lynch, NationsBank, NMS 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
an admission of fault, culpability or failure to act by or on behalf of any
Indemnified Party.
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 affiliates in which such Indemnified Party is not
named as a defendant, you agree to reimburse such Indemnified Party for all
reasonable expenses incurred by either of them in connection with such
Indemnified Party's appearing and preparing to appear as such a witness,
including, without limitation, the fees and disbursements of its legal counsel,
and to compensate such Indemnified Party in an amount to be mutually agreed
upon.
7. Costs and Expenses. By executing this Commitment
Letter, you agree to reimburse Merrill Lynch, NationsBank and NMS and their
respective affiliates upon request made from time to time for their reasonable
out-of-pocket expenses (including, without limitation, reasonable expenses of
Merrill Lynch's, NationsBank's and NMS's due diligence investigation,
consultants' fees (if such consultants are engaged by Merrill Lynch,
NationsBank and NMS with your consent (which consent shall not be unreasonably
withheld or delayed)), syndication expenses, appraisal and valuation
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fees and expenses, travel expenses, and the reasonable fees, disbursements and
other reasonable 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.
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, NationsBank's, NMS's and/or their respective affiliates'
activities pursuant hereto or thereto are confidential and shall not be
disclosed by you to any person without the prior written consent of Merrill
Lynch, NationsBank and NMS, other than to your and the Borrower's 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 make such other public disclosures of the terms and
conditions hereof as you are required by applicable law or compulsory legal
process to make; provided, however, that if such disclosure is required by
applicable law or compulsory legal process you agree to give Merrill Lynch,
NationsBank and NMS reasonable notice to afford Merrill Lynch, NationsBank and
NMS the opportunity to seek a protective order and to cooperate with Merrill
Lynch, NationsBank and NMS in securing such a protective order. You agree that
you will permit Merrill Lynch, NationsBank and NMS to review and approve any
reference to Merrill Lynch, NationsBank or NMS 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 September 18, 1998; (ii) the Closing Date
does not occur on or before November 30, 1998; or (iii) any of the conditions
described in clause (a), (b), or (d) of the second paragraph of Section 4 shall
have failed to be satisfied at any time, this Commitment Letter and Merrill
Lynch's, NationsBank's and NMS's commitments hereunder shall terminate (upon
written notice by Merrill Lynch, NationsBank and NMS with respect to clause
(iii) of this sentence) unless Merrill Lynch, NationsBank and NMS shall, in
their respective discretion, agree to an extension (it being understood that an
extension by Merrill Lynch shall not bind NationsBank, and vice versa).
Notwithstanding the foregoing, the compensation, 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 or NationsBank's commitment
hereunder.
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10. Assignment, Etc. This Commitment Letter and Merrill
Lynch's, NationsBank's and NMS's respective commitments hereunder shall not be
assignable by any party hereto without the prior written consent of Merrill
Lynch and NationsBank, and any attempted assignment shall be void and of no
effect; provided, however, that nothing contained in this Section shall
prohibit Merrill Lynch, NationsBank or NMS (in their respective sole
discretion) from (i) performing any of its duties hereunder through any of its
affiliates (including in the case of Merrill Lynch, 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 pursuant to arrangements
satisfactory to the Lenders. 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 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 letter, you acknowledge that this
Commitment Letter and the Fee Letter are the only agreements between you and
Merrill Lynch and NationsBank 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 the parties hereto (in
each case on its own behalf and, to the extent permitted by applicable law, on
behalf of its shareholders) waive 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
<PAGE> 13
-13-
the Transactions, the other transactions contemplated hereby, or the
performance by Merrill Lynch, NationsBank or NMS or any of their respective
affiliates of the services contemplated by, this Commitment Letter.
15. Public Announcements. You acknowledge that Merrill
Lynch, NationsBank and NMS may (after the consummation of the
Recapitalization), at their respective option and expense, place an
announcement in such newspapers and periodicals as it may choose, stating that
Merrill Lynch, NationsBank or NMS, as the case may be, 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, (i) if to you, at the address set forth on page one of this
Commitment Letter to the attention of Chief Financial Officer, with a copy to
Richard McMahon, Esq., at Blank, Rome, Comisky & McCauley LLP, One Logan
Square, Philadelphia, PA 19103 and (ii) if to Merrill Lynch, at World Financial
Center, North Tower, 250 Vesey Street, New York, New York 10281, Attention:
Brian E. O'Callahan, or if to NMS, at 100 North Trion Street, Charlotte, North
Carolina 28255, Attention Joseph R. Netzel, or if to NationsBank, at 800 Market
Street, St. Louis, Missouri 63101, Attention: Steve A. Linton, in each case
with a copy to Michael E. Michetti, Esq., at Cahill Gordon & Reindel, 80 Pine
Street, New York, New York 10005.
[Signature Page Follows]
<PAGE> 14
-14-
Please confirm that the foregoing correctly sets forth our
agreement of the terms hereof and of the Fee Letter by signing and returning to
Merrill Lynch (on behalf of Merrill Lynch and NationsBank) the duplicate copy
of this letter and the Fee Letter enclosed herewith. Upon your acceptance
hereof, this letter shall constitute a binding agreement between you and
Merrill Lynch and NationsBank; provided that Merrill Lynch (on behalf of
Merrill Lynch and NationsBank) shall have received your executed duplicate
copies not later than 5:00 p.m., New York City time, on September 18, 1998, at
which time Merrill Lynch's and NationsBank's respective commitments 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.
Very truly yours,
MERRILL LYNCH CAPITAL
CORPORATION
By: /s/ BRIAN O'CALLAHAN
----------------------------------
Name:
Title:
NATIONSBANK, N.A.
By: /s/ STEVEN A. LINTON
----------------------------------
Name:
Title:
NATIONSBANC MONTGOMERY
SECURITIES LLC
By: /s/ JOSEPH R. NETZEL
----------------------------------
Name:
Title:
<PAGE> 15
-15-
Accepted and agreed to as of the date first written above:
FPK, LLC
By: /s/ FRANK P. KRASOVEC
----------------------------------
Name: Frank P. Krasovec
Title:
<PAGE> 1
CONFIDENTIAL EXHIBIT 99(a)(7)
SUMMARY OF TERMS AND CONDITIONS(a)
Borrower: Norwood Promotional Products, Inc. ("Borrower").
Syndication Agent: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") will act as joint
lead arranger, syndication agent and documentation
agent (the "Syndication Agent").
Administrative Agent: NationsBank, N.A ("NationsBank" or the
"Administrative Agent").
Joint Lead Arrangers: Merrill Lynch and NationsBanc Montgomery Securities
LLC ("NMS") (together the "Joint Lead Arrangers").
Lenders: Merrill Lynch Capital Corporation, NationsBank and a
syndicate of lenders acceptable to Borrower and
Merrill Lynch (the "Lenders").
Credit Facilities: Senior secured credit facilities in an aggregate
principal amount of $100 million, such credit
facilities comprising:
(A) Term Loan Facilities. Term loan facilities in
an aggregate principal amount of $75 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 $35
million (the "Term Loan A Facility"), and (ii) a Term
Loan B Facility in an aggregate principal amount of
$40 million (the "Term Loan B Facility). Loans under
the Term Loan Facilities are herein referred to as
"Term Loans."
(B) Revolving Facility. Revolving credit facility
in an aggregate principal amount of $25 million (the
"Revolving Facility" and, together with the Term Loan
Facilities, the "Credit Facilities"; any such facility
is herein referred to as a "Facility").
- ------------------------
a Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the attached Commitment Letter (the
"Commitment Letter"). References herein to "$" or "US$" are to United
States Dollars. For all purposes of this Term Sheet, the
"subsidiaries" of Borrower shall be deemed to include those entities
that will become subsidiaries of Borrower.
<PAGE> 2
-2-
Loans under the Revolving Facility are herein referred
to as "Revolving Loans"; the Term Loans and the
Revolving Loans are herein referred to as "Loans". A
portion of the Revolving Facility to be mutually
determined will be available as a letter of credit
subfacility.
Documentation: Usual for facilities and transactions of this type and
reasonably acceptable to Borrower and the Joint Lead
Arrangers. 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"). Borrower and each of Borrower's
subsidiaries party to the Credit Documents are herein
referred to as the "Credit Parties".
Transaction/Purpose: FPK, LLC, a Delaware limited liability Company
("LLC") formed by Frank P. Krasovec intends to form a
new corporation ("Newco"). LLC has entered into a
merger agreement (the "Merger Agreement") with
Borrower to effect the recapitalization of Borrower
(the "Recapitalization"). Pursuant to the Merger
Agreement, (i) Newco will merge with and into Borrower
with Borrower as the survivor (the "Merger") and (ii)
after giving effect to the Merger and the transactions
contemplated thereby, the Buyout Group (as defined in
the Merger Agreement), Liberty Capital Partners, LP or
its affiliates (collectively, "Liberty") and certain
other third parties will own all of the capital stock
of Borrower.
Borrower will (i) raise gross cash proceeds of up to
$37 million from the issuance by Borrower of its
unsecured subordinated notes due six months after all
the Term Loans have been paid in full (the
"Subordinated Notes") arranged by Liberty on terms and
conditions and pursuant to documentation reasonably
satisfactory to Merrill Lynch, NationsBank and NMS in
their respective sole discretion (the "Subordinated
Financing"); (ii) raise gross cash proceeds of up to
$20 million from the issuance by Borrower of its pay-
in-kind preferred stock (the "PIK Preferred") to
Liberty on terms and conditions and pursuant to
documentation reasonably satisfactory to Merrill
Lynch, NationsBank and NMS in their respective sole
discretion (the "Preferred Stock Financing"); (iii)
raise gross cash proceeds of up to $3 million from the
issuance by Borrower of its common stock (the "Common
Stock") to Liberty on terms and conditions and
pursuant to documentation reasonably satisfactory to
Merrill Lynch, NationsBank and NMS in their respective
sole discretion (the "Common Stock Financing"); and
(iv)
<PAGE> 3
-3-
raise gross proceeds of at least $22 million provided
by the Buyout Group (including the amount provided by
the Buyout Group by converting their common stock,
valued at the Consideration (as defined in the Merger
Agreement) of $20.70 per share, into Common Stock of
Borrower) and certain other third parties previously
disclosed to Merrill Lynch, NationsBank and NMS.
Borrower will repay (the "Existing Debt Repayment")
all indebtedness, and terminate all commitments to
make extensions of credit, under its existing $125.0
million credit facility arranged by Merrill Lynch (the
"Existing Debt").
The Recapitalization, the Merger, the Subordinated
Financing, the Preferred Stock Financing, the Common
Stock Financing, 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".
Guarantors: Borrower's direct and indirect domestic subsidiaries
existing on the date of the first extension of credit
under the Credit Agreement (the "Closing Date") or
thereafter created or acquired shall unconditionally
guarantee, on a joint and several basis, all
obligations of Borrower under the Credit Facilities
and under each approved interest rate protection
agreement entered into with a Lender or an affiliate
thereof. Each such guarantor 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 or currency exchange agreement
entered into with a Lender or an affiliate thereof
will be secured by (i) a perfected first priority lien
on, and pledge of, all the capital stock and
intercompany debt of each of the direct and indirect
subsidiaries of 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 (ii) a perfected first priority lien on, and
security interest in, all of the tangible and
intangible properties and assets (including all real
property) of Borrower and its direct and indirect
domestic subsidiaries existing on the Closing Date or
thereafter created or acquired, except for those
properties and assets which the Syndication Agent
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
<PAGE> 4
-4-
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").
Final Maturity and
Amortization: (A) Term Loan Facilities. The Term Loan A Facility
will mature on the fifth anniversary of the Closing
Date. The Term Loan B Facility will mature on the
sixth anniversary of the Closing Date. Amounts
outstanding under the Term Loan Facilities will
amortize, beginning with the last business day of the
second full fiscal quarter after the Closing Date, on
a quarterly basis during each year as set forth below:
<TABLE>
<CAPTION>
Fiscal Term Loan Fiscal Term Loan
Year A Amount Year B Amount
------ ------------ ------ ------------
<S> <C> <C> <C>
1999 $ 3,000,000 1999 $ 400,000
2000 6,000,000 2000 400,000
2001 8,000,000 2001 400,000
2002 8,500,000 2002 400,000
2003 9,500,000 2003 400,000
------------
$ 35,000,000 2004 38,000,000
============ ------------
$ 40,000,000
============
</TABLE>
(B) Revolving Facility. The Revolving Facility will
mature on the fifth anniversary of the Closing Date
(the "Revolving Loan Maturity Date").
Availability: (A) Term Loan Facilities. The Term Loan Facilities
will be available solely on the Closing Date in a
single draw. 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 for working capital and general corporate
purposes in the form of revolving loans and letters of
credit on and after the Closing Date until 30 business
days prior to the Revolving Loan Maturity Date.
Amounts repaid under the Revolving Facility may be
reborrowed to the extent of the commitments then in
effect. At the Closing Date, not more than $10
million shall be drawn under the Revolving Facility to
consummate the Transactions.
Annual Cleandown: For a consecutive 30-day period during a quarter
acceptable to the Joint Lead Arrangers in their sole
discretion of each calendar year beginning in the
fiscal year beginning September 1, 1999, the sum of
the aggregate principal amount of
<PAGE> 5
-5-
Loans outstanding under the Revolving Facility plus
the face amount of all outstanding Letters of Credit
shall not exceed an amount acceptable to the Joint
Lead Arrangers in their sole discretion.
Letters of Credit: Letters of credit under the Revolving Facility
("Letters of Credit") will be issued by a Lender
jointly agreed upon by the Joint Lead Arrangers and
Borrower (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 or commercial
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. 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 on the same business day. To
the extent that Borrower does not reimburse the L/C
Lender on the same business day, the Lenders under the
Revolving Facility shall be irrevocably obligated to
reimburse the L/C Lender pro rata based upon their
respective Revolving Facility commitments, with the
amount of such reimbursement payment being deemed to
be a drawing under the Revolving Facility.
Letter of Credit Fees: Substantially consistent with the existing $125
million credit facility arranged by Merrill Lynch.
Interest Rates and
Commitment Fees: Interest rates in connection with the Credit
Facilities will be as specified on Annex I attached
hereto. Commitment fees will be payable on the unused
portion of the Revolving Facility as specified in
Annex I attached hereto.
Borrower will be entitled to make borrowings based on
the ABR or LIBOR (each as defined in Annex I hereto).
Borrower may select interest periods of one, two,
three or six months for LIBOR borrowings. Interest
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 LIBOR borrowings shall be calculated
on the basis of the actual number of days elapsed over
a 360-day year. Interest on all ABR borrowings shall
be calculated on the basis of the actual number of
days elapsed over a 365-day year.
<PAGE> 6
-6-
Default Rate: The applicable interest rate (including applicable
margin) plus 2.00% per annum.
Mandatory Prepayments/
Reductions in
Commitments: In addition to scheduled amortization, Borrower will
be required to reduce the Credit Facilities as
follows: (1) 75% of annual Excess Cash Flow (to be
defined) ; (2) 100% of the net cash proceeds of the
disposition of any assets in excess of $250,000
annually (in one transaction or a related series of
transactions to the extent the proceeds are not
reinvested in equipment of comparable value), other
than inventory in the ordinary course of business; (3)
100% of any net cash proceeds of any issuance of debt
subsequent to the Closing Date; and (4) 50% of the net
cash proceeds of any issuance of equity securities
subsequent to the Closing Date. Notwithstanding
clauses (3) and (4) of the foregoing do not apply with
respect to any new capital provided on terms and
conditions satisfactory to the Majority Lenders and
the Joint Lead Arrangers after the Closing Date to the
extent such new capital is simultaneously used to
effect the consummation of any acquisition made in
accordance with the Credit Agreement.
Mandatory prepayments under clauses (1) through (4)
above 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 the Term Loan Facilities
shall be applied (x) with respect to the Term Loan A
Facility, pro rata to the remaining scheduled
amortization payments thereunder, and (y) with respect
to the Term Loan B Facility, in inverse order of
maturity to the remaining amortization payments
thereunder. Notwithstanding the foregoing, any holder
of Term Loans under the Term Loan B Facility may, to
the extent that Term Loans are then outstanding under
the Term Loan A Facility, elect not to have mandatory
prepayments applied to such holder's Term Loans under
the Term Loan B Facility, in which case the aggregate
amount so declined shall be applied to the Term Loans
under the Term Loan A Facility pro rata. 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 exceeds the commitments then in
effect under the Revolving Facility. To the extent
that the amount to be
<PAGE> 7
-7-
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 against the remaining scheduled
amortization payments under the Term Loan Facilities.
(B) Revolving Facility: The unutilized portion of
the commitments under the Revolving Facility may be
reduced and Revolving Loans 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 and
Closing: The effectiveness of the Credit Documents and to the
making of the initial extensions of credit thereunder
(the "Closing") 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 be required by the Joint
Lead Arrangers (all such conditions to be satisfied in
a manner reasonably satisfactory in all respects to
the Joint Lead Arrangers and (to the extent specified
below) the Required Lenders), including, but not
limited to, execution and delivery of the Credit
Documents reasonably acceptable in form and substance
to the Lenders; delivery of borrowing certificates;
receipt of valid security interests as contemplated
hereby; accuracy of representations and warranties;
absence of defaults and material litigation; evidence
of authority; compliance with laws; and adequate
insurance and payment of fees.
The Closing will be subject to (but not limited to)
the following additional conditions:
(A) The delivery, on or prior to the Closing Date, of
(i) legal opinions addressed to the Lenders and the
Agents and in form and substance reasonably
satisfactory to the Joint Lead Arrangers, (ii)
officers' certificates, together with the accompanying
<PAGE> 8
-8-
charter documents and corporate resolutions, in form
and substance reasonably satisfactory to the Joint
Lead Arrangers, (iii) a certificate from the chief
financial officer of Borrower and, at Borrower's
expense, an opinion of a nationally recognized
appraisal firm or valuation consultant satisfactory to
the Joint Lead Arrangers in their sole discretion 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 Joint Lead Arrangers or the Required
Lenders.
(B) The Board of Directors of LLC and Borrower shall
have authorized and approved the Transactions and the
Joint Lead Arrangers shall have received satisfactory
evidence of the same. LLC and Borrower shall have
entered into the Merger Agreement, which shall be in
full force and effect. The terms, conditions and
structure of the Recapitalization 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 Joint Lead
Arrangers and the Required Lenders. The
Recapitalization 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 Joint Lead Arrangers
shall otherwise be reasonably satisfied that such
rights are null and void as applied to the
Recapitalization. The Joint Lead Arrangers and the
Lenders shall have received copies, certified by
Borrower, of all filings made with any governmental
authority in connection with the Recapitalization and
the other Transactions. The Recapitalization shall
have been consummated.
(C) LLC and Borrower shall have entered into the
Merger Agreement, which shall be in full force and
effect. The terms, conditions and structure of the
Recapitalization and the Merger Agreement, including
any amendments thereto (and the documentation
therefor), shall be in form and substance satisfactory
to the Joint Lead Arrangers and the Required Lenders
in their respective sole discretion. The
Recapitalization and the Existing Debt Repayment and
the financing therefor shall be in compliance with all
laws and regulations, or the Joint Lead Arrangers and
the Required Lenders shall have determined such to be
inapplicable to such transactions.
<PAGE> 9
-9-
(D) All conditions to the Recapitalization shall have
been satisfied, and not waived, amended, supplemented
or otherwise modified except with the consent of the
Joint Lead Arrangers and the Required Lenders in their
respective sole discretion, to the satisfaction of the
Joint Lead Arrangers and the Required Lenders. The
consideration per share of common stock in the
Recapitalization shall not exceed $20.70 per share and
an aggregate of $91 million for all shares (except as
the result of the valid exercise of appraisal rights
in accordance with Texas law), and the aggregate
number of shares of common stock of Borrower issued
and outstanding immediately prior to the consummation
of the Merger (the "Common Shares") owned by
Borrower's shareholders, if any, other than members of
the Buyout Group, who shall have exercised or given
notice of their intent to exercise the rights of
dissenting shareholders under the Texas Business
Corporation Act shall be less than ten percent (10%)
of the total number of outstanding Common Shares. The
Joint Lead Arrangers shall be satisfied with the
amount and the terms and conditions of all management
rollover of their equity in Borrower in connection
with the Recapitalization. The Joint Lead Arrangers
shall have received satisfactory evidence that fees
and expenses in connection with the Transactions will
not exceed $9.0 million. Immediately after the
consummation of the transactions, The Joint Lead
Arrangers will be satisfied with the direct and
indirect capital ownership of the surviving
corporation.
(E) Borrower shall have received aggregate gross
proceeds arranged by Liberty of at least $37 million
from the Subordinated Financing pursuant to
agreements, and terms and conditions thereunder, in
form and substance reasonably satisfactory to the
Joint Lead Arrangers and the Required Lenders.
Borrower shall have received aggregate gross proceeds
of at least $20 million from the Preferred Stock
Financing pursuant to agreements, and terms and
conditions thereunder, in form and substance
reasonably satisfactory to the Joint Lead Arrangers
and Required Lenders. Borrower shall have received
aggregate gross proceeds of at least $3 million from
the Common Stock Financing pursuant to agreements, and
terms and conditions thereunder, in form and substance
reasonably satisfactory to the Joint Lead Arrangers
and the Required Lenders. Borrower shall have
received aggregate gross proceeds of at least $22
million from the Buyout Group and certain other third
parties previously disclosed to Merrill Lynch,
NationsBank and NMS.
<PAGE> 10
-10-
(F) Each of the Transactions (other than extensions
of credit under the Credit Facilities) 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 Joint Lead Arrangers and
the Required Lenders in their respective reasonable
discretion) that are in form and substance
satisfactory to the Joint Lead Arrangers and the
Required Lenders in their respective reasonable
discretion.
(G) 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
Joint Lead Arrangers and the Required Lenders in their
respective reasonable discretion) and all lending
commitments thereunder terminated to the satisfaction
of the Joint Lead Arrangers and the Required Lenders
in their respective sole discretion with all security
interests in favor of existing lenders being
unconditionally released, and reasonably satisfactory
evidence thereof shall have been provided in writing.
The Joint Lead Arrangers shall have received a
"pay-off" letter with respect to all such debt repaid.
(H) 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 adverse
conditions) and all such approvals and consents shall
be in full force and effect (or there shall be a plan
satisfactory to the Joint Lead Arrangers and the
Required Lenders in their respective sole discretion
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.
(I) Since the date of the last audited financial
statements of Borrower delivered to the Lenders prior
to the date of the Commitment Letter, there shall not
have occurred or become known (i) in the reasonable
judgment of the Required Lenders any material adverse
change or any condition or event that in the sole
judgment of the Lenders could 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") of Borrower and its
subsidiaries taken as a whole (both before and after
giving effect to the Transactions), (ii) any
transaction
<PAGE> 11
-11-
(other than the Transactions) entered into by Borrower
or any of its subsidiaries, whether or not in the
ordinary course of business, that, in the sole
judgment of the Joint Lead Arrangers or the Required
Lenders, is material to Borrower and its subsidiaries
taken as a whole (after giving effect to the
Transactions), or (iii) any dividend or distribution
of any kind declared or paid by Borrower on its
capital stock.
(J) 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 that could in the sole judgment of the
Joint Lead Arrangers and the Required Lenders
restrain, prevent or impose burdensome conditions on
the Transactions, individually or in the aggregate, or
any other transaction contemplated hereunder or (ii)
seeking to obtain, or having resulted in the entry of,
any judgment, order or injunction that (a) would
restrain, prohibit or impose adverse conditions on the
ability of the Lenders to make the Loans under the
Credit Facilities, (b) in the sole judgment of the
Joint Lead Arrangers and Required Lenders could be
expected to result in a Material Adverse Change with
respect to Borrower and its subsidiaries taken as a
whole (both before and after giving effect to the
Transactions), (c) could purport to affect the
legality, validity or enforceability of any Credit
Document or any documents relating thereto or could
have a material adverse effect on the ability of any
Credit Party to fully and timely perform its
obligations under the Credit Documents or the rights
and remedies of the Lenders, (d) would be materially
inconsistent with the stated assumptions underlying
the projections provided to the Joint Lead Arrangers
and the Lenders, or (e) seeks any material damages as
a result thereof.
(K) Any defaults in any material agreements of
Borrower or any of its subsidiaries that may result
from the Transactions shall have been resolved or
otherwise addressed in a manner satisfactory to the
Joint Lead Arrangers and the Required Lenders in their
respective reasonable discretion; and no law or
regulation shall be applicable that restrains,
prevents or imposes materially adverse conditions upon
any component of the Transactions or the financing
thereof, including the extensions of credit under the
Credit Facilities.
(L) The Joint Lead Arrangers and the Required Lenders
shall be satisfied (in their reasonable judgment) with
the actual capitalization (including with respect to
indebtedness and
<PAGE> 12
-12-
capital stock) and corporate and organizational
structure of Borrower and its 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 Borrower and its
subsidiaries and as to all other matters relating to
their financial and operating condition. Immediately
after giving effect to the Transactions, Borrower and
its subsidiaries shall have no debt or preferred stock
(or direct or indirect guarantee in respect thereof)
outstanding other than the Credit Facilities, the
Subordinated Notes, the Preferred Stock Financing and
certain other debt, including capitalized leases,
seller notes and non-competes to remain outstanding,
in an amount and on terms and conditions and pursuant
to documentation acceptable to the Joint Lead
Arrangers and NationsBank, and the Joint Lead
Arrangers and the Required Lenders shall be satisfied
with all other liabilities (contingent or otherwise)
of Borrower and its subsidiaries.
(M) The Joint Lead Arrangers and the Required Lenders
shall be satisfied (in their respective reasonable
judgment) with the terms and provisions of all
material agreements of Borrower and its subsidiaries.
(N) All other documentation and agreements related to
the Transactions or which, in the sole judgment of the
Joint Lead Arrangers and the Required Lenders, affects
the extension of credit under the Credit Facilities in
any respect shall be in form and substance
satisfactory to the Joint Lead Arrangers and the
Required Lenders in their respective sole judgment.
(O) All loans and other financing to Borrower shall
be in full compliance with all applicable requirements
of Regulations T, U and X of the Board of Governors of
the Federal Reserve System.
(P) All accrued fees and expenses of the Lenders, the
Joint Lead Arrangers and the Administrative Agent
(including the reasonable fees and expenses of counsel
to the Lenders, the Joint Lead Arrangers and the
Administrative Agent) in connection with the Credit
Documents shall have been paid in cash in full.
(Q) The Joint Lead Arrangers and the Lenders shall
have received third-party environmental reports
(including Phase 1 reports) of Borrower and its
subsidiaries from an environmental engineering firm
acceptable to the Joint Lead Arrangers in their sole
discretion and the results thereof shall be
satisfactory to the Joint Lead Arrangers and the
Required
<PAGE> 13
-13-
Lenders in their respective sole discretion.
Insurance relating to Borrower and its subsidiaries
will be in place on and after the Closing Date from
insurance companies satisfactory to the Joint Lead
Arrangers and the Required Lenders in their respective
sole discretion and the terms thereof shall be
reasonably satisfactory to the Joint Lead Arrangers
and the Required Lenders in their respective sole
judgment.
(R) The Lenders shall have received a pro forma
balance sheet of Borrower and its subsidiaries as at
the Closing Date and after giving effect to the
Transactions and the financing contemplated hereby,
which pro forma balance sheet shall be substantially
in conformity with that delivered to the Lenders
during syndication and satisfactory to the Joint Lead
Arrangers and the Required Lenders in their respective
sole judgment. The Lenders shall have received
projected cash flows and income statements for the
period of six years following the Closing Date, which
projections shall be (i) based upon reasonable
assumptions made in good faith, (ii) satisfactory to
the Lenders in their sole discretion 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 fiscal years 1992 through
1997 and (ii) unaudited interim combined financial
statements of Borrower for each fiscal month and
quarterly period ended subsequent to August 31, 1997
as to which such financial statements are available,
and such financial statements shall not, in the sole
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.
(S) The Lenders shall have received a business plan
or budget for Borrower and its subsidiaries after
giving effect to the Transactions for fiscal years
1998 and 1999 satisfactory to the Joint Lead Arrangers
in their sole discretion.
(T) 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
Borrower and its 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.
(U) On and as of the Closing Date, after giving
effect to the Transactions, the ratio of Borrower's
pro forma consolidated total debt to pro forma
trailing four quarter EBITDA shall not
<PAGE> 14
-14-
be greater than 5.0:1.0, and the Joint Lead Arrangers
shall have received an officers' certificate as to the
same satisfactory to the Joint Lead Arrangers in their
sole discretion (including satisfactory schedules and
other supporting data).
(V) The Joint Lead Arrangers and the Required Lenders
shall be satisfied with the employment (as well as
employment agreements, if any) of senior management of
Borrower after the Recapitalization.
(W) The Lenders shall have received such other legal
opinions, corporate documents and other instruments
and/or certificates as the Joint Lead Arrangers or the
Required Lenders may request in their reasonable
discretion.
Conditions to All
Extensions of Credit:
Each extension of credit under the Credit Facilities
will be subject to the (i) absence of any Default or
Event of Default, (ii) continued accuracy of
representations and warranties (except representations
and warranties which are made only as of a prior
date), and (iii) absence of any Material Adverse
Change and no material adverse effect upon the
respective abilities of the Credit Parties to perform
their obligations under the Credit Documents.
Representations and
Warranties:
Customary for facilities similar to the Credit
Facilities and such additional representations and
warranties as may be required by the Joint Lead
Arrangers in their sole discretion, 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
Joint Lead Arrangers 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
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 Joint Lead Arrangers, including, but
not limited to, maintenance of corporate
<PAGE> 15
-15-
existence and rights; compliance with 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 (including consolidating
financial statements), financial projections and
compliance certificates; ERISA compliance;
environmental compliance; and further assurances.
Negative Covenants: Customary for facilities similar to the Credit
Facilities and such others as may be reasonably
required by the Joint Lead Arrangers, 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 documents relating to other
indebtedness and other material documents; limitation
on creation of subsidiaries; limitation on designated
senior debt under the Subordinated Financing; and
limitation on prepayment or repurchase of other
indebtedness.
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 Joint Lead 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, maximum total debt to trailing four quarter
EBITDA, and maximum senior 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.
<PAGE> 16
-16-
Events of Default: Customary for facilities similar to the Credit
Facilities and others to be specified by the Joint
Lead Arrangers, 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);
bankruptcy and insolvency events; material judgments;
ERISA events; change of control under any other
indebtedness; and actual or asserted (by Borrower or
any affiliate) invalidity of loan documents or
security interests.
Yield Protection and
Increased Costs: Usual for facilities and transactions of this type,
including, but not limited to, in respect of
prepayments (which will include 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), changes
in capital requirements, guidelines or policies or
their interpretation or application, illegality,
change in circumstances, reserves and other provisions
deemed necessary by the Joint Lead Arrangers or the
other Lenders to provide customary protection for U.S.
and non-U.S. Lenders.
Assignments and
Participations: No Credit Party may assign its rights or obligations
in connection with the Credit Facilities without the
prior written consent of all 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 $5 million (unless Borrower and
the Administrative Agent otherwise consents or unless
the assigning Lender's exposure is reduced to $0).
Assignments 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 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
subject to customary limitations. In the case of the
Revolving Facility,
<PAGE> 17
-17-
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 and or any of its affiliates are
prohibited without consent of all of the Lenders.
Voting: Lenders holding at least a majority of the extensions
of credit and commitments under the Credit Agreement
(the "Required Lenders").
Expenses and
Indemnification: In addition to those out-of-pocket expenses
reimbursable under the Commitment Letter, all
out-of-pocket expenses of the Joint Lead Arrangers 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 Joint Lead Arrangers and the
Administrative Agent) are to be paid by Borrower.
Borrower will indemnify each of the Joint Lead
Arrangers, 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 Joint Lead Arrangers, 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 Joint Lead Arrangers, the Administrative
Agent or any such other Lender will be indemnified for
any cost, expense or liability to the extent
determined by a court of competent jurisdiction in a
final and nonappealable judgment to have 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 Joint Lead
Arrangers: Cahill Gordon & Reindel.
<PAGE> 18
ANNEX I
Interest Rates and Fees: Borrower will be entitled to make borrowings at
either LIBOR or ABR, plus (A) with respect to LIBOR
Loans, (i) in the case of Loans under the Revolving
Facility, 2.75% per annum; (ii) in the case of Loans
under the Term Loan A Facility, 2.75% per annum and
(iii) in the case of Loans under the Term Loan B
Facility, 3.25% per annum; and (B) with respect to ABR
Loans, (i) in the case of Loans under the Revolving
Facility, 1.75% per annum; (ii) in the case of Loans
under the Term Loan A Facility, 1.75% per annum; and
(iii) in the case of Loans under the Term Loan B
Facility, 2.25% per annum. A pricing grid governing
such rates showing stepups/ stepdowns in such rates
beginning after 12 months after the Closing Date shall
be negotiated based upon improved credit measures.
"ABR" means the higher of (i) the corporate base rate
of interest announced by the Administrative Agent from
time to time, changing when and as said corporate base
rate changes, and (ii) the Federal Funds Rate plus
0.50% per annum. 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.
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 360-day year.
<PAGE> 1
EXHIBIT 99.(a)(8)
September 8, 1998
Mr. Frank Krasovec, President
FPK, LLC
c/o Norwood Promotional Products, Inc.
106 E. Sixth Street, Suite 300
Auston, TX 78701
Dear Frank:
Liberty Capital Partners, Inc. ("Liberty") proposes to make $60 MILLION of
financing available to a new corporation,"FPK, LLC", formed by the senior
management (the "Management") of Norwood Promotional Products, Inc. (the
"Company") for the purpose of acquiring the Company pursuant to the terms and
conditions set forth in the Merger Agreement dated March 15, 1998 between the
Company and FPK, LLC. The financing proposed herein (the "Proposed Transaction")
will consist of $37 million of senior subordinated debt (the "Subordinated
Debt"), $20 million of preferred stock (the "Preferred Stock"), and $3 million
of common stock (the "Common Stock"). The anticipated sources and uses of funds
required to consummate the Proposed Transaction, as well as the equity ownership
of the Company after closing, is set forth in Exhibit A attached hereto. This
letter sets forth the basic terms and conditions of our proposal.
1) Subordinated Debt. Liberty will provide $37 MILLION of the financing in
the form of the Subordinated Debt. The Subordinated Debt will (i)
accrue interest at a rate of 12.5% per annum, payable quarterly, (ii)
be pre-payable at any time without the payment of any premium or
penalty, (iii) be issued with detachable warrants (the "Subordinated
Debt Warrants"), exercisable for $.01/share, for 20% of the common
equity of the Company on a fully diluted basis; provided that if the
Subordinated Debt is repaid in full prior to the third anniversary of
the closing date of the Proposed Transaction (the "Closing Date"), 50%
of the Subordinated Debt Warrants shall be canceled without
consideration. Scheduled principal payments on the Subordinated Debt
shall commence after the tenth anniversary of the Closing Date, or upon
the first quarter after the Senior Term Debt has been repaid in full.
Liberty will receive a fee on the Closing Date equal to 3% of the face
amount of the Subordinated Debt ($1,110,000).
2) Preferred Stock. Liberty will provide $20 MILLION of financing in the
form of the Preferred Stock. The Preferred Stock will (i) accrue a
dividend at a rate of 10% per
<PAGE> 2
Mr. Frank Krasovec, President
FPK, LLC
Page 2
annum, compounded quarterly (the "Dividend Rate"), from and after the
Closing Date to the date of redemption, (ii) be redeemable at any time
without the payment of any premium or penalty, (iii) be manditorily
redeemable on the earlier of (a) the tenth anniversary of the Closing
Date, (b) a change in control, or (c) a default of the terms of the
Preferred Stock, and (iv) be issued with detachable warrants (the
"Preferred Stock Warrants"), exercisable for $.01/share, for 15% of the
common equity of the Company on a fully diluted basis. The Company may
pay the accrued dividend on the Preferred Stock currently or may elect
to allow such dividend to be payment-in-kind until the fifth
anniversary of the Closing Date. Any dividends not paid currently shall
accrue dividends thereon at the Dividend Rate. The Company may elect to
convert the Preferred Stock into subordinated debt with substantially
the same terms and conditions of the Preferred Stock.
3) Common Stock. Liberty will provide $3 MILLION of financing in the form
of the Common Stock. The Common Stock shall be purchased on the same
terms and conditions as retained by the Management, including the
execution of a shareholders' agreement which shall be mutually
agreeable between the parties hereto.
4) Warrants for Common Stock. Each of the Subordinated Debt Warrants and
the Preferred Stock Warrants (collectively, the "Warrants") will
entitle the holder to purchase one share of common stock of the Company
at a price of $.01 per share, subject to adjustment pursuant to
customary anti-dilution provisions, and will expire on the tenth
anniversary of the Closing Date.
5) Conditions to Proposed Transaction. The Proposed Transaction will be
subject to the negotiation, execution and delivery of definitive
agreements effectuating the terms of the transactions described herein
in form and substance reasonably satisfactory to Liberty, the Company
and FPK, LLC (the "Definitive Agreements"). Liberty' obligations under
the Definitive Agreements will be conditioned upon customary closing
conditions, including: (i) satisfactory completion of Liberty'
business, accounting, and legal due diligence review of the Company;
(ii) retention of management on terms and conditions reasonably
satisfactory to Liberty; and (iii) absence of a material adverse change
in the business, assets, condition (financial or otherwise), of the
Company.
6) Board Composition. Liberty shall be entitled to have two persons
nominated and elected to the board of the Company and each of its
subsidiaries (the "Board"). Each such member shall be paid customary
board fees.
7) Registration Rights. Liberty shall have two long form demand
registration rights plus an unlimited number of piggyback registration
rights (subject to customary limitations for underwriting, disclosure
and offering reasons) with regard to all common stock and common stock
equivalents.
8) Expenses. FPK, LLC shall pay or reimburse Liberty for all reasonable
out-of-pocket expenses incurred in connection with the Proposed
Transaction, whether or not the Proposed Transaction is consummated.
<PAGE> 3
Mr. Frank Krasovec, President
FPK, LLC
Page 3
9) Access. FPK, LLC shall cause the Company to provide Liberty's
accounting, legal, and other representatives access at reasonable times
to the Company's and its subsidiaries' personnel familiar with the
business of the Company and its subsidiaries and to all items related
to the Company's and its subsidiaries' assets, personnel and affairs
which are reasonably necessary to perform additional due diligence.
10) Confidentiality. Without Liberty' prior written consent, none of FPK,
LLC, Frank Krasovec or the Company shall (whether directly or through
any employees, agents, representatives and advisors) disclose to any
person (other than any regulatory or supervisory authority or as
otherwise required by law) either the fact that discussions or
negotiations are taking place concerning the Proposed Transaction, or
any terms, conditions or other facts with respect to the Proposed
Transaction, including the timing or status thereof. All press releases
and other public announcements prior to the Closing Date relating to
the Proposed Transaction will be prepared jointly by Liberty, the
Management and the Company. The term "person" as used in this agreement
shall be broadly interpreted to include, without limitation, any
corporation, partnership, or individual (but excluding any regulatory
or supervisory authority).
11) Indemnification. FPK, LLC agrees to indemnify and hold harmless Liberty
and its affiliates and their respective directors, officers, employees
and agents (the "Indemnified Parties") from and against any and all
losses, claims, charges and liabilities, joint or several, related to
or arising out of any matters contemplated by this letter (including
any arising out of the negligence of any Indemnified Party), unless and
only to the extent that it shall be finally judicially determined that
such losses, claims, damages or liabilities resulted primarily from the
gross negligence or willful misconduct of such Indemnified Party. If
Liberty becomes involved in any capacity in any action, suit proceeding
or investigation in connection with any matter contemplated by this
letter, FPK, LLC shall reimburse Liberty for its reasonable legal and
other expenses (including the cost of any investigation and preparation
as they are incurred by Liberty). In the event of any dispute arising
out of or based upon this letter or the transactions contemplated
hereby, FPK, LLC will waive any right it may have to trial by jury.
12) Governing Law; Binding Effect; Counterparts. This letter agreement
shall be governed by the laws of the State of New York. This letter
agreement is not intended to be a binding agreement between the parties
hereto but only an expression of their mutual intent and understanding,
except for the provisions of paragraphs 8 through 12, inclusive, which
shall be binding upon and inure to the benefit of the parties hereto,
their respective successors and permitted assigns. This letter
agreement may be executed in two or more counterparts, all of which
taken together will constitute one binding agreement.
If you are in agreement with the terms hereof, please evidence such agreement by
signing and returning one copy hereof to me at the letterhead address above.
This letter will expire at 5:00 p.m., Eastern Standard Time on Wednesday,
September 9, 1998 if Liberty have not received, at or prior to such time, a copy
of this letter signed by FPK, LLC and Frank Krasovec. Should you, or any of your
advisors have any questions or need additional information, please feel free to
call any of us at Liberty (212) 354-7676. We look forward to working with you on
this transaction.
<PAGE> 4
Mr. Frank Krasovec, President
FPK, LLC
Page 4
Best regards,
LIBERTY CAPITAL PARTNERS, INC.
By /s/ PETER E. BENNETT
----------------------------------
Peter E. Bennett
Its President
Acknowledged and Agreed
this ___ day of September 1998
FPK, LLC
By /s/ FRANK P. KRASOVEC
-------------------------------
Its
------------------------------
By /s/ FRANK P. KRASOVEC
-------------------------------
FRANK KRASOVEC
<PAGE> 5
EXHIBIT A
NORWOOD PROMOTIONAL PRODUCTS, INC.
<TABLE>
<CAPTION>
SOURCES OF FINANCING
- --------------------
(a) (b)
FULLY FULLY
DILUTED DILUTED
TOTAL PREFERRED OWNERSHIP OWNERSHIP TOTAL
FINANCING RATE SOURCES DOLLARS PERCENTAGE AT CLOSING LIBERTY
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Senior Term Loan 8.50% $ 75,000
Senior Revolving Loan 8.50% $ 10,000
Senior Subordinated Loan 12.50% $ 37,000 10.00% 20.00% $37,000
Preferred Stock 10.00% $ 20,000 16.88% 15.00% $20,000
Common Stock
Management $ 20,334 $ 0 38.47% 34.19%
D. Tully $ 4,000 $ 0 7.57% 6.73%
Other Investors $ 0 $ 0 0.00% 0.00%
Warrants & Options
Outstanding $ 0 $ 0 21.42% 19.04%
Option Pool $ 0 $ 0 0.00% 0.00%
Liberty Partners $ 3,000 $20,000 5.68% 5.04% $ 3,000
-------- ------- ------ ------ -------
TOTAL $169,334 $20,000 100.00% 100.00% $60,000
Liberty % 32.55% 40.04%
</TABLE>
(a) Assumes Subordinated Debt repaid within three years
(b) Assumes Subordinated Debt is not repaid within three years
<TABLE>
<CAPTION>
USE OF FUNDS
- --------------------
<S> <C>
Purchase Price $ 88,600
Retire Existing Debt $ 43,500
Retained Equity $ 20,400
Fees & Expenses $ 9,000
Working Capital $ 7,834
--------
Total Uses of Funds $169,334
</TABLE>
<PAGE> 1
EXHIBIT 99.(d)(5)
--------------------------------------------
NORWOOD PROMOTIONAL PRODUCTS, INC.
106 EAST SIXTH STREET, SUITE 300
AUSTIN, TX 78701
NOTICE DATED OCTOBER 20, 1998
--------------------------------------------
TO OUR SHAREHOLDERS:
This Notice to Shareholders is being delivered in connection with the
proposed merger ("Merger") between Norwood Promotional Products, Inc. (the
"Company") and a wholly-owned subsidiary of FPK, LLC ("LLC"), a limited
liability company formed by Frank P. Krasovec ("Krasovec"), the Company's
Chairman and Chief Executive Officer, which was described in the Company's Proxy
Materials dated July 22, 1998. Except as expressly set forth herein, this Notice
is qualified in its entirety by the information contained in the Proxy
Materials. Unless otherwise set forth herein, all capitalized terms used herein
shall have the respective meanings ascribed to them in the Proxy Materials.
This Notice to Shareholders is for your information, and no action is
required of shareholders at this time in connection with the Merger. PLEASE DO
NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. AS SOON AS PRACTICABLE
FOLLOWING THE EFFECTIVE TIME OF THE MERGER, YOU WILL BE SENT INSTRUCTIONS
REGARDING THE PROCEDURES TO EXCHANGE YOUR EXISTING CERTIFICATES EVIDENCING
COMMON STOCK OF THE COMPANY FOR THE MERGER CONSIDERATION.
Recent Developments
The Company's shareholders approved and adopted the agreement and plan
of merger (the "Merger Agreement") between the Company and LLC at a special
meeting of shareholders held on August 19, 1998. Under the Merger Agreement, a
wholly-owned subsidiary of LLC ("Newco") will merge with and into the Company.
At the effective time of the merger, each share of the Company's common stock
(other than shares retained by members of the Buyout Group) will be converted
into $20.70 in cash. The Merger will become effective approximately one business
day after the satisfaction or waiver of the remaining conditions to the Merger
set forth in the Merger Agreement, including the consummation of the financing
for the transaction. At the special shareholders meeting, shareholders also
adopted amendments to the Company's articles of incorporation changing the par
value of its common stock from no par to $0.01 per share and authorizing the
Board of Directors of the Company to establish and issue one or more series of
preferred stock.
In late August 1998, the investment bankers for LLC advised it that due
to a change in high yield debt market conditions, the placement of $100 million
principal amount of senior subordinated notes could not be effected at such
time. The senior subordinated notes constituted a portion of the financing which
was a condition to the Merger Agreement.
In September 1998, in order to fund the Merger, Liberty Capital
Partners, Inc. (together with its affiliates and advisory clients, "Liberty")
delivered a letter of intent to LLC to provide $37 million in subordinated
debt, $20
<PAGE> 2
million in preferred stock and $3 million in common stock, and Merrill Lynch &
Co. and NationsBank, N.A. delivered a commitment letter to LLC to provide a $25
million revolving credit facility and $75 million in term credit facilities.
This financing replaces the financing which had been previously arranged for the
Merger. The financing is subject to, among other things, completion of due
diligence and the negotiation of satisfactory documentation. In order to provide
LLC with sufficient time to complete the financing, the Company agreed to extend
the date after which it may terminate the Merger Agreement without cause to
October 31, 1998.
As a result of the new financing, the expected sources and uses of
funds to consummate the Merger previously described in the Company's Proxy
Statement dated July 22, 1998 has changed. The Company expects the sources and
uses to be as follows:
Estimated Fees and Expenses; Sources of Funds
Estimated fees and expenses incurred or to be incurred by the Company,
LLC, Newco and the members of the Buyout Group in connection with the Merger
Agreement and the transactions contemplated thereby are approximately as
follows:
<TABLE>
<S> <C>
Payment of Merger Consideration(1)............................................................ $88,900,000
Financial advisory fees, financing commitment fees and expenses(2)............................ 7,100,000
Legal fees and expenses(3).................................................................... 1,550,000
Accounting and appraisal fees and expenses.................................................... 150,000
SEC filing fees............................................................................... 16,800
Printing and mailing expenses................................................................. 75,000
Paying Agent fees and expenses ............................................................... 1,500
Miscellaneous expenses ....................................................................... 106,700
-----------
TOTAL.......................................................................... $97,900,000
</TABLE>
- -----------------------
(1) Includes payment for all outstanding shares of Common Stock other than
those retained by members of the Buyout Group.
(2) Includes the fees and estimated expenses of J.C. Bradford, Merrill
Lynch, Allen & Company Incorporated, Ares and Liberty.
(3) Includes the estimated fees and expenses of legal counsel for the
Special Committee, for the Company, for J.C. Bradford, for Krasovec and
the members of the Buyout Group, for Merrill Lynch, for Ares and for
Liberty.
The total funds required to pay the Merger Consideration of $20.70 per
share to all Public Shareholders, consummate the other transactions contemplated
by the Merger, refinance certain of the Company's current indebtedness and pay
all related fees, costs and expenses is estimated to be approximately $138.7
million, which amount will be obtained by means of certain equity contributions
and borrowings as described below. Except as otherwise stated below, all of such
equity contributions will become effective at the Effective Time, and all of
such borrowings will become available immediately subsequent to the Effective
Time upon satisfaction of the conditions in the loan documents. None of the
equity contributions or borrowings will become effective or available if the
Merger is not consummated for any reason. The terms of and the documentation for
the intended borrowings have not yet been finalized and are still being
negotiated. Accordingly, the description below of such borrowings is preliminary
and not necessarily complete. In any event, the final documentation for such
borrowings might contain terms and conditions that are more or less restrictive
than currently contemplated.
The total financing for the Merger and related costs and expenses,
including $20.3 million in roll-over equity provided by members of the Buyout
Group, will be approximately $159.0 million, of which
<PAGE> 3
approximately $88.9 million will be required to pay the Merger Consideration to
the Public Shareholders, approximately $40.8 million will be incurred to
refinance certain of the Company's current indebtedness, and approximately $9.0
million will be incurred to pay all expenses of the Company, LLC, Newco and the
members of the Buyout Group in connection with the Merger and the transactions
contemplated thereby. Such funds will be furnished from (i) the Equity
Financing of approximately $46.8 million, consisting of (A) approximately $20.3
million to be provided by the Buyout Group, (B) $3.5 million from the issuance
of Common Stock to an Additional Common Shareholder, (C) $3 million from the
issuance of Common Stock to Liberty and (D) $20 million from the issuance of
Preferred Stock to Liberty, (ii) the $100 million Credit Facilities to be
provided by Merrill Lynch, NationsBank and NMS, consisting of (A) a $75 million
senior secured term loan which will be fully drawn at the Effective Time and
(B) a $25 million senior secured revolving credit facility, of which no more
than approximately $0.2 million will be drawn at the Effective Time, and (iii)
$37 million from the issuance to Liberty of subordinated debt at the Effective
Time. The Company anticipates funding its working capital needs after the
Merger from the senior secured revolving credit facility and from cash flow
generated from operations.
Equity Financing. At the Effective Time, the Equity Financing of
approximately $46.8 million will consist of (A) approximately $20.3 to be
provided by the Buyout Group, (B) $3.5 million from the issuance of Common Stock
to an Additional common Shareholder, (C) $3.0 million from the issuance of
Common Stock to Liberty and (D) $20 million from the issuance of Preferred Stock
to Liberty, as described below:
Common Stock. Of the Equity Financing, (i) approximately $20.3
million will be provided by the members of the Buyout Group, by converting
their Common Stock (valued at the Merger Consideration of $20.70 per share)
into common stock of the Surviving Corporation, (ii) approximately $3.5 million
will be provided through the issuance of new shares of common stock to an
Additional Common Shareholder, and (iii) $3 million will be provided through
the issuance of new shares of Common Stock to Liberty. An employee of Merrill
Lynch is a member of a limited liability company that is anticipated to be an
Additional Common Shareholder. Certain members of the Buyout Group may sell
certain of their shares which they retain under the Merger Agreement
immediately upon consummation of the Merger to Additional Common Shareholders,
which shareholders may include members of the Buyout Group. Michael Linderman,
the Company's former Executive Vice President-Corporate Development, is no
longer a member of the Buyout Group.
Preferred Stock. At the Effective Time, the Surviving
Corporation will issue to Liberty (i) 20,000 shares of the Surviving
Corporation's Preferred Stock with a liquidation preference ("Liquidation
Preference") of $1,000 per share and (ii) warrants to purchase shares of common
stock, for $0.01 per share, representing 15% of the fully diluted common stock
of the Surviving Corporation (the "Preferred Stock Warrants"). The Preferred
Stock will have an annual dividend rate of 10% (the "Dividend Rate"), will have
no voting rights, other than as required by law, and will be ranked senior in
liquidation and payment of dividends to all other classes of capital stock of
the Surviving Corporation, now outstanding or hereafter issued. For the first
five years after issuance, dividends will be payable, at the Surviving
Corporation's option, in additional shares of Preferred Stock or cash.
Thereafter, dividends will be payable in cash. All dividends will accumulate and
will be payable (whether in cash or Preferred Stock) quarterly, in arrears.
Dividends will accumulate on all unpaid dividends at the applicable annual
Dividend Rate.
The Preferred Stock will be redeemable, in whole or in part, at the
option of the Surviving Corporation at any time. The Preferred Stock will be
required to be redeemed on the earlier of the tenth anniversary of the Effective
Date, upon a change in control of the Company or upon a default. Under certain
<PAGE> 4
conditions, the Surviving Corporation will have the option to exchange the
Preferred Stock at any time for subordinated notes that will have substantially
the same terms as the Preferred Stock.
Credit Facilities. At the Effective Time, Merrill Lynch, NationsBank
and certain other lenders (collectively, the "Lenders") will make available to
the Surviving Corporation senior secured credit facilities in an aggregate
principal amount of $100 million, such Credit Facilities comprising:
Term Loan Facilities. The Lenders will make available term
loan facilities in an aggregate principal amount of $75 million (the "Term Loan
Facilities") comprised of a $35 million Term Loan "A" Facility and a $40 million
Term Loan "B" Facility. The Term Loan A Facility will mature on the fifth
anniversary of the Effective Time. The Term Loan B Facility will mature on the
sixth anniversary of the Effective Time. Amounts outstanding under the Term Loan
Facilities will amortize, beginning with the last business day of the first full
fiscal quarter after the Effective Time, on a quarterly basis during each year
as set forth below:
<TABLE>
<CAPTION>
Fiscal Term Loan A Term Loan B
Year Amount Amount
- ------ ----------- -----------
<S> <C> <C>
1999 $ 3,000,000 $ 400,000
2000 6,000,000 400,000
2001 8,000,000 400,000
2002 8,500,000 400,000
2003 9,500,000 400,000
2004 -- $38,000,000
----------- -----------
$35,000,000 $40,000,000
=========== ===========
</TABLE>
The Term Loan Facilities will be available solely on the Effective Time
in a single draw. Amounts borrowed under the Term Loan Facilities that are
repaid or prepaid may not be reborrowed. Borrowings under the Term Loan
Facilities may be prepaid at any time in whole or in part at the option of the
Surviving Corporation, 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 against the remaining scheduled amortization payments under the Term
Loan A Facility and Term Loan B Facility.
Revolving Facility. The Lenders will make available a
revolving credit facility in an aggregate principal amount of $25 million (the
"Revolving Facility"). The Revolving Facility will mature on the fifth
anniversary of the Effective Time (the "Revolving Facility Maturity Date"). The
Revolving Facility will be available for working capital and general corporate
purposes in the form of revolving loans and letters of credit ("Letters of
Credit") on and after the Effective Time until 30 business days prior to the
Revolving Facility Maturity Date. Amounts repaid under the Revolving Facility
may be reborrowed to the extent of the commitments then in effect. At the
Effective Time, not more than approximately $0.2 million shall be drawn under
the Revolving Facility to consummate the Merger. The unutilized portion of the
commitments under the Revolving Facility may be reduced and Revolving Loans may
be repaid at any time, in each case, at
<PAGE> 5
the option of the Surviving Corporation, 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).
The Credit Facilities will be secured by (i) a perfected first priority
lien on, and pledge of, all the capital stock and intercompany debt of each of
the direct and indirect subsidiaries of the Surviving Corporation existing at
the Effective Time 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 (ii) a perfected first
priority lien on, and security interest in, all of the tangible and intangible
properties and assets (including all real property) of the Surviving Corporation
and its direct and indirect domestic subsidiaries existing at the Effective Time
or thereafter created or acquired, except for those properties and assets which
the Syndication Agent 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 Surviving Corporation will be entitled to make borrowings at either
LIBOR or ABR, plus (A) with respect to LIBOR Loans, (i) in the case of loans
under the Revolving Facility, 2.75% per annum; (ii) in the case of loans under
the Term Loan A Facility, 2.75% per annum and (iii) in the case of loans under
the Term Loan B Facility, 3.25% per annum; and (B) with respect to ABR Loans,
(i) in the case of loans under the Revolving Facility, 1.75% per annum (ii) in
the case of loans under the Term Loan A Facility, 1.50% per annum and (iii) in
the case of loan under the Term Loan B Facility, 2.25% per annum. A pricing grid
governing such rates showing stepups/stepdowns in such rates beginning 12 months
after the Effective Time shall be negotiated based upon improved credit
measures.
The Credit Facilities will be subject to a 0.50% per annum commitment
fee on the undrawn amount of the commitment, commencing at the Effective Time.
The Company intends to repay all indebtedness and terminate all commitments to
make extensions of credit under its existing $125 million credit facility
arranged by Merrill Lynch (the "Old Credit Facility"). Other than as described
herein, the Company has no present plans or arrangements to refinance or repay
the Credit Facilities.
Subordinated Debt. At the Effective Time, Liberty will arrange $37
million of the financing in the form of subordinated debt (the "Subordinated
Debt"). The Subordinated Debt will (i) accrue interest at a rate of 12.5% per
annum, payable quarterly, (ii) be pre-payable at any time without the payment of
any premium or penalty, and (iii) be issued with detachable warrants (the
"Subordinated Debt Warrants") to purchase shares of common stock, for $0.01 per
share, representing 20% of the fully diluted common stock of the Surviving
Corporation; provided that if the Subordinated Debt is repaid in full prior to
the third anniversary of the Effective Time, 50% of the Subordinated Debt
Warrants shall be canceled without consideration. Scheduled principal payments
on the Subordinated Debt shall commence after the tenth anniversary of the
Effective Time, or upon the first quarter after the Term Loan Facilities have
been repaid in full.
