<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
NORWOOD PROMOTIONAL PRODUCTS, INC.
(Name of Issuer)
Common Stock
(Title of Class of Securities)
669729-10-5
(CUSIP Number)
Frank P. Krasovec, President Richard J. McMahon, Esquire
FPK, LLC Blank Rome Comisky & McCauley LLP
106 East Sixth Street, Suite 300 One Logan Square
Austin, Texas 78701 Philadelphia, Pennsylvania 19103-6998
(210) 227-7629 (215) 569-5500
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 15, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of (S)(S) 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box. [_]
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
(Entities Only)
Frank P. Krasovec
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
660,917
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
660,917
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
660,917 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
13.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-2-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities only)
James P. Gunning, Jr.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
500 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-3-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
John Finnell
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, OO, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
200,054
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
200,054
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
200,054 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
3.9%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-4-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
George Bell Strob
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 53,193
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
53,193
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
53,193 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
1.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-5-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
Brian P. Miller
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
OO, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
17,142
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
17,142
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,142 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.3%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-6-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
Paul W. Larson
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, BK, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
62,298
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
62,298
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
62,298 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
1.2%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-7-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
Russell A. Devereau
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
2,500
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 0
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
2,500
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
2,500 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-8-
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 669729-10-5 13D
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (Entities Only)
James Preston
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See
2 Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS (See Instructions)
4
PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Canada
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 1,000
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
1,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
2,500 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.0%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (See Instructions)
14
IN
- ------------------------------------------------------------------------------
-9-
<PAGE>
Item 1. Security and Issuer.
This Schedule 13D report relates to the Common Stock, no par value per
share ("Common Stock"), of Norwood Promotional Products, Inc. (the "Issuer" or
the "Company"). The address of the Issuer's principal executive offices is 106
East Sixth Street, Suite 300, Austin, Texas 78701.
Item 2. Identity and Background.
This statement is being jointly filed by each of the following persons:
Frank P. Krasovec, James P. Gunning, Jr., John Finnell, George Bell Strob, Brian
P. Miller, Paul W. Larson, Russell A. Devereau, James Preston and Michael
Linderman (collectively referred to herein as the "Reporting Persons").
Due to Mr. Krasovec's ownership of 13% of the Issuer's stock, he presently
has a Schedule 13G on file with the Commission. Mr. Krasovec's inclusion in
this Schedule 13D serves to amend his previous Schedule 13G filing.
Appendix A, which is incorporated herein by reference, sets forth the
following information with respect to each Reporting Person and anyone with whom
a Reporting Person shares voting or dispositive power with respect to his Common
Stock: (i) name, (ii) residence or business address, (iii) present principal
occupation or employment, (iv) principal business and address of any corporation
or other organization in which such employment is conducted, and (v)
citizenship.
Information with respect to each of the Reporting Persons is given solely
by such Reporting Person, and no Reporting Person assumes responsibility for the
accuracy or completeness of information given by another Reporting Person. By
their signature on this Statement, each of the Reporting Persons agrees that
this Statement is filed on behalf of such Reporting Person. Each of the
Reporting Persons may be deemed to be holding their shares of Common Stock with
the purpose (together with the other Reporting Persons) of acquiring control of
the Issuer through the Merger (as described below); accordingly, the Reporting
Persons may be deemed to constitute a "group" for purposes of Section 13(d)(3)
of the Act. The Reporting Persons expressly disclaim that they have agreed to
act as a group other than as described in this Statement. The filing of this
Statement shall not be construed as an admission that any of the Reporting
Persons is, for purposes of Section 13(d) or 13(g) of the Securities Exchange
Act of 1934 (the "Exchange Act"), the beneficial owner of the shares of Common
Stock covered by this Statement. It is anticipated that additional individuals
may become Reporting Persons.
None of the Reporting Persons or the other persons listed in this Item 2
has been (i) convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) during the last five years, or (ii) a party, during the
last five years, to a civil proceeding or a judicial or administrative body of
competent jurisdiction which resulted in any of them being subjected to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Each Reporting Person has purchased the Common Stock that he/she presently
holds over a course of years for investment purposes with personal funds or a
bank loan that has been paid. As described below, the Issuer and FPK, LLC, a
limited liability company ("LLC") formed and wholly owned by Frank P. Krasovec,
the Chairman, President and Chief Executive Officer of the Issuer have entered
into a Merger Agreement pursuant to which a wholly-owned subsidiary of LLC will
merge with the Issuer. As a result the Merger all shares of Common Stock of the
Issuer (other than as described in Item 4 below) will be converted into the
right to receive $20.70 per share. The amount of funds necessary for the
purchase of such shares of Common Stock of Issuer is approximately $84 million.
Financing for the Merger, which is being arranged by LLC includes (i) a $50
million senior secured credit facility to be provided to the Issuer pursuant to
a commitment letter from Merrill Lynch Capital Corporation ("Merrill Lynch") and
NationsBank, N.A. ("NationsBank") (of which $30 million will be
-10-
<PAGE>
SCHEDULE 13D
- ------------------------ ---------------------
CUSIP NO. 669729-10-5
- ------------------------ ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
1
Michael Linderman
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (See Instructions) (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
(See Instructions) PF, SC
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
United States
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 54,475
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
0
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 54,475
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
54,475 (See Item 5)
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 (See Instructions)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
1.1%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
10
<PAGE>
provided by Merrill Lynch and $20 million by NationsBank), consisting of (A) a
$25 million senior secured term loan, which will be fully drawn at the closing
of the transaction ("Closing") and (B) a $25 million senior secured revolving
credit facility, of which no more than $10 million will be drawn at Closing,
(ii) up to $100 million from the issuance by the Issuer of unsecured senior
subordinated notes due 2008, which notes will be sold or placed pursuant to a
highly confident letter by Merrill Lynch, Pierce, Fenner & Smith Incorporated
and its affiliates and will be issued simultaneous with the Closing and (iii)
$20 million from the issuance by the Issuer of pay-in-kind preferred stock which
will be provided pursuant to a commitment letter from Ares Leveraged Investment
Fund, L.P., an affiliate of Ares Management, L.P. Conditions to the consummation
of the financing include, among other things, the execution and delivery of
definitive documents, the satisfactory completion of due diligence by the
financing sources and the absence of any material adverse change with respect to
the Issuer. A portion of the above described financing will be used to pay down
existing Issuer debt and as working capital for the Surviving Corporation (as
defined below).
Item 4. Purpose of Transaction.
On March 15, 1998, LLC and Issuer entered into an Agreement and Plan
of Merger (the "Merger Agreement"). Under the Merger Agreement, LLC will form a
wholly-owned subsidiary ("Newco"), which will be merged with and into Issuer
(the "Merger"), whereupon the separate existence of Newco will cease and the
Issuer will continue as the surviving corporation ("Surviving Corporation").
The Merger Agreement provides that, at the effective time of the Merger
("Effective Time"): (i) each share of Common Stock (collectively, the "Common
Shares") issued and outstanding immediately prior to the Effective Time,
other than as described in clause (iii), clause (iv) and other than those owned
by Dissenting Shares holders (as defined below), will be converted into the
right to receive $20.70 per share in cash (the "Merger Consideration"); (ii) all
Common Shares to be converted into the right to receive the Merger Consideration
pursuant to clause (i) will be canceled and retired, and each holder of Common
Shares will thereafter cease to have any rights with respect to such Common
Shares, except the right to receive the Merger Consideration; (iii) each Common
Share issued and outstanding that is owned by any present or future Reporting
Person (the "Buyout Group") immediately prior to the Effective Time will be
converted into one fully paid and nonassessable share of common stock, $.01 par
value, of the Surviving Corporation; (iv) each Common Share issued and
outstanding and owned by the Issuer as treasury stock or by any of the Issuer's
subsidiaries immediately prior to the Effective Time will be canceled and
retired; (v) each share of capital stock of Newco issued and outstanding
immediately prior to the Effective Time will be canceled and retired; and (vi)
all notes and other debt instruments of the Issuer which are outstanding
immediately prior to the Effective Time shall continue to be outstanding
subsequent to the Effective Time as debt instruments of the Surviving
Corporation, subject to their respective terms and provisions.
At the Effective Time, each option, warrant and convertible debt instrument
of the Issuer (each a "Stock Derivative") to purchase Common Shares shall
continue to be outstanding subsequent to the Effective Time as options, warrants
and convertible debt of the Surviving Corporation, subject to all expiration,
lapse and other terms and conditions thereof, except that the term of all Stock
Derivatives (other than convertible debt and employee incentive stock options)
shall be extended for three years from the date of their current expiration.
The Merger Agreement provides that the articles of incorporation and by-
laws of the Issuer, as in effect immediately prior to the Effective Time, as
amended to convert the par value of the Common Stock from no par to $.01 par
value and to authorize the issuance of blank check preferred stock, shall
become, from and after the Effective Time, the articles of incorporation and by-
laws of the Surviving Corporation until amended in accordance with its terms and
the Texas Business Corporation Act ("TCBA").
The Merger Agreement provides that the directors and officers of Newco
immediately prior to the Effective Time shall become, from and after the
Effective Time, the directors and officers of the Surviving Corporation. Such
persons will continue as directors or officers, as the case may be, of the
Surviving Corporation until their successors have been duly elected or appointed
and qualified or until their earlier
-11-
<PAGE>
death, resignation, or removal in accordance with the articles of incorporation
and by-laws of the Surviving Corporation.
The Merger is subject to, among other things, the approval of the holders
of at least two-thirds of the outstanding Common Stock of the Issuer, the
consummation of debt and equity financing to finance the transaction, the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and compliance with Article 2.38 of the TCBA.
Prior to the Effective Time, Issuer or LLC may terminate the Merger Agreement
under certain circumstances, in each case as set forth in the Merger Agreement.
The Reporting Persons intend to vote any shares of Issuer Common Stock held by
them in favor of the Merger and in favor of any other transactions contemplated
by the Merger Agreement.
If the Merger is completed as planned, the Reporting Persons expect to
cause the Issuer to seek to have the shares of Issuer Common Stock cease to be
authorized to be listed on the NASDAQ National Market System.
Other than as described above, none of the Reporting Persons has any
current plans or proposals that relate to or would result in any of the actions
described in Item 4 of Schedule 13D (although subject to the provisions of the
Merger Agreement such Reporting Persons reserves the right to develop such
plans).
Item 5. Interest in Securities of the Issuer.
As of the filing date of this Schedule 13D ("Filing Date"), Mr. Krasovec
beneficially owns 660,917 shares of Common Stock, including 7,000 shares that
Mr. Krasovec has the right to acquire through the exercise of Issuer stock
options vesting on or before May 31, 1998 ("Vested Options") and excluding
23,000 shares Mr. Krasovec has the right to acquire through the exercise of
Issuer stock options that do not vest until after May 31, 1998 ("Unvested
Options"). Mr. Krasovec's 660,917 shares of Common Stock represent
approximately 13.0% of the Issuer's outstanding Common Stock as of March 15,
1998. Mr. Krasovec has the sole power to vote or direct the vote and the sole
power to dispose or to direct the disposition of the Common Stock of which he is
the beneficial owner.
As of the Filing Date, Mr. Gunning beneficially owns 500 shares of Common
Stock, excluding 16,000 shares that Mr. Gunning has the right to acquire through
the exercise of Unvested Options. Mr. Gunning's 500 shares of Common Stock
represent less than 0.1% of the Issuer's outstanding Common Stock as of March
15, 1998. Mr. Gunning has the sole power to vote or direct the vote and the sole
power to dispose or to direct the disposition of the Common Stock of which he is
the beneficial owner.
As of the Filing Date, Mr. Finnell beneficially owns 200,054 shares of
Common Stock, including 9,728 shares that Mr. Finnell has the right to acquire
through the exercise of Vested Options and excluding 11,500 shares Mr. Finnell
has the right to acquire through the exercise of Unvested Options. Mr.
Finnell's 200,054 shares of Common Stock represent approximately 3.9% of the
Issuer's outstanding Common Stock as of March 15, 1998. Mr. Finnell has the
sole power to vote or direct the vote and the sole power to dispose or to direct
the disposition of the Common Stock of which he is the beneficial owner.
As of the Filing Date, Mr. Strob beneficially owns 53,193 shares of Common
Stock, including 16,008 shares that Mr. Strob has the right to acquire through
the exercise of Vested Options and excluding 24,934 shares Mr. Strob has the
right to acquire through the exercise of Unvested Options. Mr. Strob's 53,193
shares of Common Stock represent approximately 1.0% of the Issuer's outstanding
Common Stock as of March 15, 1998. Mr. Strob holds all of his shares of Common
Stock jointly with his wife, Debra Ann Strob. Accordingly, Mrs. Strob may be
deemed to share in the power to vote or direct the vote of, the power to dispose
or to direct the disposition of and the power to receive or direct the receipt
of dividends from, or the proceeds from the sale of, Mr. Strob's Common Stock.
-12-
<PAGE>
As of the Filing Date, Mr. Miller beneficially owns 17,142 shares of
Common Stock, excluding 2,500 shares Mr. Miller has the right to acquire through
the exercise of Unvested Options. Mr. Miller's 17,142 shares of Common Stock
represent approximately 0.3% of the Issuer's outstanding Common Stock as of
March 15, 1998. On January 27, 1998, Mr. Miller sold 1,000 shares of Common
Stock on the open market for $17.00 a share. On January 28, 1998, Mr. Miller
sold 1,000 shares of Common Stock on the open market for $16.875 a share. On
February 13, 1998, Mr. Miller sold 1,000 shares of Common Stock on the open
market for $16.50 a share. Mr. Miller has the sole power to vote or direct the
vote and the sole power to dispose or to direct the disposition of the Common
Stock of which he is the beneficial owner.
As of the Filing Date, Mr. Larson beneficially owns 62,298 shares of
Common Stock, including 3,867 shares that Mr. Larson has the right to acquire
through the exercise of Vested Options and excluding 4,933 shares Mr. Larson has
the right to acquire through the exercise of Unvested Options. Mr. Larson's
60,053 shares of Common Stock represent approximately 1.2% of the Issuer's
outstanding Common Stock as of March 15, 1998. Mr. Larson has the sole power to
vote or direct the vote and the sole power to dispose or to direct the
disposition of the Common Stock of which he is the beneficial owner.
As of the Filing Date, Mr. Devereau beneficially owns 2,500 shares of
Common Stock, including 2,000 shares that Mr. Devereau has the right to acquire
through the exercise of Vested Options and excluding 8,000 shares Mr. Devereau
has the right to acquire through the exercise of Unvested Options. Mr.
Devereau's 2,500 shares of Common Stock represent less than 0.1% of the Issuer's
outstanding Common Stock as of March 15, 1998. Mr. Devereau has the sole power
to vote or direct the vote and the sole power to dispose or to direct the
disposition of the Common Stock of which he is the beneficial owner.
As of the Filing Date, Mr. Preston beneficially owns 1,000 shares of
Common Stock, excluding 20,000 shares Mr. Preston has the right to acquire
through the exercise of Unvested Options. Mr. Preston's 1,000 shares of Common
Stock represent less than 0.1% of the Issuer's outstanding Common Stock as of
March 15, 1998. On January 23, 1998, Mr. Preston was granted options under the
employee stock option plan to purchase 20,000 shares of Common Stock at $16.75
per share. Mr. Preston holds all of his shares of Common Stock jointly with his
wife, Brenda Preston. Accordingly, Mrs. Preston may be deemed to share in the
power to vote or direct the vote of, the power to dispose or to direct the
disposition of and the power to receive or direct the receipt of dividends from,
or the proceeds from the sale of, Mr. Preston's Common Stock.
As of the Filing Date, Mr. Linderman beneficially owns 19,864 shares of
Common Stock, including 3,999 shares that Mr. Linderman has the right to acquire
through the exercise of Vested Options as well as 15,000 shares that Mr.
Linderman has the right to acquire through the exercise of vested warrants and
excluding 14,001 shares Mr. Linderman has the right to acquire through the
exercise of Unvested Options. Mr. Linderman's 19,864 shares of Common Stock
represent approximately 0.4% of the Issuer's outstanding Common Stock as of
March 15, 1998. Mr. Linderman has the sole power to vote or direct the vote and
the sole power to dispose or to direct the disposition of the Common Stock of
which he is the beneficial owner.
Each of the Reporting Persons has agreed to participate as a member of
the Buyout Group. The filing of this Statement shall not, however, be construed
as an admission that any of the members is, for the purposes of Sections 13(d)
or 13(g) of the Exchange Act, the beneficial owner of the shares covered by this
Statement. The aggregate beneficial ownership of the Reporting Persons is 20.5%
of the outstanding shares of Common Stock of the Issuer.
The determination of percent beneficial ownership of Common Stock is
based upon their being 5,078,028 shares of Common Stock were issued and
outstanding as of March 15, 1998.
Except as described above in Item 3 and this Item 5, none of the
Reporting Persons has effected any transactions in Common Stock during the past
sixty days.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
In addition to the relationship and understanding among the Reporting
Persons already described in this Statement, at the Effective Time, it is
anticipated that the Reporting Persons, and any other individual that as a
result of the provisions of the Merger Agreement holds stock in the Surviving
Corporation ("Surviving Shareholders"), will enter into a shareholder's
agreement ("Shareholders' Agreement") which is expected to provide certain
rights and responsibilities among the Shareholders. The terms of the
Shareholder's Agreement have not yet been completed.
-13-
<PAGE>
At the present time there are no other contracts, arrangements,
understandings or relationships (legal or otherwise) among the Reporting Persons
and/or between such persons and any other person with respect to any securities
of the Issuer, including but not limited to transfer or voting of any of the
securities, finder's fees, joint ventures, loan or option arrangements, put or
calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies.
Item 7. Materials to be Filed as Exhibits
Exhibit A - Joint Filing Agreement pursuant to Rule
13d-1(f)(1)(iii)
Exhibit B - 1(a) Commitment Letter dated March 15, 1998 by and between
FPK, LLC, Merrill Lynch Capital Corporation and
NationsBank, N.A.
Exhibit B - 1(b) Term Sheet regarding Bank Facilities
Exhibit B - 2(a) Highly Confident Letter dated March 15, 1998 by and
between FPK, LLC and Merrill Lynch, Pierce, Fenner &
Smith Incorporated
Exhibit B - 3(a) Commitment Letter dated March 14, 1998 by and between
FPK, LLC and Ares Leveraged Investment Fund, L.P.
Exhibit B - 3(b) Term Sheet regarding Preferred Stock
Exhibit C/1/ - Agreement and Plan of Merger between LLC and Issuer
dated March 15, 1998 [as verification of the number of
Issuer shares outstanding].
- -----------------
/1/ Incorporated by reference to Exhibit 2.1 to Issuer's Form 8-K dated
March 15, 1998 filed March 20, 1998.
-14-
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of each Reporting Person's
respective knowledge and belief, each Reporting Person certifies that the
information set forth in this Statement is true, complete and correct.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Frank P. Krasovec and James P. Gunning, Jr. and
each of them, his true and lawful attorney-in-fact and agent with full power of
substitution or resubstitution, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Schedule 13D, and to
file the same, with all exhibits thereto, and other documentation in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Schedule 13D has been signed below by the following persons on the dates
indicated.
SIGNATURE DATE
--------- ----
/s/ Frank P. Krasovec March 25, 1998
- ---------------------------------- --------------
Frank P. Krasovec
/s/ James P. Gunning, Jr. March 25, 1998
- ---------------------------------- --------------
James P. Gunning, Jr.
/s/ John Finnel March 25, 1998
- ---------------------------------- --------------
John Finnel
/s/ Michael Linderman March 25, 1998
- ---------------------------------- --------------
Michael Linderman
/s/ James Preston March 25, 1998
- ---------------------------------- --------------
James Preston
/s/ Paul W. Larson March 25, 1998
- ---------------------------------- --------------
Paul W. Larson
/s/ Russell A. Devereau March 25, 1998
- ---------------------------------- --------------
Russell A. Devereau
/s/ George Bell Strob March 24, 1998
- ---------------------------------- --------------
George Bell Strob
/s/ Brian P. Miller March 24, 1998
- ---------------------------------- --------------
Brian P. Miller
-15-
<PAGE>
EXHIBIT A
Joint Filing Agreement
In accordance with Rule 13d-1(f)(1) of Regulation 13D-G of the General
Rules and Regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, the undersigned agree to the joint
filing on behalf of each of them to this Statement and any subsequent amendments
hereto.
SIGNATURE DATE
--------- ----
/s/ Frank P. Krasovec March 20, 1998
- ---------------------------------- --------------
Frank P. Krasovec
/s/ James P. Gunning, Jr. March 20, 1998
- ---------------------------------- --------------
James P. Gunning, Jr.
/s/ John Finnel March 20, 1998
- ---------------------------------- --------------
John Finnel
/s/ Michael Linderman March 25, 1998
- ---------------------------------- --------------
Michael Linderman
/s/ James Preston March 23, 1998
- ---------------------------------- --------------
James Preston
/s/ Paul W. Larson March 20, 1998
- ---------------------------------- --------------
Paul W. Larson
/s/ Russell A. Devereau March 24, 1998
- ---------------------------------- --------------
Russell A. Devereau
/s/ George Bell Strob March 20, 1998
- ---------------------------------- --------------
George Bell Strob
/s/ Brian P. Miller March 20, 1998
- ---------------------------------- --------------
Brian P. Miller
-16-
<PAGE>
APPENDIX A
----------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Name Address Occupation Business Address Citizenship
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank P. Krasovec 106 E. 6th Street Chief Executive 106 E. 6th Street U.S.A.
Suite 300 Officer--Norwood Suite 300
Austin, TX 78701 Promotional Austin, TX 78701
Products, Inc.
- --------------------------------------------------------------------------------------------------------------------
James P. Gunning, Jr. 106 E. 6th Street Chief Financial 106 E. 6th Street U.S.A.
Suite 300 Officer--Norwood Suite 300
Austin, TX 78701 Promotional Austin, TX 78701
Products, Inc.
- --------------------------------------------------------------------------------------------------------------------
John Finnell 106 E. 6th Street Senior Vice 106 E. 6th Street U.S.A.
Suite 300 President Suite 300
Austin, TX 78701 Performance Austin, TX 78701
Enhancement--
Norwood Promotional
Products, Inc.
- --------------------------------------------------------------------------------------------------------------------
George Bell Strob 19923 Encino Grove President--Radio 615 Perez Street U.S.A.
San Antonio, TX 78259 Cap Company San Antonio, TX 78207
- --------------------------------------------------------------------------------------------------------------------
Debra Ann Strob 19923 Encino Grove U.S.A.
San Antonio, TX 78259 N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Brian P. Miller 3533 Ridgewood Dr. Plant Manager- 2300 Palmer Street U.S.A.
Pittsburgh, PA 15235 Radio Cap Company Pittsburgh, PA 15218
- --------------------------------------------------------------------------------------------------------------------
Paul W. Larson 2135 Encino Loop Vice President 615 Perez Street U.S.A.
San Antonio, TX Operations--Radio San Antonio, TX 78207
78259 Cap Company
- --------------------------------------------------------------------------------------------------------------------
James Preston 38 Fair Oaks Chief Executive 615 Perez Canadian
St. Louis, MO 63124 Officer--Radio San Antonio, TX 78207
Cap Company
- --------------------------------------------------------------------------------------------------------------------
Brenda Preston 38 Fair Oaks Canadian
St. Louis, MO 63124 N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Russell A. Devereau 40 Kenney Dr. President-Artmold 40 Kenney Dr. U.S.A.
Cranston, RI 92829 Cranston, RI 92829
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
EXHIBIT B-1(a)
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
March 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 "Co-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 will enter into a merger agreement
-----
(the "Merger Agreement") with a company previously identified to us and code
----------------
named Target ("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) will own all of the capital stock of Borrower; (v) the
consideration per share to be paid pursuant to the Merger Agreement to the
holders of Borrower's common stock that are cashed
<PAGE>
-2-
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 Co-Arrangers and NationsBank
that, in connection with and simultaneously with the Recapitalization, Borrower
will (i) raise gross cash proceeds of up to $100 million from the issuance by
Borrower of its unsecured senior subordinated notes due 2008 (the "Senior
------
Subordinated Notes") on terms and conditions and pursuant to documentation
- ------------------
reasonably satisfactory to Merrill Lynch, NationsBank and NMS in their sole
discretion and with no scheduled payments of principal prior to scheduled
maturity (the "Senior 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 certain investors on terms and conditions and
-------------
pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank
and NMS (the "Preferred Stock Financing"); and (iii) enter into the Credit
-------------------------
Facilities described herein.
In addition, you have advised the Co-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 Senior Subordinated Financing,
the Preferred 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.
You have requested that Merrill Lynch and NationsBank commit to
provide to Borrower $50 million aggregate principal amount of senior secured
credit facilities (the "Credit Facilities") (of which $30 million will be
-----------------
provided by Merrill Lynch and $20 million by NationsBank) comprising (a) a
senior secured term loan facility in an aggregate principal amount of $25
million (the "Term Loan Facility"), and (b) 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 Co-Arrangers and NationsBank that
the Term Loan Facility 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
<PAGE>
-3-
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.
In addition, you have advised the Co-Arrangers and NationsBank that
immediately after giving effect to the Transactions, Borrower and its
subsidiaries will have no indebtedness or preferred stock (or direct or indirect
guarantee in respect thereof) outstanding, except the Senior Subordinated Notes,
the Credit Facilities, the PIK Preferred and certain other debt, including
capitalized leases, seller notes and non-competes to remain outstanding, in an
amount, on terms and conditions and pursuant to documentation acceptable to the
Co-Arrangers and NationsBank.
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 commits to provide $30 million of
----------
the Credit Facilities and NationsBank hereby commits to provide $20 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"). The initial extensions of credit under the
--------- ----------
Credit Facilities will occur simultaneously with the consummation of the
Recapitalization and the Existing Debt Repayment.
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 act as the lead arranger of and syndication and
documentation agent (in such capacities, the "Syndication Agent") for the Credit
-----------------
Facilities, it being understood and agreed that the Syndication Agent will
perform all functions and exercise all authority (including, without 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 (in such capacities, 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 reserves 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
<PAGE>
-4-
Lynch's and NationsBank's commitments hereunder, Merrill Lynch will commence the
syndication of the Credit Facilities to such Lenders. Upon your acceptance of
the commitment of any Lender to provide a portion of the Credit Facilities,
Merrill Lynch and NationsBank shall each be released from a portion of its
commitment hereunder in an aggregate amount equal to 60% and 40%, 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. It is understood and agreed that Merrill Lynch (or one of its
affiliates) will be the lead manager and syndication agent of all aspects of the
syndication (but will consult with you in such matters), including, without
limitation, decisions as to the selection of potential Lenders reasonably
acceptable to you to be approached and when they will be approached, when their
commitments will be accepted, which Lenders will participate, any naming rights
(including the naming of co-agents, subject to your reasonable approval) and the
final allocations of the commitments among the Lenders (which are likely not to
be pro rata across facilities among Lenders).
You agree actively to assist Merrill Lynch in achieving a timely
syndication that is satisfactory to Merrill Lynch. The syndication efforts will
be accomplished by a variety of means, including direct contact during the
syndication between senior management (including, but not limited to, the chief
executive officer, chief financial officer and treasurer of Newco and/or
Borrower) and advisors and affiliates of Newco and Borrower on the one hand and
the proposed syndicate Lenders on the other hand. To assist Merrill Lynch in
its syndication efforts, you agree that you will, with reasonable promptness,
upon Merrill Lynch's request, (a) provide, and cause Borrower and your and
Borrower's affiliates and advisors to provide, to Merrill Lynch all information
reasonably deemed necessary by Merrill Lynch to complete successfully the
syndication, including but not limited to, information and projections
(including, without limitation, any updated projections requested by Merrill
Lynch) prepared by you or 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 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 syndication
efforts benefit from your and Borrower's existing lending relationships. You
further agree that Merrill Lynch 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, in consultation with NationsBank and
NMS, shall be entitled, with your prior written consent (which shall not be
unreasonably withheld or delayed), to change the structure of the Credit
Facilities as described herein and in the Term Sheet (provided that the
--------
aggregate principal amount of the Credit Facilities, taken as a whole,
<PAGE>
-5-
remains the same) if Merrill Lynch deems 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 Senior Subordinated Notes and PIK
Preferred) without the prior written consent of Merrill Lynch.
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 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
<PAGE>
-6-
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 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 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 Senior
Subordinated Notes and PIK Preferred), including renewals thereof; and (e) the
satisfaction of the other terms and conditions set forth or referred to herein
<PAGE>
-7-
(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.
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 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
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 (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
<PAGE>
-8-
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 or structures 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, 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.
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.
<PAGE>
-9-
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 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 re-
- -------
<PAGE>
-10-
quired 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 March 18, 1998; (ii) the Closing Date does not occur on or
before September 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.
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).
<PAGE>
-11-
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 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 General Counsel, 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 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>
-12-
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 March 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:
---------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
---------------------------------------
Name:
Title:
NATIONSBANC MONTGOMERY
SECURITIES LLC
By:
---------------------------------------
Name:
Title:
<PAGE>
-13-
Accepted and agreed to as of the date first
written above:
FPK, LLC
By:
----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT B-1(b)
SUMMARY OF TERMS AND CONDITIONS/a/
Borrower: Target ("Borrower").
--------
Syndication Agent: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") will act as lead
-------------
arranger, syndication agent and documentation agent
(the "Syndication Agent").
-----------------
Administrative Agent: NationsBank, N.A ("NationsBank" or the "Administrative
----------- --------------
Agent", and together with the Syndication Agent, the
-----
"Co-Arrangers").
------------
Co-Arrangers Merrill Lynch and NationsBanc Montgomery Securities LLC
("NMS").
---
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 $50 million, such credit facilities
comprising:
(A) Term Loan Facility. Term loan facility in an
------------------
aggregate principal amount of $25 million (the "Term
----
Loan Facility"). Loans under the Term Loan Facility
-------------
are herein referred to as "Term Loans".
----------
(B) Revolving Facility. Revolving credit facility
------------------
in an aggregate principal amount of $25 million (the
"Revolving Facility" and, together with the Term Loan
------------------
Facility, the "Credit Facilities"; any such facility
-----------------
is herein referred to as a "Facility"). Loans under
--------
the Revolving Facility are herein referred to as
"Revolving Loans"; the Term Loans and the Revolving
----------------
Loans are herein referred to as "Loans". A portion
-----
of the Revolving Facility to be mutually determined
will be available as a letter of credit subfacility.
- -------------------
/a/ Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the attached Commitment Letter. References herein
to "$" or "US$" are to United States Dollars. For all purposes of this Term
Sheet, the "subsidiaries" of Borrower shall be deemed to include those
------------
entities that will become subsidiaries of Borrower.
<PAGE>
-2-
Documentation: Usual for facilities and transactions of this type and
reasonably acceptable to Borrower and the Co-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 will enter into a merger
-----
agreement (the "Merger Agreement") with [Target]
----------------
("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) will own all of
the capital stock of Borrower.
Borrower will (i) raise gross cash proceeds of up
to $100 million from the issuance by Borrower of its
unsecured senior subordinated notes due 2008 (the
"Senior Subordinated Notes") on terms and conditions
--------------------------
and pursuant to documentation reasonably satisfactory
to Merrill Lynch, NationsBank and NMS in their sole
discretion and with no scheduled payments of
principal prior to scheduled maturity (the "Senior
------
Subordinated Financing") and (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 certain investors on terms and
---------
conditions and pursuant to documentation reasonably
satisfactory to Merrill Lynch, NationsBank and NMS
(the "Preferred Stock Financing").
-------------------------
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 Senior
Subordinated Financing, the Preferred 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
<PAGE>
-3-
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 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 Facility. The Term Loan Facility will
------------------
mature on the fifth anniversary of the Closing Date.
Amounts outstanding under the Term Loan Facility will
amortize, beginning with the last business day of the
first full fiscal quarter after the Closing Date, on a
quarterly basis during each year as set forth below:
Year Amount
---- ------
1998 $ 3,000,000
1999 4,000,000
2000 5,000,000
2001 6,500,000
2002 6,500,000
-----------
$25,000,000
===========
(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 Facility. The Term Loan Facility
------------------
will be available solely on the Closing Date
in a single draw. Amounts bor-
<PAGE>
-4-
rowed under the Term Loan Facility 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 Syndication Agent in its sole
discretion of each calendar year beginning in the fiscal
year beginning September 1, 1999, the sum of the
aggregate principal amount of Loans outstanding under
the Revolving Facility plus the face amount of all
outstanding Letters of Credit shall not exceed an amount
acceptable to the Syndication Agent in its 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 Co-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.
<PAGE>
-5-
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.
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.
Mandatory prepayments under clauses (1) through (4)
above shall be applied ratably to scheduled installments
of Term Loans under the Term Loan Facility until they
are repaid in full.
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 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 Facility: Borrowings under the Term
------------------
Loan Facility 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 Facility will be applied pro rata against
the remaining scheduled amortization payments under the
Term Loan Facility.
(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 Bor-
<PAGE>
-6-
rower, 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 Co-Arrangers (all such conditions
to be satisfied in a manner reasonably satisfactory in
all respects to the Co-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 Co-Arrangers, (ii) officers' certificates,
together with the accompanying charter documents and
corporate resolutions, in form and substance reasonably
satisfactory to the Co-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 Co-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 Co-Arrangers or the Required
Lenders.
(B) The Board of Directors of LLC and Borrower shall
have authorized and approved the Transactions and the
Co-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
Co-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 appl-
<PAGE>
-7-
icable to such transactions. Borrower shall not have
any "poison pill" rights or shall have redeemed such
rights at a nominal price, or the Co-Arrangers shall
otherwise be reasonably satisfied that such rights are
null and void as applied to the Recapitalization. The
Co-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
Co-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
Co-Arrangers and the Required Lenders shall have
determined such to be inapplicable to such transactions.
(D) All conditions to the Recapitalization shall have
been satisfied, and not waived, amended, supplemented or
otherwise modified except with the consent of the
Co-Arrangers and the Required Lenders in their
respective sole discretion, to the satisfaction of the
Co-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 Co-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 Co-Arrangers shall have received
satisfactory evidence that fees and expenses in
connection with the Transactions will not exceed $8.0
million. Immediately after the consummation of the
transactions, The Co-Arrangers will be satisfied with
the direct and indirect capital ownership of the
surviving corporation.
(E) Borrower shall have received aggregate gross
proceeds of at least $100 million from the Senior
Subordinated Financing pursuant to agreements, and terms
and conditions thereunder, in form and substance
reasonably satisfactory to the Co-Arrangers and the
Re-
<PAGE>
-8-
quired 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 Co-Arrangers and Required
Lenders.
(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 Co-Arrangers and the Required
Lenders in their respective reasonable discretion) that
are in form and substance satisfactory to the Co-
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
Co-Arrangers and the Required Lenders in their
respective reasonable discretion) and all lending
commitments thereunder terminated to the satisfaction of
the Co-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 Co-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
Co-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, 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
(other than the Transactions) entered into by Borrower
<PAGE>
-9-
or any of its subsidiaries, whether or not in the
ordinary course of business, that, in the sole judgment
of the Co-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 Co-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 Co-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 Co-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 Co-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 Co-Arrangers and the Required Lenders shall
be satisfied (in their reasonable judgment) with the
actual capitalization (including with respect to
indebtedness and 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 sub-
<PAGE>
-10-
sidiaries shall have no debt or preferred stock (or
direct or indirect guarantee in respect thereof)
outstanding other than the Credit Facilities, the
Senior 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 Co-Arrangers and NationsBank, and the Co-
Arrangers and the Required Lenders shall be satisfied
with all other liabilities (contingent or otherwise)
of Borrower and its subsidiaries.
(M) The Co-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 Co-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 Co-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 G, T, U and X of the
Board of Governors of the Federal Reserve System.
(P) All accrued fees and expenses of the Lenders,
the Co-Arrangers and the Administrative Agent
(including the reasonable fees and expenses of
counsel to the Lenders, the Co-Arrangers and the
Administrative Agent) in connection with the Credit
Documents shall have been paid in cash in full.
(Q) The Co-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 Co-Arrangers in their sole discretion and the
results thereof shall be satisfactory to the Co-
Arrangers and the Required 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 Co-Arrangers and the Required
Lenders in their respective sole discretion and the
terms thereof shall be reasonably satisfactory to the
Co-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 satisfac-
<PAGE>
-11-
tory to the Co-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 Co-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 be greater
than 5.8:1.0, and the Co-Arrangers shall have
received an officers' certificate as to the same
satisfactory to the Co-Arrangers in their sole
discretion (including satisfactory schedules and
other supporting data).
(V) The Co-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 Co-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
<PAGE>
-12-
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 Co-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 Co-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 Co-Arrangers, including, but not
limited to, maintenance of corporate 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 Co-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; limita-
<PAGE>
-13-
tion 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 Senior
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 Co-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 and maximum total debt to trailing
four quarter EBITDA. The financial covenants
contemplated above will be tested on a quarterly
basis and will apply to Borrower and its subsidiaries
on a consolidated basis.
Events of Default: Customary for facilities similar to the Credit
Facilities and others to be specified by the Co-
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
Co-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 mini-
<PAGE>
-14-
mum 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, 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: Amendments to and waivers of any provision of any
Credit Document will require the approval of Lenders
holding at least a majority of the extensions of
credit and commitments under the Credit Agreement
(the "Required Lenders"), except that (i) the consent
----------------
of all affected Lenders shall be required with
respect to (a) reductions of principal, interest
rates or fees, (b) extensions of scheduled interest
payments or final maturity or termination of
commitments, (c) change in any provisions requiring
the consent of all the Lenders, (d) and (e) except as
provided in the Credit Documents, release of any
Guarantor from its guarantee or any arrangement
providing that any obligation other than obligations
under the Credit Documents to the Lenders (or
interest rate hedges with Lenders or their
affiliates) will be secured by the collateral
securing the Credit Facilities, (ii) the consent of
all of the Lenders shall be required with respect to
any release of all or substantially all Collateral
securing the Credit Facilities, (iii) no Lender's
commitment shall be increased without the consent of
such Lender, and (iv) the consent of Lenders holding
at least 66-2/3% of the extensions of credit and
commitments shall be required with respect to
extensions of scheduled amortization or reductions in
the amount of any amortization payment.
Expenses and
Indemnification: In addition to those out-of-pocket expenses
reimbursable under the Commitment Letter, all out-of-
pocket expenses of the Co-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
<PAGE>
-15-
counsel for the Co-Arrangers and the Administrative
Agent) are to be paid by Borrower. Borrower will
indemnify each of the Co-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 Co-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 Co-
-------- -------
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 Co-Arrangers: Cahill Gordon & Reindel.
<PAGE>
-16-
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, 2.50% per annum; (ii) in the case of Loans
--- -----
under the Term Loan Facility, 2.50% per annum; and
--- -----
(B) with respect to ABR Loans, (i) in the case of
Loans under the Revolving Facility, 1.50% per annum;
--- -----
and (ii) in the case of Loans under the Term Loan
Facility, 1.50% 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>
EXHIBIT B-2(a)
March 15, 1998
FPK, LLC
106 East Sixth Street
Suite 600
Austin, Texas 78701
Ladies and Gentlemen:
You have advised the undersigned that FPK, LLC (the "Purchaser"), intends
to pursue a proposal for the acquisition or recapitalization (the "Acquisition")
of all of the capital stock of Norwood Promotional Products, Inc. (the
"Company") on the terms of the Merger Agreement between Purchaser and the
Company provided to us. You have retained us to assist you in raising a portion
of the funds required to consummate the Acquisition through the sale in a public
offering or Rule 144A private placement of up to $100 million principal amount
of senior subordinated debt securities (the "Debt Securities") to be issued
simultaneous with the closing of the Acquisition by the Company, which will be
the survivor of a merger of a subsidiary of the Purchaser into the Company. You
have further advised us that the total financing for the Acquisition and related
costs and expenses will be approximately $176 million consisting of (i) equity
financing of approximately $41 million on terms acceptable to Merrill Lynch (the
"Equity Financing"), consisting of (x) approximately $21 million to be provided
by certain members of management and employees of the Company and certain other
investors, which may include equity currently invested in the Company valued at
$20.70 per share (the "Equity Investors") and (y) $20 million in the form of
preferred stock, which will be provided by Ares Management, L.P. or any of its
affiliates ("Ares"), (ii) a $50 million credit facility, consisting of $25
million in term loans and a $25 million revolving credit facility, of which no
more than $10 million will be drawn at closing (the "Bank Facility"), which is
the subject of a letter to you from Merrill Lynch Capital Corporation,
NationsBank, N.A. and NationsBanc Montgomery Securities LLC, and (iii) the Debt
Securities. The Acquisition, the Equity Financing, the issuance of the Debt
Securities, and the borrowings under the Bank Facility are herein collectively
referred to as the "Transactions." We further understand that the precise
structure for the Transactions will be under continuing consideration, may vary
from the foregoing, and will be subject to our mutual agreement.
Subject to the factors listed below, we are highly confident of our ability
to sell or place the Debt Securities. The structure, covenants and terms of the
Debt Securities will be as determined by Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates ("Merrill Lynch") in each case in consultation
with you based on market conditions at the time of the offering or placement of
the Debt Securities and on the structure and documentation of the Transactions.
The offering or placement of the Debt Securities is subject to (i) there not
having occurred or becoming known any material adverse change or any condition
or event that could reasonably be expected to result in a material adverse
change in the condition (financial or otherwise), assets, liabilities
(contingent or otherwise), solvency, results of operations, business, prospects,
properties or material agreements of the Purchaser, the Company and their
subsidiaries considered as a whole since August 30, 1997 or in the business plan
of the Company as provided Merrill Lynch, in each case in Merrill Lynch's sole
judgment; (ii) the existence of market conditions similar to those currently
existing for high yield debt securities comparable in terms, structure and
contemplated credit rating to the Debt Securities, and there not having occurred
or likely to occur within a reasonably imminent period of time any disruption or
material adverse change in the financial or capital markets in the reasonable
opinion of Merrill Lynch; (iii) a consolidated pro forma capitalization of the
Purchaser, the Company and their subsidiaries assuming consummation of the
Transactions and related financings satisfactory to Merrill Lynch, which
capitalization shall be pursuant to arrangements satisfactory to Merrill Lynch
in amounts as described in the first paragraph of this letter; (iv) audited and
unaudited historical financial statements (including unaudited pro forma
financial statements) of the Company, the Purchaser and their subsidiaries
reasonably acceptable to Merrill Lynch and as required by the Securities Act of
1933, as amended, and the rules and regulations promulgated pursuant thereto
(the "Act") for registration statements filed thereunder (whether or not the
Debt Securities are registered under the Act), including without limitation,
audited financial statements of the Company for the three most recent preceding
fiscal years, together with an unqualified report thereon by an independent
accounting firm reasonably acceptable to Merrill Lynch; (v) an equity investment
in the Company on terms satisfactory to Merrill Lynch in the aggregate of
approximately $41 million, consisting of (x) approximately $21 million of equity
financing to be provided by the Equity Investors on terms acceptable to Merrill
Lynch and (y) $20 million in the form of preferred stock, which will be provided
by Ares, and the arrangement of bank financing through the Bank Facility in the
aggregate amount of $50 million consisting of $25 million in term loans and a
$25 million revolving credit facility; (vi) terms, structure and arrangements
regarding the financing for the Transactions being reasonably satisfactory to
Merrill Lynch (including, without limitation, the effect of the Acquisition on
any outstanding warrants, options and convertible debt and any documentation
relating to the Transactions), and,
<PAGE>
in addition to the conditions set forth in clause (x) below, such financing
being adequate to consummate the Transactions and to meet the anticipated
capital requirements of the Purchaser, the Company and their subsidiaries
following the Transactions in the sole opinion of Merrill Lynch; (vii) to the
extent required by market conditions, the availability of debt warrants, common
stock, preferred stock or warrants or convertible non-voting common stock to
purchase common stock in the Company in an amount and at a price to be agreed
upon by the Purchaser and Merrill Lynch and which debt warrants, common stock,
preferred stock, warrants or convertible non-voting stock will be sold or placed
by Merrill Lynch in conjunction with the sale of the Debt Securities; (viii) the
execution of a customary underwriting agreement or placement agreement and
registration rights agreement and other documents in Merrill Lynch's standard
forms and satisfaction of the conditions therein stated; (ix) the execution and
delivery of definitive documentation, including the acquisition or merger
agreement and documentation evidencing the equity financing to be provided by
the Equity Investors, relating to and encompassing the terms of the
Transactions, all in form and substance reasonably satisfactory to Merrill
Lynch, and such documentation not having been amended without the prior written
consent of Merrill Lynch and being in full force and effect and all conditions
precedent thereunder to the consummation of the Transactions, or the financing
thereof, as the case may be, having been satisfied (except to the extent such
conditions have been waived with the prior written consent of Merrill Lynch);
(x) receipt of all requisite regulatory, governmental, shareholder and other
third party consents required to consummate the Transactions with none of such
consents imposing a burdensome condition on the Company or the Purchaser or any
of their subsidiaries in the reasonable opinion of Merrill Lynch; (xi)
satisfactory completion of Merrill Lynch's business, legal, environmental and
accounting due diligence review up until the closing of the sale of the Debt
Securities; (xii) Merrill Lynch having a reasonable time to market the Debt
Securities based on its experience in comparable transactions and existing
market conditions, as the case may be, and the marketing process having been
conducted in a manner reasonably satisfactory to Merrill Lynch; (xiii) receipt
of a letter from a valuation firm reasonably acceptable to Merrill Lynch as to
the solvency of the Company and their subsidiaries after giving effect to the
Transactions and the financing therefor; (xiv) there not having occurred, and
there not being any likelihood of an occurrence within a reasonably imminent
period of time of, any disruption or material adverse change or development
involving a prospective material adverse change in or affecting the loan
syndication or financial, banking, currency or capital markets in general
(either in the United States or any international market), in the reasonable
opinion of Merrill Lynch; (xv) Merrill Lynch having received such opinions,
reports, instruments, agreements and other documents as Merrill Lynch may
reasonably request; (xvi) no default existing under the terms of any material
agreement of the Company or the Purchaser or any of their subsidiaries; (xvii)
there not existing any threatened, instituted or pending action, proceeding or
counterclaim by or before any court or governmental, administrative or
regulatory agency or authority, domestic or foreign, challenging the
Transactions or the transactions contemplated thereby or seeking to obtain, or
having resulted in the entry of, any judgment, order or injunction that would
restrain, prohibit or impose materially adverse conditions on the ability of
Merrill Lynch to sell the Debt Securities or on the consummation of the
Transactions, or seeking any material damages as a result thereof, or seeking to
prohibit the ownership or operation by the Company, the Purchaser or any of
their subsidiaries of all or a material portion of any of their businesses or
assets or the businesses and assets of the Company, or otherwise materially
adversely affecting the Company, the Purchaser or any of their subsidiaries;
(xviii) no change or proposed change in United States law that could reasonably
be expected to materially and adversely affect the economic consequences,
including tax treatment, the Company and the Purchaser contemplate deriving from
the Transactions; and (xix) the Debt Securities shall have received a rating of
at least B3 from Standard & Poor's and at least B- from Moody's Investors
Service, Inc. The terms and conditions of, and documentation relating to, the
items enumerated above shall be on terms and in form and substance reasonably
acceptable to Merrill Lynch. This letter is solely for use by the Purchaser and
may not be disclosed (other than to the Company or its advisors) without our
prior written consent. This letter does not reflect a commitment to underwrite
or place the Debt Securities and shall be effective upon the date hereof and
shall expire 180 days from the date hereof.
-2-
<PAGE>
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that state (without giving effect to the
conflicts of law principles thereof).
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
Name:
Title:
Agreed and Accepted:
FPK, LLC
By: /s/ Frank P. Krasovec
---------------------------
Name:
Title:
-3-
<PAGE>
EXHIBIT B-3(a)
ARES LEVERAGED INVESTMENT FUND, L.P.
Los Angeles, California
March 14, 1998
FPK, LLC
106 E. 6th St.
Austin, Texas 78701
Attention: Mr. Krasovec
Sir:
You have advised us that FPK, LLC, a Delaware limited liability company
(AFPK) intends to pursue a proposal for the acquisition or recapitalization (the
"Recapitalization") of all of the capital stock of Norwood Promotional Products,
Inc. (the "Company") on the terms of the Merger Agreement between FPK and the
Company provided to you. You have advised us that in connection with the
Recapitalization approximately $135 million of debt will be incurred which it is
currently anticipated will be comprised as described below. All other debt of
the Company (consisting of approximately $47 million under the Company's
existing $125.0 million credit facility and certain other outstanding debt) will
be repaid or called for redemption simultaneously with the completion of the
Recapitalization.
To complete the Recapitalization and refinancing described above, and to
pay the costs and expenses related to the Recapitalization and related
financings, you have advised us that the total financing for the
Recapitalization and related costs and expenses will be approximately $176
million consisting of (i) equity financing of approximately $41 million (the
"Equity Financing") consisting of (x) approximately $21 million to be provided
by certain members of management and employees of the Company and certain other
investors, which may include equity currently invested in the Company valued at
$20.70 per share (the "Equity Investors") and (y) $20 million in the form of
preferred stock and common stock (the "Units"), which will be provided by Ares
Leveraged Investment Fund, L.P. or any of its affiliates ("Ares"), (ii) a $50
million credit facility (the "Bank Facility"), consisting of (A) a $25 million
term loan which will be fully drawn at the closing of the Recapitalization (the
"Closing") and (B) a $25 million revolving credit facility, of which no more
than $10 million will be drawn at Closing, which is the subject of a letter to
you from Merrill Lynch Capital Corporation, NationsBank, N.A. and NationsBanc
Montgomery Securities LLC, and (iii) funds raised through the sale in a public
offering or Rule 144A private placement of up to $100 million principal amount
of senior subordinated debt securities (the "Debt Securities") to be issued
simultaneous with the Closing. The Recapitalization, the Equity Financing, the
borrowings under the Bank Facility, and the issuance of the Debt Securities, are
collectively referred to as the "Transactions." We further understand that the
precise structure for the Transactions will be under continuing consideration,
may vary from the foregoing, and will be subject to our mutual agreement.
FPK has asked Ares to purchase the Units. The shares of common stock
included in the Units will constitute 15% of the Company's common equity on a
fully diluted basis. In reliance upon the information you have provided to us,
and subject to the terms and conditions hereof, Ares is pleased to commit to
purchase (the "Purchase") the Units, the principal terms and conditions of which
are set forth in the accompanying Summary of Terms and Conditions which is made
a part hereof. The commitment of Ares hereunder is subject to each of the terms
and conditions set forth herein and in the accompanying Summary
<PAGE>
of Terms and Conditions, and to the satisfaction of each of the following
conditions precedent in a manner acceptable to Ares:
(a) execution by FPK, the Company and/or other appropriate parties of the
Merger Agreement and related documentation in form and substance
satisfactory to Ares; provided, however, that Ares acknowledges that a
Merger Agreement in substantially the form of the draft dated March
11, 1998 which was provided to Ares will be satisfactory to Ares;
(b) there not having occurred and being continuing since the date hereof a
material adverse change in the market for high yield debt or equity
financings or a material disruption of, or a material adverse change
in, financial, banking or capital market conditions, in each case as
determined by Ares in its reasonable discretion;
(c) there not having occurred or becoming known any material adverse
change or any condition or event that could reasonably be expected to
result in a material adverse change in the condition (financial or
otherwise), assets, liabilities (contingent or otherwise), solvency,
results of operations, business, prospects, properties or material
agreements of the Company and its subsidiaries considered as a whole
since August 30, 1997 or in its business plan as provided to Ares, in
each case in the Ares' sole judgment;
(d) a consolidated pro forma capitalization of the Company and its
subsidiaries assuming consummation of the Transactions and related
financings satisfactory to Ares in amounts described in the second
paragraph of this letter;
(e) approximately $21 million of equity financing to be provided by the
Equity Investors on terms acceptable to Ares;
(f) terms, structure and arrangements regarding the financing for the
Transactions being reasonably satisfactory to the Ares (including,
without limitation, the effect of the Recapitalization on any
outstanding warrants, options and convertible debt and any
documentation relating to the Transactions), and, in addition to the
conditions set forth in clause (i) below, such financing being
adequate to consummate the Transactions and to meet the anticipated
capital requirements of the Company and its subsidiaries following
the Transactions in the sole opinion of Ares;
(g) the execution of a customary stock purchase agreement, certificate of
designation, and shareholders agreement and other documents in Ares
standard forms and satisfaction of the conditions therein stated;
(h) the execution and delivery of definitive documentation, including the
acquisition or merger agreement, employment agreements with senior
management and documentation evidencing the equity financing to be
provided by the Equity Investors, relating to and encompassing the
terms of the Transactions, all in form and substance reasonably
satisfactory to Ares, and such documentation not having been amended
without the prior written consent of Ares and being in full force and
effect and all conditions precedent thereunder to the consummation of
the Transactions, or the financing thereof, as the case may be, having
been satisfied (except to the extent such conditions have been waived
with the prior written consent of Ares);
(i) receipt of all requisite regulatory, governmental, shareholder and
other third party consents required to consummate the Transactions
with none of such consents imposing a burdensome condition on FPK or
the Company or any of their subsidiaries in the reasonable opinion of
Ares;
-2-
<PAGE>
(j) completion of Ares' financial, legal, accounting, business,
environmental, tax and other diligence, the results of which shall be
satisfactory to Ares in its sole discretion;
(k) Ares having received such opinions, reports, instruments, agreement
and other documents as Ares may reasonably request;
(l) no default existing under the terms of any material agreement of FPK
or the Company or any of their subsidiaries;
(m) there not existing any threatened, instituted or pending action,
proceeding or counterclaim by or before any court or governmental
administrative or regulatory agency or authority, domestic or foreign,
challenging the Transactions or the transactions contemplated thereby
or seeking to obtain, or having resulted in the entry of, any
judgment, order or injunction that would restrain, prohibit or impose
materially adverse conditions on the consummation of the Transactions,
or seeking any material damages as a result thereof, or seeking to
prohibit the ownership or operation by FPK or any of its subsidiaries
of all or a material portion of any of their businesses or assets of
the businesses and assets of the Company, or otherwise materially
adversely affecting FPK or the Company or any of their subsidiaries;
and
(n) no change or proposed change in United States law that could
reasonably be expected to materially and adversely affect the economic
consequences, including the tax treatment, FPK or the Company
contemplate deriving from the Transactions.
If the continuing review by Ares of the Company discloses information
relating to conditions or events not previously disclosed to Ares or relating to
new information or additional developments concerning conditions or events
previously disclosed to Ares which Ares, in its reasonable discretion believes
may have a material adverse effect on the condition (financial or otherwise),
assets, properties, business, operations or prospects of the Company and its
subsidiaries, taken as a whole, Ares may, in its reasonable discretion, suggest
alternative terms and conditions applicable to the Units that ensure adequate
protection for Ares, or decline to consummate the Purchase.
This commitment will expire at noon (Pacific time) on March 16, 1998,
unless prior thereto a copy of this letter reflecting your acceptance of this
commitment is returned to Ares, attention of the undersigned. If accepted in
accordance with the foregoing, then this commitment will expire 180 days from
execution and delivery of the Merger Agreement.
You hereby represent, warrant and covenant that, to the best of your
knowledge (a) all information other than Projections (as defined below) which
has been or is hereafter made available to Ares by you or any of your
representatives in connection with the Transactions contemplated hereby
("Information") is and will be complete and correct in all material respects and
does not and will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained therein not
misleading, and (b) all financial projections concerning the Company that have
been or are hereafter made available to Ares by you or any of your
representatives (the "Projections") have been or will be prepared in good faith
based upon reasonable assumptions. You agree to furnish us with such Information
and Projections from time to time until the closing date for the Purchase so
that the representation and warranty in the preceding sentence is correct on the
such date.
IF ARES BECOMES INVOLVED IN ANY CAPACITY IN ANY ACTION, PROCEEDING OR
INVESTIGATION IN CONNECTION WITH ANY MATTER CONTEMPLATED BY THIS LETTER, FPK
WILL REIMBURSE ARES FOR ITS REASONABLE LEGAL AND OTHER EXPENSES (INCLUDING THE
COST OF ANY INVESTIGATION AND PREPARATION) AS THEY ARE INCURRED BY ARES.
-3-
<PAGE>
FPK ALSO AGREES TO INDEMNIFY AND HOLD HARMLESS ARES AND ITS AFFILIATES AND THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS (THE "INDEMNIFIED PARTIES")
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES 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 ARES OR SUCH OTHER INDEMNIFIED PARTY. IN THE
EVENT OF ANY DISPUTE ARISING OUT OF OR BASED UPON THIS COMMITMENT LETTER OR THE
TRANSACTIONS CONTEMPLATED HEREBY, FPK WILL WAIVE ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY.
The provisions of the immediately preceding paragraph shall remain in full
force and effect regardless of whether definitive documentation relating to the
Purchase shall be executed and delivered and notwithstanding the termination of
this letter agreement or the commitment of Ares hereunder, provided, however,
that the provisions of the immediately preceding two paragraphs shall be
superseded by the provisions of the definitive documentation relating to the
Purchase.
This commitment may be assigned (in whole or in part) by Ares to any of its
affiliates, without your consent, provided that Ares continues to be bound
hereby.
Except as required by applicable law, this letter, the Summary of Terms and
Conditions, and the letter from Ares to FPK related to certain fees of even date
herewith (the "Fee Letter") and the contents hereof and thereof shall not be
disclosed by you to any third party without the prior consent of Ares, other
than to your attorneys, financial advisors, accountants and lenders, in each
case to the extent necessary in your reasonable judgment; provided, however, it
is understood and agreed that after your acceptance of this letter, the Summary
of Terms and Conditions and the Fee Letter, you may disclose the terms of this
letter and the Summary of Terms and Conditions (but not the Fee Letter) to the
Company and its attorneys and financial advisors, accountants and lenders in
connection with the Recapitalization, in filings with the SEC and other
applicable regulatory authorities and stock exchanges, and in proxy and other
materials disseminated to stockholders and other purchasers of securities of the
FPK. Without limiting the foregoing, if you disclose the contents of this letter
or the Fee Letter in contravention of the preceding sentence, you shall be
deemed to have accepted the terms of this Commitment Letter and Summary of Terms
and Conditions, and the Fee Letter.
THIS LETTER (INCLUDING THE SUMMARY OF TERMS AND CONDITIONS) AND THE FEE
LETTER REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
MATTERS COVERED HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER
HEREOF.
THIS LETTER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.
-4-
<PAGE>
This letter may be executed in counterparts, which when taken together
shall constitute an original.
We look forward to working with you on this transaction.
Very truly yours,
Ares Leveraged Investment Fund L.P.
By: Ares Management, L.P.
its general partner
By: /s/ Bennett Rosenthal
----------------------
Bennett Rosenthal
Accepted:
FPK, LLC
By: /s/ Frank P. Krasovec
-------------------------------
Name: Frank P. Krasovec
Title:
---------------------------
Date:
----------------------------
-5-
<PAGE>
EXHIBIT B-3(b)
20,000 UNITS CONSISTING OF ONE SHARE OF
SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK
AND SHARES OF COMMON STOCK
SUMMARY OF INDICATIVE TERMS AND CONDITIONS
MARCH 14, 1998
ISSUER: Norwood Promotional Products, Inc. (the "Company").
INITIAL PURCHASER: One or more affiliates of Ares Leveraged Investment
Fund, L.P. (the "Purchaser").
ISSUE: 20,000 Units (the "Units") each consisting of (i) one
share of Senior Redeemable Exchangeable Preferred Stock
with a liquidation preference (the "Liquidation
Preference") of $1,000 per share (the "Preferred
Stock"), and (ii) Common Stock (the "Common Stock").
The total number of shares of Common Stock will
represent 15% of the fully diluted common equity of the
Company as of the date of the closing (the "Closing")
of the Recapitalization, after giving effect to all the
transactions contemplated thereby. All outstanding
options, warrants and convertible debt will be counted
in making such dilution calculation.
GROSS PROCEEDS: $20 million.
USE OF PROCEEDS: To finance, in part, the proposed recapitalization of
the Company (such financing, the "Recapitalization").
RANKING: Senior to all other classes of capital stock of the
Company, now outstanding or hereafter issued.
DIVIDENDS: The annual dividend rate (the "Dividend Rate") will be
the greater of (i) 12.25% and (ii) the yield to
maturity on the Senior Subordinated Notes to be issued
as part of financing the Recapitalization plus 250
basis points.
From the date of the Closing through the fifth
anniversary of the Closing, dividends will be payable
(at the Company's option) in additional shares of
Preferred Stock or cash. After the fifth anniversary of
the Closing, dividends will be payable in cash. All
dividends accumulate and are payable (whether in cash
or Preferred Stock) quarterly, in arrears. Dividends
will cumulate on all unpaid dividends at the applicable
annual Dividend Rate.
<PAGE>
OPTIONAL REDEMPTION: The Preferred Stock is redeemable, in whole or in part,
at the option of the Company at any time on or after
the dividend payment date that is closest to the fifth
anniversary of the Closing at the redemption prices set
forth below plus accrued and unpaid interest to the
applicable redemption date, if redeemed during the 12-
month period beginning on the dividend payment date
closest to the anniversary of the Closing of the years
indicated below:
<TABLE>
<CAPTION>
Year Percentage of Liquidation Preference
---- ------------------------------------
<S> <C>
2003 100 + 1/2 of Dividend Rate
(i.e. 106.13%/2/)
2004 100 + 1/4 of Dividend Rate
(i.e. 103.06%/1/)
2005 and thereafter 100.00%
</TABLE>
The Preferred Stock will also be redeemable at the
option of the Company any time on or prior to the fifth
anniversary of the Closing in whole and not in part,
for cash (i) within 20 days of any Public Equity
Offering with the net proceeds of such offering or (ii)
upon a Change of Control, in each case, at a redemption
price, stated as a percentage of Liquidation
Preference, equal to 100 plus the Dividend Rate (i.e.
112.25%./1/)
MANDATORY REDEMPTION: The Preferred Stock is subject to mandatory redemption
by the Company on the tenth anniversary of the Closing,
at a redemption price equal to 100% of the Liquidation
Preference, plus accrued and unpaid dividends.
EXCHANGE PROVISIONS: The Company will have the option to exchange the
Preferred Stock for Subordinated Notes at any time. The
Subordinated Notes will have substantially the same
terms as the Preferred Stock.
VOTING RIGHTS: The holders of the Preferred Stock shall have no voting
rights with respect to the Preferred Stock, other than
as required by law. In addition, if the Company has not
paid cash dividends as required, is in breach of any of
the covenants, fails to make a mandatory redemption, or
fails to make full payment at final maturity or
acceleration of other debt of the Company, the holders
of the Preferred Stock shall have the right to elect
the lesser of (i) two directors and (ii) 25% of the
Board of Directors of the Company (rounded up to the
next whole person) until such time as the Company is
fully current in all dividend payment obligations, has
cured the breach or has made all mandatory redemptions,
as applicable.
REGISTRATION RIGHTS: Holders of the Preferred Stock will be entitled to two
demand registration rights at the Company's expense, as
well as an unlimited piggyback registration rights at
the Company's expense.
- --------------------
/2/ Based on an assumed Dividend Rate of 12.25%.
-2-
<PAGE>
See "Common Stock" for registration rights with respect
to the Common Stock.
INFORMATION AND
ACCESS TO MANAGEMENT: Holders of Preferred Stock and Common Stock will be
provided with reasonable access to management and
detailed financial and operating information upon
request.
REPRESENTATIONS AND
WARRANTIES: Usual and customary for a transaction of this type.
COVENANTS: Usual and customary including, but not limited to;
(i) a debt and preferred stock incurrence test;
(ii) limitations on the right of subsidiaries to issue
stock;
(iii) limitations on restricted payments;
(iv) limitations on mergers and asset sales;
(v) provision of financial and other information;
(vi) transactions with affiliates; and
(vii) limitations on changes of control, the breach of
which will vest in Purchaser the right to require
the Company to redeem or repurchase the Preferred
Stock at 101% of the Liquidation Preference at
the time of redemption or repurchase, plus
accrued and unpaid dividends.
SEPARABILITY: The Preferred Stock and the Common Stock shall be
separable at the option of the Purchaser.
COMMON STOCK: The holders of the Common Stock shall have the benefit
of the following provisions: (i) a customary
shareholders agreement including, among other things,
tag along and drag along rights, (ii) two demand
registration rights at the Company's expense and (iii)
unlimited piggyback registration rights at the
Company's expense.
BOARD REPRESENTATION: Purchaser will be entitled to have one person nominated
and have elected to the Company's board of directors.
COMMITMENT FEE: $400,000, earned at signing and payable at Closing.
EXPENSES: The Company will pay all of the Purchaser's reasonable
out-of-pocket fees and expenses relating to the
transactions contemplated hereby, including, but not
limited to, the fees and expenses of Ares's legal
counsel and due diligence expenses.
GOVERNING LAW: New York, as to agreements; Texas, as to Preferred
Stock.
-3-
<PAGE>
CONDITIONS PRECEDENT: The obligation of the Purchaser to purchase the
Preferred Stock at Closing shall be subject to the
satisfaction of conditions precedent usual and
customary for leveraged financings generally and for
this transaction in particular, including, but not
limited to, the following:
(i) The negotiation, execution and delivery of
definitive documentation reasonably satisfactory
to the Purchaser.
(ii) The Purchaser shall have completed reasonable and
customary financial, legal, accounting, business,
environmental, tax and other diligence, the
results of which shall be satisfactory to it in
its sole discretion.
(iii) The Purchaser shall be satisfied with the: (a)
legal and tax structure of the Recapitalization,
(b) the final sources and uses of funds (and the
terms thereof) raised in connection with the
Recapitalization, (c) the capital structure and
ownership of the Company and (d) the terms of the
overall transaction.
(iv) There shall not have occurred, in the Purchaser's
reasonable estimation, a material adverse change
since August 30, 1997 in the business, assets,
operations, condition (financial or otherwise) or
prospects of the Company and its subsidiaries,
taken as a whole, or in the facts and information
regarding such entities as represented to date.
(v) The Purchaser shall have received satisfactory
customary opinions of counsel to the Company
(which shall cover, among other things,
authority, legality, validity, binding effect and
enforceability of the documents for the Units)
and such corporate resolutions, certificates and
other documents as the Purchaser shall reasonably
require.
(vi) Receipt of all governmental, shareholder and
third party consents and approvals necessary, in
the opinion of the Purchaser, in connection with
the purchase of the Company and the related
financings and other transactions contemplated
hereby and expiration of all applicable waiting
periods without any action being taken by any
authority that could restrain, prevent or impose
any material adverse conditions on the Company,
the Company, or such other transactions, or that
could seek or threaten and of the foregoing, and
no law or regulation shall be applicable which in
the judgment of the Purchaser could have such
effect.
-4-
<PAGE>
(vii) The Company and its subsidiaries shall be in
compliance in all material respects with all
existing financial obligations (after giving
effect to the Recapitalization).
(viii) Certain key executives of the Company and the
Company will have entered into customary
employment agreements with the Company.
OTHER: This Summary of Terms is intended as an outline only
and does not purport to summarize all the conditions,
covenants, representations, warranties and other
provisions which would be contained in definitive legal
documentation for the purchase of the Preferred Stock
contemplated hereby.
-5-
