1
EXHIBIT 99 (b)(1)
CREDIT SUISSE FIRST BOSTON
Xxxxxx Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Environmental Systems Products, Inc.
0 Xxxxxx Xxxx
Xxxx Xxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxx
August 12, 1998
Environmental Systems Products, Inc.
------------------------------------
Senior Secured Credit Facilities and Bridge Loan Commitment Letter
------------------------------------------------------------------
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that a newly formed
entity (the "BORROWER"), satisfactory to CSFB, that will directly or indirectly
own 100% of the outstanding equity of Environmental Systems Products, Inc. (the
"COMPANY"), and will be more than 50% owned and controlled by Alchemy Partners
("SPONSOR"), intends to acquire (the "ACQUISITION") through a wholly-owned
subsidiary of the Borrower satisfactory to CSFB (the "ACQUIROR") all the issued
and outstanding shares of capital stock (the "SHARES") of Envirotest Systems
Corp. (the "TARGET") pursuant to a recommended cash tender offer (the "OFFER")
for not less than 90% of the Shares (the number of shares sufficient to
accomplish a short-form merger). We understand that the aggregate cash
consideration to be paid for the Shares will be approximately $266.3 million.
You have further advised us that in connection with the Acquisition (i) Sponsor
will make or cause to be made by certain shareholders of Newmall Limited as of
the date hereof an indirect equity contribution of $80 million (the "EQUITY
CONTRIBUTION") to the Borrower, (ii) the Borrower will obtain senior secured
credit facilities (the "SENIOR BANK FACILITY") in an aggregate principal amount
of $445 million (as more fully described in the Summary of Principal Terms and
Conditions attached hereto as Exhibit A (the "SENIOR TERM SHEET")), (iii)
certain existing indebtedness of the Target and the Company (the "EXISTING
INDEBTEDNESS") will be repaid in an aggregate amount (including any applicable
prepayment premiums) of up to $491.8 million (which, in the case of any existing
public debt, will be accomplished through tender offers or, but only to the
extent the same can be accomplished in a timely manner in accordance with the
terms thereof, voluntary redemption rights or, to the extent either of the
foregoing do not result in the acquisition of all of the outstanding public debt
simultaneously with the Acquisition, defeasance of the remaining portion of such
public debt coupled with a notice of voluntary redemption for such remaining
debt (the "DEBT TENDER")), and (iv) the Borrower will issue Senior Subordinated
Notes (the "SENIOR SUBORDINATED NOTES") in a principal amount of $225 million
or, in lieu thereof, obtain Bridge Loans (as defined below) (the Offer, the
Acquisition, the Debt Tender and the
2
foregoing transactions are collectively referred to herein as the
"TRANSACTIONS"). The approximate sources and uses of the funds necessary to
consummate the Transactions are set forth on Xxxxx XX to the Senior Term Sheet.
You have requested that CSFB (i) agree to structure, arrange and syndicate
the Senior Bank Facility, (ii) commit to provide the Senior Bank Facility and to
serve as advisor, arranger, administrative agent and collateral agent therefor
and (iii) commit to provide bridge loans of up to $225 million (the "BRIDGE
LOANS" and, together with the Senior Bank Facility the "FACILITIES") to the
Borrower. CSFB is pleased to advise you of (i) its willingness to act as
exclusive advisor, arranger, administrative agent and collateral agent for the
Senior Bank Facility, (ii) its commitment to provide the entire amount of the
Senior Bank Facility upon the terms and subject to the conditions set forth or
referred to in this commitment letter (the "COMMITMENT LETTER") and in the
Senior Term Sheet, (iii) its commitment to provide the entire amount of the
Bridge Loans upon the terms and subject to the conditions set forth or referred
to herein and in the Summary of Principal Terms and Conditions attached as
Exhibit B hereto (the "BRIDGE TERM SHEET"; together with the Senior Term Sheet,
the "TERM SHEETS").
CSFB reserves the right and intends, prior to or after the execution of the
definitive documentation with respect to the Facilities (the "FACILITIES
DOCUMENTS"), to syndicate all or a portion of its commitments to one or more
financial institutions (such financial institutions, together with CSFB, the
"LENDERS") identified by us in consultation with, and reasonably acceptable to,
you, which Lenders will become parties to the Facilities Documents. It is agreed
that CSFB will act as the sole administrative agent and advisor for, and sole
arranger and syndication manager of, the Facilities and that no additional
agents or co-agents or co-arrangers will be appointed without the prior written
consent of CSFB; provided, however, that in the event CSFB syndicates more than
95% of the amount of its commitments to other Lenders, CSFB, upon the request of
the Sponsor (but only so long as the Sponsor continues to control Holdings, the
Borrower, the Acquiror and the Company), shall cease to act as administrative
agent, adviser, arranger and syndication manager of the Facilities. In addition,
CSFB reserves the right to employ the services of Credit Suisse First Boston
Corporation ("CSFBC") in providing services incidental to the provision of the
Bridge Loans and any resale of the Bridge Loans or Exchange Notes (as defined in
the Bridge Term Sheet), and you agree that, in connection with the provision of
such services, CSFB and CSFBC may share with each other any confidential or
other information relating to the Acquiror, the Borrower, the Company, the
Target, each entity (other than the Borrower) that directly or indirectly owns
100% of the outstanding equity of either the Target or the Company after giving
effect to the Transactions (collectively, "HOLDINGS") and their respective
subsidiaries and affiliates as from time to time they may possess.
CSFB will manage all aspects of the syndication, including decisions as to
the selection of institutions to be approached and when they will be approached,
when their commitments will be accepted, which institutions identified by us in
consultation with, and reasonably acceptable to, you, will participate in the
allocations of the commitments among the Lenders and the amount and distribution
of fees among the Lenders. You understand that the
2
3
Senior Bank Facility and the Bridge Loans will be separately syndicated. You
agree to assist CSFB in forming any such syndicate and to provide the potential
Lenders, promptly upon request, with all information reasonably requested by
them to complete successfully the syndication, including but not limited to (a)
an information package, including a Confidential Information Memorandum for each
of the Facilities and other marketing materials for delivery to potential
Lenders and participants, and (b) all information and projections prepared by
you or your advisers relating to the Transactions. You also agree to participate
in, and to make appropriate senior officers and representatives of Sponsor, the
Acquiror, the Borrower, the Target, Holdings and the Company available to
participate in, informational meetings for potential Lenders and participants at
such times and places as CSFB may reasonably request and to use commercially
reasonable efforts to ensure that CSFB's syndication efforts materially benefit
from the Target's and the Company's existing lending relationships.
You represent and warrant and covenant that:
(a) all written information (other than financial projections)
which has been or is hereafter furnished to CSFB by you or any of your
representatives in connection with the Transactions is and will be
complete and correct as of the date thereof 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 in order to make the
statements contained therein not misleading in light of the
circumstances under which such statements were or are made; and
(b) all financial projections that have been or are hereafter
prepared by you or on your behalf and made available to CSFB have been
or will be prepared in good faith based upon what you believe to be
reasonable assumptions (it being understood that such projections are
subject to significant uncertainties and contingencies, many of which
are beyond the Borrower's control, and that no assurance can be given
that the projections will be realized).
You agree to supplement the information and projections referred to in clauses
(a) and (b) above from time to time until completion of the syndication so that
the representations and warranties in the preceding sentence remain correct
without regard to when such information and projections were furnished. In
arranging and syndicating the Facilities, CSFB will be entitled to use and rely
on such information and projections without independent verification thereof.
In connection with the syndication of the Facilities, CSFB may, in its
discretion, allocate to other Lenders portions of any fees payable to CSFB in
connection with the Facilities. You agree that neither you, the Borrower, the
Target nor any of their respective affiliates will pay to any Lender any
compensation or titles of any kind for its participation in the Facilities
except as expressly provided for in this letter or in the fee letter dated the
date hereof between you and CSFB (the "FEE LETTER").
3
4
You agree to reimburse CSFB and its affiliates, upon request made from time
to time, for their reasonable out-of-pocket fees and expenses incurred in
connection with the preparation, execution and delivery of this letter, the Fee
Letter, the Warrant Letter (as defined below) and the Facilities Documents and
the activities thereunder or contemplated thereby, including without limitation
syndication expenses (other than fees allocated in accordance with the preceding
paragraph) and the reasonable fees and expenses of Skadden, Arps, Slate, Xxxxxxx
& Xxxx LLP and such other outside counsel and advisors to CSFB and its
affiliates approved by you (such approval not to be unreasonably withheld),
whether incurred before or after the execution of this letter.
You agree to indemnify and hold harmless CSFB and each other Lender, their
respective affiliates and each of their respective directors, officers,
employees, agents and advisors (each, an "INDEMNIFIED PARTY"), from and against
any and all claims, damages, liabilities (including securities law liabilities),
losses and expenses, including reasonable fees, expenses and disbursements of
counsel, which may be incurred by or asserted against an Indemnified Party in
connection with CSFB's or any Lender's commitment or participation in the
transactions contemplated by this letter, the Facilities or any related matter
or any investigation, litigation or proceeding in connection therewith and
whether or not the Acquisition is consummated or the Facilities are drawn upon,
except to the extent such claim, damage, loss, liability or expense is found in
a final nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's own gross negligence or willful
misconduct; provided, however, that in connection with any such third party
claim, you shall not be responsible for, or required to hold harmless any
Indemnified Party from and against, the reasonable fees, expenses and
disbursements of more than one counsel for all of the Indemnified Parties taken
together, except to the extent any such Indemnified Party requires its own
counsel in order to be adequately represented in the reasonable judgment of such
Indemnified Party. No Indemnified Party shall be responsible or liable to any
other party hereto or any other person for consequential damages that may be
alleged as a result of this letter or the breach of any party's obligations
hereunder.
You hereby agree, in accordance with the terms of a separate letter dated
the date hereof between you and CSFB (the "WARRANT LETTER"), to make available
to CSFB and the Lenders warrants to acquire equity in the Borrower to assist in
the syndication of the Bridge Loans, or the resale of Exchange Notes.
This letter is delivered to you on the understanding that neither this
letter nor any other agreement between us related to this letter or the
Transactions, including the Term Sheets, the other exhibits hereto, the letter
of even date herewith regarding the engagement of CSFBC with respect to the
financing and structure of the Transactions (the "ENGAGEMENT LETTER"), the Fee
Letter and the Warrant Letter, nor any of their terms or substance shall be
disclosed, directly or indirectly, to any other person except (a) to your
officers, directors, agents and advisors who are directly involved in the
consideration of this matter (and then only on a confidential basis) or (b) as
may be compelled in a judicial or administrative proceeding or as otherwise
required by law (in which case you agree to inform us promptly thereof);
4
5
provided, however, that you may disclose (and then only on a confidential basis)
this letter, the Term Sheets and the other exhibits hereto and their terms and
substance (but not the Engagement Letter, the Fee Letter or the Warrant Letter
or their respective terms and substance) to the Target, upon your acceptance of
this letter.
Our offer to provide the Facilities will terminate at 5:00 P.M., New York
time, (i) on August 13, 1998, unless on or before that time you accept this
letter by signing and returning an enclosed counterpart of this letter, the Fee
Letter, the Engagement Letter and the Warrant Letter and (ii) if accepted by you
on or prior to such time, on October 15, 1998. In any event your obligations
with respect to indemnification and confidentiality shall remain in full force
and effect, regardless of any termination of the commitment of CSFB made
hereunder. You agree to cause the Target, the Borrower, the Acquiror and
Holdings to become a party to this letter, the Fee Letter and the Warrant Letter
as soon as practicable (which, in the case of each such person other than the
Target, will be no later than August 24, 1998 and, in the case of the Target,
will be the date of consummation of the Acquisition) and thereby assume your
obligations thereunder jointly and severally with you. The obligations of you,
the Acquiror, the Borrower, Holdings and the Target (each a "Loan Party" and
collectively the "Loan Parties") hereunder are joint and several obligations.
This 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. This letter and CSFB's commitments
hereunder may not be assigned by you without the prior written consent of CSFB,
and any attempted assignment without such consent shall be void. CSFB's
commitments hereunder may be assigned by CSFB to any of its affiliates or,
subject to the proviso in the second full paragraph on page 2 hereof, any
Lender. Any such assignment to an affiliate shall not relieve CSFB from any of
its obligations hereunder unless and until the Facilities Documents with respect
to such assigned commitment shall have been executed and delivered by the
parties thereto, but any assignment to a Lender shall be by novation and shall
release CSFB from its commitment hereunder pro tanto. This letter may not be
amended or modified or any provision hereof waived except in writing signed by
you and CSFB. This letter shall be governed by and construed in accordance with
the internal laws of the State of New York without giving effect to the
conflicts of laws principles thereof. This letter may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original and all of which together shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page of this letter by
facsimile transmission shall be effective as delivery of a manually signed
counterpart hereof.
[Remainder of this page intentionally left blank]
5
6
We appreciate the opportunity to assist you in this very important
transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ XXXXXX XXXX
-------------------------
Name: Xxxxxx Xxxx
Title: Vice President
By: /s/ XXXXXXX XXXXX
-------------------------
Name:
Title:
Accepted and agreed to as of
the date first written above,
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ XXXXX X. XXXXXXXX
--------------------------------
Name:
Title:
6
7
EXHIBIT A
Environmental Systems Products, Inc.
Senior Secured Credit Facilities
Summary of Principal Terms and Conditions(1)
Borrower: A newly-formed entity (the "BORROWER") directly or
indirectly owning all of the outstanding equity of
Environmental Systems Products, Inc. (the "COMPANY")
that is satisfactory to CSFB.
Acquisition: The Borrower intends to acquire (the "ACQUISITION") all
the issued and outstanding share capital (the "SHARES")
of Envirotest Systems Corp. (the "TARGET"), pursuant to
a recommended cash tender offer (the "OFFER") to be
consummated by the Acquiror, for aggregate cash
consideration of approximately $266.3 million (the
"PURCHASE PRICE"). In connection with the Acquisition,
(a) the Borrower will obtain the senior secured credit
facilities (the "SENIOR BANK FACILITY") as described
below under the caption "Facility" in an aggregate
principal amount of $445 million; (b) certain existing
indebtedness of the Target and the Company (the
"EXISTING INDEBTEDNESS") will be repaid in an aggregate
amount (including any applicable prepayment premiums) of
up to $491.8 million; (c) an equity contribution of $80
million (the "EQUITY CONTRIBUTION") will be made to the
Borrower by Sponsor; (d) the Borrower will issue Senior
Subordinated Notes (the "SENIOR SUBORDINATED NOTES") in
a principal amount of $225 million or, in lieu thereof,
obtain Bridge Loans in such principal amount; and (e)
the Borrower will pay fees and expenses (including,
without limitation, reasonable fees of outside counsel)
in connection with the foregoing in an amount not to
exceed $45 million (the Offer, the Acquisition and the
foregoing transactions are collectively referred to
herein as the "TRANSACTIONS").
------------------
(1) All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
A-1
8
Sources and Uses: The approximate sources and uses of funds necessary to
consummate the Transactions are set forth on Xxxxx XX
attached hereto.
Agent: CSFB will act as administrative agent (the "AGENT") for
a syndicate of financial institutions identified by CSFB
in consultation with, and reasonably acceptable to, the
Company (the "LENDERS"), and will perform the duties
customarily associated with such role.
Advisor and Arranger: CSFB will act as advisor and arranger for the Senior
Bank Facility (the "ARRANGER"), and will perform the
duties customarily associated with such roles.
Facilities: (A) Senior Secured Term Loan Facilities in an
aggregate principal amount of up to $395 million
(the "TERM FACILITY"), of which (i) $125 million
("TERM LOAN A") will mature in five years, (ii)
$50 million ("TERM LOAN B") will mature in six
years, (iii) $110 million ("TERM LOAN C") will
mature in seven years and (iv) $110 million
("TERM LOAN D") will mature in eight years.
The Agent may, with the Company's or the
Borrower's consent (not to be unreasonably
withheld), reallocate amounts among Term Loan A,
Term Loan B, Term Loan C and Term Loan D in
order to facilitate the syndications of the
Senior Bank Facility, provided that the
aggregate amount of the Term Facility remains
unchanged.
(B) Senior Secured Revolving Credit Facility (the
"REVOLVING FACILITY") in an amount equal to $50
million, of which up to an amount to be agreed
upon will be available in the form of letters of
credit.
Purpose: (A) The proceeds of the Term Facility will be used
by the Borrower on the date of the initial
funding under the Senior Bank Facility (the
"CLOSING DATE"), together with the proceeds of
the Senior Subordinated Notes (or the Bridge
Loans) and the Equity Contribution and $92.5
million of cash on hand at the Target and the
Company, solely (i) to
A-2
9
finance the Purchase Price, (ii) to repay the
Existing Indebtedness and (iii) to pay related
fees and expenses.
(B) The proceeds of loans under the Revolving
Facility in an amount not to exceed $10.6
million may be used, together with the proceeds
of the Equity Contribution and Senior
Subordinated Notes (or Bridge Loans) to finance
the Acquisition, repay Existing Indebtedness and
pay related fees and expenses. The proceeds of
any subsequent borrowings under the Revolving
Facility will be used for general corporate
purposes.
(C) Letters of credit will be used by the Borrower
solely for ordinary course purposes.
Availability: (A) Loans under the Term Facility will be made
available only on the Closing Date. Such loans,
once repaid may not be reborrowed.
(B) Loans under the Revolving Facility will be
available at any time prior to the final
maturity of the Revolving Facility. Amounts
repaid under the Revolving Facility may be
reborrowed.
(C) Letters of Credit will be available at any time
before the fifth business day prior to the final
maturity of the Revolving Facility.
Default Rate: The applicable interest rate plus 2% per annum.
Letters of Credit: Letters of credit under the Revolving Facility will be
issued by a New York-based Lender, as issuing bank (in
such capacity, the "ISSUING BANK"), agreed upon by the
Borrower and the Agent. Each letter of credit shall
expire no later than the earlier of (a) 12 months after
its date of issuance and (b) the fifth business day
prior to the final maturity of the Revolving Facility.
Drawings under any letter of credit shall be reimbursed
by the Borrower on the same business day. To the extent
that the Borrower does not reimburse the Issuing Bank on
the same business day, the Lenders shall be irrevocably
A-3
10
obligated to reimburse the Issuing Bank 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.
The issuance of all letters of credit shall be subject
to the customary procedures of the Issuing Bank.
Final Maturity and (A) Term Facility
Commitment Reductions:
Term Loan A, Term Loan B and Term Loan C and
Term Loan D will mature on the fifth, sixth,
seventh and eighth anniversaries, respectively,
of the Closing Date, and will amortize on a
quarterly basis, in annual amounts to be agreed
upon.
(B) The Revolving Facility will mature on the fifth
anniversary of the Closing Date.
Guarantees: All obligations of the Borrower under the Senior Bank
Facility will be unconditionally guaranteed by Holdings,
each other existing and subsequently acquired or
organized domestic subsidiary of the Borrower
(including, without limitation, the Company, the Target
and their respective domestic subsidiaries).
Security: The Senior Bank Facility and the related guarantees will
be secured by substantially all the assets of each Loan
Party and each other subsequently acquired or organized
subsidiary of the Borrower (collectively, the
"COLLATERAL"), including but not limited to (a) a first
priority pledge of all the capital stock of each Loan
Party (other than the Borrower) and each other existing
and subsequently acquired or organized subsidiary of the
Borrower (65% of foreign subsidiaries of the Target or
the Company) and (b) perfected first priority security
interests in, and mortgages on, substantially all
tangible and intangible assets of each Loan Party and
each other existing and subsequently acquired or
organized domestic subsidiary of the Borrower (including
but not limited to accounts receivable, inventory,
general intangibles, intellectual property, real
property, cash and proceeds of the foregoing).
A-4
11
All the above-described pledges, security interests and
mortgages shall be created on terms, and pursuant to
documentation, reasonably satisfactory to the Lenders
and the Borrower, and, subject to limited exceptions to
be agreed upon, none of the Collateral shall be subject
to any other pledges, security interests or mortgages.
Interest Rates As set forth on Annex I hereto.
and Fees:
Mandatory Prepayment: Loans under the Term Facility shall be prepaid with (a)
a percentage to be agreed upon of Consolidated Excess
Cash Flow (to be defined), (b) 100% of the net cash
proceeds of all non-ordinary-course asset sales or other
dispositions of property by the Borrower and its
subsidiaries (including insurance and condemnation
proceeds), subject to exceptions to be agreed upon, (c)
100% of the net cash proceeds of issuances of debt
obligations of the Borrower and its subsidiaries,
subject to exceptions (including the Bridge Loans, the
Exchange Notes and the Senior Subordinated Notes) to be
agreed upon, and (d) 100% of the net cash proceeds of
issuances of equity securities of the Borrower and its
subsidiaries, subject to exceptions to be agreed upon.
Mandatory prepayments shall be made, without premium or
penalty (but with Breakage Costs (as defined below)),
and shall be applied pro rata to the Term A, B, C and D
Loans, in each case pro rata to the remaining
amortization payments of such loans; provided that
holders of Term Loan B, Term Loan C and Term Loan D may
elect to have their portion of any mandatory prepayment
applied to any outstanding portion of Term Loan A.
Voluntary Prepayment: Voluntary prepayments will be permitted in whole or in
part, at the option of the Borrower, in minimum
principal amounts to be agreed upon, without premium or
penalty, other than payment of breakage costs (excluding
profits and Applicable Margins) and reimbursement of the
Lenders' actual re-employment costs in the case of
prepayment of Adjusted LIBOR borrowings other than on
the last day of the relevant Interest Period (such
breakage costs and re-employment costs, collectively
"Breakage Costs").
A-5
12
Representations Usual for facilities and transactions of this type and
and Warranties: others to be agreed upon by the Agent and the Borrower
(the Borrower's agreement not to be unreasonably
withheld), including but not limited to accuracy of
financial statements; no material adverse change;
absence of litigation; no violation of agreements or
instruments; compliance with laws (including employee
benefits, margin regulations and environmental laws);
payment of taxes; ownership of properties; solvency;
effectiveness of regulatory approvals; labor matters;
environmental matters; accuracy of information; and
validity, priority and perfection of security interests
in the Collateral.
Conditions Precedent The obligations of CSFB and the Lenders to make the
to Initial Borrowing: Senior Bank Facility available on the Closing Date are
subject to the satisfaction or waiver of the conditions
set forth in Exhibit C to the Commitment Letter.
Affirmative Usual for facilities and transactions of this type and
Covenants: others to be agreed upon by the Borrower and the Agent
(the Borrower's agreement not to be unreasonably
withheld) (to be applicable to the Borrower and its
subsidiaries), including but not limited to maintenance
of corporate existence and rights; performance of
obligations; delivery of audited financial statements,
other financial information and notices of default and
litigation; maintenance of properties in good working
order; maintenance of reasonably satisfactory insurance;
compliance with laws; inspection of books and
properties; further assurances; and payment of taxes.
Negative Covenants: Usual for facilities and transactions of this type and
others to be agreed upon by the Borrower and the Agent
(the Borrower's agreement not to be unreasonably
withheld) (to be applicable to the Borrower and its
subsidiaries), including but not limited to limitations
on dividends on, and redemptions and repurchases of,
capital stock; limitations on prepayments, redemptions
and repurchases of subordinated debt; limitations on
prepayments, redemptions and repurchases of senior debt;
limitations on liens and sale-leaseback transactions;
limitations on loans and investments; limitations on
debt; limitations on mergers, acquisitions and asset
sales; limitations on
A-6
13
transactions with affiliates; limitations on changes in
business conducted; limitations on amendment of debt and
other material agreements; and limitations on capital
expenditures.
Selected Financial The credit agreement relating to the Senior Bank
Covenants: Facility (the "CREDIT AGREEMENT") will contain financial
covenants (with definitions of financial terms and
levels to be agreed upon; it being understood that
"EBITDA" shall include net cash income (to be defined)
from the Company's new financial services program),
including but not limited to (a) maximum ratios of Total
Debt to EBITDA, (b) minimum ratios of EBITDA to Interest
Expense and (c) minimum ratios of EBITDA to Fixed
Charges. Xxxxx XXX hereto sets forth the currently
contemplated financial covenant types and levels.
Events of Default: Usual for facilities and transactions of this type and
others to be agreed upon by the Borrower and the Agent
(the Borrower's agreement not to be unreasonably
withheld), including but not limited to nonpayment of
principal or interest, violation of covenants,
incorrectness of representations and warranties in any
material respect, cross default and cross acceleration,
bankruptcy, material judgments, employee benefits,
actual or asserted invalidity of the guarantees or the
security documents and Change in Control (the definition
of which will be agreed upon).
Voting: Amendments and waivers of the Credit Agreement and the
other definitive credit documentation will require the
approval of Lenders holding more than 50% of the
aggregate amount of the loans and commitments under the
Senior Bank Facility, except that the consent of each
Lender adversely affected thereby shall be required with
respect to (a) increases in such Lender's commitments,
(b) reductions of principal, interest or fees, (c)
extensions of scheduled amortization or final maturity
and (d) releases of all or substantially all of the
Collateral or certain guarantors.
Cost and Yield Usual for facilities and transactions of this type on
Protection: terms to be agreed upon. In addition, the Borrower will
obtain interest rate hedging on not less than 50% of
outstandings
A-7
14
under the Term Loan Facility in form and substance
satisfactory to Agent and Borrower.
Assignments and The Lenders will be permitted to assign loans and
Participations: commitments to other financial institutions in minimum
amounts of $5 million without restriction (other than
consultation rights, on terms to be agreed upon, in
favor of the Borrower in the case of assignments
occurring when no default or Event of Default exists).
The Agent will receive a processing and recordation fee
of $3,500, payable by the assignor and/or the assignee,
with each assignment. Assignments will be by novation.
The Lenders will be permitted to participate loans and
commitments to other financial institutions without
restriction. Voting rights of participants shall be
limited to matters in respect of (a) reductions of
principal, interest or fees, (b) extensions of scheduled
amortization or final maturity and (c) releases of all
or substantially all of the Collateral or certain
guarantors.
Expenses and In addition to those reasonable out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter, all reasonable
out-of-pocket costs of the Agent (and, in the case of
enforcement costs and documentary taxes, the Lenders)
associated with the Senior Bank Facility are to be paid
by the Borrower.
The Borrower will indemnify the Arranger, the Agent, the
Lenders and their respective officers, directors,
employees, affiliates and agents and hold them harmless
from and against all costs, expenses (including
reasonable fees, disbursements and other charges of
counsel) and liabilities of any such indemnified person
arising out of or relating to those matters set forth in
the Commitment Letter, including, without limitation,
any claim or any litigation or other proceedings
(regardless of whether any such indemnified person is a
party thereto) that relate to the Transactions or any
transactions connected therewith, provided that none of
the Arranger, the Agent or any Lender will be
indemnified for its gross negligence or willful
misconduct.
A-8
15
Counsel for the Arranger Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
and the Agent:
Governing Law New York.
and Forum:
A-9
16
ANNEX I
TO EXHIBIT A
Interest Rates and Fees
Interest Rates: The interest rates under the Senior Bank Facility will
be, at the Borrower's option, either the Base Rate or
the Adjusted LIBOR plus, in each case, the Applicable
Margin from time to time as set forth in the following
table.
==============================================================
Applicable Margin
--------------------------------------------------------------
Base Rate Adjusted
LIBOR
--------------------------------------------------------------
Revolving Facility 1.25% 2.25%
--------------------------------------------------------------
Term Loan A 1.25% 2.25%
--------------------------------------------------------------
Term Loan B 1.50% 2.50%
--------------------------------------------------------------
Term Loan C 1.75% 2.75%
--------------------------------------------------------------
Term Loan D 2.00% 3.00%
==============================================================
The Borrower may elect interest periods of 1, 2, 3 or 6
months for Adjusted LIBOR borrowings.
Calculation of interest shall be on the basis of actual
days elapsed in a year of 360 days (or 365 or 366 days,
as the case may be, in the case of Base Rate loans based
on the Prime Rate) and interest shall be payable at the
end of each interest period and, in any event, at least
every 3 months.
The Base Rate will be defined as the higher of the
Agent's prime lending rate and the rate 1/2 of 1% in
excess of the Federal funds effective rate.
Adjusted LIBOR will at all times include statutory
reserves.
17
Letter of Credit Fee: A per annum participation fee equal to the spread over
Adjusted LIBOR from time to time in effect for loans
under the Revolving Facility will accrue on the
aggregate face amount of outstanding letters of credit
under the Revolving Facility, payable in arrears at the
end of each quarter and upon the termination of the
Revolving Facility, in each case for the actual number
of days elapsed over a 360-day year. Such fees shall be
distributed to the Lenders pro rata in accordance with
the amount of each such Xxxxxx's Revolving Facility
commitment. In addition, the Issuing Bank shall receive
a fronting fee equal to 0.25% per annum on all
outstanding letters of credit, payable quarterly in
arrears.
Commitment Fees: 0.50% per annum of the undrawn portion of the
commitments in respect of the Revolving Facility
(subject to reduction as set forth below under the
caption "Changes in Commitment Fees and Interest
Rates"), commencing to accrue upon the execution and
delivery of the Credit Agreement and payable quarterly
in arrears and upon the termination of any commitment.
Tax Gross Up: All payments shall be made without withholding or
deduction for, or on account of, any present or future
taxes or duties imposed or levied by or on behalf of any
governmental taxing authority or, if any such
withholding or deductions are required to be made by
law, with the payment of such additional amounts as will
result in holders receiving such amounts as they would
have received had no such withholding or reduction been
required. In connection with its becoming a party to the
Credit Agreement, each Lender shall deliver such forms
regarding the applicability of U.S. withholding taxes to
it as are usual for facilities of this type. In
addition, each Lender, at the cost and expense of the
Borrower, shall agree, on customary terms, to take such
actions to mitigate withholdings taxes as are not
adverse to it in its sole judgment.
Changes in Commencing six months after the Closing Date, so long as
Commitment Fees and no event of default shall have occurred and be
Interest Rates: continuing, Applicable Margins in respect of the
Revolving Facility and the Tranche A Loans and
commitment fees under the Senior Bank Facility will be
A-I-2
18
determined by reference to the Borrower's consolidated
ratio of Total Debt to trailing four-quarter EBITDA
pursuant to the grid attached hereto as Xxxxx XX.
The ratio of Total Debt to EBITDA shall be determined as
at the last day of each fiscal quarter; changes in
interest rates and commitment fees resulting from
changes in such ratio shall become effective on the
first day on which the financial statements covering the
quarter-end date as of which such ratio is computed are
available.
A-I-3
19
ANNEX II
TO EXHIBIT A
Sources and Uses of Funds
(in millions)
(all figures are approximate)
Uses of Funds Sources of Funds
------------- ----------------
Existing Cash $92.5
Purchase Price of Equity $266.3 Revolving Facility(1) 10.6
Repayment/Defeasance of Existing 491.8 Term Facility 395.0
Indebtedness and Premiums associated
therewith
Transaction Expenses 45.0 Senior Subordinated 225.0
Notes/Bridge Loans
Equity Contribution 80.0
----------- -------
Total Uses $803.1 Total Sources $803.1
=========== ======
--------------------
(1) $50 million Revolving Facility of which $10.6 million will be drawn
at Closing.
20
ANNEX III
TO EXHIBIT A
INDICATIVE COVENANTS
DURING FISCAL YEAR
ENDING SEPTEMBER LTM PF 1998 1999 2000 2001 2002 2003 2004
---------------------------------------------------------------------------------------------------------------------
Indicative Covenants
Total Debt/EBITDA 5.75x 5.75x 5.75x 5.00x 4.50x 4.00x 4.00x 3.50x
EBITDA/Cash Interest 1.50x 1.70x 1.85x 2.00x 2.25x 2.50x 2.50x 2.50x
EBITDA/Fixed Charges 1.00x 1.00x 1.05x 1.10x 1.15x 1.20x
DURING FISCAL YEAR
ENDING SEPTEMBER 2005 2006 2007
--------------------------------------------------------
Indicative Covenants
Total Debt/EBITDA 3.50x 3.50x 3.50x
EBITDA/Cash Interest 2.50x 2.50x 2.50x
EBITDA/Fixed Charges 1.20x 1.20x 1.20x
21
ANNEX IV
TO EXHIBIT A
PRICING GRID
------------------------------------------------------------------------------------------
Total Debt/EBITDA Revolver & Term Loan A Commitment Fee
------------------------------------------------------------------------------------------
greater than or equal to 5.25x +250 bps 50 bps
greater than or equal to 4.25x and
less than 5.25x +225 50
greater than or equal to 3.75x and
less than 4.25x +200 50
greater than or equal to 3.25x and
less than 3.75x +175 50
greater than or equal to 2.75x and
less than 3.25x +150 37.5
less than 2.75x +125 37.5
------------------------------------------------------------------------------------------
22
EXHIBIT B
Environmental Systems Products, Inc.
Bridge Loan Facility
Summary of Principal Terms and Conditions(1)
Arranger and Credit Suisse First Boston ("CSFB" or the "AGENT").
Administrative Agent:
Lenders: A syndicate of lenders (the "LENDERS") identified in
consultation with and reasonably acceptable to the
Borrower.
Borrower: A newly formed entity (the "Borrower") directly or
indirectly owning all the outstanding equity of
Environmental Systems Products, Inc. (the "COMPANY")
that is satisfactory to CSFB.
Amount: Up to $225 million aggregate principal amount.
Rank: The loans to be made hereunder by each of the Lenders
(the "BRIDGE LOANS") will be senior subordinated,
unsecured debt of the Borrower, subordinated in right of
payment to the Senior Bank Facility and to all other
existing and future senior indebtedness of the Borrower.
Guarantees: The obligations of the Borrower under the Bridge Loans
will be unconditionally guaranteed on a senior
subordinated basis by each other Loan Party and each
other existing and subsequently organized subsidiary of
the Borrower that guarantees the Senior Bank Facility.
Use of Proceeds: The proceeds of the Bridge Loans will be used by the
Borrower, together with up to $445 million of the
proceeds of the Senior Bank Facility and the proceeds of
the Equity Contribution and $92.5 million of cash on
hand at the Target and the Company, solely (i) to
finance the Acquisition, (ii) to repay or defease, as
applicable, the Existing Indebtedness and (iii) to pay
related fees and expenses.
----------------
(1) All capitalized terms used but not defined herein have the meanings
given to them in the Commitment Letter to which this term sheet is attached.
23
Funding: The Lenders will make the Bridge Loans on a date
simultaneous with the consummation of the other
Transactions (the "CLOSING DATE").
Senior Subordinated The Borrower will use its reasonable best efforts to
Notes: offer and sell senior subordinated notes of the Borrower
(the "SENIOR SUBORDINATED NOTES") yielding aggregate
gross proceeds of $225 million, in lieu of borrowing the
Bridge Loans (the "SUBORDINATED NOTE OFFERING").
In connection with the foregoing, the Borrower will use
its reasonable best efforts to accomplish the following:
(i) no later than 37 days prior to the Closing Date, the
Borrower will deliver to CSFB all financial statements
that would be required to be included in a Registration
Statement on Form S-1;
(ii) no later than 37 days prior to the Closing Date,
the Borrower will deliver to CSFB an initial draft of
offering circular for the distribution of the Senior
Subordinated Notes containing at a minimum a description
of the business and management's discussion and
analysis;
(iii) no later than 30 days prior to the Closing Date,
the Borrower will deliver to CSFB a completed
preliminary offering circular, in form and substance
satisfactory to CSFB, that would be suitable to use on a
roadshow for the sale of the Senior Subordinated Notes;
and
(iv) upon delivery of such completed offering circular,
the Borrower will cause its senior management to
participate in a customary roadshow for the sale of the
Senior Subordinated Notes.
In the event that the Borrower has not issued the Senior
Subordinated Notes prior to the Closing Date, the
Borrower will use good faith efforts to refinance the
Bridge Loans as promptly as practicable after the
Closing Date, as further described under "Affirmative
Covenants".
Maturity/Exchange: The Bridge Loans will mature on the date which is 364
days after the Closing Date (the "BRIDGE MATURITY
DATE"). If any Bridge Loan is not repaid in full on or
prior to the Bridge Maturity Date, the Lender thereof
will have the option at
B-2
24
any time or from time to time to receive, in exchange
for such Bridge Loan or portion thereof, exchange notes
of the Borrower (the "EXCHANGE NOTES") ranking pari
passu with the Bridge Loans and having the terms set
forth in the term sheet attached as Annex I to this
Exhibit B. If any Lender does not exchange its Bridge
Loan for Exchange Notes on the Bridge Maturity Date,
such Lender shall be required to extend the maturity of
such loan to another date selected by such Lender. If,
on or prior to such extended maturity, such Lender does
not exchange its Bridge Loan, such Lender shall be
required again to extend the maturity of such Bridge
Loan to another date selected by such Lender (provided,
however, that such Lender shall not be required to
extend the maturity of its Bridge Loans beyond the tenth
anniversary of the Closing Date (the "FINAL MATURITY
DATE")) and this sentence shall apply to each extended
maturity of its Bridge Loan prior to the Final Maturity
Date.
Interest Rates: Prior to the Bridge Maturity Date, the Bridge Loans will
accrue interest at a rate per annum equal to 3 month
Adjusted LIBOR plus 5.50% per annum plus the Bridge
Spread (as defined below) provided, however, that the
interest rate on Bridge Loans in effect at any time
prior to the Bridge Maturity Date shall not exceed 18%
per annum, and cash interest on the Bridge Loans shall
not exceed 16% per annum. To the extent the applicable
interest on the Bridge Loans exceeds the maximum
permitted cash interest, the excess will be added to the
principal amount of the Bridge Loans.
Adjusted LIBOR will at times include statutory reserves.
In no event shall the interest rate on the Bridge Loans
exceed the highest lawful rate permitted under
applicable law.
Following the Bridge Maturity Date, all outstanding
Bridge Loans will accrue interest at the rate provided
for the Exchange Notes in Annex I hereto, subject to the
absolute and cash caps therein.
Calculation of interest shall be on the basis of actual
days elapsed in a year of 360.
B-3
25
"BRIDGE SPREAD" shall mean 0 basis points during the
three-month period commencing on the Closing Date and
shall increase to 50 basis points at the beginning of
the subsequent three-month period and shall increase by
50 basis points at the beginning of each subsequent
three- month period.
Interest Payments: Interest will be payable in arrears (a) at the end of
each Adjusted LIBOR period and on the Bridge Maturity
Date and (b) for Bridge Loans outstanding after the
Bridge Maturity Date, at the end of each fiscal quarter
of the Borrower following the Bridge Maturity Date and
on the date on which such Bridge Loans are repaid in
full.
Tax Gross Up: All payments shall be made without withholding or
deduction for, or on account of, any present or future
taxes or duties imposed or levied by or on behalf of any
governmental taxing authority or, if any such
withholding or deductions are required to be made by
law, with the payment of such additional amounts as will
result in holders receiving such amounts as they would
have received had no such withholding or reduction been
required. In connection with its making or acquisition
of Bridge Loans, each Lender shall deliver such forms
regarding the applicability of U.S. withholding taxes to
it as are usual for facilities of this type. In
addition, each Lender, at the cost and expense of the
Borrower, shall agree, on customary terms, to take such
actions to mitigate withholding taxes as are not adverse
to it in its sole discretion.
Mandatory Prepayments: Subject to compliance with the Senior Bank Facility, the
Bridge Loans will be required to be prepaid with:
(a) subject to exceptions to be agreed upon, 100% of
the net cash proceeds of the issuance or
incurrence of debt or of any sale and lease-back
transaction by the Borrower or its subsidiaries;
(b) a percentage to be agreed on of the net cash
proceeds from any issuance of equity securities
of the Borrower or its subsidiaries in any
public offering or private placement or from any
capital contribution; and
(c) certain asset sales.
B-4
26
Optional Prepayments: Bridge Loans may be repaid at any time upon five days'
prior notice to the Agent, in whole or in part at the
option of the Borrower, in a minimum principal amount
and in multiples to be agreed upon, without premium or
penalty (other than breakage costs (excluding profits,
margins and Bridge Spreads) and actual re-employment
costs).
Conditions to Closing: The obligations of CSFB and the Lenders to make the
Bridge Loans on the Closing Date are subject to the
satisfaction or waiver of the conditions set forth in
Exhibit C to the Commitment Letter.
Representations and Customary for loans similar to the Bridge Loans and such
Warranties: additional representations and warranties as may
reasonably be required by the Agent, including: no
Default or Event of Default; absence of material adverse
change; financial statements; absence of undisclosed
material liabilities or material contingent liabilities;
compliance with laws; solvency; no conflicts with laws,
charter documents or agreements; good standing; payment
of taxes; ownership of properties; and absence of liens
and security interests.
Affirmative Covenants: Customary for loans similar to the Bridge Loans and such
others as may reasonably be required by the Agent,
including: maintenance of corporate existence and
rights; compliance with laws; performance of
obligations; 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,
financial projections and compliance certificates; and
further assurances.
In addition, the Borrower will agree to file a
registration statement under the Securities Act or
prepare an offering memorandum covering senior
subordinated notes or other debt or equity securities of
the Borrower (the "REFINANCING SECURITIES") to be issued
in a public offering or private placement to refinance
in full the Bridge Loans (the "LOAN REFINANCING") and to
consummate such Loan Refinancing as soon as possible
after the Closing Date in an amount sufficient to
refinance all amounts outstanding under the Bridge Loan
Documents and on such terms and conditions (including
interest rate, yield, redemption prices and dates) as
CSFB may in its judgment determine to be appropriate in
B-5
27
light of prevailing circumstances and market conditions
and the financial condition and prospects of the
Borrower; provided, however, that the Borrower shall not
be obligated to issue the Refinancing Securities in the
Loan Refinancing bearing interest in excess of the
maximum interest rate (and maximum cash interest rate)
set forth in Annex I applicable to Exchange Notes. The
indenture for the Refinancing Securities will be
substantially in the form of CSFB's standard indenture
for high-yield subordinated debt securities, modified as
appropriate to reflect the terms of this transaction and
the financial condition and prospects of the Borrower
and its subsidiaries, and in form and substance
reasonably satisfactory to CSFB and the Borrower. If any
Refinancing Securities are issued in a transaction not
registered under the Securities Act to effect the Loan
Refinancing, all such Refinancing Securities shall be
entitled to the benefit of registration rights
agreements to be entered into by the Borrower in
customary form acceptable to CSFB.
Negative Covenants: Customary for loans similar to the Bridge Loans and such
others as may reasonably be required by the Agent,
including: limitations on incurrence of indebtedness
(including no senior subordinated debt other than the
Bridge Loans); limitations on loans, investments and
joint ventures; limitations on guarantees or other
contingent obligations; limitations on restricted
payments (including dividends, redemptions and
repurchases of capital stock); limitations on
fundamental changes (including limitations on mergers,
acquisitions and asset sales); limitations on operating
leases; limitations on transactions with affiliates;
limitations on dividend and other payment restrictions
affecting subsidiaries; limitations on capital
expenditures; limitations on lines of business;
limitations on amendment of indebtedness and other
material documents; and limitations on prepayment or
repurchase of other indebtedness.
Events of Default: Customary for loans similar to the Bridge Loans and
others as are reasonably specified by the Agent,
including: 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; bankruptcy events; material
judgments; ERISA; and actual or asserted invalidity of
any Bridge Loan Document.
B-6
28
Yield Protection and Customary for facilities of this type.
Increased Costs:
Assignments and The Borrower may not assign its rights or obligations in
Participations: connection with the definite documentation relating to
the Bridge Loans (the "BRIDGE LOAN DOCUMENTS") without
the prior written consent of all the Lenders.
Lenders will have the absolute right to assign Bridge
Loans without the consent of the Borrower. Xxxxxxx will
also have the right to assign their commitments with the
consent of the Borrower (such consent not to be
unreasonably withheld) and such assignments will be by
novation which will release the obligation of the
assigning Lender.
Lenders will be permitted to participate their Bridge
Loans to other financial institutions; provided,
however, that the Lenders granting participations retain
the voting rights to such participated amounts.
Participants will have the same benefits as the selling
Lenders would have with regard to yield protection and
increased costs, collateral benefits and provision of
information on the Borrower and its subsidiaries.
Voting: Amendments and waivers of any provision of any Bridge
Loan Documents will require the approval of Lenders
holding commitments or loans, as the case may be,
representing a majority of the aggregate amount of
commitments or loans, respectively, under the Bridge
Loan Documents, except that the consent of all affected
Lenders shall be required with respect to (a) increases
in commitments, (b) reductions of principal, interest or
fees, (c) extensions of the maturity date and (d)
releases of certain guarantors.
Expenses and In addition to those reasonable out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter, all reasonable
out-of-pocket expenses of the 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 Bridge Loan Document or any document
relating to the refinancing of the Bridge Loans
(including the reasonable fees, disbursements and other
B-7
29
charges of counsel for the Agent) are to be paid by the
Borrower. The Borrower will indemnify the Agent and the
other Lenders and hold them harmless from and against
all costs, expenses (including reasonable fees and
disbursements of counsel) and liabilities arising out of
or relating to those matters set forth in the Commitment
Letter, including, without limitation, any litigation or
other proceeding (regardless of whether the Agent or any
such other Lender is a party thereto) that relate to the
Transactions, the Bridge Loans or refinancing thereof;
provided, however, that neither the Agent nor any such
other Lender will be indemnified for any costs, 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 willful misconduct.
Counsel for the Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP.
Arranger and the
Administrative Agent:
Governing Law and New York.
Forum:
B-8
30
ANNEX I
TO EXHIBIT B
Exchange Notes
Summary of Principal Terms and Conditions(1)
Issuer: The Borrower will issue Exchange Notes under an
indenture that complies with the Trust Indenture Act
(the "INDENTURE").
Principal Amount: The Exchange Notes will be available only in exchange
for the Bridge Loans. The face amount of any Exchange
Note will equal 100% of the aggregate principal amount
(including any accrued interest not required to be paid
in cash) of the Bridge Loan for which it is exchanged.
Maturity: The Exchange Notes will mature on the tenth anniversary
of the Closing Date.
Interest Rate: Exchange Notes will bear interest at a rate equal to the
Initial Rate (as defined below) plus the Exchange Spread
(as defined below). Notwithstanding the foregoing, the
interest rate on Exchange Notes in effect at any time
shall not exceed 18% per annum, and to the extent that
the interest payable on Exchange Notes exceeds a rate of
16% per annum, the Borrower may, at its option, cause
such excess interest to be paid by issuing additional
Exchange Notes in a principal amount equal to such
excess portion of interest. Interest on Exchange Notes
will be payable semiannually in arrears.
In no event shall the interest rate on the Exchange
Notes exceed the highest lawful rate permitted under
applicable law.
"INITIAL RATE" shall be determined on the Bridge
Maturity Date and shall be equal to the greatest of (a)
the interest rate borne by Bridge Loans on the day
immediately preceding the Bridge Maturity Date, (b) the
Treasury Rate (as defined below) on the Bridge Maturity
Date plus 750 basis points
-----------------
(1) All capitalized terms used but not defined herein have the meanings
given in the Summary of Principal Terms and Conditions of the Bridge Loan
Facility to which this Annex I is attached.
31
and (c) the Credit Suisse First Boston Corporation High
Yield Single B Index Rate on the Bridge Maturity Date
plus 400 basis points.
"TREASURY RATE" means (i) the rate borne by direct
obligations of the United States maturing on the tenth
anniversary of the Closing Date and (ii) if there are no
such obligations, the rate determined by linear
interpolation between the rates borne by the two direct
obligations of the United States maturing closest to,
but straddling, the tenth anniversary of the Closing
Date, in each case as published by the Board of
Governors of the Federal Reserve System.
"EXCHANGE SPREAD" shall mean 50 basis points during the
six-month period commencing on the Bridge Maturity Date
and shall increase by 50 basis points at the beginning
of each subsequent three-month period.
Tax Gross Up: Same as Bridge Loans.
Rank: Exchange Notes will rank pari passu with Bridge Loans
but will be subordinated in right of payment to all
existing and future senior indebtedness of the Borrower.
Mandatory Redemption: Same as Bridge Loans.
Optional Redemption: Subject to the following sentence, the Exchange Notes
will be redeemable at the option of the Borrower, in
whole or in part, at any time at par plus accrued and
unpaid interest to the redemption date. If any Exchange
Note is sold by a Lender to a third party purchaser,
such Lender shall have the right to fix the interest
rate on such Exchange Note at a rate not higher than the
then applicable rate of interest and, if such Lender
exercises such right, such Exchange Note will be
non-callable for four years from the date of its sale to
such third party and will be callable thereafter at par
plus Accrued interest plus a premium, which premium
shall initially be the fixed interest rate borne by such
Exchange Note declining ratable to zero one year prior
to the maturity of the Exchange Notes, provided, that
such call protection shall not apply to any call for
redemption issued prior to the sale to such third party
purchaser.
Registration Rights: The Borrower will use its best efforts to cause to
become effective an exchange offer registration
statement or a shelf
B-I-2
32
registration statement no later than the date of
issuance of the Exchange Notes, and the Borrower will
use its best efforts to keep such registration statement
effective and available (subject to customary
exceptions) until it is no longer needed to permit
unrestricted resales of such Exchange Notes, but in no
event longer than two years from the date of issuance of
any such Exchange Notes. If the registration statement
is not effective by the Bridge Maturity Date or, once
effective, ceases to be effective or ceases to be
useable in connection with resales of such Exchange
Notes (subject to customary exceptions), cash interest
will accrue and be payable (in addition to interest
otherwise accruing on the Exchange Notes) at a rate of
0.50% per annum until such default shall be cured.
The Borrower agrees, at its expense, to assist CSFB in
connection with resales of any of the Exchange Notes,
including making its senior officers available to CSFB,
including making them available to assist in the
preparation of marketing materials relating to any
resales, to participate in due diligence sessions and to
participate in road shows or other presentations to
prospective purchasers of such Exchange Notes.
Exchange Notes
Escrowed: The Exchange Notes will be delivered on the Closing Date
and held, undated, in escrow by a mutually agreeable
fiduciary.
Right to Transfer The holders of the Exchange Notes shall have the
Exchange Notes: absolute and unconditional right to transfer such
Exchange Notes to any third parties in compliance with
applicable law.
Covenants: Those typical for an indenture governing a high-yield
senior subordinated note issue, including a "change in
control" put provision, and, to the extent deemed
reasonably necessary by CSFBC, certain covenants
contained in the Bridge Loan documentation.
Events of Default: Those typical for an indenture governing a high-yield
senior subordinated note issue.
Governing Law and
Forum: New York.
B-I-3
33
EXHIBIT C
CONDITIONS
The commitments of Credit Suisse First Boston ("CSFB") pursuant to the
Senior Secured Credit Facilities and Bridge Loan Commitment Letter, dated as of
August 12, 1998 (the "LETTER"), between CSFB and Environmental Systems Products,
Inc. shall be subject to the following conditions (capitalized terms used but
not defined herein shall, unless otherwise specified, have the meanings assigned
to such terms in the Letter):
(i) after the date of the Letter, no information or other matter
becomes known to CSFB (including, without limitation, any information or
matter disclosed pursuant to the delivery of the financial information
described in item (x) below) that CSFB in good faith believes is
inconsistent in a material and adverse manner with (a) any information
or other matter disclosed to CSFB prior to the date of the Letter or (b)
any information or other matter obtained by CSFB during its due
diligence investigation;
(ii) there shall not have occurred or become known to CSFB any
event or events, adverse condition or change that, individually or in
the aggregate, could have a Material Adverse Effect;
(iii) the preparation, execution and delivery of definitive
documentation satisfactory to CSFB, in connection with the Facilities;
(iv) CSFB and the Lenders shall be reasonably satisfied as of
the Closing Date with (a) the material terms and conditions of the Offer
(to the extent such terms and conditions differ in any material respect
than those set forth in the final form of the Agreement and Plan of
Merger reviewed by CSFB and its counsel prior to CSFB's delivery of the
Letter), the Debt Tender and each agreement entered into in connection
with the Transactions and (b) all legal, tax and accounting matters
relating to the Transactions that could have a Material Adverse Effect,
including the following:
(w) there shall be no litigation or administrative
proceedings or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could have a
Material Adverse Effect or could materially and adversely affect
the ability of Holdings, the Borrower or the Company to fully
and timely perform their respective obligations under the
documents executed in connection with the Transactions, or the
ability of the parties to consummate the financings or the other
Transactions contemplated by the Letters;
(x) CSFB and, if applicable, the Lenders shall be
reasonably satisfied with all material legal, tax and accounting
matters relating to the Transactions and the other transactions
contemplated by the Letter, including, without limitation, the
ability of subsidiaries of the Borrower, the Target or the
Company to transfer funds to the Borrower, the Target and the
Company and the withholding tax
C-1
34
consequences thereof and the Borrower's, the Target's and the
Company's plans and programs with respect to managing currency
risk exposure;
(y) CSFB and, if applicable, the Lenders shall be
reasonably satisfied that the amount and nature of any
environmental and employee health and safety exposures to which
any Loan Party and its subsidiaries may be subject, and the
plans of each Loan Party with respect thereto, could not be
reasonably expected to have a Material Adverse Effect; and
(z) all requisite governmental authorities (including
antitrust or banking authorities in any relevant jurisdiction)
and third parties shall have approved or consented to the
Transactions and the other transactions contemplated by the
Letter to the extent required, in each case to the extent
failure to obtain such consent or approval could have a Material
Adverse Effect or could materially and adversely affect the
rights or remedies of CSFB, or, if applicable, the Lenders, and
there shall be no governmental or judicial action, actual or
threatened, that has a reasonable likelihood of restraining,
preventing or imposing burdensome conditions on the Transactions
or the other transaction contemplated hereby;
(v) the Transactions (including, without limitation, the
required debt purchases or redemptions, as applicable, under the Debt
Tender and the purchase of at least 90% of the Target's outstanding
equity pursuant to the Offer) shall have been consummated or shall be
consummated simultaneously on the Closing Date and each of the
respective conditions to the Offer and the Debt Tender shall have been
satisfied without amendment or waiver thereof, unless in each case
approved in writing by CSFB and the Lenders;
(vi) after giving effect to the Transactions and the other
transactions contemplated by the Letter, neither any Loan Party nor any
of their subsidiaries shall have outstanding any indebtedness or
preferred stock other than (a) the loans under the Senior Bank Facility,
(b) the Bridge Loan or the Senior Subordinated Notes, as the case may
be, and (c) other indebtedness or preferred stock to be agreed upon;
(vii) customary closing conditions for transactions similar to
the Bridge Loan and the Senior Bank Facility, as applicable, including
without limitation (a) the accuracy of all representations and
warranties, (b) the absence of any defaults, prepayment events or
creation of liens under debt instruments or other agreements as a result
of the Transactions and the other transactions contemplated by the
Letter, (c) the absence of any material change in the capital, corporate
and organizational structure of the Loan Parties and their subsidiaries
(after giving effect to the Transactions), (d) first-priority perfected
security interests in the Collateral, (e) compliance with applicable
laws and regulations (including employee health and safety, margin
regulations and environmental laws), (f) obtaining reasonably
satisfactory insurance, (g) evidence of authority, (h) consents of all
relevant persons, and (i) the receipt by CSFB of reasonably satisfactory
legal opinions and accountants' comfort letters;
C-2
35
(viii) there shall not have occurred and be continuing (a) any
general suspension of trading in securities on the New York or American
Stock Exchange or in the NASDAQ National Market System (other than
circuit breakers), (b) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (c) the
commencement of a war or other similar international or national
calamity or emergency, directly or indirectly involving the United
States, (d) any limitations (whether or not mandatory) imposed by any
governmental authority on the nature or extension of credit or further
extension of credit by banks or other lending institutions, (e) in the
case of the foregoing clauses (c) and (d), a material escalation or
worsening thereof or (f) any other material adverse change in banking or
capital market conditions that has had a material adverse effect on the
syndication of leveraged bank credit facilities or the consummation of
high yield offerings, as the case may be;
(ix) CSFB's satisfaction that, immediately prior to and during
the marketing period for (a) the Subordinated Note Offering or the
syndication of the Bridge Loan, as the case may be, or (b) the Senior
Bank Facility, there shall be no competing issues of debt securities or
commercial bank facilities (other than the Senior Bank Facility, the
Offering or the Bridge Loan, as applicable, or other permitted
indebtedness thereunder) of any Loan Party or any of their affiliates;
(x) the receipt by CSFB and, if applicable, the Lenders, on or
before the closing of the Transactions, of financial statements of the
Borrower and the Company (including notes thereto), consisting of (a)
audited and pro forma balance sheets as of the end of each period in the
3 fiscal-year period most recently ended, (b) audited and pro forma
statements of operations and cash flows for each period in the 3
fiscal-year period December 31, 1997, (c) consolidated and consolidating
financial statements for each period in the 3 fiscal-year period most
recently ending and supporting documentation satisfactory to CSFB, (d)
comparable unaudited historical and pro forma interim financial
statements covering all quarterly or other appropriate periods
subsequent to the fiscal year most recently ended, and (e) such final
projections in respect of the Loan Parties and their respective
subsidiaries as CSFB may reasonably request; and all such financial
statements, historical or pro forma, delivered pursuant to this
paragraph (x) shall be in compliance with the requirements of Regulation
S-X for a public offering registered under the Securities Act of 1933,
and all financial statements and projections referred to in this
paragraph (x) shall not be materially inconsistent with financial
statements, projections and estimates previously provided to CSFB and,
if applicable, the Lenders;
(xi) payment of fees and expenses; and
(xii) the Warrants shall have been issued and placed into escrow
for the benefit of the Lenders in accordance with the terms of the
Warrant Letter.
A "MATERIAL ADVERSE EFFECT" shall mean the result of one or more events,
changes or effects which, individually or in the aggregate, would reasonably be
expected to have a material adverse effect on (i) the business, results of
operations, financial condition or prospects of any
C-3
36
Loan Party and its and subsidiaries, in each case, taken as a whole, or (ii) the
validity or enforceability of any of the documents entered into in connection
with the Transactions or the other transactions contemplated by the Letter or
the rights, remedies and benefits available to the parties thereunder.
C-4
