THIS FOURTH FORBEARANCE AGREEMENT (this “Agreement”)
is entered into as of November 2, 2001 among LEINER HEALTH PRODUCTS INC.
(the “U.S. Borrower”), VITA HEALTH PRODUCTS INC. (the “Canadian
Borrower,” and together with the U.S. Borrower, the “Borrowers”),
THE BANK OF NOVA SCOTIA, as U.S. Agent and as Canadian Agent, and the lenders
party to the Credit Agreement referred to below.
to that certain Amended and Restated Credit Agreement, dated as of May 15,
1998 (as further amended, supplemented, amended and restated or otherwise
modified prior to the date hereof, the “Credit Agreement”; capitalized
terms used but not defined herein shall have the meanings given them in the
Credit Agreement), the Agents and the Lenders made Loans and other financial
accommodations to the Borrowers.
following Defaults or Events of Default (the “Existing Defaults”) exist
under the Credit Agreement:
1. The failure of the Borrowers to comply with each of the
financial covenants set forth in Section 9.2.4 of the Credit Agreement as
of or for the Fiscal Quarters ending December 31, 2000, March 31,
2001, June 30, 2001 and September 30, 2001; and
2. The Borrowers’ breach of the representations, warranties
and statements contained in the Loan Documents in connection therewith.
or about June 29, 2001, the Borrowers, the Agents and the Lenders entered
into a forbearance agreement (the “First Forbearance Agreement”)
pursuant to which the Agents and the Lenders agreed to forbear with respect to
their rights or remedies against the Borrowers based on the Existing Defaults
until September 1, 2001 and agreed that the forbearance period would be
automatically extended if the Borrowers met certain conditions set forth in
Section 1(b) of the First Forbearance Agreement.
or about August 31, 2001, the Borrowers, the Agents and the Lenders
entered into a Second Forbearance Agreement pursuant to which the Agents and
the Lenders agreed to extend the Forbearance Period (as defined in the First
Forbearance Agreement) until September 28, 2001.
or about September 28, 2001, the Borrowers, the Agents and the Lenders
entered into a Third Forbearance Agreement pursuant to which the Agents and the
Lenders agreed to further extend the Forbearance Period (as defined in the
First Forbearance Agreement) until November 2, 2001.
Borrowers, the Agents and the undersigned Lenders have agreed in principle to a
restructuring of the Obligations on the terms and conditions set forth in the
Term Sheet for Restructuring of Senior Debt (the “Senior Debt Term Sheet”)
annexed hereto as Exhibit A, subject among other things to the completion of
the Agents’ and the Lenders’ due diligence and all required internal credit
approvals and definitive documentation (including financial covenants
satisfactory to the Lenders).
Borrowers have requested that the Required Lenders extend their forbearance on
the terms and conditions set forth below to give the Borrowers sufficient time
to fully document the restructuring of the Obligations and the recapitalization
of the Borrowers.
Required Lenders are willing to forbear from exercising their rights and
remedies in connection with the Existing Defaults on the terms and conditions
set forth herein.
In consideration of the
Recitals and of the mutual promises and covenants contained herein, the
Borrowers, the Agents and the Required Lenders agree as follows:
1. Agreement to Forbear.
(a) Forbearance. During the period (the “Forbearance Period”) commencing on
the date hereof and ending on the earlier to occur of December 14, 2001
and the date of any Forbearance Default (as defined below), and subject to the
satisfaction of the conditions set forth in Section 2 hereof, the Agents
and the Lenders will forbear from exercising their rights and remedies under
the Credit Agreement and the other Loan Documents solely with respect to the
Existing Defaults. “Forbearance
Default” shall mean: (i) an Event of Default (other than the Existing
Defaults), (ii) the failure of either Borrower to keep or perform any of
the covenants or agreements contained herein providing for a payment or
prepayment to the Agents or the Lenders, (iii) the failure of either
Borrower to keep or perform any of the covenants or agreements contained herein
(other than those referred to in clause (ii) above) two Business Days
after the date the Borrowers receive written notice from an Agent of any such
failure (the “Notice Period”), provided that in the event any
such failure is remedied within the Notice Period, such failure shall not
constitute a Forbearance Default, (iv) any representation or warranty of
either Borrower herein shall be incorrect when made or deemed made in any
material respect, (v) the Borrower and the proposed Investors (the “Investors”)
referred to in the Series A Preferred Stock Proposal Summary dated October 3,
2001 (the “Proposal”) do not execute a commitment letter or definitive
documentation consistent with the Proposal in form and substance acceptable to
the Agents on or before December 10, 2001 and (vi) the U.S. Borrower
and the Subordinated Note Holders holding in excess of 66 2/3% in face
amount of the Subordinated Notes do not enter into a “lock-up” agreement
consistent with the “Term Sheet for Restructuring of Bond Debt” which is
Exhibit B to the Senior Debt Term Sheet in form and substance satisfactory to
the Agents on or before November 20, 2001.
(b) Nature of the Forbearance. The forbearance set forth herein is limited and
shall not be deemed (i) a waiver of any Default or Event of Default,
including the Existing Defaults, which now exist or may hereafter arise, (ii) a
forbearance with respect to any term, condition or obligation of the Borrowers
in the Credit Agreement or any other Loan Document other than the Existing
Defaults, (iii) a waiver of any of the conditions precedent to Credit
Extensions contained in Section 7.2 of the Credit Agreement or
(iv) subject to the terms contained herein, to prejudice any right or remedy
which any Agent or any Lender may now or in the future have under or in
connection with the Credit Agreement or any other Loan Document.
2. Conditions Precedent to
Effectiveness of Agreement. This
Agreement shall not be effective unless and until each of the following
conditions shall have been satisfied in the sole discretion of the Agents:
Agents shall have received (i) counterparts of this Agreement duly
executed by each of the Borrowers and the Required Lenders and (ii) an
Affirmation and Consent, in form and substance satisfactory to the Agents, duly
executed by each of the Guarantors.
Agents shall have received, for the pro rata benefit of the Lenders executing
this Agreement on or before November 6, 2001 (the “Consenting Lenders”),
a forbearance fee of $175,000, which shall be fully earned when paid and
Agents shall have been reimbursed for the unpaid fees and expenses incurred
through the date hereof of its professionals, including the unpaid fees and
expenses of Luskin, Stern & Eisler LLP, PricewaterhouseCoopers LLP, Casas,
Benjamin & White, LLC (“CBW”) and Hunton & Williams.
3. Representations and Warranties.
The Borrowers hereby represent and warrant to the Agents and to the
Lenders as follows:
(a) Recitals. The Recitals in this Agreement are true and correct in all
(b) Incorporation of Representations and Statements. All statements of the Borrowers contained in
Section 7.2.1 of the Credit Agreement, and all representations and
warranties of the Borrowers in the Credit Agreement and the other Loan
Documents, are incorporated herein in full by this reference and are, other
than with respect to the Existing Defaults, true and correct as of the date
hereof in all material respects.
(c) Power; Authorization. Each of the Borrowers has the corporate
power, and has been duly authorized by all requisite corporate action, to
execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and
delivered by the Borrowers.
(d) Enforceability. This Agreement is the legal, valid and
binding obligation of each of the Borrowers, enforceable against them in
accordance with its terms.
(e) No Violation. The execution, delivery and performance of this Agreement does
not and will not (i) violate any law, rule, regulation or court order to which
either of the Borrowers is subject, (ii) conflict with or result in a breach of
any Organic Document of the Borrowers or any agreement or instrument to which
either of the Borrowers is party or by which it or its properties are bound, or
(iii) result in the creation or imposition of any Lien, security interest or
encumbrance on any property of either of the Borrowers, whether now owned or
hereafter acquired, other than liens in favor of the Agents.
(f) Obligations. As of the date hereof the outstanding principal balance of the
U.S. Revolving Loans is $90,867,415.83; U.S. Letter of Credit Outstandings is
$11,902,372 (of which $1,600,000 is cash collateralized under the terms of a
Cash Collateral Agreement dated as of April 16, 2001); Term B Loans is
$65,125,196.41; Term C Loans is $62,274,581.93; Term D Loans is
$29,254,342.26; Canadian Revolving Loans is Cdn.$28,739,529.87; Canadian Swingline
Loans is Cdn.$230,000; and Canadian Term Loans is Cdn.$16,544,824.21. Interest and fees have accrued thereon as
provided in the Credit Agreement and the other Loan Documents. The obligation of the Borrowers to repay the
Loans, together with all interest and fees accrued thereon, and the other
Obligations is absolute and unconditional, and there exists no right of set off
or recoupment, counterclaim or defense of any nature whatsoever to payment of
Section 4. Covenants
of Borrowers. The Borrowers agree as follows:
(a) Forecasts. By no later than 4:00 p.m. on the second
Business Day of each week, the Borrowers will deliver to the Agents updated
weekly rolling cash flow forecasts for the following twelve week period,
together with an actual to forecast variance analysis for the preceding week,
which forecasts shall also include a certification from an Authorized Officer
of the U.S. Borrower representing to the information required pursuant to
paragraph (c) below.
(b) U.S. Balance Sheets. Within 30 days after the end of each month,
the Borrowers will deliver to the Agents consolidated and consolidating balance
sheets of the U.S. Borrower and its Subsidiaries (including consolidating
balance sheets of the Canadian Borrower and its Subsidiaries) as of the end of
such month, and consolidated and consolidating statements of earnings and cash
flow of the U.S. Borrower and its Subsidiaries (including consolidating
statements of earnings and cash flow of the Canadian Borrower and its
Subsidiaries) for such month and for the period commencing at the end of the
previous Fiscal Year and ending with the last day of such month.
(c) Disbursements, etc. The Borrowers will not permit cumulative
(from September 1, 2001) disbursements for all applicable months, as set forth
in the Borrowers’ September 18, 2001 rolling 13-week forecast, as may be
revised with the approval of CBW (the “Forecast”), to exceed 110% of the
cumulative (from September 1, 2001) amounts set forth therefor in the Forecast
and will not permit the cash balance at the end of any month to be less than
90% of the cash balance set forth in the Forecast for such month. The Borrowers agree that all payments or
disbursements to an Affiliate or employee of a Borrower (including Severance
Payments (as defined below)) inconsistent with the Forecast or which are
otherwise outside of the ordinary course of business must be approved in
advance by David Coles.
(d) Cooperation. The Borrowers agree to cooperate fully with the Agents, the
Lenders and their professionals, including in connection with any audit or
appraisal of the business, assets or financial condition of the Borrowers and
their Subsidiaries, in all cases at the Borrowers’ expense.
(e) Payment of Fees. In addition to and not in limitation of the
terms of Section 12.3 of the Credit Agreement, the Borrowers agree to pay
on demand all reasonable fees and expenses of (i) the Agents and all
professionals retained by the Agents or by Luskin, Stern & Eisler LLP
(including special counsel engaged to review various litigation issues), and
(ii) each Lender (other than the legal fees of each Lender expressly
excepted from payment under Section 12.3 of the Credit Agreement), in each
case incurred in connection with the Credit Agreement or this Agreement and the
matters contemplated hereby and the restructuring of the Obligations, and
whether incurred prior to or subsequent to the date hereof.
(f) Bank Accounts. Neither the Borrowers nor any of their
Subsidiaries will maintain any checking, savings or other account at any bank
or other financial institution, or any other account where money or securities
may be deposited or maintained, other than the accounts specified in the
Amended and Restated Perfection Certificate dated as of June 15, 2001 and
the Control Agreement and First Amendment to Concentration Bank Agreement,
dated as of August 20, 2001.
(g) Suspension of Commitments. The Commitments are suspended except that
before the earlier of (x) the termination of the Forbearance Period or (y) the
occurrence of a Default (other than an Existing Default), the U.S. Borrower may
deliver a U.S Issuance Request to the U.S Issuer, and the U.S. Issuer shall
(subject to the receipt by the U.S. Issuer of proper documentation therefor)
issue a U.S. Letter of Credit with respect thereto in a stated amount of not
more than $100,000, the beneficiary of which shall be American Express, in its
capacity as the U.S. Borrower’s corporate travel vendor (or another corporate
travel vendor to the U.S. Borrower), provided that contemporaneously
with such issuance, the U.S Borrower shall permanently repay U.S. Revolving
Loans to the U.S. Agent for the pro rata benefit of the U.S. Lenders in an
amount not less than the stated amount of such U.S. Letter of Credit.
(h) LIBOR Restrictions. The outstanding principal amount of the
Loans may not be continued as, or converted into, LIBO Rate Loans or Canadian
BAs, as applicable.
(i) Increased Interest. The Applicable Margin shall in each case be
maintained at a rate of 1% over that otherwise in effect in accordance with the
terms of the Credit Agreement.
(j) Restrictions on Indebtedness, Etc. The Borrowers and their Subsidiaries are
prohibited from incurring Indebtedness under clauses (d), (g), (h) or (l)
of Section 9.2.2 of the Credit Agreement; making Investments under
clauses (f), (i) or (j) of Section 9.2.5 of the Credit Agreement;
redeeming shares of Capital Stock under clause (iii) of the proviso to
Section 9.2.6 of the Credit Agreement; consummating acquisitions or
mergers under clauses (b), (c) or (d) of Section 9.2.10 of the Credit
Agreement; or paying any fees under clause (b) of Section 9.2.13 of
the Credit Agreement.
(k) Monthly Payment of Interest and Fees. All interest for Base Rate Loans and
Canadian Prime Rate Loans, and all Letter of Credit fees payable under
Section 5.3.3 of the Credit Agreement, shall be payable in arrears on the
fifteenth day of each month (instead of the Quarterly Payment Dates).
(l) Canadian Balance Sheets. Within 21 days after the end of each month,
the Canadian Borrower will deliver to the Canadian Agent consolidated and
consolidating balance sheets of the Canadian Borrower and its Subsidiaries as
of the end of such month and consolidated statements of earnings and cash flow
of the Canadian Borrower and its Subsidiaries for such month and for the period
commencing at the end of the previous Fiscal Year and ending with the last day
of such month.
(m) Intercompany Dispositions. The U.S. Borrower and its U.S. Subsidiaries
will not, directly or indirectly, make any Investments (including intercompany
loans or capital contributions) in or to the Canadian Borrower or any of the
Canadian Borrower’s Subsidiaries, or sell, transfer, lease, contribute or
otherwise convey (including by way of merger), or grant options, warrants or
other rights (all collectively referred to as a “Disposition”) with
respect to all or any part of their assets to the Canadian Borrower or any of
the Canadian Borrower’s Subsidiaries other than in the ordinary course of business
consistent with past practices. The
Canadian Borrower and its Subsidiaries will not, directly or indirectly, make
any Investments (including intercompany loans or capital contributions) in or
to (or pay dividends or make distributions to) the U.S. Borrower or any of the
U.S. Borrower’s U.S. Subsidiaries, or make any Disposition with respect to all
or any part of their assets to the U.S. Borrower or any of the U.S. Borrower’s
U.S. Subsidiaries, other than in the ordinary course of business consistent with
(n) Restrictions on Reallocation of Commitments. The Borrowers’ right to reallocate the
unused Canadian Revolving Loan Commitment Amount and the unused U.S. Revolving
Loan Commitment Amount pursuant to, respectively, Sections 2.2.3 and 3.2.2
of the Credit Agreement is suspended.
(o) Antitrust Proceeds. Unless otherwise agreed to by the Required
Lenders, including as to amount and application, concurrently with the receipt
by either of the Borrowers or any of their Affiliates of any judgment,
settlement or other proceeds or amounts, however characterized (with all of the
foregoing collectively referred to as the “Proceeds”), arising from or
in connection with any antitrust claims (the “Claims”) (including claims
pending in (i) the United States District Court for the Central District
of California styled Leiner Health Products Inc. v. F. Hoffman-LaRoche Ltd.,
et al., Case No. 99-09832-JSL and (ii) the United States District
Court for the District of Columbia entitled In Re Vitamins Antitrust
Litigation, MDL No. 1285, Misc. No. 99-0197, and all facts and
circumstances at issue therein), the U.S. Borrower shall make, or cause to be
made, a mandatory prepayment of the Loans in the amount of such Proceeds (with
such prepayment being applied to the remaining Term Loan amortization payments prorata in accordance with the amount of each such remaining Term Loan
amortization payment) and the cash collateralization of all Letters of Credit
and a corresponding reduction of each Revolving Loan Commitment Amount. The Borrowers reaffirm and ratify the
perfected security interest in the Claims and Proceeds of the Agents and the
(p) Restructuring. The Borrowers will report to the Agents on a
weekly basis with respect to the status of the documentation of their
agreements with the Investors and the Subordinated Note Holders. The Borrowers agree to continue to negotiate
a restructuring of their indebtedness and liabilities in good faith with the
Agents and the Lenders.
(q) Chief Financial Officer. The U.S. Borrower agrees to hire a chief
financial officer of the U.S. Borrower (the “CFO”) who shall be
reasonably satisfactory to the Agents and use good faith efforts to complete
such hiring on or before December 31, 2001. The Borrowers shall provide the Agents and CBW with access to the
executive search firm retained in connection with the CFO search process and
will direct such firm to fully cooperate with the Agents and CBW regarding all
reasonable requests for information or documentation in connection
therewith. The Borrowers will continue
to work in good faith with the Agents and their professionals to refine the
description of the required qualifications, capabilities, role and authority of
the CFO position.
(r) Severance Agreements. The Borrowers shall not enter into any
severance agreement (a “Severance Agreement”) with, or similar
arrangement providing for the payment of money or other consideration (a “Severance
Payment”) to, any current or former employee in connection with the termination
(under any circumstances) of such employee’s employment with a Borrower without
the Agents’ prior written consent, which shall not be unreasonably withheld or
delayed, provided that a Borrower may enter into a Severance and Release
Agreement (a “Release”) which is contemplated by and executed in
connection with a Severance Agreement existing on the date hereof, so long as
such Release does not expand the rights of any employee under the related
Severance Agreement. The Borrowers will
promptly deliver to the Agents copies of all Releases reasonably requested by
the Agents or CBW and will not make any Severance Payments or enter into any
Release without first providing 5 Business Days’ prior written notice to
the Agents. The Borrowers will not make
any discretionary non-contractual Severance Payments without the Agents’ prior
(s) Net Disposition Proceeds. The Borrowers agree that notwithstanding
anything to the contrary contained in the second sentence of the definition of
“Net Disposition Proceeds” in the Credit Agreement, Net Disposition Proceeds
shall exclude only an aggregate amount equal to $500,000 of proceeds of
Permitted Dispositions received on or after July 1, 2001 through and until
the termination of the Forbearance Period, provided that the proceeds of
(i) any Permitted Disposition resulting in proceeds of less than $50,000 and
(ii) the sale of Obsolete Inventory (as defined below), shall also be
excluded from Net Disposition Proceeds and shall not be counted toward the $500,000
basket. “Obsolete Inventory”
shall mean inventory for which the U.S. Borrower took an inventory reserve for
Fiscal Year 2001 or which comprises part of a discontinued product line, other
than inventory transferred in connection with a sale of all of the stock, all
or substantially all of the assets, or a division or other similar operating or
administrative unit of a Borrower or a Subsidiary or Affiliate of a
Borrower. As part of the second weekly
rolling cash flow forecast for any month, the U.S. Borrower shall deliver to
the Agents, with respect to the prior month, a report certified by David Coles,
of the sales value, standard cost and inventory reserve associated with the
Obsolete Inventory sold in such month.
(t) Continued Compliance with Loan Documents. Each of the Borrowers will continue to
comply with all of its covenants and other obligations under the Credit
Agreement and the other Loan Documents.
(u) Disclosure Statement and Plan. The U.S. Borrower shall deliver a draft
of its disclosure statement and plan of reorganization under Chapter 11 of the
U.S. Bankruptcy Code to the Agents on or before November 20, 2001, and
shall use commercially reasonable efforts to complete a disclosure statement
and plan in form and substance satisfactory to the Agents by December 10,
The provisions contained in paragraphs (a), (c),
(d), (f), (i), (o), (r), (s) and (u) above shall continue to and including the
date of termination of the Forbearance Period (and shall terminate on such
date) and the provisions contained in paragraphs (b), (e), (g), (h), (j),
(k), (l), (m), (n), (p), (q) and (t) shall survive termination of the
Forbearance Period. Nothing in this
Agreement, including paragraph 4(s) or the termination thereof, shall
prejudice or otherwise affect the right of any party to argue that the sale of
Obsolete Inventory by a Borrower does or does not constitute a Permitted
Disposition or that the proceeds of any such sale do or do not constitute Net
Disposition Proceeds, and no party shall assert in any proceeding or other
context that terms of paragraph 4(s) or the termination thereof are
relevant to any such argument.
5. Effect and Construction of
Agreement. Except as expressly provided herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, and this Agreement shall not
be construed to:
the validity, perfection or priority of any Lien or security interest securing
or impair any rights, powers or remedies of any Agent or any Lender under the
Credit Agreement or any other Loan Document upon termination of the Forbearance
Period, with respect to the Existing Defaults or otherwise;
an agreement by any Agent or any Lender or to require any Agent or any Lender
to extend the Forbearance Period, or grant additional forbearance periods, or
extend the term of the Credit Agreement or the time for payment of any of the
any Lender to make any Loans or other extensions of credit to the Borrower.
In the event of any inconsistency between the terms of
this Agreement and the Credit Agreement or any of the other Loan Documents,
this Agreement shall govern. The
Borrowers acknowledge that they have consulted with counsel and with such other
experts and advisors as they have deemed necessary in connection with the
negotiation, execution and delivery of this Agreement. This Agreement shall be construed without
regard to any presumption or rule requiring that it be construed against the
party causing this Agreement or any part hereof to be drafted.
6. Reference to and Effect on the
the effectiveness hereof, each reference in the Credit Agreement to “this
Agreement,” “hereunder,” “hereof” or words of like import referring to the
Credit Agreement, and each reference in the other Loan Documents to the Credit
Agreement, “thereunder,” “thereof” or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement, as
Agreement shall be a Loan Document.
(a) Further Assurances. The Borrowers agree to execute such other
and further documents and instruments as the Agents may request to implement
the provisions of this Agreement.
(b) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. No
other person or entity shall be entitled to claim any right or benefit
hereunder, including, without limitation, the status of a third-party
beneficiary of this Agreement.
(c) Integration. This Agreement, together with the Credit Agreement and the other
Loan Documents, constitutes the entire agreement and understanding among the
parties relating to the subject matter hereof, and supersedes all prior
proposals, negotiations, agreements and understandings relating to such subject
matter. In entering into this
Agreement, the Borrowers acknowledge that they are relying on no statement,
representation, warranty, covenant or agreement of any kind made by any Agent,
any Lender or any employee or agent of any Agent or any Lender, except for the
agreements of the Agents and the Lenders set forth herein.
(d) Severability. The provisions of this Agreement are intended to be
severable. If any provision of this
Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or enforceability without in any manner affecting
the validity or enforceability of such provision in any other jurisdiction or
the remaining provisions of this Agreement in any jurisdiction.
(e) Counterparts; Telecopied Signatures. This Agreement may be executed in any number
of counterparts and by different parties to this Agreement on separate
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be, and effective as, an original
(f) Notices. Any notices with respect to this Agreement shall be given in the
manner provided for in Section 12.2 of the Credit Agreement.
(g) Survival. Except as otherwise provided herein, all representations,
warranties, covenants, agreements, undertakings, waivers and releases of the
Borrowers contained herein shall survive the termination of the Forbearance
(h) Amendment. No amendment, modification, rescission, waiver or release of any
provision of this Agreement shall be effective unless the same shall be in
writing and signed by the Borrowers, the Agents and the Required Lenders.
8. RELEASE OF CLAIMS.
EACH OF THE BORROWERS HEREBY ACKNOWLEDGES AND AGREES THAT IT DOES NOT
HAVE ANY DEFENSES, COUNTERCLAIMS, OFFSETS, CROSS-CLAIMS, CLAIMS OR DEMANDS OF
ANY KIND OR NATURE WHATSOEVER THAT CAN BE ASSERTED TO REDUCE OR ELIMINATE ALL
OR ANY PART OF THE LIABILITY OF THE BORROWERS TO REPAY ANY AGENT OR ANY LENDER
AS PROVIDED IN THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS OR TO SEEK
AFFIRMATIVE RELIEF OR DAMAGES OF ANY KIND OR NATURE FROM ANY AGENT OR ANY LENDER. EACH OF THE BORROWERS HEREBY VOLUNTARILY AND
KNOWINGLY RELEASES AND FOREVER DISCHARGES THE AGENTS AND THE LENDERS, AND EACH
AGENT’S AND LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS,
ATTORNEYS, SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS, ACTIONS,
CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND LIABILITIES WHATSOEVER, KNOWN
OR UNKNOWN, ANTICIPATED OR UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED,
CONTINGENT, OR CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH THE BORROWERS MAY NOW
OR HEREAFTER HAVE AGAINST ANY SUCH AGENT OR LENDER, AND SUCH AGENT’S OR
LENDER’S PREDECESSORS, AGENTS, EMPLOYEES, CONSULTANTS, ADVISORS, ATTORNEYS,
SUCCESSORS AND ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR OTHERWISE,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER
THE CREDIT AGREEMENT OR OTHER LOAN DOCUMENTS, AND NEGOTIATION AND EXECUTION OF
Each of the Borrowers acknowledges and agrees that it
understands the meaning and effect of Section 1542 of the California Civil Code
“A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
EACH OF THE BORROWERS AGREES TO ASSUME THE RISK OF ANY
AND ALL UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES, CLAIMS, CONTRACTS,
LIABILITIES, INDEBTEDNESS AND OBLIGATIONS WHICH ARE RELEASED, WAIVED AND
DISCHARGED BY THIS AGREEMENT. EACH OF
THE BORROWERS HEREBY WAIVES AND RELINQUISHES ALL RIGHTS AND BENEFITS WHICH IT
MIGHT OTHERWISE HAVE UNDER THE AFOREMENTIONED SECTION 1542 OF THE CALIFORNIA
CIVIL CODE OR ANY SIMILAR LAW, TO THE EXTENT SUCH LAW MAY BE APPLICABLE, WITH
REGARD TO THE RELEASE OF SUCH UNKNOWN, UNANTICIPATED OR MISUNDERSTOOD DEFENSES,
CLAIMS, CONTRACTS, LIABILITIES, INDEBTEDNESS AND OBLIGATIONS. TO THE EXTENT THAT SUCH LAWS MAY BE
APPLICABLE, EACH OF THE BORROWERS WAIVES AND RELEASES ANY RIGHT OR DEFENSE
WHICH IT MIGHT OTHERWISE HAVE UNDER ANY OTHER LAW OF ANY APPLICABLE
JURISDICTION WHICH MIGHT LIMIT OR RESTRICT THE EFFECTIVENESS OR SCOPE OF ANY OF
THEIR WAIVERS OR RELEASES HEREUNDER.
9. GOVERNING LAW; JURISDICTION;
WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF NEW YORK. THE JURISDICTIONAL, VENUE
AND SERVICE OF PROCESS PROVISIONS IN SECTION 12.14 OF THE CREDIT AGREEMENT
AND THE JURY TRIAL WAIVER IN SECTION 12.15 OF THE CREDIT AGREEMENT SHALL
APPLY TO ANY SUIT, ACTION OR PROCEEDING RELATED TO THIS AGREEMENT.
the parties hereto have executed this Agreement as of the date first above
This Term Sheet
is a draft for discussion purposes only and does not represent a commitment,
obligation or understanding on the part of the Agents or any of the
Lenders. Neither the Agents nor any
Lender shall be so obligated unless and until all internal credit approvals
are sought and obtained, all definitive documentation is negotiated and
executed and all conditions precedent are satisfied or waived. The definitive documentation may contain
terms which vary from the terms described herein.
Capitalized terms used
herein and not otherwise defined herein have the meaning given to them in the
Amended and Restated Credit Agreement dated as of May 15, 1998 among
Leiner Health Products Inc., Vita Health Products Inc., the financial
institutions from time to time party thereto, the Bank of Nova Scotia as
agent for the U.S. Lenders and as agent for the Canadian Lenders, Merrill
Lynch Capital Corporation, as Documentation Agent and Salomon Brothers
Holding Company, Inc. as Syndication Agent (as amended, the “Existing
I. RESTRUCTURING OF THE OBLIGATIONS
New Term A Loan
$200,000,000 (to be split pro rata between U.S. Facility and Canadian
31, 2004, provided that the Borrower shall have the option to extend
the Maturity Date for two one year periods upon payment of the applicable
Extension Fee if there is no Event of Default. The Maturity Date shall in no event extend beyond March 31,
of the outstanding principal amount of the New Term A Loan for the first one
year extension. 2.0% of the
outstanding principal amount of the New Term A Loan for the second one year
Alternate Base Rate plus 2.25% (for U.S. Loans) and Canadian Prime
Rate plus 2.25% (for Canadian Loans), payable monthly in arrears,
subject to the following increases:
an increase of an additional .50%, if the Leverage
Ratio is not equal to or less than (i) 5.00 to 1.00 by the end of 2003
Fiscal Year (March 31, 2003) or (ii) 4.00 to 1.00 by the end of
2004 Fiscal Year (March 31, 2004); and
an additional 1.0% on April 1, 2004.
Quarterly principal payments
in the following amounts on the last Business Day of the following Fiscal
Quarters (assuming the Maturity Date is extended until March 31, 2006):
June 30, 2002 through
March 31, 2003
June 30, 2003 through March 31, 2004
June 30, 2004 through December 31, 2005
March 31, 2006
Payments shall be made prorata between the U.S. Facility and Canadian Facility.
payments equal to 50% of Excess Cash Flow (to be defined in the definitive
documentation) paid annually in arrears commencing at the end of FY ’03,
i.e., March 31, 2003. Each Excess
Cash Flow payment will reduce principal amortization payments in the inverse
order of their maturity.
50% of cash generated
by any permanent reduction in working capital, which shall be measured
Term B Loan
$79,000,000 (to be split prorata between U.S. Facility and Canadian
September 30, 2003.
LIBOR plus .50%,
payable in cash, monthly in arrears.
In addition, an amount equal to 10% per annum shall be payable in
kind, quarterly in arrears.
At the closing of the
restructuring, the existing stockholders agreement will be amended to provide
that if the New Term B Loan is not paid in full on or before September 30,
2003 and the leverage ratio is equal to or greater than 5.5x, the Term B Loan
Noteholders will be entitled to nominate a majority of the board of directors
of the ultimate parent holding company of the U.S. Borrower (the “Parent”)1.
The stockholders will agree take all action necessary to elect such
nominees. The Term B Loan Noteholders
will be express third party beneficiaries of the amended stockholders
The Parent is Leiner Health Products Group Inc. The U.S. Borrower is a direct wholly owned
subsidiary of PLI Holdings Inc., which in turn is the direct wholly-owned
subsidiary of the Parent.
See Exhibit A.
Series B Junior
At the Closing of the restructuring, the Lenders will be issued Series
B Junior Convertible Preferred Stock of the Parent convertible into common
stock of the Parent representing an aggregate of 3% of the fully diluted
equity of the Parent.
occurrence of any of the events that customarily would entitle the holders of
preferred stock to a liquidation preference, including any merger,
consolidation or sale of all or substantially all of the assets, or upon any
Qualified IPO (as defined below), the holders of the Series B Junior
Convertible Preferred will be entitled to receive, prior and in preference to
any payment of any consideration to any holder of any equity security of the
company junior to the Series B Junior Convertible Preferred and the Series C
Junior Preferred (which will be issued to the bondholders as described in
Exhibit B), an amount equal to $7.5 million.
A “Qualified IPO” means the closing of a firmly underwritten public
offering of the company’s common stock for a total offering of not less than
$150 million (after deduction of underwriters’ commissions and
At Closing and at all
times thereafter, the Series B Junior Convertible Preferred will rank senior
to any subsequently offered equity securities or other securities convertible
or exchangeable into equity securities of the company with respect to
liquidation preference, and the company will be prohibited from redeeming any
such equity security as long as the Series B Junior Convertible Preferred
The Series B Junior Convertible Preferred and the common stock
issuable upon conversion of such Preferred shall be subject to the existing
stockholders agreement and the holders of such stock will have unlimited
piggyback registration rights as set forth therein.
Protection: Based on below fair market value issuances,
with customary exceptions.
On all relevant matters (other than as required by law) the Series B
Junior Convertible Preferred will vote with the common and not as a separate
class. Each share of Series B
Preferred shall have ____ votes.
The net proceeds from
the Anti-trust Litigation will be applied against (i) all accrued but
unpaid fees, (ii) accrued but unpaid Term Loan B (current pay) interest,
(iii) Term Loan B PIK interest, (iv) Term Loan B principal,
(v) accrued but unpaid Term Loan A interest, and (vi) Term Loan A
1% of total outstanding
principal payable at Closing
1% of total outstanding
principal payable on the first anniversary of the Closing and 0.75% of total
outstanding principal payable annually commencing on the second anniversary
of the Closing.
Same as under Existing
Covenant package to be
negotiated. Financial condition and
operational covenants will be set with reference to the Borrower’s current
Same as Existing Credit
Agreement definition, as modified by the waivers and forbearance
agreement. Sales of inventory,
including inventory reserved against in 2001 Fiscal Year and obsolete
inventory, will constitute Permitted Dispositions but proceeds therefrom will
not constitute Net Disposition Proceeds.
To be agreed upon,
including (a) the Borrower’s agreement to use its best efforts to hire a
CFO on or before December 31, 2001, who shall be reasonably satisfactory
to the Agents; (b) the Lenders’ satisfaction with Borrowers’ agreement
with other creditors; and (c) the Lenders’ satisfaction with terms of any
agreement reached with third party equity source.
Failure of the U.S.
Borrower to replace the CEO, President, COO or CFO of the U.S. Borrower
within 180 days of any such person’s termination of employment. The U.S. Borrower will provide the Agents
with access to the executive search firm retained in connection with the
replacement search process and will direct such firm to fully cooperate with
the Agents regarding all reasonable requests for information or documents in
Other terms and
conditions typical of this type of transaction including releases in favor of
the Lenders and payment of all fees and expenses (including attorneys’ fees)
of the Lenders.
TREATMENT OF OTHER CREDITORS
Outstanding bonds will
be purchased for a combination of cash and preferred equity with funds made
available by third party investors.
The terms and conditions of such purchase are set forth on Exhibit B. The definitive documentation regarding of
the equity to be issued to the third party investor shall be satisfactory to
the Lenders in their sole discretion.
Without limiting the foregoing, any redemption, dividend or other
liquidity rights given to the third party investors must be subordinate to
the rights of the Lenders in their capacity as holders of the New Term A Loan
and New Term B Loan, but not as holders of the Series B Junior Preferred.
Trade will continue to
be paid on a current basis, consistent with past practice.
Execution of mutually satisfactory documentation by
December 15, 2001.
To be extended until December 15, 2001.
Form of Second Amended and Restated Credit Agreement
Form of Series B Preferred Stock Certificate of Designation
Form of Amended Stockholders Agreement, including, registration
Form of Series C Preferred Stock Certificate of Designation
Form of Series A Preferred Stock Purchase Agreement
pre-arranged Chapter 11 filing.
This term sheet is not
intended to be legally binding on any of the parties hereto.
The $85,000,000 of the 9 5/8% Senior Subordinate Notes due
June 30, 2007 shall be exchanged for the following consideration:
$15,000,000 in cash payable upon the closing of the
Amount: At the
closing of the restructuring, the Bondholders will be issued Series C Junior
Preferred Stock of the Parent.
Upon the occurrence of any of the events that customarily would
entitle the holders of preferred stock to a liquidation preference, including
any merger, consolidation or sale of all or substantially all of the assets,
or upon any Qualified IPO (as defined below), the holders of the Series C
Junior Preferred will be entitled to receive, prior and in preference to any
payment of any consideration to any holder of any equity security of the
company junior to the Series C Junior Preferred and the Series B Junior
Convertible Preferred amount equal to $7 million. A “Qualified IPO” means the closing of a firmly underwritten
public offering of the company’s common stock for a total offering of not
less than $150 million (after deduction of underwriters’ commissions and
At Closing and at all times thereafter, the Series C
Junior Preferred will rank senior to any subsequently offered equity
securities or other securities convertible or exchangeable into equity
securities of the company with respect to liquidation preference, and the
company will be prohibited from redeeming any such equity security as long as
the Series C Junior Preferred remains outstanding.
Voting Rights: On all
relevant matters (other than as required by law) the Series C Junior
Preferred will vote with the common and not as a separate class. Each share of Preferred shall have ______