Xxxxxxxxx Capital Inc.
November 14, 1995
BFMA Holding Corporation VIA FACSIMILE
BFMA Acquisition Corporation
c/o Xxxxxx Xxxxxxx Incorporated
000 Xxxxx Xxxxx Xxxxx, Xxx. 000
Xxxxxxx Xxxxx, XX 00000
Attn: Xxxxx Xxxxx:
Ladies & Gentlemen:
You have informed us that you have an agreement to purchase Marietta Corporation
for approximately $40 million, and that such purchase will be financed with a
$17 million revolving credit facility provided by Foothill, a $10 million senior
term loan, a $15 million subordinated loan and $7.0 million of equity consisting
of cash and Marietta Corporation common stock (including up to $300,000 of
reimbursed transaction related expenses) supplied by Xx. Xxxxx Xxxxxxxxx. (It is
understood that the senior term loan, at closing, may be increased up to $12.5
million with a proportioned decrease in the subordinated loan down to $12.5
million). This will confirm that Xxxxxxxxx Capital Partners II, a Minnesota
limited partnership, by Xxxxxxxxx Capital, Inc., its General Partner, is
proposing to make funds available to BFMA Acquisition Corp. to acquire the stock
of Marietta Corporation, subject to the conditions described herein.
Based upon the data previously provided, this proposal is considered
achievable unless our subsequent due diligence proves to be inconsistent with
the information submitted to us. This proposal is also contingent upon the
senior debt having terms and conditions acceptable to us and satisfactory
completion of due diligence.
This proposal letter supersedes all our previous proposal letters.
Subordinated Debt Terms & Conditions
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Borrower: BFMA Acquisition Corporation ("Borrower"), subject to
approval by Lender's legal counsel.
Lender: Xxxxxxxxx Capital Partners II, A Minnesota limited partnership
("Lender").
Amount: $15,000,000 ("Loan").
2400 Metropolitan Centre, 000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000/ (000) 000-0000
BFMA Holding Corporation
November 14, 1995
Page 2
Purpose: To supply subordinated debt to partially finance the
acquisition of Marietta Corporation.
Interest Rate: 18% fixed interest, payable monthly, of which up to 4% may be
deferred for up to four years after closing, subject to
monthly compounding at the 18% all-in rate.
Equity Warrant
Percentage: 8% of the fully-diluted common equity of the Borrower.
Maturity: Eight years from date of closing.
Scheduled Debt Principal to be paid in equal quarterly installments in
Retirement: years seven and eight.
Excess Cash A to-be-determined percentage of available Excess Cash (to
Recapture: be defined), as determined annually by the Borrower's
Certified Public Accounting firm, shall be used first to pay
off any deferred interest on the Loan with any remainder used
to reduce senior debt and/or the Loan. If the senior lender
does not require any mandatory prepayment from Excess Cash,
---
then the Borrower will only be required to pay off any
deferred interest on the Loan from Excess Cash.
Prepayment Prepayment permitted after two years without premium from
Premiums: ---------------
internally generated funds in increments of $100,000.
Prepayments from any source prior to two years from closing
will be subject to a make-whole at 24% per year for two years,
regardless of the actual time the Loan was outstanding. Other
amounts prepaid will be subject to a prepayment premium which
will increase the internal rate of return from the agreed-upon
fixed interest rate on the amounts prepaid for the time
------------
outstanding by 3% if prepaid in year three; and 2% if prepaid
-----------
in year four, exclusive of any fees and expenses, calculated
on the basis of monthly compounding of interest.
If the Loan is prepaid from any source other than internally
generated funds, the Loan, fees, if any, expenses, if any,
prepayment premium and interest must be paid in full.
BFMA Holding Corporation
November 14, 1995
Page 3
Due Diligence
Fee: 1/2% of the Loan ($75,000), payable upon acceptance of this
letter, refundable, less out-of-pocket expenses if Lender, at
its option, chooses not to consummate the transaction.
Closing Fee: 2.0% of the Loan ($300,000), payable at closing.
Covenants: Ordinary and customary, including, but not limited to, cross
default and cross acceleration provisions; fixed charge and
interest coverage tests; total debt, capital expenditure,
dividend and management fee limitations; minimum tangible net
worth and cash flow to total indebtedness tests; change in
business, management and control restrictions sale of assets,
merger and acquisition limitations. Lender may charge interest
premium of an additional 5% per annum upon the occurrence and
continuation of an Event of Default.
Reporting: Financial reporting to be performed per GAAP by a certified
public accounting firm acceptable to Lender.
Security: Second lien on all assets behind senior lender, a limited
recourse guarantee of the Loan by BFMA Holding Corporation
collateralized by a pledge of 100% of the stock of the
Borrower, key-person life insurance with the Lender named as
loss payee.
Subordination: Subject to mutual agreement with senior lender. Subordination
terms must recognize that subordinated debt provided by Lender
is a debt instrument and not an equity proxy and, thereby, is
entitled to basic lender rights including, but not limited to,
cross default, cross acceleration and a limited period of
suspension of rights and remedies.
Legal Deposit: The Borrower shall pay an initial Legal Deposit of $20,000 to
commence the loan documentation process. No loan documentation
shall occur without approval of the Borrower or receipt of a
----------------
deposit. Subsequent deposits may be required as legal fees are
incurred.
BFMA Holding Corporation
November 14, 1995
Page 4
Termination Fee: If the Lender is willing to consummate the transaction per
terms substantially consistent with the terms outlined herein,
and the Borrower or its successors, assigns or affiliated
parties in total or individually, either prior to or within
twelve months subsequent to the date of this proposal letter,
consummates or contracts to consummate the proposed
transaction without borrowing from the Lender, the Lender will
be entitled to a Termination Fee equal to 3% of the requested
Loan amount, in addition to all other fees and expenses
-----------
provided for herein.
Confidentiality: This letter is delivered with the understanding that neither
it nor its substance shall be disclosed to any third party
except where the same is required by law. The contents of this
letter may be disclosed to Borrower's attorneys, accountants,
investment bank, senior lender, senior lender's attorneys and
Lender's attorneys, provided they are bound by the same
confidentiality terms.
Expenses: Borrower agrees to pay (in addition to the Due Diligence Fee)
at the time of closing, or immediately in the event the
transaction contemplated herein is terminated, all reasonable
legal, environmental, and out-of-pocket expenses incurred by
Lender up until that time, including but not limited to all
reasonable legal and out-of-pocket expenses relating to the
failure of the Borrower to comply with its obligations in this
section. Actual legal expenses will be netted against total
legal deposits received. In addition, Borrower agrees to pay
annual out-of-pocket transactional or loan monitoring expenses
of the Lender (estimated at no greater than $10,000 per annum
so long as no events of default exist). Borrower consents to
the jurisdiction and venue of the courts of the State of
Minnesota for the purposes of any legal action arising out of
or relating to this proposal letter.
BFMA Holding Corporation
November 14, 1995
Page 5
Those matters which are not covered by or made clear in the above
outline are subject to mutual agreement of the parties. This proposal is
conditional upon the satisfactory completion of due diligence by the Lender,
and the preparation, execution, and delivery of legal documentation in form and
substance satisfactory to Lender and its counsel incorporating; substantially
the terms set forth above.
If you are in agreement with the foregoing, please sign and return the
enclosed copy of this proposal to us, along with the Due Diligence Fee made
payable to Xxxxxxxxx Capital, Inc., no later than the end of business Tuesday,
November 14, 1995, the date on which this proposal letter will expire.
XXXXXXXXX CAPITAL PARTNERS II, A MINNESOTA LIMITED PARTNERSHIP
By: Xxxxxxxxx Capital, Inc.
Its General Partner
By: Xxxxxxx Xxxx, Principal
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November 14, 1995
Accepted:
BFMA Holding Corporation
BFMA Acquisition Corporation
By: Xxxxx Xxxxxxxxx
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Its: President
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November 14, 1995
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