-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T0+Mj3J6Et2RIGaHfIZ4tj4hL0QsH0/N7AJByvYLzvEPEp8SVUR6tu+rKULaQ4t/ lGM3KZ3yGM2L1ZJlP3NkBg== 0000950134-98-008178.txt : 19981021 0000950134-98-008178.hdr.sgml : 19981021 ACCESSION NUMBER: 0000950134-98-008178 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19981020 SROS: NASD GROUP MEMBERS: FPK LLC GROUP MEMBERS: FRANK P KRASOVEC GROUP MEMBERS: JAMES P GUNNING JR GROUP MEMBERS: JOHN FINNELL GROUP MEMBERS: JOHN H JOSEPHSON GROUP MEMBERS: NORWOOD PROMOTIONAL PRODUCTS INC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: NORWOOD PROMOTIONAL PRODUCTS INC CENTRAL INDEX KEY: 0000902793 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 742553074 STATE OF INCORPORATION: TX FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-45025 FILM NUMBER: 98727824 BUSINESS ADDRESS: STREET 1: 106 E 6TH ST STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 2103419440 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NORWOOD PROMOTIONAL PRODUCTS INC CENTRAL INDEX KEY: 0000902793 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 742553074 STATE OF INCORPORATION: TX FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 106 E 6TH ST STREET 2: STE 300 CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 2103419440 SC 13E3/A 1 AMENDMENT NO. 3 TO FORM SC 13E3 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------- SCHEDULE 13E-3/A (AMENDMENT NO. 3) RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) ------------------------- NORWOOD PROMOTIONAL PRODUCTS, INC. (Name of the Issuer) NORWOOD PROMOTIONAL PRODUCTS, INC. FPK, LLC FRANK P. KRASOVEC JAMES P. GUNNING, JR. JOHN H. JOSEPHSON JOHN FINNELL (Names of Persons Filing Statement) ------------------------- COMMON STOCK, NO PAR VALUE PER SHARE (Title of Class of Securities) 669729-10-5 ------------------------------------- (CUSIP Number of Class of Securities) Richard J. McMahon, Esquire William R. Volk, Esquire Blank Rome Comisky & McCauley LLP Hughes & Luce, L.L.P. One Logan Square 111 Congress Avenue, Suite 900 Philadelphia, PA 19103 Austin, TX 78701 (215) 569-5500 (512) 482-6800 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Persons filing Statement) This statement is filed in connection with (check the appropriate box): a. [x] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [ ] The filing of a registration statement under the Securities Act of 1933. c. [ ] A tender offer. d. [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies. [ ] CALCULATION OF FILING FEE ================================================================================ TRANSACTION VALUATION* AMOUNT OF FILING FEE - -------------------------------------------------------------------------------- $84,855,634 $16,971 ================================================================================
- -------------------- * For purposes of calculating fee only. The "Transaction Valuation" amount is based upon the purchase of 4,099,306 shares of common stock, no par value ("Common Stock"), of Norwood Promotional Products, Inc. at $20.70, the cash price per share of Common Stock to be paid in the Merger (the "Merger Consideration"). The payment of the filing fee, calculated in accordance with Regulation 240.0-11 under the Securities Exchange Act of 1934, as amended, equals one-fiftieth of one percent of the value of the Common Stock for which the Merger Consideration will be paid. [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing: Amount Previously Paid: $16,971 Form or Registration No.: Schedule 13E-3 Filing Party: Norwood Promotional Products, Inc. Date Filed: April 29, 1998 2 INTRODUCTION This Rule 13e-3 Transaction Statement on Schedule 13E-3 is being filed by Norwood Promotional Products, Inc., a Texas corporation (the "Company"), FPK, LLC, a Delaware limited liability company ("LLC"), Frank P. Krasovec, the Chairman, President and Chief Executive Officer of the Company and the sole member and manager of LLC ("Krasovec"), James P. Gunning, Jr., Chief Financial Officer, Treasurer and Secretary of the Company ("Gunning"), John Finnell, Senior Vice President of Learning and Performance Enhancement of the Company ("Finnell") and John H. Josephson, a director of the Company ("Josephson"), in connection with the proposed merger (the "Merger") of Newco, a Texas corporation to be formed as a wholly-owned subsidiary of LLC ("Newco"), with and into the Company pursuant to an Agreement and Plan of Merger, dated March 15, 1998, as amended (the "Merger Agreement"), by and between the Company and LLC. The Merger Agreement provides for the Merger of Newco with and into the Company, with the Company being the surviving corporation (the "Surviving Corporation"). Upon the effectiveness of the Merger (the "Effective Time"), each share of common stock, no par value per share, of the Company (the "Common Stock"), issued and outstanding immediately prior to the Effective Time (other than shares held by the Company or any of its subsidiaries as treasury stock, shares held by the members of the Buyout Group (as defined in the Proxy Statement as defined below) and shares held by dissenting shareholders who have validly exercised and perfected their dissenters' rights under Texas law) will be converted into the right to receive $20.70 in cash, without interest, subject to applicable back-up withholding of taxes (the "Merger Consideration"). Each share of common stock of Newco issued and outstanding immediately prior to the Effective Time will automatically be cancelled. This Schedule 13E-3 is being filed with the Securities and Exchange Commission concurrently with a definitive proxy statement filed by the Company pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Proxy Statement"). A copy of the Proxy Statement is attached hereto as Exhibit (d)(1). The following cross reference sheet is being supplied pursuant to General Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of the information required to be included in this Schedule 13E-3. The information contained in the Proxy Statement, including all the exhibits thereto, is expressly incorporated herein by reference and the responses to each item are qualified in their entirety by reference to the information contained in the Proxy Statement and the exhibits thereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Proxy Statement. Subsequent to the Special Meeting of Shareholders held on August 19, 1998 where the shareholders of the Company approved and adopted the Merger Agreement, new financing to fund the Merger was arranged by LLC and is described in the Notice to Shareholders dated October 20, 1998 attached hereto as Exhibit 99.(d)(5).
ITEM NUMBER AND CAPTION IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT - ---------------------------------- ----------------------------------------- 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION (a) "The Parties" (b) "Summary" and "Market Information" (c) "Market Information" (d) "Market Information" (e) "Market Information" (f) "Purchases of Common Stock By and Other Transactions With Certain Persons" 2. IDENTITY AND BACKGROUND "The Parties"
3
ITEM NUMBER AND CAPTION IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT - ---------------------------------- ----------------------------------------- 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS (a) (1) Not Applicable (a) (2)* "Special Factors -- Background of the Merger" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The Merger Agreement"* (b)* "Special Factors -- Background of the Merger"* 4. TERMS OF THE TRANSACTION (a) "Summary;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The Merger Agreement" (b) "Summary;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" and "The Merger Agreement" 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE (a)-(g) "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" and "Special Factors -- Future Plans of the Company" 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION (a)-(c)* "Summary;" "Special Factors -- Estimated Fees and Expenses; Sources of Funds" and "Special Factors -- Expenses"* (d) Not Applicable 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS (a)-(c) "Special Factors -- Background of the Merger" and "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger"
- --------------- * As modified by the Notice to Shareholders dated October 20, 1998 attached hereto as Exhibit 99.(d)(5). -3- 4
ITEM NUMBER AND CAPTION IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT - ---------------------------------- ----------------------------------------- (d) "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors -- Conflicts of Interest;" "Special Factors -- Future Plans of the Company;" "The Merger Agreement -- Material U.S. Federal Income Tax Consequences of the Merger;" "The Merger Agreement -- Accounting Treatment of the Merger" and Appendix A (the Merger Agreement) 8. FAIRNESS OF THE TRANSACTION (a)-(e) "The Meeting -- Required Vote;" "Special Factors -- Background of the Merger;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors -- Determination of Fairness of the Merger by the Special Committee and the Board of Directors;" "Special Factors -- Opinion of the Special Committee's Financial Advisor;" "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness;" "Special Factors --Materials Prepared by Krasovec's Advisor;" "Special Factors -- Certain Projections;" and "Special Factors -- Conflicts of Interest " (f) Not Applicable 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS (a)-(c) "Special Factors -- Background of the Merger;" "Special Factors -- Determination of Fairness of the Merger by the Special Independent Committee and the Board of Directors;" "Special Factors -- Opinion of the Special Committee's Financial Advisor;" "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness;" "Special Factors -- Material Prepared by Krasovec's Advisor;" "Special Factors -- Certain Projections;" "Special Factors -- Estimated Fees and Expenses; Sources of Funds" and Appendix B (J.C. Bradford Opinion) 10. INTEREST IN SECURITIES OF THE ISSUER (a) "Security Ownership of Certain Beneficial Owners and Management" (b) "Purchases of Common Stock by and Other Transactions with Certain Persons"
-4- 5
ITEM NUMBER AND CAPTION IN SCHEDULE 13E-3 LOCATION IN THE PROXY STATEMENT - ---------------------------------- ----------------------------------------- 11. CONTRACTS, ARRANGEMENTS OR "Summary;" "The Meeting -- Voting Rights;" "The UNDERSTANDINGS WITH RESPECT Meeting -- Required Vote; "Special Factors -- TO THE ISSUER'S SECURITIES Background of the Merger;" "The Merger Agreement -- Conversion of Securities in the Merger; Treatment of Derivatives;" "The Merger Agreement -- Payment for and Surrender of Company Common Shares" and "Security Ownership of Certain Beneficial Owners and Management" 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION (a)-(b) "Summary;" "The Meeting -- Required Vote;" "Special Factors -- Determination of Fairness of the Merger by the Special Independent Committee and the Board of Directors" and "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness" 13. OTHER PROVISIONS OF THE TRANSACTION (a) "Summary" and "Special Factors -- Rights of Dissenting Shareholders" (b) Not Applicable (c) Not Applicable 14. FINANCIAL INFORMATION (a) "Selected Financial Data" (b) Not Applicable 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED (a)* "Special Factors -- Future Plans of the Company;" and "Special Factors -- Estimated Fees and Expenses; Sources of Funds"* (b) Not Applicable
- --------------- * As modified by the Notice to Shareholders dated October 20, 1998 attached hereto as Exhibit 99.(d)(5). -5- 6 ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a) The information set forth in "The Parties" in the Proxy Statement is hereby incorporated herein by reference. (b) The information set forth in "Summary" and "Market Information" in the Proxy Statement is hereby incorporated herein by reference. (c) The information set forth in "Market Information" in the Proxy Statement is hereby incorporated herein by reference. (d) The information set forth in "Market Information" in the Proxy Statement is hereby incorporated herein by reference. (e) The information set forth in "Market Information" in the Proxy Statement is hereby incorporated herein by reference. (f) The information set forth in "Purchases of Common Stock By and Other Transactions With Certain Persons" in the Proxy Statement is hereby incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND. (a)-(d) and (g) This Statement is being filed by the Company, LLC, Krasovec, Gunning, Finnell and Josephson. The Company is the issuer of the Common Stock which is the subject of the Rule 13e-3 transaction. The information set forth in "The Parties" in the Proxy Statement is hereby incorporated herein by reference. The following is certain information regarding Krasovec, Gunning, Finnell and Josephson, each an affiliate of the Company: Frank P. Krasovec, a United States citizen, is the Chairman, President and Chief Executive Officer of the Company and beneficially owns 660,917 shares of Common Stock of the Company. Krasovec is also the sole member and manager of LLC. His business address is c/o the Company, 106 E. Sixth Street, Suite 300, Austin, Texas 78701. James P. Gunning, Jr., a United States citizen, is the Chief Financial Officer, Treasurer and Secretary of the Company and beneficially owns 500 shares of Common Stock of the Company. His business address is c/o the Company 106 E. Sixth Street, Suite 300, Austin, Texas 78701. John Finnell, a United States citizen, is the Senior Vice President of Learning and Performance Enhancement of the Company and beneficially owns 206,553 shares of Common Stock of the Company. His business address is c/o the Company, 106 E. Sixth Street, Suite 300, Austin, Texas 78701. John H. Josephson, a United States Citizen, has served as a director of the Company since June 1993 and has been employed by Allen & Company Incorporated ("Allen") since August 1987 and has been a Director of that firm since February 1995. Allen has been retained by Krasovec as one of his financial advisors to provide financial advice in connection with the proposed Merger. Josephson beneficially owns 29,228 shares of Common Stock of the Company. His business address is Allen & Company Incorporated, 711 Fifth Avenue, New York, New York 10022. (e)-(f) During the last five years, none of the Company, LLC, Krasovec, Gunning, Finnell or Josephson nor, to the best of their knowledge, any of the other officers or directors of the Company or LLC has been convicted in a criminal proceeding or has been party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violations of, or prohibiting activities, subject to, federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS. (a)(1) Not Applicable. (a)(2) The information set forth in "Special Factors -- Background of the Merger;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The Merger Agreement" in the Proxy Statement is hereby incorporated herein by reference. The information set forth in the Notice to Shareholders dated October 20, 1998 which is attached hereto as Exhibit 99.(d)(5) is hereby incorporated herein by reference. -6- 7 (b) The information set forth in "Special Factors -- Background of the Merger" in the Proxy Statement is hereby incorporated herein by reference. The information set forth in the Notice to Shareholders dated October 20, 1998 which is attached here to as Exhibit 99.(d)(5) is hereby incorporated herein by reference. ITEM 4. TERMS OF THE TRANSACTION. (a) The information set forth in "Summary;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The Merger Agreement" in the Proxy Statement is hereby incorporated herein by reference. (b) The information set forth in "Summary;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "The Merger Agreement" in the Proxy Statement is hereby incorporated herein by reference. ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE. (a)-(g) The information set forth in "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" and "Special Factors - -- Future Plans of the Company" in the Proxy Statement is hereby incorporated herein by reference. ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a)-(c) The information set forth in "Summary;" "Special Factors -- Estimated Fees and Expenses; Sources of Funds" and "Special Factors -- Expenses" in the Proxy Statement is hereby incorporated herein by reference. The information set forth in the Notice to Shareholders dated October 20, 1998 which is attached here to as Exhibit 99.(d)(5) is hereby incorporated herein by reference. (d) Not Applicable. ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS. (a)-(c) The information set forth in "Special Factors -- Background of the Merger" and "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger" in the Proxy Statement is hereby incorporated herein by reference. (d) The information set forth in "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors -- Conflicts of Interest;" "Special Factors -- Future Plans of the Company;" "The Merger Agreement -- Material U.S. Federal Income Tax Consequences of the Merger;" "The Merger Agreement -- Accounting Treatment of the Merger" and Appendix A (the Merger Agreement) in the Proxy Statement is hereby incorporated herein by reference. ITEM 8. FAIRNESS OF THE TRANSACTION. (a)-(e) The information set forth in "The Meeting -- Required Vote;" "Special Factors -- Background of the Merger;" "Special Factors -- Purpose of and Reasons for the Merger; Certain Effects of the Merger;" "Special Factors -- Determination of Fairness of the Merger by the Special Committee and the Board of Directors;" "Special Factors -- Opinion of the Special Committee's Financial Advisor;" "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness;" "Special Factors -- Material Prepared by Krasovec's -7- 8 Advisor;" "Special Factors -- Certain Projections" and "Special Factors -- Conflicts of Interest" in the Proxy Statement is hereby incorporated herein by reference. (f) Not Applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS. (a)-(b) The information set forth in "Special Factors -- Background of the Merger;" "Special Factors -- Determination of Fairness of the Merger by the Special Committee and the Board of Directors;" "Special Factors -- Opinion of the Special Committee's Financial Advisor;" "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness;" "Special Factors -- Material Prepared by Krasovec's Advisor;" "Special Factors -- Certain Projections;" "Special Factors -- Estimated Fees and Expenses; Sources of Funds" and Appendix B (J.C. Bradford Opinion) in the Proxy Statement is hereby incorporated herein by reference. (c) The Opinion of J.C. Bradford, financial advisor to the Special Committee, is included in the information to be circulated to Shareholders and shall also be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested Shareholder of the Company or his or its representative who has been designated in writing. At the written request of such Shareholder, a copy of such opinion will be sent, at the Shareholder's expense, to such Shareholder or his or its representative. The information set forth in Exhibit (b)(2), (b)(3), b(4) and (b)(5) to this Statement will be made available for inspection and copying at the principal executive offices of the Company by any interested Shareholder of the Company or his or its representative who has been designated in writing. At the written request of such a Shareholder, a copy of each such Exhibit will be sent, at the Shareholder's expense, to such Shareholder or his or its representatives. ITEM 10. INTEREST IN SECURITIES OF THE ISSUER. (a) The information set forth in "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is hereby incorporated herein by reference. (b) The information set forth in "Purchases of Common Stock by and Other Transactions with Certain Persons" in the Proxy Statement is hereby incorporated herein by reference. ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S SECURITIES. The information set forth in "Summary;" The Meeting -- Voting Rights;" "The Meeting -- Required Vote;" "Special Factors -- Background of the Merger;" "The Merger Agreement -- Conversion of Securities in the Merger; Treatment of Derivatives;" "The Merger Agreement -- Payment for and Surrender of Company Common Shares" and "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is hereby incorporated herein by reference. ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION. (a)-(b) The information set forth in "Summary;" The Meeting -- Required Vote;" "Special Factors -- Determination of Fairness of the Merger by the Special Committee and the Board of Directors" and -8- 9 "Special Factors -- Position of Krasovec, Gunning, Josephson and Finnell as to Fairness" in the Proxy Statement is hereby incorporated herein by reference. ITEM 13. OTHER PROVISIONS OF THE TRANSACTION. (a) The information set forth in "Summary" and "Special Factors -- Rights of Dissenting Shareholders" in the Proxy Statement is hereby incorporated by reference. (b) Not Applicable. (c) Not Applicable. ITEM 14. FINANCIAL INFORMATION. (a) The information set forth in "Selected Financial Data" in the Proxy Statement is hereby incorporated herein by reference. (b) Not applicable. ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED. (a) The information set forth in "Special Factors -- Future Plans of the Company" and "Estimated Fees and Expenses; Sources of Funds" in the Proxy Statement is hereby incorporated herein by reference. The information set forth in the Notice to Shareholders dated October 20, 1998 which is attached hereto as Exhibit 99.(d)(5) is hereby incorporated herein by reference. (b) Not applicable. ITEM 16. ADDITIONAL INFORMATION. The information set forth in the Proxy Statement and the Appendices thereto is incorporated herein by reference in its entirety. -9- 10 ITEM 17. MATERIAL TO BE FILED AS EXHIBITS. 99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A. and NationsBanc Montgomery Securities, LLC. 99.(a)(2)(A) Term Sheet regarding Bank Facilities. 99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and between FPK, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. 99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between FPK, LLC and Ares Leveraged Investment Fund, L.P. 99.(a)(5)(A) Term Sheet regarding Preferred Stock. 99.(a)(6) Commitment Letter dated September 15, 1998 by and between FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A. and NationsBanc Montgomery Securities, LLC. 99.(a)(7) Term Sheet regarding new Bank Facilities. 99.(a)(8) Letter of Intent dated September 8, 1998 by and between FPK, LLC and Liberty Capital Partners, Inc. 99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the Special Independent Committee of the Board of Directors of the Company. 99.(b)(2)(C) Written materials prepared by J.C. Bradford for the Special Independent Committee of the Board of Directors dated March 7, 1998. 99.(b)(3)(C) Preliminary written materials prepared by J.C. Bradford for the Special Independent Committee of the Board of Directors dated February 26, 1998. 99.(b)(4)(C) Written materials prepared by Merrill Lynch for Frank P. Krasovec dated November 14, 1997. 99.(b)(5)(C) Written materials prepared by Merrill Lynch for Frank P. Krosevec dated December 5, 1997. 99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15, 1998, by and between the Company and FPK, LLC. 99.(d)(1)(D) Definitive Proxy Statement. 99.(d)(2)(B) Notice of Special Meeting of Shareholders of the Company. 99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr., Secretary of the Company. 99.(d)(4)(B) Proxy Card. 99.(d)(5) Notice to Shareholders dated October 20, 1998. 99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business Corporation Act. - -------------------- (A) Incorporated by reference from Schedule 13D filed March 25, 1998. (B) Incorporated by reference from the Definitive Proxy Statement filed July 23, 1998. (C) Previously filed with Amendment No. 1 to the Schedule 13E-3 on June 24, 1998. (D) Previously Filed with Amendment No. 2 to the Schedule 13E-3 on July 23, 1998. -10- 11 SIGNATURE After due inquiry and to the best of the undersigned's knowledge, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. NORWOOD PROMOTIONAL PRODUCTS, INC. By: /s/ FRANK P. KRASOVEC ------------------------------------- Frank P. Krasovec Chairman, President and Chief Executive Officer FPK, LLC By: /s/ FRANK P. KRASOVEC ------------------------------------- Frank P. Krasovec President /s/ FRANK P. KRASOVEC ------------------------------------------ FRANK P. KRASOVEC /s/ JOHN H. JOSEPHSON ------------------------------------------ JOHN H. JOSEPHSON /s/ JAMES P. GUNNING, JR. ------------------------------------------ JAMES P. GUNNING, JR. /s/ JOHN FINNELL ------------------------------------------ JOHN FINNELL Dated: October 20, 1998 -11- 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 99.(a)(1)(A) Commitment Letter dated March 15, 1998 by and between FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A. and NationsBanc Montgomery Securities, LLC. 99.(a)(2)(A) Term Sheet regarding Bank Facilities. 99.(a)(3)(A) Highly Confident Letter dated March 15, 1998 by and between FPK, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. 99.(a)(4)(A) Commitment Letter dated March 14, 1998 by and between FPK, LLC and Ares Leveraged Investment Fund, L.P. 99.(a)(5)(A) Term Sheet regarding Preferred Stock. 99.(a)(6) Commitment Letter dated September 15, 1998 by and between FPK, LLC, Merrill Lynch Capital Corporation, NationsBank, N.A. and NationsBanc Montgomery Securities, LLC. 99.(a)(7) Term Sheet regarding new Bank Facilities. 99.(a)(8) Letter of Intent dated September 8, 1998 by and between FPK, LLC and Liberty Capital Partners, Inc. 99.(b)(1)(B) Opinion of J.C. Bradford, financial advisor to the Special Independent Committee of the Board of Directors of the Company. 99.(b)(2)(C) Written materials prepared by J.C. Bradford for the Special Independent Committee of the Board of Directors dated March 7, 1998. 99.(b)(3)(C) Preliminary written materials prepared by J.C. Bradford for the Special Independent Committee of the Board of Directors dated February 26, 1998. 99.(b)(4)(C) Written materials prepared by Merrill Lynch for Frank P. Krasovec dated November 14, 1997. 99.(b)(5)(C) Written materials prepared by Merrill Lynch for Frank P. Krosevec dated December 5, 1997. 99.(c)(1)(B) Agreement and Plan of Merger, dated as of March 15, 1998, by and between the Company and FPK, LLC. 99.(d)(1)(D) Definitive Proxy Statement. 99.(d)(2)(B) Notice of Special Meeting of Shareholders of the Company. 99.(d)(3)(B) Letter to Shareholders from James P. Gunning, Jr., Secretary of the Company. 99.(d)(4)(B) Proxy Card. 99.(d)(5) Notice to Shareholders dated October 20, 1998. 99.(e)(B) Text of Articles 5.12 and 5.13 of the Texas Business Corporation Act. - -------------------- (A) Incorporated by reference from Schedule 13D filed March 25, 1998. (B) Incorporated by reference from the Definitive Proxy Statement filed July 23, 1998. (C) Previously filed with Amendment No. 1 to the Schedule 13E-3 on June 24, 1998. (D) Previously Filed with Amendment No. 2 to the Schedule 13E-3 on July 23, 1998.
EX-99.(A)(6) 2 COMMITMENT LETTER DATED 9/15/98 1 EXHIBIT 99.(a)(6) MERRILL LYNCH CAPITAL CORPORATION NATIONSBANK, N.A. World Financial Center 800 Market Street North Tower St. Louis, Missouri 63101 250 Vesey Street New York, New York 10281 September 15, 1998 FPK, LLC 106 East 6th Street Suite 300 Austin, Texas 78216 Attention: Frank P. Krasovec, Chairman & Chief Executive Officer Re:Commitment Letter Ladies and Gentlemen: You have advised Merrill Lynch Capital Corporation ("Merrill Lynch"), NationsBank, N.A. ("NationsBank") and NationsBanc Montgomery Securities LLC ("NMS" and together with Merrill Lynch, the "Joint Lead Arrangers") that (i) FPK, LLC, a Delaware limited liability Company ("LLC") formed by Frank P. Krasovec intends to form a new corporation ("Newco"); (ii) LLC has entered into a merger agreement (the "Merger Agreement") with Norwood Promotional Products, Inc. ("Target" or "Borrower") to effect the recapitalization of Borrower (the "Recapitalization"); (iii) pursuant to the Merger Agreement, Newco will merge with and into Borrower with Borrower as the survivor (the "Merger"); (iv) pursuant to the Merger Agreement, after giving effect to the Merger and the other transactions contemplated thereby, the Buyout Group (as defined in the Merger Agreement), Liberty Capital Partners, LP or its affiliates (collectively, "Liberty") and certain other third parties will own all of the capital stock of Borrower; (v) the consideration per share to be paid 2 -2- pursuant to the Merger Agreement to the holders of Borrower's common stock that are cashed out in the Recapitalization shall not exceed $20.70 per share and $91 million in the aggregate, except as a result of the valid exercise of appraisal rights in accordance with Texas law. In addition, you have also advised the Joint Lead Arrangers and NationsBank that, in connection with and simultaneously with the Recapitalization, Borrower will (i) raise gross cash proceeds of up to $37 million from the issuance by Borrower of its unsecured subordinated notes due six months after all the terms loans under the Term Loan Facilities have been paid in full (the "Subordinated Notes") arranged by Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS in their sole discretion (the "Subordinated Financing"); (ii) raise gross cash proceeds of up to $20 million from the issuance by Borrower of its pay-in-kind preferred stock (the "PIK Preferred") to Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS (the "Preferred Stock Financing"); (iii) raise gross cash proceeds of up to $3 million from the issuance by Borrower of its common stock (the "Common Stock") to Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS (the "Common Stock Financing"); (iv) raise gross proceeds of at least $22 million provided by the Buyout Group (including the amount provided by the Buyout Group by converting their common stock, valued at the Consideration (as defined in the Merger Agreement) of $20.70 per share, into Common Shares of Borrower) and certain other third parties previously disclosed to Merrill Lynch, NationsBank and NMS; and (v) enter into the Credit Facilities described herein. In addition, you have advised the Joint Lead Arrangers and NationsBank that, upon consummation of the Recapitalization, Borrower will repay (the "Existing Debt Repayment") all indebtedness, and terminate all commitments to make extensions of credit, under its existing $125.0 million credit facility arranged by Merrill Lynch (the "Existing Debt"). The Recapitalization, the Merger, the Subordinated Financing, the Preferred Stock Financing, the Common Stock Financing, the Existing Debt Repayment, and the entering into and borrowings under the Credit Facilities by the parties herein described are herein referred to as the "Transactions". We further understand that the precise structure of the Transactions will be under continuing consideration, may vary from the foregoing and will be subject to the mutual agreement of the parties hereto. 3 -3- You have requested that Merrill Lynch and NationsBank commit to provide to Borrower $100 million aggregate principal amount of senior secured credit facilities (the "Credit Facilities") (of which $50 million will be provided by Merrill Lynch and $50 million by NationsBank) comprising (a) a senior secured term loan A facility in an aggregate principal amount of $35 million (the "Term Loan A Facility"), (b) a senior secured term loan B facility in an aggregate principal amount of $40 million (the "Term Loan B Facility", together with the Term Loan A Facility, the "Term Loan Facilities"), and (c) a senior secured revolving credit facility in an aggregate principal amount of $25 million (the "Revolving Facility") (of which up to $10 million will be drawn on the Closing Date (as defined below)). A portion of the Revolving Facility to be mutually determined will be available as a letter of credit subfacility. In addition, you have advised the Joint Lead Arrangers and NationsBank that the Term Loan Facilities and not more than $10 million of the Revolving Facility will be used to (i) finance the Recapitalization and the Existing Debt Repayment, and (ii) pay fees and expenses in connection with the Recapitalization and the Existing Debt Repayment. Following and including the date of the initial borrowings under the Credit Facilities (the "Closing Date"), the Revolving Facility will be available for working capital, capital expenditures and general corporate purposes of Borrower and its subsidiaries. Accordingly, subject to the terms and conditions set forth below, Merrill Lynch, NationsBank and NMS hereby severally agree with you as follows: 1. Commitment. Merrill Lynch hereby severally commits to provide $50 million of the Credit Facilities and NationsBank hereby severally commits to provide $50 million of the Credit Facilities, in each case to Borrower upon the terms and subject to the conditions set forth or referred to herein, in the fee letter (the "Fee Letter") dated the date hereof and delivered to you herewith and in the Summary of Terms and Conditions attached hereto (and incorporated by reference herein) as Exhibit A (the "Term Sheet"). It is a condition of Merrill Lynch's, NationsBank's and NMS's respective obligations and commitments hereunder that (a) Merrill Lynch, Pierce Fenner & Smith Incorporated ("MLPF&S") act as the syndication agent (in such capacity, the "Syndication Agent") and MLPF&S and NMS act as the Joint Lead Arrangers for the Credit Facilities, it being understood and agreed that the Syndication Agent, together with NationsBank as the administrative agent (in such capacity , the "Administrative Agent") will perform all functions and exercise all authority (including, without 4 -4- limitation, (i) serving as the lead manager of the syndication effort, (ii) selecting counsel for the Credit Facilities, and (iii) negotiating definitive documentation for the Credit Facilities (the "Credit Documents")) customarily performed and exercised by agent banks in such capacities, and (b) NationsBank will act as the Administrative Agent for the Credit Facilities, it being understood and agreed that the Administrative Agent will perform all ministerial and administrative functions and exercise all authority customarily performed and exercised by agent banks in such capacities. 2. Syndication. Merrill Lynch, NationsBank and NMS reserve the right and intends, prior to the execution of the Credit Documents, to syndicate all or a portion of the commitments of Merrill Lynch and NationsBank to one or more financial institutions (Merrill Lynch, NationsBank and such financial institutions being referred to herein as the "Lenders") that will become parties to the Credit Documents, and in that connection, promptly following your acceptance of Merrill Lynch's and NationsBank's commitments hereunder, Merrill Lynch, NationsBank and NMS will commence the syndication of the Credit Facilities to such Lenders. Upon your acceptance of the commitment of any Lender to provide a portion of the Credit Facilities, Merrill Lynch and NationsBank shall each be released from a portion of its commitment hereunder in an aggregate amount equal to 50% and 50%, respectively, of the commitment of such Lender. You agree that no Lender will receive compensation outside the terms contained herein and in the Fee Letter in order to obtain its commitment to participate in the Credit Facilities. It is understood and agreed that, except as otherwise provided in the Fee Letter, the amount and distribution of the fees and other compensation referred to herein among the Lenders and to any co-agent will be at the sole discretion of Merrill Lynch, NationsBank and NMS. It is understood and agreed the Syndication Agent, together with the Administrative Agent (or one of their respective affiliates) will manage all aspects of the syndication (but will consult with you in such matters), including, without limitation, decisions as to the selection of potential Lenders reasonably acceptable to you to be approached and when they will be approached, when their commitments will be accepted, which Lenders will participate, any naming rights (including the naming of co-agents, subject to your reasonable approval) and the final allocations of the commitments among the Lenders (which are likely not to be pro rata across facilities among Lenders). You agree actively to assist Merrill Lynch, NationsBank and NMS in achieving a timely syndication that is satisfactory to Merrill Lynch, NationsBank and NMS. The syndication efforts will be accomplished by a variety of means, including direct contact during the syndication between senior management (including, but not limited to, the chief executive officer, chief financial officer and treasurer of Newco and/or Borrower) and advisors and affiliates of Newco and Borrower on the one 5 -5- hand and the proposed syndicate Lenders on the other hand. To assist Merrill Lynch, NationsBank and NMS in its syndication efforts, you agree that you will, with reasonable promptness, upon Merrill Lynch's, NationsBank's and NMS's request, (a) provide, and cause Borrower and your and Borrower's affiliates and advisors to provide, to Merrill Lynch, NationsBank and NMS all information reasonably deemed necessary by Merrill Lynch, NationsBank and NMS to complete successfully the syndication, including but not limited to, information and projections (including, without limitation, any updated projections requested by Merrill Lynch, NationsBank and NMS) prepared by you or Borrower or on your or Borrower's behalf relating to the transactions contemplated hereby, and (b) assist, and cause Borrower and your and Borrower's affiliates and advisors to assist, Merrill Lynch, NationsBank and NMS in the preparation of a confidential information memorandum and other marketing materials to be used in connection with the syndication, including making available representatives of Newco and Borrower and its subsidiaries. You also agree to use your best efforts to ensure that Merrill Lynch's, NationsBank's and NMS's syndication efforts benefit from your and Borrower's existing lending relationships. You further agree that Merrill Lynch, NationsBank and NMS shall have a reasonable period of time to syndicate the Credit Facilities, but syndication will not delay Closing. It is understood and agreed that Merrill Lynch, NationsBank and NMS, shall be entitled, with your prior written consent (which shall not be unreasonably withheld or delayed), to change the structure and/or pricing of the Credit Facilities as described herein and in the Term Sheet (provided that the aggregate principal amount of the Credit Facilities, taken as a whole, remains the same) if Merrill Lynch, NationsBank and NMS deem such action advisable in order to ensure a successful syndication or an optimal credit structure. To ensure an orderly and effective syndication of the Credit Facilities, you agree that until the termination of the syndication (as determined by Merrill Lynch), you will not, and will not permit any of your subsidiaries to, syndicate or issue, attempt to syndicate or issue, announce or authorize the announcement of the syndication or issuance of, or engage in discussions concerning the syndication or issuance of, any debt or credit facility or debt security of Newco, Borrower or any of its subsidiaries, including any renewals thereof, (other than Subordinated Notes and PIK Preferred) without the prior written consent of Merrill Lynch, NationsBank and NMS. 3. Fees. As consideration for Merrill Lynch's, NationsBank's and NMS's commitments hereunder and their agreement to arrange, manage, structure and syndicate the Credit Facilities, you agree to pay to Merrill Lynch (for the account of Merrill Lynch, NationsBank and NMS) the fees as set forth in the Term Sheet and in the 6 -6- Fee Letter. You agree that, once paid, such fees and any part thereof shall be nonrefundable under any and all circumstances and regardless of whether the transactions or borrowings contemplated hereby are consummated. All such fees shall be paid by wire transfer of immediately available funds in United States dollars at the times specified in the Fee Letter. 4. Conditions. Merrill Lynch's, NationsBank's NMS's respective obligations and commitments hereunder are subject to the negotiation, execution and delivery of definitive Credit Documents reasonably satisfactory in all respects to Merrill Lynch, NationsBank and NMS and their counsel. Such definitive documentation shall reflect the terms and conditions set forth herein and in the Term Sheet and contain such other indemnities, covenants, representations and warranties, events of default, conditions precedent, security arrangements and other terms and conditions as are satisfactory to Merrill Lynch, NationsBank, NMS and Borrower, modified as appropriate to reflect the terms of the Transactions and the financial condition and prospects of Newco and Borrower and its subsidiaries. Our willingness to provide the Credit Facilities is further subject to review of the documents relating to the Transactions and to Merrill Lynch's, NationsBank's and NMS's reasonable satisfaction with the terms and conditions thereof. Those matters that are not covered by or made clear under the provisions hereof or of the Term Sheet are subject to the approval and agreement of Merrill Lynch, NationsBank and you (it being understood that the terms and conditions of the Credit Documents shall not be inconsistent with the terms and conditions set forth herein or in the Term Sheet). Merrill Lynch's, NationsBank's and NMS's respective obligations and commitments hereunder are also subject to the following: (a) there shall not have occurred or become known (i) in the reasonable judgment of Merrill Lynch, NationsBank or NMS, any material adverse change (or any development involving a prospective material adverse change) or any condition or event that could reasonably be expected to result in a material adverse change in the business, assets, liabilities (contingent or otherwise), operations, condition (financial or otherwise), solvency, properties, prospects or material agreements of Borrower, individually or together with its subsidiaries taken as a whole, as the case may be (and before and after giving effect to the Transactions), in each case since the date of the latest audited financial statements of Borrower delivered prior to the execution and delivery of this letter to Merrill Lynch, NationsBank and NMS, (ii) any facts or circumstances discovered by Merrill Lynch, NationsBank or NMS in the course of each of their respective ongoing due diligence investigation of Borrower and its subsidiaries and the Transactions, including (without limitation) their review and investigation of acquisition plans, environmental and other contingent obligations, and the historical, pro forma and 7 -7- projected consolidated financial statements of Borrower and its subsidiaries, which Merrill Lynch, NationsBank or NMS believes could, individually or in the aggregate, have a material adverse effect on the Transactions or the business, assets, liabilities (contingent or otherwise), operations, condition (financial or otherwise), solvency, properties, prospects or material agreements of Borrower, individually or together with its subsidiaries taken as a whole, as the case may be (and before and after giving effect to the Transactions), (iii) any transaction (other than the Transactions) entered into by Borrower or any of its subsidiaries, whether or not in the ordinary course of business, that in Merrill Lynch's, NationsBank's or NMS's judgment is materially adverse to Borrower, individually or together with its subsidiaries, taken as a whole, or (iv) any dividend or distribution of any kind declared or paid by Borrower on its capital stock since the date of the latest audited financial statements of Borrower delivered prior to the execution and delivery of this Commitment Letter to Merrill Lynch, NationsBank and NMS (other than regular quarterly dividends in an amount consistent with past practices); (b) no material adverse change (or development involving a prospective material adverse change) shall have occurred in the loan syndication or financial, banking, currency or capital market conditions generally from those in effect on the date hereof that, individually or in the aggregate, in the judgment of Merrill Lynch, NationsBank or NMS could reasonably be expected to adversely affect the consummation of the Transactions or the other transactions contemplated by this Commitment Letter or adversely affect the ability of Merrill Lynch, NationsBank and NMS to successfully syndicate the Credit Facilities; no banking moratorium shall have been declared by federal or New York State banking authorities and shall be continuing; (c) Merrill Lynch's, NationsBank's or NMS's satisfaction (in their reasonable judgment) with the actual capitalization and corporate and organizational structure of Newco and Borrower and its subsidiaries (after giving effect to the Transactions), including as to direct and indirect ownership and as to the terms of the indebtedness and capital stock of Newco and Borrower and its subsidiaries; (d) Borrower and its subsidiaries shall not have syndicated or issued, attempted to syndicate or issue, announced or authorized the announcement of the syndication or issuance of, or engaged in any discussion concerning the syndication or issuance of, any debt facility or debt security of Borrower or any of its subsidiaries (other than Subordinated Notes and PIK Preferred), including renewals thereof; and (e) the satisfaction of the other terms and conditions set forth or referred to herein (including, without limitation, those set forth in Sections 1, 2 and 5) and in the Term Sheet. For purposes of this Commitment Letter and the Term Sheet, the "subsidiaries" of Borrower shall be deemed to include those who will become subsidiaries of Borrower. 8 -8- 5. Information and Investigations. You hereby represent and covenant that (a) all information and data (excluding financial projections) concerning Newco, Borrower and its subsidiaries, the Transactions and the other transactions contemplated hereby (the "Information") that have been made or will be prepared by or on behalf of you or any of your affiliates or authorized representatives or advisors and that have been or will be made available to Merrill Lynch, NationsBank or NMS by you or on your behalf in connection with the transactions contemplated hereby, taken as a whole, is and will be complete and correct in all material respects and does not and will not, taken as a whole, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements are made, and (b) all financial projections concerning Newco, Borrower and its subsidiaries and the transactions contemplated hereby (the "Projections") that have been prepared by or on behalf of you or any of your affiliates or authorized representatives and that have been or will be made available to Merrill Lynch, NationsBank or NMS by you or on behalf of you or any of your affiliates or authorized representatives or advisors in connection with the transactions contemplated hereby have been and will be prepared in good faith based upon assumptions believed by you to be reasonable. You agree to supplement the Information and the Projections from time to time until the Closing Date and, if requested by Merrill Lynch, NationsBank or NMS, for a reasonable period thereafter necessary to complete the syndication of the Credit Facilities so that the representation and covenant in the preceding sentence remain correct. In arranging the Credit Facilities, including the syndication thereof, Merrill Lynch, NationsBank and NMS will be using and relying primarily on the Information and the Projections without independent check or verification thereof. Merrill Lynch's, NationsBank's and NMS's respective obligations and commitments hereunder are based upon the accuracy and completeness of the financial and other information provided to us by or on behalf of you and Borrower. If any of the Information proves to have been, or Merrill Lynch, NationsBank or NMS reasonably concludes that any of the Information is, inaccurate, incomplete or misleading in any material respect or if Merrill Lynch's, NationsBank's and NMS's ongoing due diligence investigation discloses information, or Merrill Lynch, NationsBank or NMS otherwise discovers information not previously disclosed to it, or Merrill Lynch, NationsBank or NMS discovers or otherwise learns of new information or additional developments concerning conditions or events previously disclosed to it, that Merrill Lynch, NationsBank or NMS believes in their sole discretion, (x) has had or could have, individually or in the aggregate, a material adverse impact on the business, assets, liabilities (contingent or otherwise), operations, condition 9 -9- (financial or otherwise), solvency, properties, prospects or material agreements of Borrower, individually or together with its subsidiaries taken as a whole, as the case may be (and before and after giving effect to the Transactions), or on the tax or accounting consequences of the Transactions, or (y) would be materially inconsistent with the assumptions underlying the Projections, then Merrill Lynch, NationsBank and NMS (a) shall be entitled to terminate their commitments hereunder (and thereafter have no other or further obligations hereunder or in connection with the Credit Facilities or any of the other Transactions) or (b) may, in their sole discretion, suggest alternative financing amounts, structures or pricing that ensure adequate protection for Merrill Lynch, NationsBank and the other Lenders. In any such event, Merrill Lynch, NationsBank and NMS shall not be responsible or liable for any damages which may be alleged as a result of their failure, in accordance with the terms of this Commitment Letter, to provide the Credit Facilities. 6. Indemnification. By executing this Commitment Letter, you agree to indemnify and hold harmless Merrill Lynch, NationsBank, NMS and each of the other Lenders and their respective officers, directors, employees, affiliates, agents and controlling persons (Merrill Lynch, NationsBank, NMS and each such other person being an "Indemnified Party") from and against any and all losses, claims, damages and liabilities, joint or several, to which any such Indemnified Party may become subject arising out of or in connection with or relating to this Commitment Letter, the Fee Letter, the Term Sheet, (including the fee letter, term sheet and commitment letter dated March 12, 1998 between you and us relating to the transactions as discussed in Borrower's proxy statement dated July 22, 1998) the Credit Facilities, the loans under the Credit Facilities, the use of proceeds of any such loan, any of the Transactions or any related transaction and the performance by Merrill Lynch, NationsBank, NMS or any of their respective affiliates of the services contemplated by this Commitment Letter and will reimburse any Indemnified Party for any and all reasonable expenses (including counsel fees and expenses) as they are incurred in connection with the investigation of or preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not such Indemnified Party is a party, whether or not such claim, action or proceeding is initiated or brought by or on behalf of Borrower or any of its affiliates and whether or not any of the transactions contemplated hereby are consummated or this Commitment Letter is terminated. You will not be liable under the foregoing indemnification provision to an Indemnified Party to the extent that any loss, claim, damage, liability or expense is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's bad faith or gross negligence. 10 -10- You also agree that no Indemnified Party shall have any liability (whether direct or indirect, in contract or tort or otherwise) to Newco, Borrower or their respective security holders or creditors related to or arising out of or in connection with this Commitment Letter, the Fee Letter, the Term Sheet, the Credit Facilities, the loans under the Credit Facilities, the use of proceeds of any such loan, any of the Transactions or any related transaction or the performance by Merrill Lynch, NationsBank or any of their respective affiliates of the services contemplated by this Commitment Letter, except to the extent that any loss, claim, damage or liability is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's bad faith or gross negligence. You agree that, without Merrill Lynch's, NationsBank's and NMS's prior written consent, which will not be unreasonably withheld or delayed, you will not settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding in respect of which indemnification has been sought under the indemnification provisions of this Commitment Letter (whether or not Merrill Lynch, NationsBank, NMS or any other Indemnified Party is an actual or potential party to such claim, action or proceeding), unless such settlement, compromise or consent (i) includes an unconditional written release in form and substance satisfactory to the Indemnified Parties of each Indemnified Party from all liability arising out of such claim, action or proceeding and (ii) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Indemnified Party. In the event that an Indemnified Party is requested or required to appear as a witness in any action brought by or on behalf of or against you or any of your affiliates in which such Indemnified Party is not named as a defendant, you agree to reimburse such Indemnified Party for all reasonable expenses incurred by either of them in connection with such Indemnified Party's appearing and preparing to appear as such a witness, including, without limitation, the fees and disbursements of its legal counsel, and to compensate such Indemnified Party in an amount to be mutually agreed upon. 7. Costs and Expenses. By executing this Commitment Letter, you agree to reimburse Merrill Lynch, NationsBank and NMS and their respective affiliates upon request made from time to time for their reasonable out-of-pocket expenses (including, without limitation, reasonable expenses of Merrill Lynch's, NationsBank's and NMS's due diligence investigation, consultants' fees (if such consultants are engaged by Merrill Lynch, NationsBank and NMS with your consent (which consent shall not be unreasonably withheld or delayed)), syndication expenses, appraisal and valuation 11 -11- fees and expenses, travel expenses, and the reasonable fees, disbursements and other reasonable charges of counsel) incurred in connection with the Credit Facilities and the negotiation, preparation, execution and delivery, waiver or modification, administration, collection and enforcement of this Commitment Letter, the Term Sheet, the Fee Letter, the Credit Documents and the security arrangements in connection therewith. 8. Confidentiality. You agree that this Commitment Letter, the Term Sheet, the Fee Letter, the contents of any of the foregoing and Merrill Lynch's, NationsBank's, NMS's and/or their respective affiliates' activities pursuant hereto or thereto are confidential and shall not be disclosed by you to any person without the prior written consent of Merrill Lynch, NationsBank and NMS, other than to your and the Borrower's officers, directors, employees, accountants, attorneys and other advisors, and then only in connection with the Transactions and on a confidential and need-to-know basis, except that you may make such other public disclosures of the terms and conditions hereof as you are required by applicable law or compulsory legal process to make; provided, however, that if such disclosure is required by applicable law or compulsory legal process you agree to give Merrill Lynch, NationsBank and NMS reasonable notice to afford Merrill Lynch, NationsBank and NMS the opportunity to seek a protective order and to cooperate with Merrill Lynch, NationsBank and NMS in securing such a protective order. You agree that you will permit Merrill Lynch, NationsBank and NMS to review and approve any reference to Merrill Lynch, NationsBank or NMS in connection with the Credit Facilities or the transactions contemplated hereby contained in any press release or similar public disclosure prior to public release. 9. Termination. In the event that (i) you have not accepted this Commitment Letter by September 18, 1998; (ii) the Closing Date does not occur on or before November 30, 1998; or (iii) any of the conditions described in clause (a), (b), or (d) of the second paragraph of Section 4 shall have failed to be satisfied at any time, this Commitment Letter and Merrill Lynch's, NationsBank's and NMS's commitments hereunder shall terminate (upon written notice by Merrill Lynch, NationsBank and NMS with respect to clause (iii) of this sentence) unless Merrill Lynch, NationsBank and NMS shall, in their respective discretion, agree to an extension (it being understood that an extension by Merrill Lynch shall not bind NationsBank, and vice versa). Notwithstanding the foregoing, the compensation, reimbursement, indemnification and confidentiality provisions hereof and of the Term Sheet and the Fee Letter and Sections 11 and 14 of this Commitment Letter shall survive any termination of this Commitment Letter or Merrill Lynch's or NationsBank's commitment hereunder. 12 -12- 10. Assignment, Etc. This Commitment Letter and Merrill Lynch's, NationsBank's and NMS's respective commitments hereunder shall not be assignable by any party hereto without the prior written consent of Merrill Lynch and NationsBank, and any attempted assignment shall be void and of no effect; provided, however, that nothing contained in this Section shall prohibit Merrill Lynch, NationsBank or NMS (in their respective sole discretion) from (i) performing any of its duties hereunder through any of its affiliates (including in the case of Merrill Lynch, Merrill Lynch, Pierce, Fenner & Smith Incorporated), and you will owe any related duties (including those set forth in Section 2 above) to any such affiliate, and (ii) granting participations in, or selling assignments of all or a portion of, the commitments or the loans under the Credit Facilities pursuant to arrangements satisfactory to the Lenders. This Commitment Letter is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto. 11. Governing Law. THIS COMMITMENT LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). 12. Execution in Counterparts. This Commitment Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Commitment Letter by telecopier shall be effective as delivery of a manually executed counterpart of this Commitment Letter. 13. Amendments, etc. No amendment or waiver of any provision of this Commitment Letter, nor any consent or approval to any departure therefrom, shall be effective unless the same shall be in writing and signed by the parties hereto and then any such waiver, consent or approval shall be effective only in the specific instance and for the specific purpose for which given. By executing this letter, you acknowledge that this Commitment Letter and the Fee Letter are the only agreements between you and Merrill Lynch and NationsBank with respect to the Credit Facilities and set forth the entire understanding of the parties with respect thereto. 14. Waiver of Jury Trial. Each of the parties hereto (in each case on its own behalf and, to the extent permitted by applicable law, on behalf of its shareholders) waive all right to trial by jury in any action, proceeding or counterclaim (whether based upon contract, tort or otherwise) related to or arising out of any of 13 -13- the Transactions, the other transactions contemplated hereby, or the performance by Merrill Lynch, NationsBank or NMS or any of their respective affiliates of the services contemplated by, this Commitment Letter. 15. Public Announcements. You acknowledge that Merrill Lynch, NationsBank and NMS may (after the consummation of the Recapitalization), at their respective option and expense, place an announcement in such newspapers and periodicals as it may choose, stating that Merrill Lynch, NationsBank or NMS, as the case may be, has acted in the capacity set forth in this Commitment Letter. 16. Notices. Any notice given pursuant to any of the provisions of this Commitment Letter shall be in writing and shall be mailed or delivered, (i) if to you, at the address set forth on page one of this Commitment Letter to the attention of Chief Financial Officer, with a copy to Richard McMahon, Esq., at Blank, Rome, Comisky & McCauley LLP, One Logan Square, Philadelphia, PA 19103 and (ii) if to Merrill Lynch, at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, Attention: Brian E. O'Callahan, or if to NMS, at 100 North Trion Street, Charlotte, North Carolina 28255, Attention Joseph R. Netzel, or if to NationsBank, at 800 Market Street, St. Louis, Missouri 63101, Attention: Steve A. Linton, in each case with a copy to Michael E. Michetti, Esq., at Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005. [Signature Page Follows] 14 -14- Please confirm that the foregoing correctly sets forth our agreement of the terms hereof and of the Fee Letter by signing and returning to Merrill Lynch (on behalf of Merrill Lynch and NationsBank) the duplicate copy of this letter and the Fee Letter enclosed herewith. Upon your acceptance hereof, this letter shall constitute a binding agreement between you and Merrill Lynch and NationsBank; provided that Merrill Lynch (on behalf of Merrill Lynch and NationsBank) shall have received your executed duplicate copies not later than 5:00 p.m., New York City time, on September 18, 1998, at which time Merrill Lynch's and NationsBank's respective commitments hereunder will expire in the event Merrill Lynch has not received such executed duplicate originals. We are pleased to have this opportunity and we look forward to working with you on this transaction. Very truly yours, MERRILL LYNCH CAPITAL CORPORATION By: /s/ BRIAN O'CALLAHAN ---------------------------------- Name: Title: NATIONSBANK, N.A. By: /s/ STEVEN A. LINTON ---------------------------------- Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By: /s/ JOSEPH R. NETZEL ---------------------------------- Name: Title: 15 -15- Accepted and agreed to as of the date first written above: FPK, LLC By: /s/ FRANK P. KRASOVEC ---------------------------------- Name: Frank P. Krasovec Title: EX-99.(A)(7) 3 TERM SHEET RE: NEW BANK FACILITIES 1 CONFIDENTIAL EXHIBIT 99(a)(7) SUMMARY OF TERMS AND CONDITIONS(a) Borrower: Norwood Promotional Products, Inc. ("Borrower"). Syndication Agent: Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") will act as joint lead arranger, syndication agent and documentation agent (the "Syndication Agent"). Administrative Agent: NationsBank, N.A ("NationsBank" or the "Administrative Agent"). Joint Lead Arrangers: Merrill Lynch and NationsBanc Montgomery Securities LLC ("NMS") (together the "Joint Lead Arrangers"). Lenders: Merrill Lynch Capital Corporation, NationsBank and a syndicate of lenders acceptable to Borrower and Merrill Lynch (the "Lenders"). Credit Facilities: Senior secured credit facilities in an aggregate principal amount of $100 million, such credit facilities comprising: (A) Term Loan Facilities. Term loan facilities in an aggregate principal amount of $75 million (the "Term Loan Facilities"), such aggregate principal amount to be allocated among (i) a Term Loan A Facility in an aggregate principal amount of $35 million (the "Term Loan A Facility"), and (ii) a Term Loan B Facility in an aggregate principal amount of $40 million (the "Term Loan B Facility). Loans under the Term Loan Facilities are herein referred to as "Term Loans." (B) Revolving Facility. Revolving credit facility in an aggregate principal amount of $25 million (the "Revolving Facility" and, together with the Term Loan Facilities, the "Credit Facilities"; any such facility is herein referred to as a "Facility"). - ------------------------ a Capitalized terms used herein and not defined shall have the meanings assigned to such terms in the attached Commitment Letter (the "Commitment Letter"). References herein to "$" or "US$" are to United States Dollars. For all purposes of this Term Sheet, the "subsidiaries" of Borrower shall be deemed to include those entities that will become subsidiaries of Borrower. 2 -2- Loans under the Revolving Facility are herein referred to as "Revolving Loans"; the Term Loans and the Revolving Loans are herein referred to as "Loans". A portion of the Revolving Facility to be mutually determined will be available as a letter of credit subfacility. Documentation: Usual for facilities and transactions of this type and reasonably acceptable to Borrower and the Joint Lead Arrangers. The documentation for the Credit Facilities will include, among others, a credit agreement (the "Credit Agreement"), guarantees and appropriate collateral documents (collectively, the "Credit Documents"). Borrower and each of Borrower's subsidiaries party to the Credit Documents are herein referred to as the "Credit Parties". Transaction/Purpose: FPK, LLC, a Delaware limited liability Company ("LLC") formed by Frank P. Krasovec intends to form a new corporation ("Newco"). LLC has entered into a merger agreement (the "Merger Agreement") with Borrower to effect the recapitalization of Borrower (the "Recapitalization"). Pursuant to the Merger Agreement, (i) Newco will merge with and into Borrower with Borrower as the survivor (the "Merger") and (ii) after giving effect to the Merger and the transactions contemplated thereby, the Buyout Group (as defined in the Merger Agreement), Liberty Capital Partners, LP or its affiliates (collectively, "Liberty") and certain other third parties will own all of the capital stock of Borrower. Borrower will (i) raise gross cash proceeds of up to $37 million from the issuance by Borrower of its unsecured subordinated notes due six months after all the Term Loans have been paid in full (the "Subordinated Notes") arranged by Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS in their respective sole discretion (the "Subordinated Financing"); (ii) raise gross cash proceeds of up to $20 million from the issuance by Borrower of its pay- in-kind preferred stock (the "PIK Preferred") to Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS in their respective sole discretion (the "Preferred Stock Financing"); (iii) raise gross cash proceeds of up to $3 million from the issuance by Borrower of its common stock (the "Common Stock") to Liberty on terms and conditions and pursuant to documentation reasonably satisfactory to Merrill Lynch, NationsBank and NMS in their respective sole discretion (the "Common Stock Financing"); and (iv) 3 -3- raise gross proceeds of at least $22 million provided by the Buyout Group (including the amount provided by the Buyout Group by converting their common stock, valued at the Consideration (as defined in the Merger Agreement) of $20.70 per share, into Common Stock of Borrower) and certain other third parties previously disclosed to Merrill Lynch, NationsBank and NMS. Borrower will repay (the "Existing Debt Repayment") all indebtedness, and terminate all commitments to make extensions of credit, under its existing $125.0 million credit facility arranged by Merrill Lynch (the "Existing Debt"). The Recapitalization, the Merger, the Subordinated Financing, the Preferred Stock Financing, the Common Stock Financing, the Existing Debt Repayment, and the entering into and borrowings under the Credit Facilities by the parties herein described are herein referred to as the "Transactions". Guarantors: Borrower's direct and indirect domestic subsidiaries existing on the date of the first extension of credit under the Credit Agreement (the "Closing Date") or thereafter created or acquired shall unconditionally guarantee, on a joint and several basis, all obligations of Borrower under the Credit Facilities and under each approved interest rate protection agreement entered into with a Lender or an affiliate thereof. Each such guarantor is herein referred to as a "Guarantor" and its guarantee is referred to herein as a "Guarantee". Security: The Credit Facilities, the Guarantees, and the obligations of Borrower under each interest rate protection agreement or currency exchange agreement entered into with a Lender or an affiliate thereof will be secured by (i) a perfected first priority lien on, and pledge of, all the capital stock and intercompany debt of each of the direct and indirect subsidiaries of Borrower existing on the Closing Date or thereafter created or acquired (except that to the extent that the pledge thereof would cause material adverse tax consequences, such pledge with respect to foreign subsidiaries shall be limited to 65% of the capital stock of "first tier" foreign subsidiaries), and (ii) a perfected first priority lien on, and security interest in, all of the tangible and intangible properties and assets (including all real property) of Borrower and its direct and indirect domestic subsidiaries existing on the Closing Date or thereafter created or acquired, except for those properties and assets which the Syndication Agent shall determine in its sole discretion that the costs of obtaining such security interest are excessive in relation to the value of the security to be afforded 4 -4- thereby (it being understood that none of the foregoing shall be subject to any other liens or security interests, except for certain customary exceptions to be agreed upon) (all of such collateral, the "Collateral"). Final Maturity and Amortization: (A) Term Loan Facilities. The Term Loan A Facility will mature on the fifth anniversary of the Closing Date. The Term Loan B Facility will mature on the sixth anniversary of the Closing Date. Amounts outstanding under the Term Loan Facilities will amortize, beginning with the last business day of the second full fiscal quarter after the Closing Date, on a quarterly basis during each year as set forth below:
Fiscal Term Loan Fiscal Term Loan Year A Amount Year B Amount ------ ------------ ------ ------------ 1999 $ 3,000,000 1999 $ 400,000 2000 6,000,000 2000 400,000 2001 8,000,000 2001 400,000 2002 8,500,000 2002 400,000 2003 9,500,000 2003 400,000 ------------ $ 35,000,000 2004 38,000,000 ============ ------------ $ 40,000,000 ============
(B) Revolving Facility. The Revolving Facility will mature on the fifth anniversary of the Closing Date (the "Revolving Loan Maturity Date"). Availability: (A) Term Loan Facilities. The Term Loan Facilities will be available solely on the Closing Date in a single draw. Amounts borrowed under the Term Loan Facilities that are repaid or prepaid may not be reborrowed. (B) Revolving Facility. The Revolving Facility will be available for working capital and general corporate purposes in the form of revolving loans and letters of credit on and after the Closing Date until 30 business days prior to the Revolving Loan Maturity Date. Amounts repaid under the Revolving Facility may be reborrowed to the extent of the commitments then in effect. At the Closing Date, not more than $10 million shall be drawn under the Revolving Facility to consummate the Transactions. Annual Cleandown: For a consecutive 30-day period during a quarter acceptable to the Joint Lead Arrangers in their sole discretion of each calendar year beginning in the fiscal year beginning September 1, 1999, the sum of the aggregate principal amount of 5 -5- Loans outstanding under the Revolving Facility plus the face amount of all outstanding Letters of Credit shall not exceed an amount acceptable to the Joint Lead Arrangers in their sole discretion. Letters of Credit: Letters of credit under the Revolving Facility ("Letters of Credit") will be issued by a Lender jointly agreed upon by the Joint Lead Arrangers and Borrower (in such capacity, the "L/C Lender"). Each standby letter of credit shall expire no later than the earlier of (a) twelve months after its date of issuance or (b) the fifth business day prior to the Revolving Loan Maturity Date. Each trade or commercial letter of credit shall expire no later than the earlier of (a) 180 days after its date of issuance, or (b) the fifth business day prior to the Revolving Loan Maturity Date. The issuance of all Letters of Credit shall be subject to the customary procedure of the L/C Lender. Drawings under any Letter of Credit shall be reimbursed by Borrower on the same business day. To the extent that Borrower does not reimburse the L/C Lender on the same business day, the Lenders under the Revolving Facility shall be irrevocably obligated to reimburse the L/C Lender pro rata based upon their respective Revolving Facility commitments, with the amount of such reimbursement payment being deemed to be a drawing under the Revolving Facility. Letter of Credit Fees: Substantially consistent with the existing $125 million credit facility arranged by Merrill Lynch. Interest Rates and Commitment Fees: Interest rates in connection with the Credit Facilities will be as specified on Annex I attached hereto. Commitment fees will be payable on the unused portion of the Revolving Facility as specified in Annex I attached hereto. Borrower will be entitled to make borrowings based on the ABR or LIBOR (each as defined in Annex I hereto). Borrower may select interest periods of one, two, three or six months for LIBOR borrowings. Interest will be payable at the end of each interest period and, in the case of any interest period longer than three months, no less frequently than three months. Interest on all LIBOR borrowings shall be calculated on the basis of the actual number of days elapsed over a 360-day year. Interest on all ABR borrowings shall be calculated on the basis of the actual number of days elapsed over a 365-day year. 6 -6- Default Rate: The applicable interest rate (including applicable margin) plus 2.00% per annum. Mandatory Prepayments/ Reductions in Commitments: In addition to scheduled amortization, Borrower will be required to reduce the Credit Facilities as follows: (1) 75% of annual Excess Cash Flow (to be defined) ; (2) 100% of the net cash proceeds of the disposition of any assets in excess of $250,000 annually (in one transaction or a related series of transactions to the extent the proceeds are not reinvested in equipment of comparable value), other than inventory in the ordinary course of business; (3) 100% of any net cash proceeds of any issuance of debt subsequent to the Closing Date; and (4) 50% of the net cash proceeds of any issuance of equity securities subsequent to the Closing Date. Notwithstanding clauses (3) and (4) of the foregoing do not apply with respect to any new capital provided on terms and conditions satisfactory to the Majority Lenders and the Joint Lead Arrangers after the Closing Date to the extent such new capital is simultaneously used to effect the consummation of any acquisition made in accordance with the Credit Agreement. Mandatory prepayments under clauses (1) through (4) above will be applied pro rata among the Term Loan Facilities based on the aggregate principal amount of Term Loans then outstanding under each such Term Loan Facility. Any application to the Term Loan Facilities shall be applied (x) with respect to the Term Loan A Facility, pro rata to the remaining scheduled amortization payments thereunder, and (y) with respect to the Term Loan B Facility, in inverse order of maturity to the remaining amortization payments thereunder. Notwithstanding the foregoing, any holder of Term Loans under the Term Loan B Facility may, to the extent that Term Loans are then outstanding under the Term Loan A Facility, elect not to have mandatory prepayments applied to such holder's Term Loans under the Term Loan B Facility, in which case the aggregate amount so declined shall be applied to the Term Loans under the Term Loan A Facility pro rata. To the extent that the amount to be applied to the prepayment of Term Loans exceeds the aggregate amount of Term Loans then outstanding, such excess shall be applied to the Revolving Facility to permanently reduce the commitments thereunder. Revolving Loans will be immediately prepaid to the extent that the aggregate extensions of credit under the Revolving Facility exceeds the commitments then in effect under the Revolving Facility. To the extent that the amount to be 7 -7- applied to the repayment of the Revolving Loans exceeds the amount thereof then outstanding, Borrower shall cash collateralize outstanding Letters of Credit. Voluntary Prepayments/ Reductions in Commitments: (A) Term Loan Facilities: Borrowings under the Term Loan Facilities may be prepaid at any time in whole or in part at the option of Borrower, in a minimum principal amount and in multiples to be agreed upon, without premium or penalty (except, in the case of LIBOR borrowings, prepayments not made on the last day of the relevant interest period). Voluntary prepayments under the Term Loan Facilities will be applied pro rata against the remaining scheduled amortization payments under the Term Loan Facilities. (B) Revolving Facility: The unutilized portion of the commitments under the Revolving Facility may be reduced and Revolving Loans may be repaid at any time, in each case, at the option of Borrower, in a minimum principal amount and in multiples to be agreed upon, without premium or penalty (except, in the case of LIBOR borrowings, prepayments not made on the last day of the relevant interest period). Conditions to Effectiveness and Closing: The effectiveness of the Credit Documents and to the making of the initial extensions of credit thereunder (the "Closing") shall be subject to conditions precedent that are usual for facilities and transactions of this type, to those specified below and in the Commitment Letter and to such additional conditions precedent as may be required by the Joint Lead Arrangers (all such conditions to be satisfied in a manner reasonably satisfactory in all respects to the Joint Lead Arrangers and (to the extent specified below) the Required Lenders), including, but not limited to, execution and delivery of the Credit Documents reasonably acceptable in form and substance to the Lenders; delivery of borrowing certificates; receipt of valid security interests as contemplated hereby; accuracy of representations and warranties; absence of defaults and material litigation; evidence of authority; compliance with laws; and adequate insurance and payment of fees. The Closing will be subject to (but not limited to) the following additional conditions: (A) The delivery, on or prior to the Closing Date, of (i) legal opinions addressed to the Lenders and the Agents and in form and substance reasonably satisfactory to the Joint Lead Arrangers, (ii) officers' certificates, together with the accompanying 8 -8- charter documents and corporate resolutions, in form and substance reasonably satisfactory to the Joint Lead Arrangers, (iii) a certificate from the chief financial officer of Borrower and, at Borrower's expense, an opinion of a nationally recognized appraisal firm or valuation consultant satisfactory to the Joint Lead Arrangers in their sole discretion with respect to the solvency of each Credit Party immediately after the consummation of the Transactions to occur on the Closing Date, and (iv) other closing documents customary for such agreements or reasonably requested by the Joint Lead Arrangers or the Required Lenders. (B) The Board of Directors of LLC and Borrower shall have authorized and approved the Transactions and the Joint Lead Arrangers shall have received satisfactory evidence of the same. LLC and Borrower shall have entered into the Merger Agreement, which shall be in full force and effect. The terms, conditions and structure of the Recapitalization and the Merger Agreement, including any amendments thereto (and the documentation therefor (including all proxy solicitation materials)) shall be in form and substance reasonably satisfactory to the Joint Lead Arrangers and the Required Lenders. The Recapitalization and the Existing Debt Repayment and the financing therefor shall be in compliance in all material respects with all laws and regulations including any state antitakeover laws applicable to such transactions. Borrower shall not have any "poison pill" rights or shall have redeemed such rights at a nominal price, or the Joint Lead Arrangers shall otherwise be reasonably satisfied that such rights are null and void as applied to the Recapitalization. The Joint Lead Arrangers and the Lenders shall have received copies, certified by Borrower, of all filings made with any governmental authority in connection with the Recapitalization and the other Transactions. The Recapitalization shall have been consummated. (C) LLC and Borrower shall have entered into the Merger Agreement, which shall be in full force and effect. The terms, conditions and structure of the Recapitalization and the Merger Agreement, including any amendments thereto (and the documentation therefor), shall be in form and substance satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole discretion. The Recapitalization and the Existing Debt Repayment and the financing therefor shall be in compliance with all laws and regulations, or the Joint Lead Arrangers and the Required Lenders shall have determined such to be inapplicable to such transactions. 9 -9- (D) All conditions to the Recapitalization shall have been satisfied, and not waived, amended, supplemented or otherwise modified except with the consent of the Joint Lead Arrangers and the Required Lenders in their respective sole discretion, to the satisfaction of the Joint Lead Arrangers and the Required Lenders. The consideration per share of common stock in the Recapitalization shall not exceed $20.70 per share and an aggregate of $91 million for all shares (except as the result of the valid exercise of appraisal rights in accordance with Texas law), and the aggregate number of shares of common stock of Borrower issued and outstanding immediately prior to the consummation of the Merger (the "Common Shares") owned by Borrower's shareholders, if any, other than members of the Buyout Group, who shall have exercised or given notice of their intent to exercise the rights of dissenting shareholders under the Texas Business Corporation Act shall be less than ten percent (10%) of the total number of outstanding Common Shares. The Joint Lead Arrangers shall be satisfied with the amount and the terms and conditions of all management rollover of their equity in Borrower in connection with the Recapitalization. The Joint Lead Arrangers shall have received satisfactory evidence that fees and expenses in connection with the Transactions will not exceed $9.0 million. Immediately after the consummation of the transactions, The Joint Lead Arrangers will be satisfied with the direct and indirect capital ownership of the surviving corporation. (E) Borrower shall have received aggregate gross proceeds arranged by Liberty of at least $37 million from the Subordinated Financing pursuant to agreements, and terms and conditions thereunder, in form and substance reasonably satisfactory to the Joint Lead Arrangers and the Required Lenders. Borrower shall have received aggregate gross proceeds of at least $20 million from the Preferred Stock Financing pursuant to agreements, and terms and conditions thereunder, in form and substance reasonably satisfactory to the Joint Lead Arrangers and Required Lenders. Borrower shall have received aggregate gross proceeds of at least $3 million from the Common Stock Financing pursuant to agreements, and terms and conditions thereunder, in form and substance reasonably satisfactory to the Joint Lead Arrangers and the Required Lenders. Borrower shall have received aggregate gross proceeds of at least $22 million from the Buyout Group and certain other third parties previously disclosed to Merrill Lynch, NationsBank and NMS. 10 -10- (F) Each of the Transactions (other than extensions of credit under the Credit Facilities) shall have been consummated in all material respects in accordance with the terms hereof and the terms of documentation therefor (without the waiver of any material condition unless consented to by the Joint Lead Arrangers and the Required Lenders in their respective reasonable discretion) that are in form and substance satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective reasonable discretion. (G) All obligations of Borrower and its subsidiaries with respect to the Existing Debt shall be repaid in full (or provisions made therefor satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective reasonable discretion) and all lending commitments thereunder terminated to the satisfaction of the Joint Lead Arrangers and the Required Lenders in their respective sole discretion with all security interests in favor of existing lenders being unconditionally released, and reasonably satisfactory evidence thereof shall have been provided in writing. The Joint Lead Arrangers shall have received a "pay-off" letter with respect to all such debt repaid. (H) All requisite third parties and governmental authorities (domestic and foreign) shall have approved or consented to the Transactions and the other transactions contemplated hereby (without the imposition of any materially burdensome or adverse conditions) and all such approvals and consents shall be in full force and effect (or there shall be a plan satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole discretion for the obtaining thereof). All applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents, or imposes materially adverse conditions upon the Transactions. (I) Since the date of the last audited financial statements of Borrower delivered to the Lenders prior to the date of the Commitment Letter, there shall not have occurred or become known (i) in the reasonable judgment of the Required Lenders any material adverse change or any condition or event that in the sole judgment of the Lenders could be expected to result in a material adverse change in the business, assets, liabilities (contingent or otherwise), operations, condition (financial or otherwise), solvency, properties, prospects or material agreements (each, a "Material Adverse Change") of Borrower and its subsidiaries taken as a whole (both before and after giving effect to the Transactions), (ii) any transaction 11 -11- (other than the Transactions) entered into by Borrower or any of its subsidiaries, whether or not in the ordinary course of business, that, in the sole judgment of the Joint Lead Arrangers or the Required Lenders, is material to Borrower and its subsidiaries taken as a whole (after giving effect to the Transactions), or (iii) any dividend or distribution of any kind declared or paid by Borrower on its capital stock. (J) There shall not exist any threatened or pending action, proceeding or counterclaim by or before any court or governmental, administrative or regulatory agency or authority, domestic or foreign, (i) challenging the consummation of any of the Transactions or that could in the sole judgment of the Joint Lead Arrangers and the Required Lenders restrain, prevent or impose burdensome conditions on the Transactions, individually or in the aggregate, or any other transaction contemplated hereunder or (ii) seeking to obtain, or having resulted in the entry of, any judgment, order or injunction that (a) would restrain, prohibit or impose adverse conditions on the ability of the Lenders to make the Loans under the Credit Facilities, (b) in the sole judgment of the Joint Lead Arrangers and Required Lenders could be expected to result in a Material Adverse Change with respect to Borrower and its subsidiaries taken as a whole (both before and after giving effect to the Transactions), (c) could purport to affect the legality, validity or enforceability of any Credit Document or any documents relating thereto or could have a material adverse effect on the ability of any Credit Party to fully and timely perform its obligations under the Credit Documents or the rights and remedies of the Lenders, (d) would be materially inconsistent with the stated assumptions underlying the projections provided to the Joint Lead Arrangers and the Lenders, or (e) seeks any material damages as a result thereof. (K) Any defaults in any material agreements of Borrower or any of its subsidiaries that may result from the Transactions shall have been resolved or otherwise addressed in a manner satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective reasonable discretion; and no law or regulation shall be applicable that restrains, prevents or imposes materially adverse conditions upon any component of the Transactions or the financing thereof, including the extensions of credit under the Credit Facilities. (L) The Joint Lead Arrangers and the Required Lenders shall be satisfied (in their reasonable judgment) with the actual capitalization (including with respect to indebtedness and 12 -12- capital stock) and corporate and organizational structure of Borrower and its subsidiaries (after giving effect to the Transactions), including as to direct and indirect ownership and as to the terms of the indebtedness and capital stock of Borrower and its subsidiaries and as to all other matters relating to their financial and operating condition. Immediately after giving effect to the Transactions, Borrower and its subsidiaries shall have no debt or preferred stock (or direct or indirect guarantee in respect thereof) outstanding other than the Credit Facilities, the Subordinated Notes, the Preferred Stock Financing and certain other debt, including capitalized leases, seller notes and non-competes to remain outstanding, in an amount and on terms and conditions and pursuant to documentation acceptable to the Joint Lead Arrangers and NationsBank, and the Joint Lead Arrangers and the Required Lenders shall be satisfied with all other liabilities (contingent or otherwise) of Borrower and its subsidiaries. (M) The Joint Lead Arrangers and the Required Lenders shall be satisfied (in their respective reasonable judgment) with the terms and provisions of all material agreements of Borrower and its subsidiaries. (N) All other documentation and agreements related to the Transactions or which, in the sole judgment of the Joint Lead Arrangers and the Required Lenders, affects the extension of credit under the Credit Facilities in any respect shall be in form and substance satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole judgment. (O) All loans and other financing to Borrower shall be in full compliance with all applicable requirements of Regulations T, U and X of the Board of Governors of the Federal Reserve System. (P) All accrued fees and expenses of the Lenders, the Joint Lead Arrangers and the Administrative Agent (including the reasonable fees and expenses of counsel to the Lenders, the Joint Lead Arrangers and the Administrative Agent) in connection with the Credit Documents shall have been paid in cash in full. (Q) The Joint Lead Arrangers and the Lenders shall have received third-party environmental reports (including Phase 1 reports) of Borrower and its subsidiaries from an environmental engineering firm acceptable to the Joint Lead Arrangers in their sole discretion and the results thereof shall be satisfactory to the Joint Lead Arrangers and the Required 13 -13- Lenders in their respective sole discretion. Insurance relating to Borrower and its subsidiaries will be in place on and after the Closing Date from insurance companies satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole discretion and the terms thereof shall be reasonably satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole judgment. (R) The Lenders shall have received a pro forma balance sheet of Borrower and its subsidiaries as at the Closing Date and after giving effect to the Transactions and the financing contemplated hereby, which pro forma balance sheet shall be substantially in conformity with that delivered to the Lenders during syndication and satisfactory to the Joint Lead Arrangers and the Required Lenders in their respective sole judgment. The Lenders shall have received projected cash flows and income statements for the period of six years following the Closing Date, which projections shall be (i) based upon reasonable assumptions made in good faith, (ii) satisfactory to the Lenders in their sole discretion and (iii) substantially in conformity with those projections delivered to the Lenders during syndication. The Lenders shall have received (i) audited financial statements of Borrower for fiscal years 1992 through 1997 and (ii) unaudited interim combined financial statements of Borrower for each fiscal month and quarterly period ended subsequent to August 31, 1997 as to which such financial statements are available, and such financial statements shall not, in the sole judgment of the Lenders, reflect any Material Adverse Change with respect to Borrower as compared with the financial statements or projections previously furnished to the Lenders. (S) The Lenders shall have received a business plan or budget for Borrower and its subsidiaries after giving effect to the Transactions for fiscal years 1998 and 1999 satisfactory to the Joint Lead Arrangers in their sole discretion. (T) The Lenders shall have received the results of a recent lien, tax and judgment search in each of the jurisdictions and offices where assets of each of Borrower and its subsidiaries are located or recorded, and such search shall reveal no liens on any of their assets except for liens permitted by the Credit Documents or liens to be discharged in connection with the transactions contemplated hereby. (U) On and as of the Closing Date, after giving effect to the Transactions, the ratio of Borrower's pro forma consolidated total debt to pro forma trailing four quarter EBITDA shall not 14 -14- be greater than 5.0:1.0, and the Joint Lead Arrangers shall have received an officers' certificate as to the same satisfactory to the Joint Lead Arrangers in their sole discretion (including satisfactory schedules and other supporting data). (V) The Joint Lead Arrangers and the Required Lenders shall be satisfied with the employment (as well as employment agreements, if any) of senior management of Borrower after the Recapitalization. (W) The Lenders shall have received such other legal opinions, corporate documents and other instruments and/or certificates as the Joint Lead Arrangers or the Required Lenders may request in their reasonable discretion. Conditions to All Extensions of Credit: Each extension of credit under the Credit Facilities will be subject to the (i) absence of any Default or Event of Default, (ii) continued accuracy of representations and warranties (except representations and warranties which are made only as of a prior date), and (iii) absence of any Material Adverse Change and no material adverse effect upon the respective abilities of the Credit Parties to perform their obligations under the Credit Documents. Representations and Warranties: Customary for facilities similar to the Credit Facilities and such additional representations and warranties as may be required by the Joint Lead Arrangers in their sole discretion, including, but not limited to, no Default or Event of Default; absence of Material Adverse Change; receipt of financial statements (including pro forma financial statements); absence of undisclosed liabilities or material contingent liabilities not disclosed in writing to Joint Lead Arrangers prior to the date hereof; compliance with laws; solvency; no conflicts with laws, charter documents or agreements; good standing; payment of taxes; ownership of properties; corporate power and authority; no burdensome restrictions; ERISA matters; environmental matters; labor matters; absence of material litigation; use of proceeds and margin regulations; no material misstatement or omission; validity and perfection of security interests; absence of liens and security interests; and accuracy of Borrower's representations and warranties in the Merger Agreement. Affirmative Covenants: Customary for facilities similar to the Credit Facilities and such others as may be reasonably required by the Joint Lead Arrangers, including, but not limited to, maintenance of corporate 15 -15- existence and rights; compliance with laws; performance of obligations; maintenance of material rights and privileges; maintenance of properties in good repair; maintenance of appropriate and adequate insurance; inspection of books and properties; payment of taxes and other liabilities; notice of defaults, litigation and other adverse action; delivery of financial statements (including consolidating financial statements), financial projections and compliance certificates; ERISA compliance; environmental compliance; and further assurances. Negative Covenants: Customary for facilities similar to the Credit Facilities and such others as may be reasonably required by the Joint Lead Arrangers, including, but not limited to, limitation on indebtedness; limitation on liens; limitation on further negative pledges; limitation on loans, investments and joint ventures; limitation on guarantee or other contingent obligations; limitation on restricted payments (including dividends, redemptions and repurchases of equity interests); limitation on fundamental changes (including limitation on mergers, acquisitions and asset sales); limitation on restrictions on amending Credit Documents; limitation on issuance, sale or other disposition of subsidiary stock; limitation on capital expenditures; limitation on operating leases; limitation on sale-leaseback transactions; limitation on sale or discount of receivables; limitation on transactions with affiliates; limitation on dividend and other payment restrictions affecting subsidiaries; limitation on changes in business conducted; limitation on amendment of documents relating to other indebtedness and other material documents; limitation on creation of subsidiaries; limitation on designated senior debt under the Subordinated Financing; and limitation on prepayment or repurchase of other indebtedness. Financial Covenants: The Credit Facilities will contain financial covenants appropriate in the context of the proposed transaction based upon the financial information provided to the Joint Lead Arranger, including, but not limited to (definitions and numerical calculations to be set forth in the Credit Agreement), minimum interest coverage ratio, minimum fixed charge coverage ratio, maximum total debt to trailing four quarter EBITDA, and maximum senior debt to trailing four quarter EBITDA. The financial covenants contemplated above will be tested on a quarterly basis and will apply to Borrower and its subsidiaries on a consolidated basis. 16 -16- Events of Default: Customary for facilities similar to the Credit Facilities and others to be specified by the Joint Lead Arrangers, including, but not limited to, nonpayment of principal, interest, fees or other amounts when due; violation of covenants; failure of any representation or warranty to be true in all material respects; cross-default and cross-acceleration; Change in Control (to be defined); bankruptcy and insolvency events; material judgments; ERISA events; change of control under any other indebtedness; and actual or asserted (by Borrower or any affiliate) invalidity of loan documents or security interests. Yield Protection and Increased Costs: Usual for facilities and transactions of this type, including, but not limited to, in respect of prepayments (which will include reimbursement of redeployment costs in the case of prepayments (or conversion into ABR loans) of LIBOR loans other than at the end of an interest period), taxes (including but not limited to gross-up provisions for withholding taxes imposed by any governmental authority), changes in capital requirements, guidelines or policies or their interpretation or application, illegality, change in circumstances, reserves and other provisions deemed necessary by the Joint Lead Arrangers or the other Lenders to provide customary protection for U.S. and non-U.S. Lenders. Assignments and Participations: No Credit Party may assign its rights or obligations in connection with the Credit Facilities without the prior written consent of all the Lenders. Lenders shall be permitted to assign and participate loans, notes and commitments. Non-pro rata assignments of loans, notes, and commitments of the Credit Facilities shall be permitted. Each assignment (unless to another Lender or its affiliates) shall be in a minimum amount of $5 million (unless Borrower and the Administrative Agent otherwise consents or unless the assigning Lender's exposure is reduced to $0). Assignments shall be permitted with Borrower's consent (not to be unreasonably withheld or delayed), except that no such consent need be obtained to effect an assignment to any Lender (or its affiliates) or if any event of default has occurred and is continuing. Participations shall be permitted without restriction and participants will have the same benefits as the original syndicate Lenders with regard to yield protection and increased costs, collateral benefits and provision of information on the Credit Parties (it being understood that with respect to yield protection and increased cost provisions, such shall be applicable to the participant only if the Lender effecting such participation would have been entitled thereto). Voting rights of participants will be subject to customary limitations. In the case of the Revolving Facility, 17 -17- assignments will require the consent of the L/C Lender. Assignees will assume all of the rights and obligations of the assigning Lender. Assignments to any Credit Party and or any of its affiliates are prohibited without consent of all of the Lenders. Voting: Lenders holding at least a majority of the extensions of credit and commitments under the Credit Agreement (the "Required Lenders"). Expenses and Indemnification: In addition to those out-of-pocket expenses reimbursable under the Commitment Letter, all out-of-pocket expenses of the Joint Lead Arrangers and the Administrative Agent (and the Lenders for enforcement costs and documentary taxes) associated with the preparation, execution and delivery of any waiver or modification (whether or not effective) of, and the enforcement of, any Credit Document (including the reasonable fees, disbursements and other charges of counsel for the Joint Lead Arrangers and the Administrative Agent) are to be paid by Borrower. Borrower will indemnify each of the Joint Lead Arrangers, the Administrative Agent and the other Lenders and hold them harmless from and against all costs, expenses (including fees, disbursements and other charges of counsel) and liabilities arising out of or relating to any litigation or other proceeding (regardless of whether the Joint Lead Arrangers, the Administrative Agent or any such other Lender is a party thereto) that relate to the Transactions or any transactions related thereto; provided, however, that none of the Joint Lead Arrangers, the Administrative Agent or any such other Lender will be indemnified for any cost, expense or liability to the extent determined by a court of competent jurisdiction in a final and nonappealable judgment to have resulted from such person's gross negligence or bad faith. Governing Law and Forum: New York. Waiver of Jury Trial: All parties to the Credit Agreement waive right to trial by jury. Counsel for Joint Lead Arrangers: Cahill Gordon & Reindel. 18 ANNEX I Interest Rates and Fees: Borrower will be entitled to make borrowings at either LIBOR or ABR, plus (A) with respect to LIBOR Loans, (i) in the case of Loans under the Revolving Facility, 2.75% per annum; (ii) in the case of Loans under the Term Loan A Facility, 2.75% per annum and (iii) in the case of Loans under the Term Loan B Facility, 3.25% per annum; and (B) with respect to ABR Loans, (i) in the case of Loans under the Revolving Facility, 1.75% per annum; (ii) in the case of Loans under the Term Loan A Facility, 1.75% per annum; and (iii) in the case of Loans under the Term Loan B Facility, 2.25% per annum. A pricing grid governing such rates showing stepups/ stepdowns in such rates beginning after 12 months after the Closing Date shall be negotiated based upon improved credit measures. "ABR" means the higher of (i) the corporate base rate of interest announced by the Administrative Agent from time to time, changing when and as said corporate base rate changes, and (ii) the Federal Funds Rate plus 0.50% per annum. The corporate base rate is not necessarily the lowest rate charged by the Administrative Agent to its customers. "LIBOR" means the rate determined by the Administrative Agent to be available to the Lenders in the London interbank market for deposits in the amount of, and for a maturity corresponding to, the amount of the applicable LIBOR Loan, as adjusted for maximum statutory reserves. Commitment fees accrue on the undrawn amount of the Credit Facilities, commencing on the Closing Date. The commitment fee in respect of the Credit Facilities will be 0.50% per annum. All commitment fees will be payable in arrears at the end of each quarter and upon any termination of any commitment, in each case for the actual number of days elapsed over a 360-day year. EX-99.(A)(8) 4 LETTER OF INTENT DATED 9/8/98 1 EXHIBIT 99.(a)(8) September 8, 1998 Mr. Frank Krasovec, President FPK, LLC c/o Norwood Promotional Products, Inc. 106 E. Sixth Street, Suite 300 Auston, TX 78701 Dear Frank: Liberty Capital Partners, Inc. ("Liberty") proposes to make $60 MILLION of financing available to a new corporation,"FPK, LLC", formed by the senior management (the "Management") of Norwood Promotional Products, Inc. (the "Company") for the purpose of acquiring the Company pursuant to the terms and conditions set forth in the Merger Agreement dated March 15, 1998 between the Company and FPK, LLC. The financing proposed herein (the "Proposed Transaction") will consist of $37 million of senior subordinated debt (the "Subordinated Debt"), $20 million of preferred stock (the "Preferred Stock"), and $3 million of common stock (the "Common Stock"). The anticipated sources and uses of funds required to consummate the Proposed Transaction, as well as the equity ownership of the Company after closing, is set forth in Exhibit A attached hereto. This letter sets forth the basic terms and conditions of our proposal. 1) Subordinated Debt. Liberty will provide $37 MILLION of the financing in the form of the Subordinated Debt. The Subordinated Debt will (i) accrue interest at a rate of 12.5% per annum, payable quarterly, (ii) be pre-payable at any time without the payment of any premium or penalty, (iii) be issued with detachable warrants (the "Subordinated Debt Warrants"), exercisable for $.01/share, for 20% of the common equity of the Company on a fully diluted basis; provided that if the Subordinated Debt is repaid in full prior to the third anniversary of the closing date of the Proposed Transaction (the "Closing Date"), 50% of the Subordinated Debt Warrants shall be canceled without consideration. Scheduled principal payments on the Subordinated Debt shall commence after the tenth anniversary of the Closing Date, or upon the first quarter after the Senior Term Debt has been repaid in full. Liberty will receive a fee on the Closing Date equal to 3% of the face amount of the Subordinated Debt ($1,110,000). 2) Preferred Stock. Liberty will provide $20 MILLION of financing in the form of the Preferred Stock. The Preferred Stock will (i) accrue a dividend at a rate of 10% per 2 Mr. Frank Krasovec, President FPK, LLC Page 2 annum, compounded quarterly (the "Dividend Rate"), from and after the Closing Date to the date of redemption, (ii) be redeemable at any time without the payment of any premium or penalty, (iii) be manditorily redeemable on the earlier of (a) the tenth anniversary of the Closing Date, (b) a change in control, or (c) a default of the terms of the Preferred Stock, and (iv) be issued with detachable warrants (the "Preferred Stock Warrants"), exercisable for $.01/share, for 15% of the common equity of the Company on a fully diluted basis. The Company may pay the accrued dividend on the Preferred Stock currently or may elect to allow such dividend to be payment-in-kind until the fifth anniversary of the Closing Date. Any dividends not paid currently shall accrue dividends thereon at the Dividend Rate. The Company may elect to convert the Preferred Stock into subordinated debt with substantially the same terms and conditions of the Preferred Stock. 3) Common Stock. Liberty will provide $3 MILLION of financing in the form of the Common Stock. The Common Stock shall be purchased on the same terms and conditions as retained by the Management, including the execution of a shareholders' agreement which shall be mutually agreeable between the parties hereto. 4) Warrants for Common Stock. Each of the Subordinated Debt Warrants and the Preferred Stock Warrants (collectively, the "Warrants") will entitle the holder to purchase one share of common stock of the Company at a price of $.01 per share, subject to adjustment pursuant to customary anti-dilution provisions, and will expire on the tenth anniversary of the Closing Date. 5) Conditions to Proposed Transaction. The Proposed Transaction will be subject to the negotiation, execution and delivery of definitive agreements effectuating the terms of the transactions described herein in form and substance reasonably satisfactory to Liberty, the Company and FPK, LLC (the "Definitive Agreements"). Liberty' obligations under the Definitive Agreements will be conditioned upon customary closing conditions, including: (i) satisfactory completion of Liberty' business, accounting, and legal due diligence review of the Company; (ii) retention of management on terms and conditions reasonably satisfactory to Liberty; and (iii) absence of a material adverse change in the business, assets, condition (financial or otherwise), of the Company. 6) Board Composition. Liberty shall be entitled to have two persons nominated and elected to the board of the Company and each of its subsidiaries (the "Board"). Each such member shall be paid customary board fees. 7) Registration Rights. Liberty shall have two long form demand registration rights plus an unlimited number of piggyback registration rights (subject to customary limitations for underwriting, disclosure and offering reasons) with regard to all common stock and common stock equivalents. 8) Expenses. FPK, LLC shall pay or reimburse Liberty for all reasonable out-of-pocket expenses incurred in connection with the Proposed Transaction, whether or not the Proposed Transaction is consummated. 3 Mr. Frank Krasovec, President FPK, LLC Page 3 9) Access. FPK, LLC shall cause the Company to provide Liberty's accounting, legal, and other representatives access at reasonable times to the Company's and its subsidiaries' personnel familiar with the business of the Company and its subsidiaries and to all items related to the Company's and its subsidiaries' assets, personnel and affairs which are reasonably necessary to perform additional due diligence. 10) Confidentiality. Without Liberty' prior written consent, none of FPK, LLC, Frank Krasovec or the Company shall (whether directly or through any employees, agents, representatives and advisors) disclose to any person (other than any regulatory or supervisory authority or as otherwise required by law) either the fact that discussions or negotiations are taking place concerning the Proposed Transaction, or any terms, conditions or other facts with respect to the Proposed Transaction, including the timing or status thereof. All press releases and other public announcements prior to the Closing Date relating to the Proposed Transaction will be prepared jointly by Liberty, the Management and the Company. The term "person" as used in this agreement shall be broadly interpreted to include, without limitation, any corporation, partnership, or individual (but excluding any regulatory or supervisory authority). 11) Indemnification. FPK, LLC agrees to indemnify and hold harmless Liberty and its affiliates and their respective directors, officers, employees and agents (the "Indemnified Parties") from and against any and all losses, claims, charges and liabilities, joint or several, related to or arising out of any matters contemplated by this letter (including any arising out of the negligence of any Indemnified Party), unless and only to the extent that it shall be finally judicially determined that such losses, claims, damages or liabilities resulted primarily from the gross negligence or willful misconduct of such Indemnified Party. If Liberty becomes involved in any capacity in any action, suit proceeding or investigation in connection with any matter contemplated by this letter, FPK, LLC shall reimburse Liberty for its reasonable legal and other expenses (including the cost of any investigation and preparation as they are incurred by Liberty). In the event of any dispute arising out of or based upon this letter or the transactions contemplated hereby, FPK, LLC will waive any right it may have to trial by jury. 12) Governing Law; Binding Effect; Counterparts. This letter agreement shall be governed by the laws of the State of New York. This letter agreement is not intended to be a binding agreement between the parties hereto but only an expression of their mutual intent and understanding, except for the provisions of paragraphs 8 through 12, inclusive, which shall be binding upon and inure to the benefit of the parties hereto, their respective successors and permitted assigns. This letter agreement may be executed in two or more counterparts, all of which taken together will constitute one binding agreement. If you are in agreement with the terms hereof, please evidence such agreement by signing and returning one copy hereof to me at the letterhead address above. This letter will expire at 5:00 p.m., Eastern Standard Time on Wednesday, September 9, 1998 if Liberty have not received, at or prior to such time, a copy of this letter signed by FPK, LLC and Frank Krasovec. Should you, or any of your advisors have any questions or need additional information, please feel free to call any of us at Liberty (212) 354-7676. We look forward to working with you on this transaction. 4 Mr. Frank Krasovec, President FPK, LLC Page 4 Best regards, LIBERTY CAPITAL PARTNERS, INC. By /s/ PETER E. BENNETT ---------------------------------- Peter E. Bennett Its President Acknowledged and Agreed this ___ day of September 1998 FPK, LLC By /s/ FRANK P. KRASOVEC ------------------------------- Its ------------------------------ By /s/ FRANK P. KRASOVEC ------------------------------- FRANK KRASOVEC 5 EXHIBIT A NORWOOD PROMOTIONAL PRODUCTS, INC.
SOURCES OF FINANCING - -------------------- (a) (b) FULLY FULLY DILUTED DILUTED TOTAL PREFERRED OWNERSHIP OWNERSHIP TOTAL FINANCING RATE SOURCES DOLLARS PERCENTAGE AT CLOSING LIBERTY - -------------------------------------------------------------------------------------------------------------------------------- Senior Term Loan 8.50% $ 75,000 Senior Revolving Loan 8.50% $ 10,000 Senior Subordinated Loan 12.50% $ 37,000 10.00% 20.00% $37,000 Preferred Stock 10.00% $ 20,000 16.88% 15.00% $20,000 Common Stock Management $ 20,334 $ 0 38.47% 34.19% D. Tully $ 4,000 $ 0 7.57% 6.73% Other Investors $ 0 $ 0 0.00% 0.00% Warrants & Options Outstanding $ 0 $ 0 21.42% 19.04% Option Pool $ 0 $ 0 0.00% 0.00% Liberty Partners $ 3,000 $20,000 5.68% 5.04% $ 3,000 -------- ------- ------ ------ ------- TOTAL $169,334 $20,000 100.00% 100.00% $60,000 Liberty % 32.55% 40.04%
(a) Assumes Subordinated Debt repaid within three years (b) Assumes Subordinated Debt is not repaid within three years
USE OF FUNDS - -------------------- Purchase Price $ 88,600 Retire Existing Debt $ 43,500 Retained Equity $ 20,400 Fees & Expenses $ 9,000 Working Capital $ 7,834 -------- Total Uses of Funds $169,334
EX-99.(D)(5) 5 NOTICE TO SHAREHOLDERS 1 EXHIBIT 99.(d)(5) -------------------------------------------- NORWOOD PROMOTIONAL PRODUCTS, INC. 106 EAST SIXTH STREET, SUITE 300 AUSTIN, TX 78701 NOTICE DATED OCTOBER 20, 1998 -------------------------------------------- TO OUR SHAREHOLDERS: This Notice to Shareholders is being delivered in connection with the proposed merger ("Merger") between Norwood Promotional Products, Inc. (the "Company") and a wholly-owned subsidiary of FPK, LLC ("LLC"), a limited liability company formed by Frank P. Krasovec ("Krasovec"), the Company's Chairman and Chief Executive Officer, which was described in the Company's Proxy Materials dated July 22, 1998. Except as expressly set forth herein, this Notice is qualified in its entirety by the information contained in the Proxy Materials. Unless otherwise set forth herein, all capitalized terms used herein shall have the respective meanings ascribed to them in the Proxy Materials. This Notice to Shareholders is for your information, and no action is required of shareholders at this time in connection with the Merger. PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME OF THE MERGER, YOU WILL BE SENT INSTRUCTIONS REGARDING THE PROCEDURES TO EXCHANGE YOUR EXISTING CERTIFICATES EVIDENCING COMMON STOCK OF THE COMPANY FOR THE MERGER CONSIDERATION. Recent Developments The Company's shareholders approved and adopted the agreement and plan of merger (the "Merger Agreement") between the Company and LLC at a special meeting of shareholders held on August 19, 1998. Under the Merger Agreement, a wholly-owned subsidiary of LLC ("Newco") will merge with and into the Company. At the effective time of the merger, each share of the Company's common stock (other than shares retained by members of the Buyout Group) will be converted into $20.70 in cash. The Merger will become effective approximately one business day after the satisfaction or waiver of the remaining conditions to the Merger set forth in the Merger Agreement, including the consummation of the financing for the transaction. At the special shareholders meeting, shareholders also adopted amendments to the Company's articles of incorporation changing the par value of its common stock from no par to $0.01 per share and authorizing the Board of Directors of the Company to establish and issue one or more series of preferred stock. In late August 1998, the investment bankers for LLC advised it that due to a change in high yield debt market conditions, the placement of $100 million principal amount of senior subordinated notes could not be effected at such time. The senior subordinated notes constituted a portion of the financing which was a condition to the Merger Agreement. In September 1998, in order to fund the Merger, Liberty Capital Partners, Inc. (together with its affiliates and advisory clients, "Liberty") delivered a letter of intent to LLC to provide $37 million in subordinated debt, $20 2 million in preferred stock and $3 million in common stock, and Merrill Lynch & Co. and NationsBank, N.A. delivered a commitment letter to LLC to provide a $25 million revolving credit facility and $75 million in term credit facilities. This financing replaces the financing which had been previously arranged for the Merger. The financing is subject to, among other things, completion of due diligence and the negotiation of satisfactory documentation. In order to provide LLC with sufficient time to complete the financing, the Company agreed to extend the date after which it may terminate the Merger Agreement without cause to October 31, 1998. As a result of the new financing, the expected sources and uses of funds to consummate the Merger previously described in the Company's Proxy Statement dated July 22, 1998 has changed. The Company expects the sources and uses to be as follows: Estimated Fees and Expenses; Sources of Funds Estimated fees and expenses incurred or to be incurred by the Company, LLC, Newco and the members of the Buyout Group in connection with the Merger Agreement and the transactions contemplated thereby are approximately as follows: Payment of Merger Consideration(1)............................................................ $88,900,000 Financial advisory fees, financing commitment fees and expenses(2)............................ 7,100,000 Legal fees and expenses(3).................................................................... 1,550,000 Accounting and appraisal fees and expenses.................................................... 150,000 SEC filing fees............................................................................... 16,800 Printing and mailing expenses................................................................. 75,000 Paying Agent fees and expenses ............................................................... 1,500 Miscellaneous expenses ....................................................................... 106,700 ----------- TOTAL.......................................................................... $97,900,000
- ----------------------- (1) Includes payment for all outstanding shares of Common Stock other than those retained by members of the Buyout Group. (2) Includes the fees and estimated expenses of J.C. Bradford, Merrill Lynch, Allen & Company Incorporated, Ares and Liberty. (3) Includes the estimated fees and expenses of legal counsel for the Special Committee, for the Company, for J.C. Bradford, for Krasovec and the members of the Buyout Group, for Merrill Lynch, for Ares and for Liberty. The total funds required to pay the Merger Consideration of $20.70 per share to all Public Shareholders, consummate the other transactions contemplated by the Merger, refinance certain of the Company's current indebtedness and pay all related fees, costs and expenses is estimated to be approximately $138.7 million, which amount will be obtained by means of certain equity contributions and borrowings as described below. Except as otherwise stated below, all of such equity contributions will become effective at the Effective Time, and all of such borrowings will become available immediately subsequent to the Effective Time upon satisfaction of the conditions in the loan documents. None of the equity contributions or borrowings will become effective or available if the Merger is not consummated for any reason. The terms of and the documentation for the intended borrowings have not yet been finalized and are still being negotiated. Accordingly, the description below of such borrowings is preliminary and not necessarily complete. In any event, the final documentation for such borrowings might contain terms and conditions that are more or less restrictive than currently contemplated. The total financing for the Merger and related costs and expenses, including $20.3 million in roll-over equity provided by members of the Buyout Group, will be approximately $159.0 million, of which 3 approximately $88.9 million will be required to pay the Merger Consideration to the Public Shareholders, approximately $40.8 million will be incurred to refinance certain of the Company's current indebtedness, and approximately $9.0 million will be incurred to pay all expenses of the Company, LLC, Newco and the members of the Buyout Group in connection with the Merger and the transactions contemplated thereby. Such funds will be furnished from (i) the Equity Financing of approximately $46.8 million, consisting of (A) approximately $20.3 million to be provided by the Buyout Group, (B) $3.5 million from the issuance of Common Stock to an Additional Common Shareholder, (C) $3 million from the issuance of Common Stock to Liberty and (D) $20 million from the issuance of Preferred Stock to Liberty, (ii) the $100 million Credit Facilities to be provided by Merrill Lynch, NationsBank and NMS, consisting of (A) a $75 million senior secured term loan which will be fully drawn at the Effective Time and (B) a $25 million senior secured revolving credit facility, of which no more than approximately $0.2 million will be drawn at the Effective Time, and (iii) $37 million from the issuance to Liberty of subordinated debt at the Effective Time. The Company anticipates funding its working capital needs after the Merger from the senior secured revolving credit facility and from cash flow generated from operations. Equity Financing. At the Effective Time, the Equity Financing of approximately $46.8 million will consist of (A) approximately $20.3 to be provided by the Buyout Group, (B) $3.5 million from the issuance of Common Stock to an Additional common Shareholder, (C) $3.0 million from the issuance of Common Stock to Liberty and (D) $20 million from the issuance of Preferred Stock to Liberty, as described below: Common Stock. Of the Equity Financing, (i) approximately $20.3 million will be provided by the members of the Buyout Group, by converting their Common Stock (valued at the Merger Consideration of $20.70 per share) into common stock of the Surviving Corporation, (ii) approximately $3.5 million will be provided through the issuance of new shares of common stock to an Additional Common Shareholder, and (iii) $3 million will be provided through the issuance of new shares of Common Stock to Liberty. An employee of Merrill Lynch is a member of a limited liability company that is anticipated to be an Additional Common Shareholder. Certain members of the Buyout Group may sell certain of their shares which they retain under the Merger Agreement immediately upon consummation of the Merger to Additional Common Shareholders, which shareholders may include members of the Buyout Group. Michael Linderman, the Company's former Executive Vice President-Corporate Development, is no longer a member of the Buyout Group. Preferred Stock. At the Effective Time, the Surviving Corporation will issue to Liberty (i) 20,000 shares of the Surviving Corporation's Preferred Stock with a liquidation preference ("Liquidation Preference") of $1,000 per share and (ii) warrants to purchase shares of common stock, for $0.01 per share, representing 15% of the fully diluted common stock of the Surviving Corporation (the "Preferred Stock Warrants"). The Preferred Stock will have an annual dividend rate of 10% (the "Dividend Rate"), will have no voting rights, other than as required by law, and will be ranked senior in liquidation and payment of dividends to all other classes of capital stock of the Surviving Corporation, now outstanding or hereafter issued. For the first five years after issuance, dividends will be payable, at the Surviving Corporation's option, in additional shares of Preferred Stock or cash. Thereafter, dividends will be payable in cash. All dividends will accumulate and will be payable (whether in cash or Preferred Stock) quarterly, in arrears. Dividends will accumulate on all unpaid dividends at the applicable annual Dividend Rate. The Preferred Stock will be redeemable, in whole or in part, at the option of the Surviving Corporation at any time. The Preferred Stock will be required to be redeemed on the earlier of the tenth anniversary of the Effective Date, upon a change in control of the Company or upon a default. Under certain 4 conditions, the Surviving Corporation will have the option to exchange the Preferred Stock at any time for subordinated notes that will have substantially the same terms as the Preferred Stock. Credit Facilities. At the Effective Time, Merrill Lynch, NationsBank and certain other lenders (collectively, the "Lenders") will make available to the Surviving Corporation senior secured credit facilities in an aggregate principal amount of $100 million, such Credit Facilities comprising: Term Loan Facilities. The Lenders will make available term loan facilities in an aggregate principal amount of $75 million (the "Term Loan Facilities") comprised of a $35 million Term Loan "A" Facility and a $40 million Term Loan "B" Facility. The Term Loan A Facility will mature on the fifth anniversary of the Effective Time. The Term Loan B Facility will mature on the sixth anniversary of the Effective Time. Amounts outstanding under the Term Loan Facilities will amortize, beginning with the last business day of the first full fiscal quarter after the Effective Time, on a quarterly basis during each year as set forth below:
Fiscal Term Loan A Term Loan B Year Amount Amount - ------ ----------- ----------- 1999 $ 3,000,000 $ 400,000 2000 6,000,000 400,000 2001 8,000,000 400,000 2002 8,500,000 400,000 2003 9,500,000 400,000 2004 -- $38,000,000 ----------- ----------- $35,000,000 $40,000,000 =========== ===========
The Term Loan Facilities will be available solely on the Effective Time in a single draw. Amounts borrowed under the Term Loan Facilities that are repaid or prepaid may not be reborrowed. Borrowings under the Term Loan Facilities may be prepaid at any time in whole or in part at the option of the Surviving Corporation, in a minimum principal amount and in multiples to be agreed upon, without premium or penalty (except, in the case of LIBOR borrowings, prepayments not made on the last day of the relevant interest period). Voluntary prepayments under the Term Loan Facilities will be applied pro rata against the remaining scheduled amortization payments under the Term Loan A Facility and Term Loan B Facility. Revolving Facility. The Lenders will make available a revolving credit facility in an aggregate principal amount of $25 million (the "Revolving Facility"). The Revolving Facility will mature on the fifth anniversary of the Effective Time (the "Revolving Facility Maturity Date"). The Revolving Facility will be available for working capital and general corporate purposes in the form of revolving loans and letters of credit ("Letters of Credit") on and after the Effective Time until 30 business days prior to the Revolving Facility Maturity Date. Amounts repaid under the Revolving Facility may be reborrowed to the extent of the commitments then in effect. At the Effective Time, not more than approximately $0.2 million shall be drawn under the Revolving Facility to consummate the Merger. The unutilized portion of the commitments under the Revolving Facility may be reduced and Revolving Loans may be repaid at any time, in each case, at 5 the option of the Surviving Corporation, in a minimum principal amount and in multiples to be agreed upon, without premium or penalty (except, in the case of LIBOR borrowings, prepayments not made on the last day of the relevant interest period). The Credit Facilities will be secured by (i) a perfected first priority lien on, and pledge of, all the capital stock and intercompany debt of each of the direct and indirect subsidiaries of the Surviving Corporation existing at the Effective Time or thereafter created or acquired (except that to the extent that the pledge thereof would cause material adverse tax consequences, such pledge with respect to foreign subsidiaries shall be limited to 65% of the capital stock of "first tier" foreign subsidiaries), and (ii) a perfected first priority lien on, and security interest in, all of the tangible and intangible properties and assets (including all real property) of the Surviving Corporation and its direct and indirect domestic subsidiaries existing at the Effective Time or thereafter created or acquired, except for those properties and assets which the Syndication Agent shall determine in its sole discretion that the costs of obtaining such security interest are excessive in relation to the value of the security to be afforded thereby (it being understood that none of the foregoing shall be subject to any other liens or security interests, except for certain customary exceptions to be agreed upon) (all of such collateral, the "Collateral"). The Surviving Corporation will be entitled to make borrowings at either LIBOR or ABR, plus (A) with respect to LIBOR Loans, (i) in the case of loans under the Revolving Facility, 2.75% per annum; (ii) in the case of loans under the Term Loan A Facility, 2.75% per annum and (iii) in the case of loans under the Term Loan B Facility, 3.25% per annum; and (B) with respect to ABR Loans, (i) in the case of loans under the Revolving Facility, 1.75% per annum (ii) in the case of loans under the Term Loan A Facility, 1.50% per annum and (iii) in the case of loan under the Term Loan B Facility, 2.25% per annum. A pricing grid governing such rates showing stepups/stepdowns in such rates beginning 12 months after the Effective Time shall be negotiated based upon improved credit measures. The Credit Facilities will be subject to a 0.50% per annum commitment fee on the undrawn amount of the commitment, commencing at the Effective Time. The Company intends to repay all indebtedness and terminate all commitments to make extensions of credit under its existing $125 million credit facility arranged by Merrill Lynch (the "Old Credit Facility"). Other than as described herein, the Company has no present plans or arrangements to refinance or repay the Credit Facilities. Subordinated Debt. At the Effective Time, Liberty will arrange $37 million of the financing in the form of subordinated debt (the "Subordinated Debt"). The Subordinated Debt will (i) accrue interest at a rate of 12.5% per annum, payable quarterly, (ii) be pre-payable at any time without the payment of any premium or penalty, and (iii) be issued with detachable warrants (the "Subordinated Debt Warrants") to purchase shares of common stock, for $0.01 per share, representing 20% of the fully diluted common stock of the Surviving Corporation; provided that if the Subordinated Debt is repaid in full prior to the third anniversary of the Effective Time, 50% of the Subordinated Debt Warrants shall be canceled without consideration. Scheduled principal payments on the Subordinated Debt shall commence after the tenth anniversary of the Effective Time, or upon the first quarter after the Term Loan Facilities have been repaid in full. -----END PRIVACY-ENHANCED MESSAGE-----