Fortress Credit Corporation Conditional Commitment Letter and Term Sheet for Credit Facility to Newco LLC (Pegasus Communications)
Summary
Fortress Credit Corporation has issued a conditional commitment to provide Newco LLC, a company formed by Pegasus Communications Corporation, with a $50 million credit facility and up to $10 million in preferred equity. The funds are intended for Newco LLC to acquire the broadcast business assets of Pegasus Broadcast Television, cover transaction costs, and support working capital. The commitment is subject to due diligence, credit review, and other conditions outlined in the attached term sheet. The agreement expires if not accepted by the end of October 22, 2004.
EX-10.1 2 p402610_ex10-1.txt FORTRESS CONDITIONAL COMMITMENT Exhibit 10.1 [LETTERHEAD OF FORTRESS CREDIT CORPORATION] October 22, 2004 Mr. Marshall W. Pagon, Chairman & CEO Mr. Joseph Pooler, CFO Howard E. Verlin, Executive VP of Business Affairs and Capital Markets Pegasus Communications Corporation c/o Pegasus Communications Management Company 225 City Line Avenue - Suite 200 Bala Cynwyd, PA 19004 c/o Mr. William Lisecky Mr. Paul Conway CIBC World Markets 425 Lexington Avenue New York, NY 10017 Gentlemen: Pegasus Communications Corporation ("PCC") has requested that Fortress Credit Corporation (the "Lender") provide Newco LLC, an entity created for purposes of the acquisition, a $50,000,000 credit facility consisting of a $5,000,000 Revolving Credit Facility (the "Revolver"), a $25,000,000 Term Loan A (the "Term Loan A"), a $20,000,000 Term Loan B (the "Term Loan B") (Revolver, Term Loan A, and Term Loan B collectively referred to as the "Credit Facility"), a $10,000,000 Term Loan C (the "Term Loan C"), and up to $10,000,000 of preferred equity in order to (i) enable Newco LLC to acquire all of the assets of Pegasus Broadcast Television ("PBT" or the "Company") and its affiliates that are used in their broadcast business or the equity of such entities (such entities collectively referred to as "PBT") for $75,000,000, (ii) pay fees and expenses related to the transaction, and (iii) fund ongoing working capital. The Lender commits to provide the entire Credit Facility, and will have the right to provide the Term Loan C and $5,000,000 to $10,000,000 of preferred equity, in each case subject to the terms set forth in this letter and the attached Term Sheet. PCC acknowledges that the Term Sheet is intended as an outline only and does not purport to summarize all of the conditions, covenants, representations, warranties and other provisions that would be contained in definitive loan documentation for the Credit Facility. As provided in the Term Sheet, the Lender's commitment to provide the Credit Facility is subject to confirmatory due diligence, credit review of the Company, and our continuing satisfaction with the results thereof. This commitment letter, including the attached Term Sheet, supersedes all prior discussions, agreements, commitments, arrangements, negotiations or understandings, whether oral or written, of the parties with respect thereto and shall be governed by the laws of the State of New York. Should the terms and conditions of the commitment contained herein meet with your approval, please indicate your acceptance by signing and returning a copy of this letter to the Lender along with the Expense Deposit described herein. This commitment letter shall expire at the end of day on October 22, 2004. Very truly yours, FORTRESS CREDIT CORPORATION By: /s/ Kenneth M. Sands --------------------------------- Name: Kenneth M. Sands Title: Managing Director AGREED AND ACCEPTED ON THIS ____ DAY OF OCTOBER, 2004: PEGASUS COMMUNICATIONS CORPORATION By: /s/ Howard E. Verlin ------------------------------ Name: Howard E. Verlin Title: VEP OUTLINE OF PROPOSED TERM LOAN TERMS AND CONDITIONS - -------------------------------------- ----------------------------------------- Borrower: Newco LLC, a newly formed limited liability company (treated as a partnership for tax purposes) and/or its operating subsidiaries (the "Company" or the "Borrower") controlled directly or indirectly by Pegasus Communications Corporation ("PCC") and established for the purpose of acquiring the broadcast business operated by Pegasus Broadcast Television ("PBT") and its affiliates for a cash purchase price of $75 million (the "Transaction"). - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- LENDER: Fortress Credit Corporation and/or its affiliates and assignees. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- AGENT: Fortress Credit Corporation. - -------------------------------------- ----------------------------------------- CREDIT FACILITY: The Credit Facility will consist of the following: Revolver -------- $5,000,000, undrawn at the time of closing. Term Loan A ----------- $25,000,000 at the time of closing. Term Loan B ----------- $20,000,000 at the time of closing. - -------------------------------------- ----------------------------------------- TERM LOAN C: Term Loan C ----------- Fortress shall have the right to provide a $10,000,000 Term Loan C at the time of closing. - -------------------------------------- ----------------------------------------- EQUITY INVESTMENT: In the event that Fortress elects to provide the Term Loan C, Fortress shall have the right to invest $5,000,000 or more up to a maximum of $10,000,000 of preferred equity in Newco LLC, convertible into common equity on a fully equivalent basis as the common equity to be invested by PCC. PCC shall invest, directly or indirectly, a minimum of $13,000,000 of cash common equity in addition to $3,000,000, which shall represent the in-kind value of WFXU to be contributed by PCC, subject to an appraisal satisfactory to us, and on terms and conditions satisfactory to us. If the appraised value of WFXU is less than $3,000,000, PCC has the right to contribute cash for common equity in the amount of the difference between $3,000,000 and the appraised value. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- Fortress' preferred equity shall pay dividends at a rate of ten percent (10%) per annum, which may be accrued at the option of the Company. Notwithstanding the foregoing, PCC shall have the right, exercisable upon notice to Fortress not later than thirty (30) days before Closing, to increase its cash common equity investment by up to an additional $5,000,000, with such additional investment reducing the amount of the Fortress preferred equity investment. In no event, however, will the Fortress preferred equity investment be reduced to less than $5,000,000, in the event Fortress chooses to make such an investment. Within the first twenty-four (24) months after the closing, PCC shall have the right to purchase the amount of Fortress' preferred equity investment in excess of $5,000,000, if any, at a multiple of two (2) times Fortress' cost basis, plus the amount of any accrued dividends. In the event Fortress elects not to provide the Term Loan C, Fortress shall still have the right to invest up to $5,000,000 of common equity on a fully equivalent basis as the common equity to be invested by PCC. PCC shall have no right to purchase this equity from Fortress unless agreed upon. - -------------------------------------- ----------------------------------------- PURPOSE: The proceeds from the Credit Facility, Term Loan C, and any preferred equity will be used to consummate the Transaction, to pay related fees and expenses for the Transaction, and to fund ongoing working capital. - -------------------------------------- ----------------------------------------- UPFRONT FEE: The Company will pay to the Lender an upfront fee equal to the following: Revolver & Term Loan A ---------------------- One and one-half percent (1.5%) of the Revolver and Term Loan A amount at closing. Term Loan B ----------- Two and one-half percent (2.5%) of the Term Loan B amount at closing. Term Loan C ----------- Three percent (3.0%) of the Term Loan C amount at closing. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- INTEREST RATE: REVOLVER -------- Obligations under the Revolver will accrue interest at a rate equal to LIBOR plus four and one-half of one percent (4.5%), subject to a LIBOR floor of two percent (2%) unless there is a Syndication in which case Agent will use best efforts to eliminate the LIBOR floor requirement. TERM LOAN A ----------- Obligations under the Term Loan A will accrue interest at a rate equal to LIBOR plus four and one-half of one percent (4.5%), subject to a LIBOR floor of two percent (2%) unless there is a Syndication in which case Agent will use best efforts to eliminate the LIBOR floor requirement. TERM LOAN B ----------- Obligations under the Term Loan B will accrue interest at a rate equal to 30, 60, or 90-day LIBOR plus the Applicable Margin set forth in the table below, subject to a LIBOR floor of two percent (2%). The Broadcast Cash Flow Ratio ("BCF Ratio") shall be based on the leverage through the Term Loan B, measured as the sum of (a) the outstanding balance of the Revolver loan plus (b) the outstanding principal balance of the Term A loan plus (c) the outstanding principal balance of the Term B loan, divided by the Company's trailing twelve month Broadcast Cash Flow ("Broadcast Cash Flow"). Broadcast Cash Flow shall be calculated in a manner consistent with the presentation on page 51 of the "Confidential Descriptive Memorandum" dated August 2004, but shall be net of Spectrasite and LMA fees, if any. To the extent PCC is successful in negotiating reduced Spectrasite payments or in the event that LMA fees are eliminated as a result of the Company's acquisition of such LMA stations, Broadcast Cash Flow shall be calculated to include the annualized savings. The BCF Ratio will be tested quarterly on a trailing twelve month basis. ---------------------------------------- BCF Ratio Applicable Margin ---------------------------------------- > 9.0x 9.5% ---------------------------------------- > 8.5x or <=9.0x 9.0% ---------------------------------------- > 8.0x or <=8.5x 8.5% ---------------------------------------- > 7.5x or <=8.0x 8.0% ---------------------------------------- <= 7.5x 7.5% ---------------------------------------- - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- The Applicable Margin will be nine and one-half percent (9.5%) for the first six (6) months following closing. Provided no event of default has occurred or is continuing, five percent (5%) of the interest due may be paid-in-kind ("PIK"), and such PIK interest shall be added to the Term Loan B quarterly as principal and accrue interest. Such PIK option shall be determined by the Borrower quarterly, in advance, and in one percent (1%) increments. TERM LOAN C ----------- Obligations under the Term Loan C will accrue interest at a rate equal to sixteen percent (16%). Provided no event of default has occurred or is continuing, all of the sixteen percent (16%) of the interest due may be paid-in-kind ("PIK"), and such PIK interest shall be added to the Term Loan C quarterly as principal and accrue interest. The Borrower may elect to pay a portion of the PIK interest in cash which the Borrower may determine quarterly, in advance, and in one percent (1%) increments. The Term Loan C will be granted warrants for ten percent (10%) of the Borrower's closing date fully-diluted capital stock, nominally priced with standard anti-dilution features to be agreed upon. All common equity holders, including PCC and Fortress, will be diluted on a pro rata basis upon the exercise of such warrants. PCC shall have no right to purchase these warrants from Fortress unless agreed upon. The cash portion of interest on the Credit Facility and any cash portion of interest on the Term Loan C will be payable monthly and calculated on the basis of the actual number of days elapsed based on a 360-day year. Upon the occurrence and during the continuance of an Event of Default, the interest rate will be increased by three percent (3%) per annum. - -------------------------------------- ----------------------------------------- MANDATORY REPAYMENTS: There will be no scheduled amortization of the Term Loan A, Term Loan B, and Term Loan C. The Term Loan A, Term Loan B, and Term Loan C will be repaid semi-annually in an amount equal to seventy-five percent (75%) of excess cash flow, to be applied first to the Term Loan A, then to the Term Loan B, and lastly to the Term Loan C. The 75% of excess cash flow shall be reduced to 50% upon satisfactory performance milestones to be determined. Excess cash flow shall be defined as EBITDA less cash interest less capital expenditures less cash taxes. The required excess cash flow contribution shall not trigger any prepayment penalties. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- VOLUNTARY PREPAYMENTS: The Company shall be entitled to make voluntary prepayments to the Term Loan A, Term Loan B, and Term Loan C, subject to amounts and conditions to be mutually agreed upon - -------------------------------------- ----------------------------------------- AGENT FEE: $100,000 payable per annum in advance each year. - -------------------------------------- ----------------------------------------- CLOSING DATE: On or about February 28, 2005, but in no event later than June 30, 2005 - -------------------------------------- ----------------------------------------- MATURITY DATE: Five (5) years from the Closing Date. - -------------------------------------- ----------------------------------------- EARLY TERMINATION FEE: In the event the Credit Facility or Term Loan C is terminated and repaid in full, an early termination fee shall be payable based on the then outstanding balance of the Credit Facility and Term Loan C as follows: Year 1: 3% Year 2: 2% Thereafter: 1% In the event of a syndication of the Revolver and Term Loan A, Fortress will attempt to eliminate the Early Termination Fee associated with those facilities. - -------------------------------------- ----------------------------------------- COLLATERAL: The Credit Facility and the Term Loan C will be secured by a pledge of the Company's stock or membership interests, a pledge of all equity ownership interests of the Company in all subsidiaries and a first lien on all of tangible and intangible assets of the Company (and its subsidiaries) including, but not be limited to, the Company's (and its subsidiaries') accounts receivables, property, plant, and equipment, and broadcast licenses (to the extent permitted under applicable law) and products and proceeds thereof. - -------------------------------------- ----------------------------------------- COVENANTS: The loan documents will contain affirmative and negative covenants customarily found in loan agreements for similar financings, and the following financial covenants (a) minimum Broadcast Cash Flow, (b) Fixed Charge Coverage, (c) maximum Debt to EBITDA, and (d) maximum Capital Expenditures. The loan documents shall permit the Company to use the cash collateral acquired in the transaction to exercise options with KB Prime Media, LLC ("KB") to acquire television stations, and licenses owned by KB. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- MANAGEMENT FEES/AFFILIATED PCC shall be entitled to a management fee TRANSACTIONS: (the "Management Fee") payable quarterly in an amount equal to the lesser of (i) 2% of the Company's net revenues, or (ii) $500,000 per annum. Management fees shall commence at such time as Broadcast Cash Flow is equal to or greater than $7,000,000 on a trailing twelve month basis. Additionally, it is understood that neither Marshall Pagon or Howard Verlin will receive compensation from Newco other than these management fees. Tax distributions at an agreed-upon assumed tax rate will be allowed to members of the Company based on certain financial performance criteria of the Company to be agreed upon and provided for in the loan documentation. Additionally, the Company will not be obligated to pay for any management services or overhead provided by PCC (other than the Management Fees provided for above). Any such services or overhead currently provided by PCC or its affiliates (other than PBT and its subsidiaries) on behalf of PBT and its subsidiaries shall be incurred directly by the Company. Notwithstanding the foregoing, the loan documents will permit certain specified payments relating to assets procured or expenses incurred by PCC or its affiliates (other than the Company) for the benefit of the Company, such as insurance and employee benefit plans, on terms to be discussed and agreed. - -------------------------------------- ----------------------------------------- ASSIGNMENT/PARTICIPATION: The loan documents will include provisions allowing for assignments and participations in the Credit Facility, Term Loan C, and Fortress' preferred or common equity investment, as are customarily found in loan agreements for similar financings. Additionally, the loan documents will provide for the potential assignment of the Revolver and Term Loan A on a "first-out" basis. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- CONDITIONS The conditions to the closing of the PRECEDENT: Credit Facility and Term Loan C will be those customarily found in loan agreements for similar financings and others appropriate to the specific transaction, including: a) The Lender shall have been provided with such financial and other information regarding the Company as the Lender may reasonably request. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- b) The cash equity investment in the Company from PCC, Fortress, and/or third-party investors, shall be at least $36,000,000 at closing, of which not less than $33,000,000 shall be in cash (with such cash amount reduced by the amount of the Fortress Term Loan C if provided). c) Satisfactory completion of a financial review to be conducted by a third party acceptable to us which reviews the Company's financial systems, accounting controls, and the quality of the Company's historical and projected revenues, Broadcast Cash Flow, EBITDA, and management's proforma adjustments. d) The Lender shall have received and reviewed a third-party appraisal with respect to the Company's television station assets with satisfactory results. The appraised value shall not be less than $75,000,000. WFXU and the KB options shall be included in this appraisal value. e) The corporate and legal structure of the Company shall be acceptable to PCC and the Lender (it being acknowledged that PCC has proposed (but the Lender has not accepted as of the date hereof) a structure for the Transaction in which, on the closing date (i) the subsidiaries of PCC which hold assets used in the broadcast business) will contribute such assets (or entities holding such assets) to the Company (subject to all related obligations) in exchange for an equity interest in Borrower and (ii) $75 million of the equity and debt proceeds described herein will be paid to the liquidating trust established for the benefit of the creditors of PBT and its debtor affiliates); and the Lender shall also be satisfied with the nature and status of all material contracts, securities, labor, tax, litigation, environmental matters and other material matters involving or affecting the Company disclosed to the Lender during the Due Diligence Period (as defined below). Additionally, the Company shall have extended the Fox affiliation agreement for WOLF in Wilkes-Barre Scranton for a minimum of three years on the substantially same terms as the existing WOLF agreement. f) The documentation relating to the Credit Facility and Term Loan C will be consistent with this term sheet and contain such other provisions, representations, warranties, conditions, affirmative and negative covenants and events of default as are customarily found in documents for similar financings and others appropriate to the specific transaction, in each case as are mutually satisfactory to the parties. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- g) The Lender shall have received satisfactory opinions of the Company's independent counsel as to the transactions contemplated hereby and such corporate resolutions, certificates and other documents as the Lender shall reasonably request. h) Payment of all closing costs and fees and all unpaid expenses of the Lender for which the Lender has not previously received an Expense Deposit. i) No material adverse change in the business, financial performance, operations, or in the condition of the assets of PBT and its subsidiaries, taken as a whole, shall have occurred since the date on which the Lender shall have delivered the Exclusivity Extension Letter. j) In the event that Fortress elects to invest preferred or common equity as provided for above, PCC and Fortress shall have negotiated the terms of a mutually satisfactory LLC Agreement addressing governance and other matters relating to the Company and the parties' investment in the Company as are customarily addressed in such agreements. - -------------------------------------- ----------------------------------------- INDEMNITY: Customary and appropriate provisions relating to indemnity and related matters in a form reasonably satisfactory to the Lender. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- GOVERNING LAW AND JURISDICTION: The Company will submit to the non-exclusive jurisdiction and venue of the federal and state courts of the State of New York and shall waive any right to trial by jury. New York law shall govern the Credit Facility Documents. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- EXCLUSIVITY: For a period (the "Due Diligence Period") of approximately three weeks commencing with the start of the Lender's on-site due diligence and ending on November 22, 2004, PCC agrees to deal exclusively with Fortress in connection with the Credit Facility and Term Loan C to finance the Transaction and agrees not to offer or to enter into any agreement comparable with the Credit Facility and/or Term Loan C in connection with the financing of the Transaction with any other person or entity. This exclusivity shall not apply to discussions in connection with any type of unsecured debt and/or equity capital, provided that during such exclusivity period PCC shall not enter into any agreement with unsecured debt and/or equity capital relating to the financing of the Transaction that would preclude Fortress from financing the Transaction on the terms contemplated hereby. - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- CONFIDENTIALITY: This Term Sheet and the financing arrangements described herein are delivered with the understanding that the Lender and the Borrower shall not disclose this letter or the substance of said proposed financing arrangements to any person or entity outside of the Lender's and Borrower's organization, unless this commitment letter has been fully signed by PCC and Fortress, with both parties bound by the terms herein, and only then to those professional advisors who are in a confidential relationship with PCC and require knowledge thereof to perform their duties (such as legal counsel, accountants, and financial advisors), or where disclosure is required by law, or to those parties that Fortress may otherwise approve. Notwithstanding the foregoing, if the Exclusivity Extension Letter is delivered by Fortress as provided below under "Exclusivity Extension", or any Alternate Commitment Letter is executed by PCC and Fortress as provided below under "Alternate Commitment Letter", PCC may provide a copy of such Exclusivity Extension Letter or Alternate Commitment Letter, as the case may be, together with a copy of this Term Sheet, to the Official Committee of Unsecured Creditors appointed in the pending Chapter 11 Cases (collectively, the "Bankruptcy Proceeding") of PBT and its affiliates (collectively, the "Debtors") and file a copy of the same in the Bankruptcy Proceeding. - -------------------------------------- ----------------------------------------- DEPOSIT: In connection with your request for financing, you understand that it will be necessary for us to incur certain expenses for financial, legal, and collateral due diligence. As such, in the expectation of establishing the financing arrangements between us and PCC, we request that PCC deposit with us $175,000 against our due diligence expenses upon the execution of, and as a condition precedent to the effectiveness of, this letter and Term Sheet. This amount, together with any other deposits received by us, will be (i) returned to PCC, less our expenses if our approval of the proposed financing is not obtained, or (ii) returned to PCC, less our expenses if the financing is approved and booked. - -------------------------------------- ----------------------------------------- EXCLUSIVITY EXTENSION: PCC shall continue to abide by the exclusivity requirement described above until the Exclusivity Termination Date if Fortress delivers a letter (the "Exclusivity Extension Letter") to PCC prior to the end of the Due Diligence Period indicating (i) its completion of business due diligence, (ii) its commitment to provide the Credit Facility and Term Loan C on terms and conditions the same in all material respects to those described herein, after giving effect to the elimination of the Conditions Precedent specified in clause (iv) below, (iii) the amount of preferred equity Fortress has elected to invest, and (iv) Fortress' willingness to eliminate paragraph c) and d) and the first sentence of paragraph e) (but Fortress shall continue to have the right to approve the final documentation and any modifications to the structure proposed after delivery of the Exclusivity Extension Letter) from the Conditions Precedent section described above. PCC shall provide an additional $25,000 expense deposit upon delivery of the Exclusivity Extension Letter to cover initial legal expenses. PCC acknowledges that, if PCC enters into a financing arrangement with a lender other than Fortress in breach of this exclusivity requirement and consummates the Transaction using such third party financing, the Lender would be entitled to payment of a Breakup Fee of $2,500,000 as liquidated damages (i.e., PCC shall not be subject to any other claims by the Lender). The term "Exclusivity Termination Date" means the earliest to occur of (a) the end of the Due Diligence Period if Lender fails to deliver the Exclusivity Extension Letter prior to the end of such period, (b) the date on which the closing occurs of a sale to a purchaser other than PCC of a material portion of PBT's broadcast business, (c) the date on which the closing of the Credit Facility and Term Loan C occurs and (d) June 30, 2005. ALTERNATE COMMITMENT LETTER: If the Exclusivity Extension Letter is not provided as described above but both PCC and Fortress execute an alternate commitment letter on other terms and conditions (an "Alternate Commitment Letter"), should PCC thereafter enter into a financing arrangement with a lender other than Fortress with respect to the Transaction and should PCC thereafter breach the terms of such Alternate Commitment Letter and consummate the Transaction using such third party financing, the Company will pay to the Lender upon such consummation a Breakup Fee of three percent (3%) of the total financing commitment provided for in such commitment letter, as liquidated damages (i.e., PCC shall not be subject to any other claims by the Lender). For the avoidance of doubt, this breakup fee shall not apply unless an Alternate Commitment Letter is executed and only under the circumstances described above.
