ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Second Step Credit Facilities
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On December 20, 2007, the Company entered into (a) a $1.6 billion Senior Unsecured Interim Loan Agreement (the Credit Agreement), by and among the Company, as borrower, the lenders party thereto (the Lenders), Merrill Lynch Capital Corporation (Merrill Lynch), as administrative agent, JPMorgan Chase Bank, N.A. (JPMCB), as syndication agent, Citicorp North America, Inc. (CNAI) and Bank of America, N.A. (Bank of America), as co-documentation agents, and J.P. Morgan Securities Inc. (JPMorgan), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPFS), Citigroup Global Markets Inc. (CGMI) and Banc of America Securities LLC (BAS), as joint lead arrangers and joint bookrunners, and (b) Increase Joinders (the Increase Joinders) with JPMCB, as administrative agent, and various lenders party thereto, which Increase Joinders provide $2.105 billion of incremental term loans referred to in the Senior Secured Credit Agreement (as defined under Incremental Facility below). The Credit Agreement and Increase Joinders contain the negotiated terms and conditions of the commitments provided for in the second step commitment letter entered into by the Company on April 1, 2007, as amended and restated on April 5, 2007 (the Second Step Commitment Letter), which was attached as Exhibit 10.11 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2007. The Credit Agreement provides for $1.6 billion in senior unsecured bridge loans (the Interim Loan Facility), and the Increase Joinders provide for an additional $2.105 billion in new incremental term loans under
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the Senior Secured Credit Agreement (the Incremental Facility and together with the Interim Loan Facility, the Second Step Credit Facilities). The proceeds from the Second Step Credit Facilities are being used by the Company, among other ways, in connection with the consummation of the Merger, and for general corporate purposes.
The Credit Agreement provides that the Interim Loan Facility will bear interest per annum at a variable rate equal to, at the Companys election, either the applicable base rate plus a margin of 350 basis points or LIBOR plus a margin of 450 basis points; provided, that the aforementioned margins will increase by 50 basis points per annum on the date that is three calendar months following the closing date of the Credit Agreement and by an additional 50 basis points per annum on each successive date falling three calendar months thereafter, subject to specified caps, a portion of which interest may be payable through a PIK feature. If any loans under the Interim Loan Facility remain outstanding on the one-year anniversary of the closing of the Interim Loan Facility, the lenders thereunder will have the option, subject to the terms of the Credit Agreement, at any time and from time to time to exchange such initial loans for senior exchange notes that the Company will issue under a senior indenture, and the maturity date of any initial loans that are not exchanged for senior exchange notes will, unless a bankruptcy event of default has occurred and is continuing on such date, automatically be extended to December 20, 2015 (the Final Maturity Date). The senior exchange notes will also mature on the Final Maturity Date. Holders of the senior exchange notes will have registration rights. Subject to the terms of the Senior Secured Credit Agreement (as defined below), the Interim Loan Facility is prepayable at any time prior to maturity without penalty, other than customary breakage costs with respect to LIBOR loans.
Loans under the Interim Loan Facility will be required to be repaid with the following proceeds, in each case after the obligations under the Senior Secured Credit Agreement (as defined below) have been repaid as required by the Senior Secured Credit Agreement or at the election of the Company, subject to certain exceptions and exclusions set forth in the Credit Agreement: (a) 100% of the net cash proceeds from the issuance or incurrence of certain debt for borrowed money by the Company or any subsidiary; (b) 100% of the net cash proceeds of any equity issuance consummated by the Company; (c) once the aggregate amount of net cash proceeds from all asset sales, share issuances by the Companys subsidiaries and casualty events exceeds $25 million, 100% of such net cash proceeds, unless the Company reinvests the proceeds pursuant to the terms of the Credit Agreement; and (d) 100% of net cash proceeds from certain dispositions. In addition, loans under the Interim Loan Facility will be required to be repaid in whole or in part upon the occurrence of a change of control to any Lender which elects to have its loans repaid in connection with any such event.
The Interim Loan Facility is guaranteed on a senior subordinated basis by certain of the Companys direct and indirect U.S. subsidiaries. The Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default,
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in each case subject to customary and negotiated exceptions and limitations, as applicable.
The Incremental Facility forms part of the Senior Tranche B Term Loan Facility (together with the Incremental Facility, the Tranche B Facility) under the Credit Agreement entered into by the Company on May 17, 2007 (the Senior Secured Credit Agreement), by and among the Company, as borrower, the lenders party thereto, JPMCB, as administrative agent, Merrill Lynch, as syndication agent, CNAI, Bank of America and Barclays Bank plc, as co-documentation agents, and JPMorgan, MLPFS, CGMI and BAS, as joint lead arrangers and joint bookrunners, which was attached as Exhibit 4.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007. The Tranche B Facility bears interest per annum at a variable rate equal to, at the Companys election, either the applicable base rate plus a margin of 200 basis points or LIBOR plus a margin of 300 basis points.
The Tranche B Facility amortizes at a rate of 1.0% per annum (payable quarterly) prior to maturity, on which date the remaining principal amount will be payable in full. Prior to the first anniversary of the closing date of the Senior Secured Credit Agreement, optional prepayments on the Tranche B Facility with the proceeds of a substantially concurrent issuance of loans under any senior secured credit facilities pursuant to the Senior Secured Credit Agreement must be accompanied by a prepayment fee equal to 1% of the aggregate amount of such prepayments if the interest rate spread applicable to such new loans is less than the interest rate applicable to the Tranche B Facility. Except as described in the immediately preceding sentence, the Tranche B Facility is prepayable at any time prior to maturity without penalty, other than customary breakage costs with respect to LIBOR loans.
Loans under the Tranche B Facility are required to be repaid with the following proceeds, subject to certain exceptions and exclusions set forth in the Senior Secured Credit Agreement: (a) 100% of the net cash proceeds from the issuance or incurrence of debt for borrowed money by the Company or any subsidiary (other than debt permitted to be incurred under the negative covenants contained in the Senior Secured Credit Agreement (with certain exclusions)); (b) certain specified percentages of excess cash flow proceeds based on a leveraged-based grid ranging from 50% to 0%; (c) once the aggregate amount of net cash proceeds from all asset sales, share issuances by the Companys subsidiaries and casualty events exceeds $50 million, 100% of such net cash proceeds unless the Company reinvests the proceeds pursuant to the terms of the Senior Secured Credit Agreement; and (d) 100% of net cash proceeds from certain dispositions.
The Tranche B Facility is guaranteed by certain of the Companys direct and indirect U.S. subsidiaries and secured by a pledge of the capital stock of certain specified subsidiaries of the Company. Certain outstanding senior notes of the Company (the Existing Notes) are secured on an equal and ratable basis with the facilities under the Senior Secured Credit Agreement, including the Tranche B Facility, as required by the terms of the indentures governing such Existing Notes.
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The Senior Secured Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default, in each case subject to customary and negotiated exceptions and limitations, as applicable. In addition, the Senior Secured Credit Agreement includes three financial covenants with which the Company must comply, including a maximum total guaranteed leverage ratio, a minimum interest coverage ratio and limitations on capital expenditures.
The foregoing summary of the material terms of the Credit Agreement and the Increase Joinders is qualified in its entirety by the complete terms and conditions of the Credit Agreement and the form of Increase Joinder, respectively, which are attached hereto as Exhibits 4.1 and 4.2, respectively, and incorporated herein by reference. The foregoing summary of the material terms of the Senior Secured Credit Agreement is qualified in its entirety by the complete terms and conditions of the Senior Secured Credit Agreement, which was attached as Exhibit 4.1 to the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007.
Consummation of the Second Step Purchase Transaction
On December 20, 2007, immediately following the consummation of the Merger, EGI-TRB purchased from the Company, pursuant to a previously disclosed Securities Purchase Agreement (the EGI Purchase Agreement) dated April 1, 2007 by and among the Company, EGI-TRB and Samuel Zell, for an aggregate purchase price of $315 million, (1) an unsecured subordinated promissory note in the principal amount of $225 million (the Subordinated Note) and (2) a 15-year warrant (the Warrant) to purchase 43,478,261 shares of Company Common Stock (subject to adjustment), representing approximately 40% of the economic equity interest in the Company following the Merger (on a fully-diluted basis). Thereafter, EGI-TRB assigned a minority interest in the Subordinated Note and Warrant to certain permitted assignees. The Warrant has an initial aggregate exercise price of $500 million, increasing by $10 million per year for the first ten years of the Warrant, for a maximum aggregate exercise price of $600 million (subject to adjustment). The Subordinated Note and the Warrant are attached hereto as Exhibits 10.1 and 10.2, respectively, and incorporated herein by reference.
In addition, immediately prior to the Merger, the Company repaid the $200 million exchangeable promissory note held by EGI-TRB, plus accrued interest thereon.