Document:

Exhibit 10.1

 

	 	 	 	 	 

Exhibit 10.1

AMENDMENT TO LOAN DOCUMENTS

     THIS AMENDMENT to Loan Documents (this “Amendment”) is entered into as of April 24, 2006 (the
“April 2006 Amendment Date”), by and between SILICON VALLEY BANK, a California corporation
(“Bank”), and ENDOCARE, INC., a Delaware corporation (“Borrower”), whose chief executive office is
located at 201 Technology Drive, Irvine, California 92618.

Recitals

     A. Borrower and Bank are parties to that certain Loan and Security Agreement, with an
Effective Date of October 26, 2005 (as amended, restated, supplemented or otherwise modified from
time to time, the “Loan Agreement”).

     B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

     C. Borrower has requested that Bank amend the Loan Agreement to, among other things: (i)
extend the Maturity Date; (ii) modify the Tangible Net Worth financial covenant; (iii) provide for
a new $500,000 fully-reserved Term Loan; and (iv) make certain other revisions to the Loan
Agreement; in each case, all as more fully set forth herein.

     D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the
extent, in accordance with the terms, subject to the conditions and in reliance upon the
representations and warranties set forth below.

Agreement

     Now, Therefore, in consideration of the foregoing recitals and other good and
valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to
be legally bound, the parties hereto agree as follows:

     1. Definitions. Capitalized terms used but not defined in this Amendment shall have the
meanings given to them in the Loan Agreement. The term “April 2006 Amendment Date” as defined in
the preamble to this Amendment hereby is incorporated into the Loan Agreement.

     2. Amendments to Loan Documents.

          2.1 Extension of Maturity Date. The definition of “Maturity Date” set forth in Section 13.1
of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

          “Maturity Date” is February 28, 2007.

 

 

          2.2 Modification of Tangible Net Worth Financial Covenant. Section 6.9(a) of the Loan
Agreement hereby is amended and restated in its entirety to read as follows:

          (a) Tangible Net Worth. A Tangible Net Worth of at least the sum of the
following (the “Required TNW Amount”): (a) the TNW Base Amount (as defined below),
plus (b) 25% of all consideration received after January 31, 2006 for issuances of
Endocare’s equity securities and the principal amount of Subordinated Debt of the
Borrower, plus (c) 25% of the Endocare’s positive consolidated Net Income in each
fiscal quarter ending after January 31, 2006.

As used herein, the term “TNW Base Amount” means, as of any date of determination:

(a) $9,000,000 with respect to the month ending February 28, 2006;

(b) $8,000,000 with respect to the month ending March 31, 2006;

(c) $8,000,000 with respect to the month ending April 30, 2006;

(d) $7,500,000 with respect to the month ending May 31, 2006;

(e) $7,500,000 with respect to the month ending June 30, 2006;

(f) $7,000,000 with respect to the month ending July 31, 2006;

(g) $6,500,000 with respect to the month ending August 31, 2006;

(h) $6,000,000 with respect to the month ending September 30, 2006;

(i) $5,500,000 with respect to the month ending October 31, 2006;

(j) $4,500,000 with respect to the month ending November 30, 2006;

(k) $4,000,000 with respect to the month ending December 31, 2006;

(l) $3,500,000 with respect to the month ending January 31, 2007; and

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(m) $2,500,000 with respect to the month ending February 28, 2007.

Increases in the Required TNW Amount based on consideration received for equity
securities and Subordinated Debt of the Borrower shall be effective as of the end of
the month in which such consideration is received, and shall
continue effective thereafter. Increases in the Required TNW Amount based on Net
Income shall be effective on the last day of the fiscal quarter in which such Net
Income is realized, and shall continue effective thereafter. In no event (except for
step-downs in the TNW Base Amount as expressly set forth in the definition thereof)
shall the Required TNW Amount be decreased from one fiscal period to another
subsequent fiscal period.

          2.3 Addition of New Term Loan. The following hereby is added, in proper numerical order, as a
new Section 2.1.5 of the Loan Agreement:

          2.1.5 Term Loan.

               (a) Availability. Subject to the terms and conditions of this Agreement,
during the period commencing on the April 2006 Amendment Date and ending 6 months
thereafter (the “Term Loan Draw Period”), Bank shall make one or more term loans
(individually and collectively, the “Term Loan”) in an aggregate original principal
amount not to exceed $500,000. Each Term Loan must be in an amount equal to at least
$100,000. Borrower may only request up to three (3) Term Loans hereunder. After
repayment, no Term Loan or portion thereof may be reborrowed.

               (b) Repayment. Term Loans outstanding on the last day of the Term Loan
Draw Period are payable in consecutive equal monthly installments of principal, each
in the amount of 1/30th of the aggregate outstanding Term Loan balance as of the last
day of the Term Loan Draw Period, beginning on the first day of each month following
the last day of the Term Loan Draw Period and ending on the Maturity Date; provided,
however, that on the Maturity Date, all outstanding principal for the Term Loan, plus
all accrued and unpaid interest thereon, plus all other Obligations, shall be due and
payable. Interest on the Term Loans shall accrue from and after the date of funding
and shall be payable, in arrears, in monthly payments of accrued interest, beginning
on the first day of each month following the date in which the applicable Term Loan is
funded and ending on the Maturity Date.

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          2.4 Reservation of Term Loan Against Revolving Advances. Section 2.1.1(a) of the Loan
Agreement hereby is amended and restated in its entirety to read as follows:

          (a) Availability. Subject to the terms and conditions of this Agreement
and to deduction of Reserves, Bank will make Advances to Borrower up to an amount
(“Net Borrowing Availability”) not to exceed the result of: (i) the lesser of (y) the
Maximum Revolver Amount, or (z) amounts available under the Borrowing Base; minus (ii)
the then aggregate outstanding amount of the Term Loan; provided,
however, that Bank shall have no obligation to make, or permit to remain
outstanding, Advances based on
Borrower’s Eligible Inventory (“Inventory Advances”) if and to the extent the
Inventory Advances exceed, or would exceed, 50% of the aggregate outstanding amount of
Advances based on Borrower’s Eligible Accounts. Advances and other Credit Extensions
will be made to each Borrower based on the Eligible Accounts and Eligible Inventory of
such Borrower, subject to the Maximum Revolver Amount for all Advances and other
Credit Extensions to all Borrowers combined. Advances borrowed pursuant to this
Section may be repaid and, subject to the terms and conditions hereof, reborrowed
during the term of this Agreement.

          2.5 Term Loan Interest Rate. Section 2.3(a) of the Loan Agreement hereby is amended and
restated in its entirety to read as follows:

          (a) Interest Rate; Obligations. Subject to Section 2.3(b), the amounts
outstanding under the Revolving Line and the Term Loan shall accrue interest at a per
annum rate equal to the Loan Margin above the Prime Rate, which interest shall be
payable monthly. As used herein, the term “Loan Margin” means, as of any date of
determination: (a) at all times during the period that Phase I is in effect, 1.00
percentage points; and (b) at all times during the period that Phase II is in effect,
1.50 percentage points.

          2.6 Additional Conforming Modifications relative to the Term Loan.

               (a) The defined term “Credit Extension” set forth in Section 13.1 of the Loan Agreement hereby
is amended and restated in its entirety to read as follows:

               “Credit Extension” is any Advance, any Term Loan, or any other extension of
credit by Bank for Borrower’s benefit.

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               (b) The following new defined terms hereby are added, in proper alphabetical order, to Section
13.1 of the Loan Agreement:

     “Term Loan” has the meaning ascribed to such term in Section 2.1.5. hereof.

     “Term Loan Draw Period” has the meaning ascribed to such term in Section
2.1.5. hereof

     3. Limitation of Amendments.

          3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth
herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any
amendment, waiver or modification of any other term or condition of any Loan Document, or (b)
otherwise prejudice any right or remedy which Bank may now have or may have in the future under or
in connection with any Loan Document.

          3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and
all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan
Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full
force and effect.

     4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower
hereby represents and warrants to Bank as follows:

          4.1 Immediately after giving effect to this Amendment (a) the representations and warranties
contained in the Loan Documents are true, accurate and complete in all material respects as of the
date hereof (except to the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such date), and (b) no Event of Default has occurred and
is continuing;

          4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform
its obligations under the Loan Documents, as amended by this Amendment;

          4.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain
true, accurate and complete and have not been amended, supplemented or restated and are and
continue to be in full force and effect;

          4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower
of its obligations under the Loan Documents, as amended by this Amendment, have been duly
authorized;

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          4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower
of its obligations under the Loan Documents, as amended by this Amendment, do not and will not
contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual
restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or
other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d)
the organizational documents of Borrower;

          4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower
of its obligations under the Loan Documents, as amended by this Amendment, do not require any
order, consent, approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by any governmental
or public body or authority, or subdivision thereof, binding on either Borrower, except as
already has been obtained or made; and

          4.7 This Amendment has been duly executed and delivered by Borrower and is the binding
obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating to or affecting
creditors’ rights.

     5. Fee. In consideration for Bank entering into this Amendment, Borrower shall pay Bank a fee
of $16,000 concurrently with the execution and delivery of this Amendment, which fee shall be
non-refundable and in addition to all interest and other fees payable to Bank under the Loan
Documents. Bank is authorized to charge said fee to Borrower’s loan account.

     6. Counterparts. This Amendment may be executed in any number of counterparts and all of such
counterparts taken together shall be deemed to constitute one and the same instrument.

     7. Effectiveness. This Amendment shall be deemed effective upon the due execution and
delivery to Bank of this Amendment by each party hereto.

[Remainder of page intentionally left blank; signature page immediately follows.]

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     In Witness Whereof, the parties hereto have caused this Amendment to be duly executed
and delivered as of the date first written above.

ENDOCARE, INC.

	 	 	 	 
	 	 
	By:  	/s/ Michael R. Rodriguez
 	 
	Name:  	Michael R. Rodriguez 	 
	Title:  	SVP, Finance & CFO 	 
	 

SILICON VALLEY BANK

	 	 	 	 
	 	 
	By:  	/s/ Kurt Miklinski
 	 
	Name:  	Kurt Miklinski 	 
	Title:  	Vice President 	 
	 

7Ex-10.1

 

Exhibit 10.1

EXECUTION COPY

	 	 	 
	Lehman Brothers Commercial Bank
	 	JPMorgan Chase Bank, N.A.
	745 Seventh Avenue
	 	270 Park Avenue
	New York, New York 10019
	 	New York, New York 10017
	 	 	 
	Lehman Brothers Inc.
	 	J.P. Morgan Securities Inc.
	745 Seventh Avenue
	 	270 Park Avenue
	New York, New York 10019
	 	New York, New York 10017

April 24, 2006

COMMITMENT LETTER

PERSONAL AND CONFIDENTIAL

Reynolds American Inc.

401 North Main Street

Winston-Salem, NC 27102-2990

Attention: Daniel A. Fawley, SVP & Treasurer

Ladies and Gentlemen:

     This commitment letter agreement (together with all exhibits and schedules hereto, the
“Commitment Letter”) will confirm the understanding and agreement among Lehman Brothers Commercial
Bank (“LBCB”) and JPMorgan Chase Bank, N.A. (“JPM”), as initial committing lenders (together in
such capacity, the “Initial Lenders”), Lehman
Brothers Inc. (“Lehman Brothers”) and J.P. Morgan
Securities Inc. (“JPMS”), as joint lead arrangers and joint book-runners (in such capacity, the
“Lead Arrangers”), and Reynolds American Inc., a North Carolina corporation (together with each of
its subsidiaries, the “Company”), in connection with the proposed financing for the acquisition of
all of the issued and outstanding capital stock of a newly-formed holding company code-named
“Pinch” (“Target”, and together
with each of its subsidiaries, the “Acquired Business”). We
understand that the Company proposes to sign a Purchase Agreement among Karl J. Breyer, Marshall E.
Eisenberg, Thomas J. Pritzker, G.P. Investor L.L.C., and the Company, dated as of the date hereof
(the “Acquisition Agreement”) to acquire all of the issued and outstanding capital stock of Target
after giving effect to certain preliminary restructuring transactions described in the Acquisition
Agreement (the “Acquisition”). The date on which the Acquisition is consummated is referred to
herein as the “Closing Date.” As used below, the defined term “Company” will mean both the Company
prior to the Acquisition and the Company, together with the Acquired Business, after giving effect
to the Acquisition.

     You have advised us that the total funds needed to finance the Acquisition (excluding fees and
expenses) will be provided from a combination of the following sources:

	 	•	 	up to $1.70 billion of borrowings by the Company under a Tranche B Term Loan
Facility (the “Tranche B Term Loan Facility”);

 

 

	 	•	 	the issuance by the Company of up to $1.80 billion in aggregate principal amount of
senior secured notes (the “Notes”) or, to the extent that the aggregate principal
amount of the Notes issued at the time the Acquisition is consummated is less than
$1.80 billion, up to $1.80 billion of borrowings by the Company under a Capital
Markets Term Loan Facility (the “Capital Markets Term Loan
Facility”) provided that
the aggregate gross amount of the CMTL and the Notes together shall not exceed $1.80
billion; and

Apart from the Acquisition financing, you have requested a $500.0 million Revolving Credit Facility
that, other than for undrawn exposure under existing letters of credit issued under the Company’s
existing credit agreement (which will be reissued or otherwise covered under this new Revolving
Credit Facility) will remain undrawn on the Closing Date and be available for general corporate
purposes thereafter (the “Revolving Credit Facility”; and together with the Tranche B Term Loan
Facility and the Capital Markets Term Loan Facility, the
“Credit Facilities”).

     The approximate amounts of the sources and uses for the aforementioned transactions are set
forth in the Sources and Uses Table annexed as Schedule I to the Summary of Terms of Credit
Facilities attached hereto as Exhibit A (the “Credit
Facilities Term Sheet”).

     1. The Commitments.

          (a) You have requested that the Initial Lenders (collectively with each other entity that
becomes a lender under the Credit Facilities, the
“Lenders”) commit to provide the entire amount of
the Credit Facilities upon the terms and subject to the conditions set forth or referred to in this
Commitment Letter and in the Credit Facilities Term Sheet.

          (b) Based on the foregoing, each Initial Lender, severally and not jointly, is pleased to
confirm by this Commitment Letter its commitment to you (the
“Commitments”) to provide or cause one
or more of its affiliates to provide 50% of the total amount of the Credit Facilities.

          (c) It is agreed that the Lead Arrangers will act as the exclusive joint book-runners and
exclusive joint lead arrangers for the Credit Facilities (in each case with Lehman Brothers
appearing lead left on any offering document) and that JPM will act as the sole and exclusive
Administrative Agent (acting in such role, the
“Administrative Agent”) and LBCB will act as
Syndication Agent (acting in such role, the “Syndication
Agent”) for the Credit Facilities. Each
of the Lead Arrangers, the Administrative Agent and the Syndication Agent will have the rights and
authority customarily given to financial institutions in such roles, but will have no duties other
than those expressly set forth herein. You agree that no other agents, co-agents, arrangers or
book-runners will be appointed, no other titles will be awarded and no compensation (other than
that expressly contemplated by this Commitment Letter, the Fee Letter (defined below) and the
Agency Letter (defined below) will be paid in connection with the Credit Facilities unless you and
we so agree.

          (d) The commitments and agreements of the Initial Lenders and the Lead Arrangers described
herein are subject to:

          (i) there not having occurred since December 31, 2005 (or if such has occurred since December
31, 2005, the Lead Arrangers and Initial Lenders had no knowledge thereof prior to the date hereof)
any event, development or circumstance that has caused or could reasonably be expected to cause a
material adverse condition or material adverse change in or affecting the business, financial
condition, results of operations, assets or liabilities of the Company and its subsidiaries, taken
as a whole, after giving effect to the Acquisition; provided, however, that any adverse event,
development or circumstance attributable to the following shall, in each case, be excluded from
such determination to the extent any

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such event, development or circumstance does not have a disproportionate adverse effect on the
Company and its subsidiaries, taken as a whole, after giving effect to the Acquisition, as compared
to other entities engaged in the industry in which the Company and its subsidiaries, taken as a
whole, after giving effect to the Acquisition, operates in general: (1) any adoption,
implementation, promulgation, repeal, modification, reinterpretation or proposal of any rule,
regulation, ordinance, order, guidance, protocol or any other law of or by any governmental
authority; and (2) any change or development in financial or securities markets or the economy in
general or relating to the industry in which the Company and its subsidiaries, taken as a whole,
after giving effect to the Acquisition, operates in general (including any legal action against any
entities (other than the Company and its affiliates) engaged in the industry in which the Company
and its subsidiaries, taken as a whole, after giving effect to the Acquisition, operates in
general); and

          (ii) the other conditions set forth in the Funding Conditions attached hereto as Exhibit B.

     2. Fees and Expenses. In consideration of the execution and delivery of this
Commitment Letter by the Initial Lenders, you agree to pay the fees and expenses set forth in Annex
A-I to the Credit Facilities Term Sheet and in the Fee Letter (the “Fee Letter”) and the Agency
Letter (the “Agency Letter”), both dated the date hereof as and when payable in accordance with the
terms thereof.

     3. Indemnification.

          (a) The Company hereby agrees to indemnify and hold harmless each of the Lead Arrangers, each
of the Lenders and each of their respective affiliates and all their respective officers,
directors, partners, trustees, employees, shareholders, advisors, agents, attorneys and controlling
persons and each of their respective heirs, successors and assigns
(each, an “Indemnified Person”)
from and against any and all losses, claims, damages and liabilities to which any Indemnified
Person may become subject arising out of or in connection with this Commitment Letter, the Credit
Facilities, the use of the proceeds therefrom, the Acquisition, any of the other transactions
contemplated by this Commitment Letter or the Fee Letter, any other transaction related thereto or
any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of
whether any Indemnified Person is a party thereto, and to reimburse each Indemnified Person
promptly upon demand for all documented (in a reasonable, customary manner), reasonable
out-of-pocket legal and other expenses reasonably incurred by it in connection with investigating,
preparing to defend or defending, or providing evidence in or preparing to serve or serving as a
witness with respect to, any lawsuit, investigation, claim or other proceeding relating to any of
the foregoing (including, without limitation, in connection with the enforcement of the
indemnification obligations set forth herein); provided, however, that no Indemnified Person will
be entitled to indemnity hereunder in respect of any loss, claim, damage, liability or expense to
the extent that it is found by a final, non-appealable judgment of a court of competent
jurisdiction that such loss, claim, damage, liability or expense resulted directly from the gross
negligence, bad faith or willful misconduct of such Indemnified Person. In no event will any
Indemnified Person be liable on any theory of liability for indirect, special or consequential
damages, lost profits or punitive damages as a result of any failure to fund any of the Credit
Facilities contemplated hereby or otherwise in connection with the Credit Facilities. No
Indemnified Person will be liable for any damages arising from the use by unauthorized persons of
information, projections or other materials sent from reasonably secure electronic,
telecommunications or other information transmission systems that are intercepted by unauthorized
persons.

          (b) The Company further agrees that, without the prior written consent of each of the Initial
Lenders and Lead Arrangers, which consents will not be unreasonably withheld, it will not enter
into any settlement of a lawsuit, claim or other proceeding arising out of this Commitment Letter
or the transactions contemplated by this Commitment Letter unless such settlement includes an
explicit and

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unconditional release from the party bringing such lawsuit, claim or other proceeding of all
Indemnified Persons in form and substance satisfactory to such Indemnified Persons from all
liability on claims that are the subject matter of such lawsuit, claim or other proceeding and does
not include any statement as to or any admission of fault, culpability or a failure to act by or on
behalf of any Indemnified Person. The Company shall not be liable for any settlement effected
without its written consent, which consent will not be unreasonably withheld or delayed.

          (c) In case any action or proceeding is instituted involving any Indemnified Person for which
indemnification is to be sought hereunder by such Indemnified Person, then such Indemnified Person
will promptly notify the Company in writing of the commencement of any action or proceeding;
provided, however, that the failure so to notify the Company will not relieve the Company from any
liability that it may have to such Indemnified Person pursuant to this Section 3 or from any
liability that it may have to such Indemnified Person other than pursuant to this Section 3, except
to the extent the Company has been materially prejudiced by such failure. Notwithstanding the
above, following such notification, the Company may elect in writing to assume the defense of such
action or proceeding, and, upon such election, it will not be liable for any legal costs
subsequently incurred by such Indemnified Person (other than reasonable costs of investigation and
providing evidence) in connection therewith, unless (i) it has failed to provide counsel reasonably
satisfactory to such Indemnified Person in a timely manner, (ii) either the Indemnified Person or
counsel provided by the Company reasonably determines that its representation of such Indemnified
Person would present it with a conflict of interest or (iii) the Indemnified Person reasonably
determines that there may be legal defenses available to it which are different from or in addition
to those available to the Company. In connection with any one action or proceeding, the Company
will not be responsible for the fees and expenses of more than one separate law firm (in addition
to local counsel) for all Indemnified Persons.

          (d) The Company, the Initial Lenders and the Lead Arrangers agree that if any indemnification
or reimbursement sought pursuant to this Section 3 is judicially determined to be unavailable for a
reason other than the gross negligence, bad faith or willful misconduct of such Indemnified Person,
then the Company will contribute to the amount paid or payable by any of the Initial Lenders or
Lead Arrangers, as the case may be, as a result of such losses, claims, damages, liabilities and
expenses for which such indemnification or reimbursement is held unavailable (i) in such proportion
as is appropriate to reflect the relative benefits to the Company, on the one hand, and each of the
Initial Lenders and Lead Arrangers, on the other hand, in connection with the transactions to which
such indemnification or reimbursement relates, or (ii) if the allocation provided by clause (i)
above is judicially determined not to be permitted, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but also the relative faults of the
Company, on the one hand, and each of the Initial Lenders and Lead Arrangers, on the other hand, as
well as any other equitable considerations.

     4. Expiration of Commitments. The Commitments will expire at 11:59 p.m., New York
City time, on April 24, 2006 unless on or prior to such time you have executed and returned to the
Lead Arrangers a copy of this Commitment Letter and the Fee Letter. If you do so execute and
deliver to the Lead Arrangers this Commitment Letter and the Fee Letter, the Initial Lenders agree
to hold their Commitments available for you until the earliest of (i) the termination of the
Acquisition Agreement, (ii) the consummation of the Acquisition with or without the funding of the
Credit Facilities and (iii) 5:00 p.m., New York City time, on September 24, 2006. The Commitments
will terminate on the Closing Date, and you agree to rely exclusively on your rights and the
commitments set forth in the Credit Documentation in respect of all loans and extensions of credit
to be made after the Closing Date.

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     5. Confidentiality.

          (a) This Commitment Letter and the terms and conditions contained herein and therein may not
be disclosed by the Company to any person or entity (other than the Acquired Business and such of
your and their agents and advisors as need to know and agree to be bound by the provisions of this
paragraph and as required by law) without the prior written consent of each of the Initial Lenders
and Lead Arrangers, except to the extent required by applicable law or under the rules of the New
York Stock Exchange. The Fee Letter and the terms and conditions contained therein may not be
disclosed by the Company to any person or entity (other than such of your agents and advisors as
need to know and agree to be bound by the provisions of this paragraph and as required by law)
without the prior written consent of each of the Initial Lenders and Lead Arrangers.

          (b) You acknowledge that the Initial Lenders, the Lead Arrangers and their respective
affiliates may be providing debt financing, equity capital or other services (including financial
advisory services) to other companies in respect of which you may have conflicting interests
regarding the transactions described herein and otherwise. None of the Initial Lenders, the Lead
Arrangers and their respective affiliates will use confidential information obtained from you by
virtue of the transactions contemplated by this Commitment Letter or their other relationships with
you in connection with the performance by the Initial Lenders, the Lead Arrangers and their
respective affiliates of services for other companies, and none of the Initial Lenders, the Lead
Arrangers and their respective affiliates will furnish any such information to other companies.
You also acknowledge that none of the Initial Lenders, the Lead Arrangers and their respective
affiliates have any obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained from other companies.

     6. Assignment and Syndication.

          (a) The parties hereto agree that the Lead Arrangers will have the right to syndicate the
Credit Facilities and the Commitments to one or more groups of financial institutions or other
investors, identified either by you or us and which are reasonably acceptable to you and us.
Subject to the immediately preceding sentence, the Lead Arrangers will have the right to manage all
aspects of any such syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, the acceptance of commitments, the amounts offered,
the amounts allocated and the allocation of compensation provided. The Commitments are subject to
the Company using all commercially reasonable efforts to assist the Lead Arrangers in such
syndication process by: (i) ensuring that the syndication efforts benefit from the existing lending
relationships of the Company; (ii) arranging for direct contact between senior management and other
representatives and advisors of (A) the Company and (B) to the extent the Company is entitled to
arrange such access pursuant to the terms of the Acquisition Agreement (if at all), the Acquired
Business; and (iii) as more particularly set forth in Sections 6(b) and 6(c), assisting in the
preparation of materials to be used in connection with the syndication (collectively with the
Credit Facilities Term Sheet, the “Information Materials”); and (iv) hosting, with the Initial
Lenders and Lead Arrangers, one or more meetings of prospective Lenders, and, in connection with
any such Lender meeting, consulting with the Lead Arrangers with respect to the presentations to be
made at such meeting, and making available appropriate officers and representatives to rehearse
such presentations prior to such meetings, as reasonably requested by the Lead Arrangers.

          (b) You agree to assist us in preparing the Information Materials, including a Confidential
Information Memorandum, for distribution to prospective Lenders. You also agree to assist us in
preparing an additional version of the Information Materials (the “Public-Side Version”) to be used
by prospective Lenders’ public-side employees and representatives (“Public-Siders”) who do not wish
to receive material non-public information (within the meaning of United States federal securities
laws) with

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respect to the Company, its affiliates and any of their respective securities (“MNPI”) and who
may be engaged in investment and other market-related activities with respect to the Company’s or
its affiliates’ securities or loans. Before distribution of any Information Materials, you agree
to execute and deliver to us (i) a letter in which you authorize distribution of the Information
Materials to a prospective Lender’s employees willing to receive MNPI (“Private-Siders”) and (ii) a
separate letter in which you authorize distribution of the Public-Side Version to Public-Siders and
represent that no MNPI is contained therein. The Company agrees that the following documents may
be distributed to both Private-Siders and Public-Siders, unless the Company advises the Lead
Arrangers in writing (including by e-mail) within a reasonable time prior to their intended
distribution that such materials should be distributed only to Private-Siders: (i) administrative
materials prepared by the Lead Arrangers for prospective Lenders (such as a lender meeting
invitation, bank allocation, if any, and funding and closing memoranda), (ii) notification of
changes in the terms of the Credit Facilities and (iii) other materials intended for prospective
Lenders after the initial distribution of Information Materials. If you advise us that any of the
foregoing should be distributed only to Private-Siders, then Public-Siders will not receive such
materials without further discussions with you. Drafts of definitive documentation with respect to
the Credit Facilities will be distributed only to Private-Siders, unless the Company hereafter
authorizes their distribution to the Public-Siders in writing
(including by

e-mail).

          (c) To assist the Lead Arrangers in their syndication efforts, you agree to promptly prepare
and provide the Lead Arrangers such information with respect to the Company, the Acquired Business,
the Acquisition and the other transactions contemplated hereby as they may reasonably request,
including all financial information and projections (including information and projections prepared
on a pro forma basis) as they may reasonably request, including a business plan for fiscal 2006
through fiscal 2010 and a written analysis of the business and prospects of the Company and its
subsidiaries for such period, all in form and substance reasonably satisfactory to the Lead
Arrangers (the “Projections”). You hereby represent and covenant that (i) all information other
than the Projections (the “Information”) that has been or will be made available to the Lead
Arrangers by you or any of your representatives in connection with the financing transactions
contemplated hereby is or will be, when furnished, when taken as a whole, complete and correct in
all material respects and does not or will not, when furnished, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which such statements are
made and (ii) the Projections that have been or will be made available to the Lead Arrangers by you
or any of your representatives have been or will be prepared in good faith based upon assumptions
believed by the Company to be reasonable at the time made (it being understood that such
Projections as to future events are not to be viewed as facts and that actual results during the
period or periods covered by the Projections may differ from projected results and that the
difference may be material). You understand that in arranging and syndicating the Credit
Facilities and the Commitments we may use and rely on the Information and Projections without
independent verification thereof and that you will promptly notify us of any changes in
circumstances that could reasonably be expected to call into question the continued reasonableness
of any assumption underlying the Projections.

          (d) To ensure an orderly and effective syndication of the Credit Facilities and the
Commitments, you agree that, from the date hereof until the earlier of the termination of the
syndication as determined by the Lead Arrangers and 90 days following the Closing Date, you will
not, and will not permit any of your affiliates 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 facility or debt security of the
Company or any of its respective subsidiaries (other than the syndication of the Credit Facilities
and the offering of the Notes, in each case, as contemplated hereby, and the offering by the
Company of debt securities pursuant to an exchange offer (the
“Exchange Offer”) for all of R.J.
Reynolds Tobacco Holdings, Inc.’s existing debt securities (the

6

 

“Existing Notes")), including any renewals or refinancings of any existing debt facility,
without the prior written consent of the Lead Arrangers.

     7. Survival. The provisions of Sections 2 (Fees and Expenses), 3 (Indemnification), 5
(Confidentiality), 6 (Assignment and Syndication), and 8 (Choice of Law; Jurisdiction; Waivers) of
this Commitment Letter will survive the expiration or termination of this Commitment Letter;
provided, however, upon execution of the Credit Documentation only Sections 2 (Fees and Expenses),
5 (Confidentiality) (as to the Fee Letter), and 8 (Choice of Law; Jurisdiction; Waivers) will
survive the expiration or termination of this Commitment Letter.

     8. Choice of Law; Jurisdiction; Waivers.

          (a) This Commitment Letter will be governed by and construed in accordance with the laws of
the State of New York. The Company hereby irrevocably submits to the non-exclusive jurisdiction of
any New York State court or Federal court sitting in the County of New York in respect of any suit,
action or proceeding arising out of or relating to the provisions of this Commitment Letter or the
Fee Letter and irrevocably agrees that all claims in respect of any such suit, action or proceeding
may be heard and determined in any such court. The parties hereto hereby waive any objection that
they may now or hereafter have to the laying of venue of any such suit, action or proceeding
brought in any such court, and any claim that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. The parties hereto hereby waive, to the
fullest extent permitted by applicable law, any right to trial by jury with respect to any action
or proceeding arising out of or relating to this Commitment Letter or the Fee Letter.

          (b) Except as provided in Section 9(b) hereof, no Lender will be liable in any respect for any
of the obligations or liabilities of any other Lender under this letter or arising from or relating
to the transactions contemplated hereby.

     9. Miscellaneous.

          (a) This Commitment Letter may be executed in one or more counterparts, each of which will be
deemed an original, but all of which when taken together will constitute one and the same
instrument. Delivery of an executed signature page of this Commitment Letter by facsimile
transmission will be effective as delivery of a manually executed counterpart hereof. This
Commitment Letter may not be amended or waived except by an instrument in writing signed by the
Initial Lenders, the Lead Arrangers and you.

          (b) The Company may not assign any of its rights, or be relieved of any of its obligations,
without the prior written consent of each of the Lenders (and any purported assignment without such
consent will be null and void). In connection with any syndication of all or a portion of the
Commitments in accordance with Section 6 above, the rights and obligations of each Lender hereunder
may be assigned, in whole or in part, and upon such assignment and assumption by the assignee of
all obligations of such Lender in respect of the portion of the Commitments so assigned on the
terms set forth in this Commitment Letter or on the terms set forth in the definitive financing
documents, such Lender will be relieved and novated hereunder from its obligations with respect to
such portion of the Commitments; provided, however, in connection with the initial syndication of
the Commitments as contemplated in Section 6 hereof, if an assignee Lender defaults in its
commitment to fund on the Closing Date, the Initial Lenders agree to fund such defaulting Lender’s
commitment.

          (c) This Commitment Letter and the attached Exhibits and Annexes set forth the entire
understanding of the parties hereto as to the scope of the Commitments and the obligations of the

7

 

Lenders and the Lead Arrangers hereunder. This Commitment Letter supersedes all prior
understandings and proposals, whether written or oral, between any of the Lenders and you relating
to any financing or the transactions contemplated hereby. This Commitment Letter is in addition to
the agreements of the parties contained in the Fee Letter.

          (d) This Commitment Letter has been and is made solely for the benefit of the parties
signatory hereto, the Indemnified Persons, and their respective heirs, successors and assigns, and
nothing in this Commitment Letter, expressed or implied, is intended to confer or does confer on
any other person or entity any rights or remedies under or by reason of this Commitment Letter or
the agreements of the parties contained herein.

          (e) The Company acknowledges that it has engaged one or more investment banks satisfactory to
the Lead Arrangers to publicly sell or privately place the Notes (or in lieu thereof, any debt,
convertible debt or equity securities issued by the Company or any of its affiliates, the proceeds
of which will be applied in full or in part to finance any portion of the purchase price to be paid
in connection with the Acquisition or to refinance Capital Markets Term Loans or any other
indebtedness (other than the Tranche B Term Loans) or equity securities incurred or issued in
connection with the Acquisition).

          (f) You acknowledge that the Lenders and the Lead Arrangers may be (or may be affiliated with)
full service financial firms and as such from time to time may effect transactions for their own
account or the account of customers, and hold long or short positions in debt or equity securities
or loans of companies that may be the subject of the transactions contemplated by this Commitment
Letter. You hereby waive and release, to the fullest extent permitted by law, any claims you have
with respect to any conflict of interest arising from such transactions, activities, investments or
holdings, or arising from the failure of the Lead Arrangers or one or more Lenders or any of their
respective affiliates to bring such transactions, activities, investments or holdings to your
attention.

          (g) The Company agrees that the Lead Arrangers have the right to place advertisements in
financial and other newspapers and journals at their own expense describing their services to the
Company; provided that the Lead Arrangers will submit a copy of any such advertisements to the
Company for its approval, which approval will not be unreasonably withheld.

          (h) You acknowledge that in connection with the financing transactions contemplated under this
Commitment Letter: (i) the Initial Lenders, the Lead Arrangers and their respective affiliates have
acted at arm’s length from, are not agents of or advisors to, and owe no fiduciary duties to, you
or any other person, (ii) the Initial Lenders, the Lead Arrangers and their respective affiliates
owe you only those contractual duties and obligations set forth in this Commitment Letter and any
definitive financing documentation entered into in connection with the Credit Facilities or the
Notes and (iii) the Initial Lenders, the Lead Arrangers and their respective affiliates may have
interests that differ from your interests. You agree you will not claim that the Initial Lenders,
the Lead Arrangers and their respective affiliates, or any of them, have or has rendered advisory
services of any nature or respect, or owed or owes a fiduciary or similar duty to you, in
connection with the financing transactions under this Commitment Letter.

          (i) You agree to provide us, prior to the Closing Date, with all documentation and other
information required by bank regulatory authorities under applicable “know your customer” and
anti-money laundering rules and regulations, including, without limitation, the U.S.A. Patriot
Act.

8

 

     If you are in agreement with the foregoing, kindly sign and return to us the enclosed copy of
this Commitment Letter.

	 	 	 	 	 	 	 
	 	 	 	 	Very truly yours,
	 
	 	 	 	 	 	 
	 	 	 	 	LEHMAN BROTHERS COMMERCIAL BANK
	 
	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ George James
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: George James

Title: Chief Credit Officer
	 
	 	 	 	 	 	 
	 	 	 	 	LEHMAN BROTHERS INC.
	 

	 	 	 		 	 
	 

	 	 	 	By:	 	/s/ Laurie Perper
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: Laurie Perper

Title: Senior Vice President
	 
	 	 	 	 	 	 
	 	 	 	 	JPMORGAN CHASE BANK, N.A.
	 
	 	 	 	 	 	 
	 

	 	 	 		 	 
	 

	 	 	 	By:	 	/s/ Randolph Cates
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: Randolph Cates

Title: Vice President
	 
	 	 	 	 	 	 
	 	 	 	 	J.P. MORGAN SECURITIES INC.
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	By:	 	/s/ Jennifer S Sheer
	 

	 	 	 	 	 	 
	 

	 	 	 	 	 	Name: Jennifer S. Sheer

Title: Vice President
	 
	 	 	 	 	 	 
	Accepted and agreed to as of the

date first above written:	 	 	 	 
	 
	 	 	 	 	 	 
	REYNOLDS AMERICAN INC.	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Daniel Fawley	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name: Daniel A. Fawley

Title: SVP & Treasurer	 	 	 	 

Commitment Letter

9

 

EXHIBIT A TO COMMITMENT LETTER

SUMMARY OF TERMS OF CREDIT FACILITIES

     Set forth below is a summary of certain of the terms of the Credit Facilities and the
documentation related thereto. Capitalized terms used and not otherwise defined herein have the
meanings set forth in the Commitment Letter to which this Summary of Terms is attached and of which
it forms a part.

	 	 	 	 	 
	I.

	 	Parties	 	 
	 
	 	 	 	 
	 

	 	Borrower
	 	Reynolds American Inc. (the
“Company”).
	 
	 	 	 	 
	 

	 	Guarantors
	 	Each of the guarantors of the Company’s obligations under its existing credit
agreement (the “Existing Credit Agreement”) (other than RJR Packaging, LLC),
Pinch (“Target”), each of Target’s direct and indirect domestic subsidiaries
(subject to materiality limitations substantially similar to those in the
Existing Credit Agreement), Lane Limited (“Lane”), Santa Fe Natural Tobacco
Company, Inc. (“Santa Fe”) and all future direct and indirect material
domestic subsidiaries of the Company (subject to materiality limitations
substantially similar to those in the Existing Credit Agreement) (the
“Guarantors”; the Company and the Guarantors,
collectively, the “Credit
Parties”).
	 
	 	 	 	 
	 

	 	Lead Arrangers

and Joint Book-Runners
	 	

Lehman Brothers Inc. and J.P. Morgan Securities Inc. (in such capacity, the
“Lead Arrangers”), with Lehman Brothers appearing lead left on any offering
document.
	 
	 	 	 	 
	 

	 	Syndication Agent
	 	Lehman Brothers Commercial Bank (in
such capacity, the “Syndication Agent”).
	 
	 	 	 	 
	 

	 	Administrative Agent
	 	JPMorgan Chase Bank N.A. (in such
capacity, the “Administrative Agent”).
	 
	 	 	 	 
	 

	 	Senior Lenders
	 	A syndicate of banks, financial institutions and other entities arranged by
the Lead Arrangers pursuant to the Commitment Letter (collectively, the
“Senior Lenders”).
	 
	 	 	 	 
	II.

	 	Types and Amounts of Credit Facilities	 	 
	 
	 	 	 	 
	 

	 	Senior Term Loan Facilities
	 	Senior Term Loan Facilities (the
“Senior Term Loan Facilities”) in an
aggregate principal amount of up to $3.50 billion (the loans thereunder, the
“Senior Term Loans”) as follows:
	 
	 	 	 	 
	 
	 	Tranche
B Term Loan Facility

	 	A six-year term loan facility (the
“Tranche B Term Loan Facility”) in an
aggregate principal amount of up to

A-1

 

	 	 	 	 	 
	 

	 	 	 	$1.70 billion (the loans thereunder, the
“Tranche B Term Loans”). The Tranche B Term Loans will be repayable ratably on
a quarterly basis in aggregate annual amounts equal to 1% of the original
aggregate principal amount of Tranche B Term Loans, with the balance payable
on the maturity date.
	 
	 	 	 	 
	 

	 	Capital Markets Term Loan

Facility

	 	

A 364-day term loan facility (the “Capital Markets Term Loan Facility”) in an
aggregate principal amount of up to $1.80 billion (the loans thereunder, the
“Capital Markets Term Loans”). The Capital Markets Term Loans will be
repayable in full on the maturity date.
	 
	 	 	 	 
	 

	 	Availability

	 	The Tranche B Term Loans will be made in a single drawing on the Closing
Date. Amounts will be available to be drawn under the Capital Markets Term
Loan Facility in a single drawing on the Closing Date only to the extent that
the aggregate principal amount of the Notes issued on or prior to the Closing
Date is less than $1.80 billion, such that the aggregate gross amount of the
Capital Markets Term Loans and the Notes equals $1.80 billion.
	 
	 	 	 	 
	 

	 	Purpose

	 	The proceeds of the Tranche B Term Loans and, if funded, the Capital Markets
Term Loans will be used to finance, in part, the Acquisition.
	 
	 	 	 	 
	 

	 	Revolving Credit Facility
	 	Five-year revolving credit facility
(the “Revolving Credit Facility”; together
with the Senior Term Loan Facilities, the “Credit Facilities”) in an aggregate
principal amount equal to $500.0 million (the loans thereunder,
the “Revolving
Credit Loans”).
	 
	 	 	 	 
	 

	 	Availability

	 	The Revolving Credit Facility will be available on a revolving basis during
the period commencing on the day after the Closing Date and ending on the
fifth anniversary of the Closing Date (the “Revolving Credit Termination
Date”).
	 
	 	 	 	 
	 

	 	Letters of Credit

	 	The Revolving Credit Facility will be available for the issuance of letters of
credit denominated in US Dollars, Euro or Pounds Sterling (the
“Letters of
Credit”) by one or more Senior Lenders to be selected in the syndication
process (each such Senior Lender in such capacity, an “Issuing Senior
Lender”). The face amount of any outstanding Letters of Credit will reduce
availability under the Revolving Credit Facility on a dollar-for-dollar
basis. Except as provided in the immediately following sentence, no Letter of
Credit will have an expiration date after the fifth business day preceding the
Revolving Credit Termination Date (the “L/C Termination Date”). Each Issuing
Senior Lender may in its sole discretion permit any Letter of Credit to have
an expiration date after the L/C Termination Date, provided that (i) the
Company shall cash collateralize any and all Letters of Credit having an
expiration date

A-2

 

	 	 	 	 	 
	 

	 	 	 	after the L/C Termination Date at any time such Issuing Senior
Lender shall so request in its sole discretion (and, in any event, at least 91
days prior to the L/C Termination Date) and (ii) the aggregate stated amount
of Letters of Credit having expiration dates beyond the L/C Termination Date
may at no time exceed $15.0 million.
	 
	 	 	 	 
	 

	 	 	 	Drawings under any Letter of Credit will be reimbursed by the Company (whether
with its own funds or with the proceeds of Revolving Credit Loans) on the next
business day. Each Senior Lender under the Revolving Credit Facility will
acquire an irrevocable and unconditional pro rata participation in each Letter
of Credit.
	 
	 	 	 	 
	 

	 	Swing Line Loans

	 	A portion of the Revolving Credit Facility not in excess of $75.0 million will
be available for swing line loans (the “Swing Line Loans”) from the
Administrative Agent (in such capacity, the “Swing Line Senior Lender”) on
same-day notice. Any such Swing Line Loans will reduce availability under the
Revolving Credit Facility on a dollar-for-dollar basis. Each Senior Lender
under the Revolving Credit Facility will acquire an irrevocable and
unconditional pro rata participation in each Swing Line Loan.
	 
	 	 	 	 
	 

	 	Maturity

	 	The Revolving Credit Termination Date.
	 
	 	 	 	 
	 

	 	Purpose

	 	The proceeds of the Revolving Credit Loans will be used for general corporate
purposes of the Company and its subsidiaries.
	 
	 	 	 	 
	 

	 	Revolving Credit Facility

Accordion
	 	

The Revolving Credit Facility will provide for the ability of the Company to
obtain commitments for and to borrow up to $250.0 million of additional
revolving loans (but in no event shall the total amount available under the
Revolving Credit Facility exceed $750.0 million) under the Revolving Credit
Facility (but, for the avoidance of doubt, the definitive financing
documentation will not itself provide any such commitments). Any and all of
such additional revolving loans shall be deemed for all purposes to be
Revolving Loans under the Revolving Credit Facility and shall be secured
ratably with the other loans under the Credit Facilities.

A-3

 

	 	 	 	 	 
	III.

	 	Certain Payment Provisions	 	 
	 
	 	 	 	 
	 

	 	Fees and Interest Rates
	 	As set forth on Annex A-I.
	 
	 	 	 	 
	 

	 	Optional Prepayments and

Commitment Reductions
	 	

Loans may be prepaid in minimum amounts not less than $10.0 million. Optional
prepayments of the Senior Term Loans will be applied, first, to the prepayment
of the Capital Markets Term Loans and, second, to the prepayment of Tranche B
Term Loans. Each such prepayment of Tranche B Term Loans will be applied,
first, to the four immediately succeeding scheduled repayments of principal
and, second, to the remaining installments thereof ratably in accordance with
the then outstanding amounts thereof. Amounts so prepaid may not be
reborrowed.
	 
	 	 	 	 
	 

	 	Mandatory Prepayments and

Commitment Reductions
	 	
100% of the net proceeds of any sale or issuance of equity (other than
issuances pursuant to employee stock plans) after the Closing Date by the
Company will be applied to prepay the Capital Markets Term Loans.
	 
	 	 	 	 
	 

	 	 	 	The following amounts will be
applied, first, to the prepayment of the Capital
Markets Term Loans and, second, to prepayment of Tranche B Term Loans:
	 
	 	 	 	 
	 
	 	 	 	(i) 100% of the net proceeds of any issuance or incurrence of indebtedness (other than certain indebtedness (to be agreed upon) otherwise
permitted under the Credit Documentation (as defined below)) after
the Closing Date by the Company or any of its subsidiaries; and

	 
	 	 	 	 
	 

	 	 	 	(ii) 50% (subject to step downs to be agreed upon) of excess cash flow (to be defined in a mutually satisfactory manner, but specifically
permitting continuation of the Company’s current dividend policy)
for each fiscal year of the Company (commencing with the fiscal year
2007).

	 
	 	 	 	 
	 

	 	 	 	Each such prepayment of Tranche B Term Loans will be applied to the then
remaining scheduled installments thereof ratably in accordance with the then
outstanding amounts thereof. Once repaid, Senior Term Loans may not be
reborrowed.
	 
	 	 	 	 
	 

	 	 	 	The Revolving Credit Loans (including Swing Line Loans) will be prepaid and
the Letters of Credit will be cash collateralized or replaced to the extent
such extensions of credit exceed the amount of the Revolving Credit Facility.
	 
	 	 	 	 
	IV.

	 	Collateral
	 	The obligations of each Credit Party in respect of the Credit Facilities and
in respect of hedging agreements,

A-4

 

	 	 	 	 	 
	 

	 	 	 	cash management arrangements and corporate
purchasing card arrangements provided by and owing to Lenders or affiliates of
the Lenders or by the Lead Arrangers or affiliates of the Lead Arrangers (the
“Secured Obligations”) will be secured by a perfected security interest
(subject to permitted liens) in all of its tangible and intangible assets
(including, without limitation, intellectual property, real property,
licenses, permits, the capital stock of its direct and indirect material
domestic subsidiaries and 65% of the voting stock and 100% of the non-voting
stock of its material first-tier foreign subsidiaries); provided that (i) the
Secured Obligations of Sante Fe and Lane shall be secured only by collateral
in which a security interest may be perfected by the filing of UCC financing
statements and (ii) collateral comprised of capital stock shall be limited to
capital stock issued by Target, Target’s direct and indirect material
subsidiaries, R.J. Reynolds Tobacco Holdings, Inc., R.J. Reynolds Tobacco
Company, Santa Fe and Lane (collectively, the “Collateral”). The Designated
Collateral (to be defined in the new Security Agreement that will secure the
Secured Obligations, which definition will exclude the stock of the Company’s
subsidiaries other than R.J. Reynolds Tobacco Company) will secure the Notes
and the Existing Notes equally and ratably, on a first-priority basis, with
the Secured Obligations, in each case to the extent expressly required in the
indentures governing the Notes and the Existing Notes. All other Collateral
will secure the Secured Obligations on a first-priority basis, subject to
exceptions for permitted liens to be agreed. The Lead Arrangers may
determine, in their sole discretion, that the costs of obtaining such a
security interest are excessive in relation to the value of the security to be
afforded thereby and may forego the same. The collateral requirements will
terminate at such time as (i) the Senior Term Loans have been paid in full and
all commitments in respect thereof shall have terminated and (ii) the Company
has obtained investment grade corporate ratings (with not worse than stable
outlooks) from each of Moody’s Investor Service, Inc. and Standard & Poor’s
Ratings Group; provided that the collateral requirements shall be fully
reinstated in the event that the Company fails to maintain investment grade
corporate ratings.
	 
	 	 	 	 
	V.

	 	Certain Conditions	 	 
	 
	 	 	 	 
	 

	 	Initial Conditions
	 	The availability of the Credit Facilities is subject to the conditions set
forth on Exhibit B to the Commitment Letter and the other conditions specified
in the Commitment Letter.

A-5

 

	 	 	 	 	 
	 

	 	On-Going Conditions
	 	The making of each extension of credit will be conditioned upon (i) the
accuracy of all representations and warranties (in all material respects in
the case of the representations and warranties that are not otherwise
qualified by materiality) in the definitive financing documentation with
respect to the Credit Facilities (the “Credit
Documentation”) and (ii) there
being no default or event of default in existence at the time of, or after
giving effect to the making of, such extension of credit.
	 
	 	 	 	 
	VI.

	 	Certain Documentation Matters
	 	The Credit Documentation will contain the following representations,
warranties, covenants and events of default:
	 
	 	 	 	 
	 

	 	Representations and Warranties
	 	Substantially similar to those in the Existing Credit Agreement (subject to
such changes as may be appropriate, in the reasonable discretion of the Lead
Arrangers, in light of (i) the Acquisition and the nature of the Acquired
Business, (ii) the financing transactions contemplated by the Commitment
Letter and (iii) the Exchange Offer).
	 
	 	 	 	 
	 

	 	Affirmative Covenants
	 	Substantially similar to those in the Existing Credit Agreement (subject to
such changes as may be appropriate, in the reasonable discretion of the Lead
Arrangers, in light of (i) the Acquisition and the nature of the Acquired
Business, (ii) the financing transactions contemplated by the Commitment
Letter and (iii) the Exchange Offer).
	 
	 	 	 	 
	 

	 	Financial Covenants
	 	Financial covenants shall consist of a minimum fixed charge coverage ratio, a
maximum total leverage ratio and a maximum capital expenditures limitation.
	 
	 	 	 	 
	 

	 	Negative Covenants
	 	Substantially similar to those in the Existing Credit Agreement (subject to
such changes as may be appropriate, in the reasonable discretion of the Lead
Arrangers, in light of (i) the Acquisition and the nature of the Acquired
Business, (ii) the financing transactions contemplated by the Commitment
Letter and (iii) the Exchange Offer), including, without limitation, a
dividends limitation covenant substantially similar to that contained in the
Existing Credit Agreement.
	 
	 	 	 	 
	 

	 	Events of Default
	 	Substantially similar to those in the Existing Credit Agreement (subject to
such changes as may be appropriate, in the reasonable discretion of the Lead
Arrangers, in light of (i) the Acquisition and the nature of the Acquired
Business, (ii) the financing transactions contemplated by the Commitment
Letter and (iii) the Exchange Offer).
	 
	 	 	 	 
	 

	 	Voting
	 	Amendments and waivers with respect to the Credit Documentation will require
the approval of Senior

A-6

 

	 	 	 	 	 
	 

	 	 	 	Lenders holding not less than a majority of the
aggregate amount of the Senior Term Loans, Revolving Credit Loans (including
participations in Letters of Credit and Swing Line Loans) and unused
commitments under the Credit Facilities, except that (i) the consent of each
Senior Lender directly and adversely affected thereby will be required with
respect to (a) reductions in the amount or extensions of the scheduled date of
final maturity of any loan, (b) reductions in the rate of interest or any fee
or extensions of any due date thereof, (c) increases in the amount or
extensions of the expiry date of any Senior Lender’s commitment, (d)
modifications to the pro rata provisions of the Credit Documentation or (e)
modifications to the assignment and participation provisions of the Credit
Documentation which further restrict assignments thereunder and (ii) the
consent of 100% of the Senior Lenders will be required with respect to (a)
modifications to any of the voting percentages and (b) releases of all or
substantially all of the collateral or all or substantially all of the
Guarantees other than in accordance with the provisions of the Credit
Documentation. In addition, the consent of Senior Lenders holding a majority
of the aggregate amount of the funded and unfunded commitments under a Credit
Facility will be required with respect to certain modifications
disproportionately affecting such Credit Facility.
	 
	 	 	 	 
	 

	 	Assignments and Participations
	 	Subject to the consent requirements referenced below, each Senior Lender may
assign any or all of its loans and commitments to its affiliates or to one or
more banks, financial institutions or other entities. Except for assignments
(i) among the Lead Arrangers and their affiliates, (ii) to another Senior
Lender or to an affiliate of a Senior Lender or (iii) of funded Senior Term
Loans, assignments will require the consent of the Administrative Agent and
the Material Issuing Senior Lenders (to be defined) and, so long as no default
or event of default has occurred and is continuing, the Company (which consent
in each case will not be unreasonably withheld or delayed); provided in any
event that the consent of Administrative Agent and each Material Issuing
Senior Lender shall be required with respect to assignments under the
Revolving Credit Facility. Non-pro rata assignments will be permitted.
Partial assignments (other than to another Senior Lender or to an affiliate of
a Senior Lender), must be at least $1.0 million (or $5.0 million in the case
of Revolving Credit Loans and Revolving Credit Facility commitments) unless
otherwise agreed by the Company and the Administrative Agent. An assignment
fee of $3,500 will

A-7

 

	 	 	 	 	 
	 

	 	 	 	be payable by the assignee to the Administrative Agent in
connection with each assignment. Upon assignment, the assignee will become a
Senior Lender for all purposes under the Credit Documentation pursuant to
assignment documentation reasonably acceptable to the Administrative Agent.
Promissory notes will be issued under the Credit Facilities only upon request.
	 
	 	 	 	 
	 

	 	Yield Protection
	 	The Credit Documentation will contain customary provisions (i) protecting the
Senior Lenders against increased costs or loss of yield resulting from changes
in reserve, tax, capital adequacy and other requirements of law and from the
imposition of or changes in withholding or other taxes and (ii) indemnifying
the Senior Lenders for “breakage costs” incurred in connection with the events
giving rise to breakage cost indemnification in the Existing Credit Agreement,
including without limitation the prepayment of a LIBOR Loan (as defined in
Annex A-I) on a day other than the last day of an interest period with respect
thereto.
	 
	 	 	 	 
	 

	 	Expenses and Indemnification
	 	The Company will pay (i) all documented (in a reasonable, customary manner),
reasonable out-of-pocket expenses of the Administrative Agent, the Syndication
Agent and the Lead Arrangers associated with the syndication of the Credit
Facilities and the preparation, negotiation, execution, delivery and
administration of the Credit Documentation and any amendment or waiver with
respect thereto (including the reasonable fees, disbursements and other
charges of counsel and the charges of IntraLinks) and (ii) all documented (in
a reasonable, customary manner) out-of-pocket expenses of the Administrative
Agent and the Senior Lenders (including the fees, disbursements and other
charges of counsel) in connection with the enforcement of the Credit
Documentation or in any bankruptcy case or insolvency proceeding.
	 
	 	 	 	 
	 

	 	 	 	The Administrative Agent, the Syndication Agent, the Lead Arrangers and the
Senior Lenders (and their affiliates and each of their respective officers,
directors, partners, trustees, employees, shareholders, advisors, agents,
attorneys and controlling persons and each of their respective heirs,
successors and assigns) will have no liability for, and will be indemnified
and held harmless against, any loss, liability, cost or expense incurred in
respect of the financing contemplated hereby or the use or the proposed use of
proceeds thereof (except to the extent resulting from the gross negligence,
bad faith or willful misconduct of the indemnified party).
	 
	 	 	 	 
	 

	 	Governing Law and Forum
	 	State of New York.

A-8

 

	 	 	 	 	 
	 

	 	Counsel to the Lead Arrangers
	 	Linklaters.
	 
	 	 	 	 
	 

	 	Credit Documentation Counsel
	 	White & Case LLP.

A-9

 

Annex A-I

Interest and Certain Fees

	 	 	 
	Interest Rate Options

	 	The Company may elect that the loans comprising each borrowing bear interest

at a rate per annum equal to:
	 
	 	 
	 

	 	(i) the Base Rate plus the
Applicable Margin (“Base Rate Loans”); or
	 
	 	 
	 

	 	(ii) the LIBOR Rate plus the
Applicable Margin (“LIBOR Loans”);
	 
	 	 
	 

	 	except that Swing Line Loans will always be Base Rate Loans.
	 
	 	 
	 

	 	As used herein:
	 
	 	 
	 

	 	“Base Rate” means the higher of (i) the prime lending rate as set forth on the
British Banking Association Telerate Page 5 (the “Prime Rate”), and (ii) the
federal funds effective rate from time to time plus 0.5%.
	 
	 	 
	 

	 	“Applicable
Margin” means a per annum rate equal to (stated margins below
based on anticipated rating at closing):
	 
	 	 
	 

	 	A. with respect to Revolving Loans, (i) 1.25% in the case of Base Rate Loans
and (ii) 2.25% in the case of LIBOR Loans, subject to adjustment
pursuant to a ratings-based pricing grid to be determined; and
	 
	 	 
	 

	 	B. with respect to Senior Term Loans, (i) 1.25% in the case of Base Rate
Loans and (ii) 2.25% in the case of LIBOR Loans.
	 
	 	 
	 

	 	“LIBOR Rate” means the rate (adjusted for statutory reserve requirements for
eurocurrency liabilities) at which eurodollar deposits for one, two, three or
six months (as selected by the Company) are offered in the interbank
eurodollar market.
	 
	 	 
	 

	 	No new LIBOR interest period may be selected when any event of default is
continuing.
	 
	 	 
	Interest Payment Dates

	 	For Base Rate Loans, quarterly in arrears.
	 
	 	 
	 

	 	For LIBOR Loans, on the last day of each relevant interest period and, in the
case of any interest period longer than three months, on each successive date
three months after the first day of such interest period.
	 
	 	 
	Commitment Fees

	 	The Company will pay a commitment
fee of 1.00% per annum, subject to
adjustment pursuant to a ratings-based pricing grid to be determined, on the
average daily unused portion of the Revolving Credit Facility for the period
beginning on the Closing Date and ending on the termination date of the
Lenders’ commitments under the

A-1-1

 

	 	 	 
	 

	 	Revolving Credit Facility, payable quarterly in
arrears and on the date of such termination. Swing Line Loans will, for
purposes of the commitment fee calculations only, not be deemed to be a
utilization of the Revolving Credit Facility.
	 
	 	 
	Letter of Credit Fees

	 	The Company will pay a commission on all outstanding Letters of Credit at a
per annum rate equal to the Applicable Margin then in effect with respect to
LIBOR Loans on the face amount of each Letter of Credit. Such commission will
be shared ratably among the Senior Lenders participating in the Revolving
Credit Facility and will be payable quarterly in arrears.
	 
	 	 
	 

	 	In addition to letter of credit commissions, a fronting fee calculated at a
rate per annum to be agreed upon by the Company and the Issuing Senior Lender
on the face amount of each Letter of Credit will be payable quarterly in
arrears to the Issuing Senior Lender for its own account. In addition,
customary administrative, issuance, amendment, payment and negotiation charges
will be payable to the Issuing Senior Lender for its own account.
	 
	 	 
	Default Rate

	 	Overdue amounts (including overdue interest) will bear interest at a rate
equal to 2% per annum above the rate applicable to Base Rate Loans.
	 
	 	 
	Rate and Fee Basis

	 	All per annum rates will be calculated on the basis of a year of 360 days (or
365 days, in the case of Base Rate Loans the interest rate payable on which is
then based on the Prime Rate) and the actual number of days elapsed.

A-1-2

 

SCHEDULE I

SOURCES AND USES TABLE

	 	 	 	 	 
	Sources
	 	 	 	 
	 
	 	 	 	 
	Revolving Credit Facility1
	 	$	0	 
	Tranche B Term Loan Facility
	 	 	1,700,000,000.00	 
	Notes
	 	 	1,800,000,000.00	 
	Capital Markets Term Loan Facility2,
	 	 	0	 
	Cash of the Company, est.
	 	 	75,000,000.00	 
	 
	 	 	 	 
	Total Sources
	 	 	3,575,000,000.00	 
	 
	 	 	 	 
	Uses
	 	 	 	 
	 
	 	 	 	 
	Purchase price of Target shares
	 	 	3,500,000,000.00	 
	Fees and Expenses
	 	 	75,000,000.00	 
	 
	 	 	 	 
	Total Uses
	 	 	3,575,000,000.00	 

 

			
	1	 	The Revolving Credit Facility will be in the
amount of $500.0 million. It will not be available for drawing on the Closing
Date.
	 
	2	 	The Capital Markets Term Loan Facility will
be available only on the Closing Date. It will be drawn to the extent that the
aggregate principal amount of the Notes issued at the time the Acquisition is
consummated is less than $1.80 billion, provided that the aggregate gross
amount of the CMTL and the Notes together shall not exceed $1.80 billion.

A-1-3

 

EXHIBIT B TO COMMITMENT LETTER

FUNDING CONDITIONS

Capitalized terms used but not defined herein have the meanings assigned to them in the
Commitment Letter to which this Exhibit B is attached and of which it forms a part. The
availability of the Credit Facilities is conditioned upon satisfaction of the conditions precedent
summarized below.

	(a)	 	Each Credit Party shall have executed and delivered definitive financing documentation and
delivered customary closing certificates, legal opinions and other documents and instruments
with respect to the Credit Facilities incorporating (and substantially consistent with) the
terms of this Commitment Letter and otherwise reasonably satisfactory to the Administrative
Agent, the Lead Arrangers and their counsel. All fees and expenses required to be paid on or
prior to the Closing Date to the Administrative Agent or other Agents, the Lead Arrangers and
the Initial Lenders as set forth in the Commitment Letter, the Fee Letter or otherwise shall
have been paid in full.
	 
	(b)	 	There shall not exist (pro forma for the Acquisition and the financing thereof) any default
or event of default under the Credit Facilities.
	 
	(c)	 	All conditions to the closing of the Acquisition, other than the payment of the purchase
price, shall have been satisfied. The Acquisition shall be consummated concurrently with the
effectiveness of the Credit Facilities and the initial funding thereunder for an aggregate
purchase price not exceeding $3.50 billion (excluding fees and expenses not exceeding $75.0
million in the aggregate) in accordance with the terms of the Acquisition Agreement, no
material provision of which shall have been waived, amended, supplemented or otherwise
modified by the Company without the consent of the Lead Arrangers.
	 
	(d)	 	All governmental, regulatory and third party approvals necessary under the terms of the
Acquisition Agreement to consummate the Acquisition (except to the extent waived pursuant to
paragraph (c) above) and all material governmental, regulatory and third party approvals
necessary to consummate the financing transactions contemplated hereby and for the continuing
operations of the Company and its subsidiaries, taken as a whole, shall have been obtained and
be in full force and effect. With respect to approval required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, all applicable waiting periods shall have expired without
any action being taken or threatened by any competent authority that could reasonably be
expected to restrain, prevent or otherwise impose adverse conditions on the Acquisition or the
financing thereof.
	 
	(e)	 	(i) At least 21 days prior to the Closing Date, the Lead Arrangers shall have received (a)
audited (incorporated by reference from filings with the Securities and Exchange Commission)
and unaudited interim (quarterly) consolidated financial statements of the Company (which
shall have been reviewed by the Company’s independent registered public accounting firm as
provided in Statement on Auditing Standards No. 100), each of the guarantors of the Company’s
obligations under the Existing Credit Agreement, Lane and Santa Fe, to the extent any such
financial statements would be required by (including by means of incorporation by reference),
and meeting the requirements of, Regulation S-X for a Form S-3 registration statement under
the Securities Act of 1933, as amended, relating to the offering of debt securities of the
Company and guarantees thereof by each of the guarantors of the Company’s obligations under
the Existing Credit Agreement, Lane and Santa Fe, (b) audited combined historical financial
statements of PinchSub1, PinchSub2, PinchSub3 and PinchSub4 (collectively, the “Pinch
Companies”) for the year ended December 31, 2005 and (c) pro forma financial statements of the
Company based on

B-1

 

	 	 	the audited combined historical financial statements of the Pinch Companies for the year
ended December 31, 2005 and on the Company’s audited historical financial statements for the
year ended December 31, 2005.
	 
	(ii)	 	The Company shall have provided a schedule showing the pro forma ratio of its pro forma
total funded debt as of the Closing Date after giving effect to the Acquisition to the pro
forma consolidated EBITDA of the Company (with EBITDA including such adjustments as are
required by Regulation S-X as well as such additional adjustments as the Lead Arrangers
agree are appropriate, which additional adjustments shall include, but not be limited to,
impairment charges, costs related to the Acquisition, integration costs related to the
Company’s Brown & Williamson Holdings, Inc. acquisition, and the one-time $81 million
“true-up” payment made in 2005 pursuant to the federal tobacco buyout assessment) for the
twelve-month period ended on the date of the most recent available financial statements as
of the Closing Date for the Company (and using the most recent available (as of the Closing
Date) financial statements that have been subject to review by independent accountants for
the Acquired Business covering twelve months) of no more than 2.25:1.00.
	 
	(iii)	 	The Company shall have provided to the Lead Arrangers, as soon as they are available,
any financial statements of the Acquired Business provided to the Company.
	 
	(f)	 	The Company shall have received a letter of indication with respect to the rating of the
Credit Facilities and the Notes from Moody’s Investor Service, Inc. and Standard and Poor’s
Ratings Group and (i) the Lead Arrangers shall have been afforded a period of at least 30 days
following such ratings and prior to the Closing Date to syndicate the Credit Facilities as set
forth in the Commitment Letter and (ii) the Company shall have prepared a preliminary
prospectus or preliminary offering memorandum or preliminary private placement memorandum
suitable for use in a customary senior secured notes “road show” not less than 15 days prior
to the Closing Date and caused the participation of senior management and representatives of
the Company and, to the extent the Company is entitled to arrange such participation pursuant
to the terms of the Acquisition Agreement (if at all), the Acquired Business in the road show.

B-2

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