<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1998
REGISTRATION STATEMENT NO. 333-53419
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MERKERT AMERICAN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5141-02 04-3411833
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
---------------
490 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
(781) 828-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
JAMES L. MONROE
PRESIDENT
MERKERT AMERICAN CORPORATION
490 TURNPIKE STREET
CANTON, MASSACHUSETTS 02021
(781) 828-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
Copies to:
STUART M. CABLE, ESQ. ROBERT EVANS III, ESQ.
GOODWIN, PROCTER & HOAR LLP SHEARMAN & STERLING
EXCHANGE PLACE 599 LEXINGTON AVENUE
BOSTON, MASSACHUSETTS 02109-2881 NEW YORK, NEW YORK 10022-6069
(617) 570-1000 (212) 848-4000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
REGISTERED REGISTERED PER SHARE OFFERING PRICE (1) (2)
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share....... 6,325,000 $23.00 $145,475,000 $42,916
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933, as amended.
(2) Includes $29,500 previously paid in connection with the filing of this
Registration Statement on May 22, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to an offering in
the United States and Canada (the "U.S. Offering") of an aggregate of
4,400,000 shares of Common Stock of the Company (the "Common Stock"), together
with separate Prospectus pages relating to a concurrent offering outside of
the United States and Canada (the "International Offering," and, together with
the U.S. Offering, the "Offering") of an aggregate of 1,100,000 shares of
Common Stock. The complete Prospectus for the U.S. Offering follows
immediately after this Explanatory Note. After such Prospectus are the
following alternate pages for the International Offering: a front cover page,
a "Certain United States Tax Consequences to Non-U.S. Holders of Common Stock"
section, an "Underwriting" section and a back cover page. All other pages of
the Prospectus for the U.S. Offering are identical and are to be used for both
the U.S. Offering and the International Offering.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TOBUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 20, 1998
PROSPECTUS
5,500,000 SHARES
MERKERT AMERICAN CORPORATION
COMMON STOCK
------------
All of the 5,500,000 shares of Common Stock offered hereby are being sold by
Merkert American Corporation (the "Company"). Of the 5,500,000 shares of Common
Stock offered hereby, 4,400,000 shares are being offered for sale initially in
the United States and Canada by the U.S. Underwriters and 1,100,000 shares are
being offered for sale initially in a concurrent offering outside the United
States and Canada by the International Managers. The initial public offering
price and the underwriting discount per share will be identical for both
offerings. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $21.00 and $23.00 per share. For a discussion relating to factors to be
considered in determining the initial public offering price, see
"Underwriting." Application has been made to list the Common Stock for
quotation on the Nasdaq National Market under the symbol "MERK."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................. $ $ $
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Total(3).................................. $ $ $
</TABLE>
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(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $3,500,000.
(3) The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional 660,000 and 165,000 shares
of Common Stock, respectively, in each case exercisable within 30 days
after the date hereof, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------
MERRILL LYNCH & CO.
BT ALEX. BROWN
LEHMAN BROTHERS
------------
The date of this Prospectus is , 1998.
<PAGE>
[Map of United States showing territory covered by the Company and the
location of the Company's facilities]
[ART WORK]
[Other art work to be provided by amendment]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
Unless the context otherwise requires, all references to the "Company" herein
mean Merkert American Corporation, a Delaware corporation, together with
Merkert Enterprises, Inc., a Massachusetts corporation ("Merkert"), and Rogers-
American Company, Inc., a North Carolina corporation ("Rogers"), after
consummation of the Combination (as defined herein). References to the
Company's business prior to the Combination mean the business of each of
Merkert and Rogers, including each of their respective subsidiaries. Prior to
May 29, 1998, the Company operated under the name Monroe, Inc. See "The
Combination."
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information in this Prospectus
(a) has been adjusted to give effect to the Combination, (b) assumes payment
prior to the consummation of the Combination and the Offering of a stock
dividend of 878.3897 shares of Common Stock and 785.2264 shares of Restricted
Common Stock (as defined herein) in respect of each issued and outstanding
share of Common Stock, (c) assumes an initial public offering price of $22.00
per share, (d) assumes no exercise of the Underwriters' over-allotment options
and (e) does not include shares issuable upon exercise of outstanding options
or reserved for issuance pursuant to the Company's stock option and incentive
plan. See "The Combination," "Management--1998 Stock Option and Incentive
Plan," and "Underwriting."
THE COMPANY
The Company was organized in March 1998 to create a leading food brokerage
firm providing outsourced sales, merchandising and marketing services to
manufacturers, suppliers and producers of food products and consumer goods
("Manufacturers"). The Company acts as an independent sales and marketing
representative, selling grocery and consumer products on behalf of
Manufacturers and coordinating the execution of Manufacturers' marketing
programs with retailers and wholesalers ("Retailers"). The Company's principal
source of revenues is commissions that it receives from Manufacturers. The
Company's other activities include managing private label programs on behalf of
selected Retailers.
The Company has long-standing relationships with many of its Manufacturers,
including Dean Foods/Birds Eye (41 years), H.J. Heinz (24 years), Minute Maid
(44 years), Ocean Spray (29 years) and Pillsbury (19 years). Key Retailer
relationships include C&S Wholesale Grocers, Inc., Food Lion Supermarkets,
Giant Foods, Hannaford Brothers, Kroger, Publix Supermarkets, Royal Ahold
(including Stop & Shop and Bi-Lo), Safeway, Wakefern (Shop Rite) and Winn-
Dixie. The Company represents more than 750 Manufacturers and more than 70,000
food and non-food stock-keeping units ("SKUs"), and does business with key
Retailers in 22 states.
Since 1994, Rogers and Merkert have acquired and integrated 21 companies,
successfully adding coverage of new geographic markets and expanding
representation of Manufacturers' product offerings within existing markets. The
Company's strategic acquisition plan includes the selection, acquisition and
management of businesses in brokerage market segments, including the retail
food brokerage, food service brokerage and private label brokerage market
segments.
The Company will be the first publicly held food broker in the United States.
The Company is the only food broker with comprehensive geographic coverage of
the eastern United States and the capability to provide service to the region's
largest Retailers. The eastern United States is the most highly concentrated
retail store region in the United States and represents approximately 43% of
national food store sales. The Company has 34 offices servicing Retailers in 22
states. In 1997, the Company had pro forma combined revenue of approximately
$230.4 million and pro forma combined net income of approximately $3.4 million.
Simultaneously with the consummation of the Offering, the Company will
purchase in separate transactions (collectively, the "Combination") all of the
issued and outstanding capital stock of Merkert and Rogers. To date, the
Company has conducted operations only in connection with the Offering and the
Combination. See "Certain Transactions--Organization of the Company" and "The
Combination."
3
<PAGE>
INDUSTRY OVERVIEW
The Company estimates, based on information published by industry sources,
that the food brokerage industry in the United States had annual commission
revenues of approximately $6 billion in 1997. Food brokers serve Manufacturers,
Retailers and food service providers. Retail food brokers represent
approximately 3,200 Manufacturers that sell to approximately 128,000 grocery
stores, including chain and independent supermarkets, convenience stores,
wholesale clubs and other stores ("Grocery Stores") and more than 700
wholesalers nationwide. The industry includes three types of food brokers, as
follows:
Retail Food Brokers. Manufacturers of branded food and non-food products use
retail food brokers as a cost effective alternative to a direct sales force and
rely on retail food brokers to provide local market penetration, integrated
brand and category-management and access to local merchandising data. When a
broker provides full services to a Manufacturer in connection with the sale of
its products to Retailers, the commission earned is generally 3% of the
Manufacturer's net sales to such Retailers. Retail food brokers typically
perform two types of services on behalf of Manufacturers: headquarters
functions and retail store functions.
Headquarters functions include services provided to both Manufacturers and
Retailers at the headquarters level. Retail food brokers conduct business
development activities, including sales calls and new product introductions to
Retailers, on behalf of Manufacturers. Retail food brokers also assist
Manufacturers in developing, reviewing and executing annual marketing plans.
Other headquarters services include order management, supervision of shelf
space management, coordination of Manufacturers' promotional spending, and
facilitating the resolution of billing issues between Manufacturers and
Retailers. In connection with the implementation of category management at the
Retailers' headquarters level, retail food brokers assist Retailers by
gathering and analyzing demographic, consumer, and store sales information
utilized in the management of product categories as strategic business units.
Retail store functions generally include execution of sales plans for
Manufacturers' products at the store level by assisting in merchandising, shelf
and display management, new store set-ups, implementation of promotional plans,
and placement of point-of-sale coupons, signs and other information. Retail
food brokers also assist Retailers with coupon and advertising programs,
quality assurance and technical training (primarily in relation to prepared
foods). In addition, retail food brokers assist Retailers and Manufacturers in
the collection, analysis and application of retail sales data.
The retail food brokerage industry has been growing as food brokers represent
an increasing percentage of the volume of all commodities (the "ACV") sold
through Grocery Stores. In 1997, the percentage of ACV sold through Grocery
Stores was approximately 55% compared to 45% in 1985. According to Progressive
Grocer, Grocery Store revenues, of which an increasing portion is represented
by food brokers, are generally not materially adversely affected by economic
downturns and have grown from approximately $292 billion in 1985 to $436
billion in 1997.
The Company believes that the retail food brokerage industry is highly
fragmented and is experiencing significant consolidation. In the past ten
years, the number of food brokerage firms has decreased from 2,500 to 1,100,
while the number of sales representatives employed by such firms increased from
35,000 to 42,000. There are four multi-regional food brokerage firms, including
the Company, each with approximately 3% market share. Additionally, there are
approximately twelve large regional food brokerage firms in the United States.
A number of the companies in the food brokerage industry, including Merkert and
Rogers, have participated in the trend towards consolidation by acquiring other
food brokerage businesses, generally financing these transactions with debt
and/or by deferring the payment of a portion of the purchase price.
The Company believes that the consolidation of food brokers is primarily the
result of a desire by Manufacturers and Retailers to manage their businesses
more efficiently and effectively by reducing the number of brokers they
interact with in a given region. Additionally, management believes that
consolidation within the
4
<PAGE>
food brokerage industry is being driven, in part, by the consolidation of
Retailers and Manufacturers and the increasing demand for the application of
more sophisticated information technology on the part of food brokers.
Food Service Brokers. Food service providers include operators of
restaurants, school and hospital cafeterias and other similar establishments.
The food service business also includes prepared meals sold at convenience
stores. Food brokers sell Manufacturers' products to food service providers
through a number of means, including headquarters sales calls and the
representation of Manufacturers' products at trade shows. The food service
segment of the industry has experienced significant growth in recent years as
an increasing percentage of consumer spending for food in the United States has
shifted to meals away from home.
Private Label Food Brokers. Private label food brokers work with
Manufacturers to develop and manage private label programs on behalf of
Retailers. A food broker's responsibilities in connection with a private label
program may include procurement and inventory management and in-store delivery
of private label products. The private label segment has been a substantial
growth segment for Retailers in recent years.
BUSINESS STRATEGY
The Company's objective is to become the leading national provider of
outsourced sales, merchandising and marketing services to Manufacturers,
Retailers and food service providers throughout the United States. The
Company's business strategy comprises the following key elements:
Expand Current and Develop New Manufacturer Relationships. The Company seeks
to increase its representation of existing Manufacturers' product lines by
representing Manufacturers' products in new geographic markets and non-
supermarket trade channels, including mass merchandisers, food service
providers, membership warehouses, drug stores and convenience stores. The
Company also seeks to increase the range of products it represents on behalf of
the Manufacturers it currently serves and enter into new relationships with
Manufacturers.
Provide Effective Marketing Support and Valuable Category Management
Technology. The Company's marketing expertise and information technology system
allow it to utilize local demographic information and information about retail
store level conditions to understand consumer purchasing preferences in local
markets. As a result, the Company is able to develop and implement targeted
consumer sales promotions for its Manufacturers' products. The Company also
deploys category analysts who use local sales data to assist Retailers with
shelf schematics, category layouts and total store space management.
Growth Through Strategic Acquisitions. The Company intends to pursue
strategic acquisitions in the food brokerage industry. Since 1994, Merkert and
Rogers have acquired and integrated 21 companies, successfully adding coverage
of new geographic markets and expanding representation of Manufacturers'
product offerings in existing markets. The Company's plans include the
selection, acquisition and management of businesses in the following brokerage
market segments:
. Retail: A key element of the Company's acquisition strategy is to expand
its geographic coverage by acquiring existing retail food brokerage
firms in new geographic markets. The Company also seeks acquisition
candidates that conduct business within the Company's existing territory
and offer the Company the opportunity to expand its representation of
Manufacturers and product categories and its coverage of Retailers
within existing markets. The Company's acquisition strategy is also
focused on candidates that will enable it to represent additional
product categories and cover additional distribution channels. In
particular, the Company believes that health and beauty care and general
merchandise brokerage and bakery, deli, meat, seafood, floral and
produce brokerage have significant growth potential. The Company's
strategic plans also include the coverage of convenience stores, as it
believes convenience stores will account for an increasingly larger
portion of food sales as sales of meal replacements and traditional
grocery items continue to grow.
5
<PAGE>
. Food Service: Sales to entities in the food service segment of the food
industry currently represent a small part of the Company's business. The
Company believes that it will be able to expand its operations within
the fragmented food service segment through the acquisition of existing
food service brokers who sell Manufacturers' products to food service
providers.
. Private Label: The Company believes that the private label food
brokerage segment is currently fragmented and that the Company can
further develop its private label operations through targeted
acquisitions of private label food brokers within this growing segment
of the food industry.
The Company believes that its acquisition strategy will enable it to:
. Strengthen Market Presence: By expanding its geographic coverage, the
Company will be able to offer Manufacturers more extensive and better
coordinated coverage of Retailers who operate across geographic regions.
As the Company expands the portion of a given Manufacturer's sales it
represents, it will be better positioned to meet Manufacturers' needs by
providing a wide range of services across a broader geographic area.
This will enable Manufacturers to increase the effectiveness of their
marketing programs and reduce the costs associated with managing their
brokerage networks by using fewer food brokerage companies.
. Benefit from Increased Economies of Scale: As the Company expands the
number of Manufacturers and product lines it represents, it expects to
realize certain economies which will result from the low incremental
cost of representing additional Manufacturers and product lines. The
Company also expects to recognize certain economies of scale as the
Company expands its operations to cover a larger geographic region.
. Improve Operating Efficiencies: The Company believes that as it
integrates acquired companies it will be able to eliminate certain
duplicative operations, facilities and personnel. The Company expects to
realize cost savings through the consolidation of certain administrative
functions.
Increase Private Label Brokerage. The Company has a division that specializes
in the development, procurement and inventory management of private label
frozen products, including fruits, vegetables and other products on behalf of
certain Retailers. The Company's private label division currently works in
conjunction with Retailers such as A&P, Price Chopper, Publix and Royal Ahold
(including Stop & Shop and Bi-Lo). The increasing geographic coverage of the
Company will provide the Company with the opportunity to offer private label
services to more Retailers and retail locations.
COMPANY HISTORY
To date, the Company has conducted operations only in connection with the
Combination and the Offering and will purchase all of the issued and
outstanding capital stock of Merkert and Rogers in the Combination.
Merkert Enterprises, Inc., one of the entities to be acquired in the
Combination, has operated as a food broker in the northeastern and mid-Atlantic
regions of the United States since 1950. In 1997, Merkert Enterprises, Inc. had
total revenues of approximately $147.4 million, the principal source of which
was commissions it received from Manufacturers. Merkert Enterprises, Inc. also
manages private label programs on behalf of selected Retailers. Merkert
Enterprises, Inc. has grown its revenues through both internally generated
growth and through acquisitions, having acquired and integrated six smaller
food brokers since 1994. Merkert Enterprises, Inc. financed such acquisitions,
in part, with debt and/or by deferring the payment of a portion of the purchase
price. A portion of the net proceeds to be received by the Company in the
Offering will be used to repay certain acquisition-related obligations of
Merkert Enterprises, Inc. Primarily as a result of such obligations, as well as
a substantial tax liability, Merkert Enterprises, Inc. has experienced losses
and a working capital deficit in recent years. The stockholders of Merkert
Enterprises, Inc. have agreed to pay such tax liability from cash otherwise
payable to them in connection with the Combination. After giving effect to the
Offering and the expected application of the net proceeds therefrom, the
Company will not have a working capital deficit. See "Risk Factors--Merkert
Enterprises, Inc.-History of Losses" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations--
Merkert" and "--Liquidity and Capital Resources--Merkert" and "Use of
Proceeds."
6
<PAGE>
Rogers has operated as a food broker in the southeastern region of the United
States since 1934. In 1997, Rogers had total revenues of approximately $83.0
million, all of which was derived from commissions it received from
Manufacturers. Rogers has grown its revenues through both internally generated
growth and through acquisitions, having acquired and integrated 15 smaller food
brokers since 1994.
The Company is a Delaware corporation with its executive offices located at
490 Turnpike Street, Canton, Massachusetts 02021. The Company's telephone
number is (781) 828-4800.
7
<PAGE>
THE OFFERING
The offering of 4,400,000 shares of the Company's Common Stock in the United
States and Canada (the "U.S. Offering") and the offering of 1,100,000 shares of
Common Stock outside the United States and Canada (the "International
Offering") are collectively referred to herein as the "Offering."
<TABLE>
<C> <S>
Common Stock offered by the Company..... 5,500,000 shares.
Common Stock to be outstanding after the
Offering(1)(2)......................... 10,000,000 shares.
Use of proceeds......................... The net proceeds to be received by
the Company will be used to finance
the cash portion of the consideration
to be paid in the Combination, to
repay certain indebtedness of Merkert
and Rogers, to fund buyouts of
certain obligations of Merkert and
Rogers to make payments to sellers of
previously acquired businesses, to
repay a note payable to Monroe &
Company II, LLC which is attributable
to certain of the Company's expenses,
to fund buyouts of employment
arrangements of departing executives
of Merkert, to pay expenses incurred
by the Company and each of Merkert
and Rogers and their respective
stockholders in connection with the
Combination, and for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.. MERK.
</TABLE>
- --------
(1) Includes 1,074,145 and 429,546 shares of Common Stock to be issued to the
stockholders of Merkert and Rogers, respectively, in connection with the
Combination. Excludes (i) 245,000 shares of Common Stock issuable upon
exercise of outstanding stock options granted pursuant to the Company's
Amended and Restated 1998 Stock Option and Incentive Plan (the "1998 Stock
Plan"), (ii) options to purchase 610,000 shares of Common Stock to be
granted upon consummation of the Offering and (iii) 445,000 shares of
Common Stock available for future grants under the 1998 Stock Plan. See
"Management--1998 Stock Option and Incentive Plan." At the request of the
Company, the U.S. Underwriters have reserved for sale, at the initial
public offering price, up to 5% of the shares offered hereby to be sold to
certain directors, officers, and employees of the Company and certain
distributors, dealers, business associates and related persons. See
"Underwriting."
(2) Includes 3,001,644 shares of Common Stock held by Monroe & Company II, LLC
and Gerald R. Leonard, 1,413,408 of which are shares of Restricted Common
Stock. Each share of Restricted Common Stock is entitled to 1/10th of one
vote on all matters submitted to the stockholders of the Company.
Restricted Common Stock is convertible into one share of Common Stock under
certain circumstances. See "Description of Capital Stock--Authorized and
Outstanding Capital Stock."
RISK FACTORS
Purchasers of Common Stock in the Offering should carefully consider the risk
factors set forth under the caption "Risk Factors" and the other information
included in this Prospectus prior to making an investment decision. See "Risk
Factors."
8
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company has conducted operations to date only in connection with the
Combination and the Offering, and will purchase Merkert and Rogers
simultaneously with and as a condition to the consummation of the Offering. For
financial statement presentation purposes, the Company has been designated as
the accounting acquiror. The following table presents summary pro forma
combined financial data of the Company, as adjusted for: (i) the consummation
of the Combination; (ii) certain pro forma adjustments to the historical
financial statements of Merkert and Rogers; and (iii) the consummation of the
Offering and the application of the net proceeds therefrom. The unaudited pro
forma combined financial data set forth do not purport to represent the
Company's combined results of operations or financial position for any future
period. The summary combined financial data set forth below should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Company's
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
Merkert and Rogers financial statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1997 1998
------------ ---------------
PRO FORMA PRO FORMA
------------ ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (1)(2)(3)(4)
Sales...................................... $ 43,105 $ 12,424
Commissions................................ 187,259 44,999
----------- -----------
Revenues................................... 230,364 57,423
Cost of sales.............................. 39,027 11,420
Selling, general and administrative
expense................................... 177,299(2) 42,929(2)
Depreciation and amortization(3)........... 5,628 1,404
----------- -----------
Operating income........................... 8,410 1,670
Interest expense........................... 2,625 562
Other (income) expense, net................ (79) 103
----------- -----------
Income before income taxes................. 5,864 1,005
----------- -----------
Net income................................. $ 3,355 $ 582
=========== ===========
Net income per share....................... $ 0.33 $ 0.06
=========== ===========
Shares used in computing net income
per share(5).............................. 10,061,250 10,061,250
=========== ===========
OTHER FINANCIAL DATA:
EBITDA(6).................................. $ 14,117 $ 2,971
=========== ===========
<CAPTION>
AS OF MARCH 31, 1998
PRO FORMA
COMBINED(7) AS ADJUSTED(8)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA
Total assets............................... $182,749 $201,705
Total long-term debt, net of current
portion................................... 26,477 26,477
Stockholders' equity....................... 28,119 137,149
</TABLE>
Footnotes on following page
9
<PAGE>
FOOTNOTES FOR SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(1) The Summary Pro Forma Combined Financial Data assume that the Combination
and the Offering took place on January 1, 1997 and are not necessarily
indicative of the results the Company would have obtained had these events
actually occurred on that date or of the Company's future results.
(2) In connection with the Combination and the Offering, the Company intends to
achieve significant cost savings through the integration of the operations
of Merkert and Rogers. The savings primarily will result from the closing
of offices due to overlapping geographic coverage and the elimination of
duplicative operations. The cost savings include the elimination of
employee payroll and benefits, certain rental and office expenses relating
to the closing of offices, as well as other direct costs. These savings
will be slightly offset by an anticipated loss of revenue resulting from
Manufacturer conflicts. In addition, the Company expects to incur an
increase in lease expense and a reduction in depreciation expense as a
result of the sale of Rogers' headquarters to a third party and the related
leaseback of the facility to the Company. The Company expects the impact of
these integration adjustments on Pro Forma Combined Net Income to be as
follows (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Pro Forma Combined Net Income.................... $ 3,355 $ 582
Elimination of salaries, benefits, bonuses and
other direct costs............................. 13,392 3,304
Elimination of rental and other office ex-
penses......................................... 1,000 250
Loss of revenue resulting from Manufacturer con-
flicts......................................... (2,500) (500)
Increase in lease expense offset by reduction in
depreciation expense resulting from the sale of
Rogers' headquarters and associated leaseback.. (566) (142)
Tax effect of the above items................... (5,155) (1,343)
------- -------
Pro Forma Combined Net Income (after integration
adjustments).................................... $ 9,526 $ 2,151
======= =======
</TABLE>
(3) Includes $3,500 for the twelve months ended December 31, 1997 and $900 for
the three months ended March 31, 1998 of amortization of goodwill to be
recorded as a result of the Combination computed on the basis described in
the Notes to Unaudited Pro Forma Combined Financial Statements.
(4) Reflects the estimated effective income tax rate of 46% after considering
the non-deductibility of goodwill.
(5) Includes (i) shares to be issued in the Combination to stockholders of
Merkert and Rogers, (ii) shares issued to the management of and consultants
to the Company, and (iii) shares sold in this Offering necessary to pay the
cash portion of the Combination consideration, retire certain indebtedness
relating to bank debt and other obligations of Merkert and Rogers and pay
the expenses of the Offering and the Combination. In addition, shares and
potential dilutive securities used in computing diluted earnings per share
include the dilutive effect of currently outstanding options to purchase
shares of Common Stock.
(6) EBITDA represents Earnings Before Interest, Taxes, Depreciation and
Amortization. The Company believes that EBITDA may be useful to investors
for measuring the Company's ability to service debt, to make new
investments and to meet working capital requirements. EBITDA as calculated
by the Company may not be consistent with calculations of EBITDA by other
companies. EBITDA should not be considered in isolation from or as a
substitute for net income (loss), cash flows from operating activities or
other statements of operations or cash flows prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
(7) The Pro Forma Combined Balance Sheet assumes that the Combination was
consummated on March 31, 1998.
(8) Adjusted for the sale of 5,500,000 shares of Common Stock offered hereby
and the expected application of the net proceeds therefrom. See "Use of
Proceeds."
10
<PAGE>
SUMMARY INDIVIDUAL FINANCIAL DATA FOR MERKERT AND ROGERS
(DOLLARS IN THOUSANDS)
The following table presents summary financial data for each of Merkert and
Rogers for each of the three years ended December 31, 1995, 1996 and 1997 and
the three month periods ended March 31, 1997 and 1998 and have not been
adjusted to reflect the Combination or the related changes that are reflected
in the Pro Forma Statements of Operations. See the Unaudited Pro Forma Combined
Financial Statements and the Notes thereto and the Merkert and Rogers financial
statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ --------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
MERKERT
Commissions.................... $73,336 $80,661 $104,274 $ 26,201 $ 24,168
Sales.......................... 49,233 44,916 43,105 11,257 12,424
------- ------- -------- --------- ---------
Revenues..................... 122,569 125,577 147,379 37,458 36,592
Operating income (loss)........ 2,434 633 1,373 (1,705) (283)
OTHER FINANCIAL DATA
EBITDA(1)...................... 4,566 3,080 5,857 (556) 854
ROGERS
Commissions.................... $47,496 $63,311 $ 82,985 $ 20,025 $ 20,831
Operating income (loss)........ 3,149 107 4,085 (425) 1,190
OTHER FINANCIAL DATA
EBITDA(1)...................... 4,222 1,753 6,601 211 1,825
</TABLE>
- --------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. The Company believes that EBITDA may be useful to investors
for measuring the Company's ability to service debt, to make new
investments and to meet working capital requirements. EBITDA as calculated
by the Company may not be consistent with calculations of EBITDA by other
companies. EBITDA should not be considered in isolation from or as a
substitute for net income (loss), cash flows from operating activities or
other statements of operations or cash flows prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
11
<PAGE>
RISK FACTORS
The following factors should be carefully considered, together with the
other information in this Prospectus, in evaluating an investment in the
Company. This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those risk factors set forth below as well as those
factors discussed elsewhere in this Prospectus.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
To date, Merkert and Rogers have operated independently of one another. The
Company intends to operate Merkert and Rogers and subsequently acquired
businesses on a cohesive, but locally oriented, basis. If proper overall
business incentives and controls are not implemented, this locally oriented
operating strategy could result in inconsistent operating and financial
practices and the Company's overall profitability could be adversely affected.
The Company expects to incur expenses of up to $2.0 million in connection with
the integration process. The integration of Merkert and Rogers may involve
unforeseen difficulties and may require a disproportionate amount of
management's attention and of the Company's financial and other resources. The
failure of the Company to integrate successfully the operations of Merkert and
Rogers and subsequently acquired businesses could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management" and "Business--Business Strategy." Currently, the
Company has no centralized financial reporting system and initially will rely
on the existing reporting systems of each of Merkert and Rogers. Merkert and
Rogers offer different services, use different capabilities and technologies,
target different clients and have different management styles. Although the
Company believes that there are substantial opportunities to cross-market and
integrate the businesses of Merkert and Rogers, these differences increase the
risk inherent in the integration of the two companies. There can be no
assurance that the Company will be able to integrate successfully the
operations of Merkert and Rogers or that the expense of such integration
program will not exceed management's expectations or that the Company will be
able to institute the necessary Company-wide systems and procedures to manage
successfully the combined enterprise on a profitable basis or to implement the
Company's business and growth strategies.
IMPLEMENTATION OF ACQUISITION STRATEGY; RISKS RELATED TO GROWTH STRATEGY
One of the Company's strategies is to increase its revenues and the markets
it serves through the acquisition of additional food brokerage companies. The
Company expects to spend significant time and effort in expanding its existing
business and identifying, completing and integrating acquisitions. Moreover,
the Company expects to face competition for acquisition candidates which may
limit the number of acquisition opportunities available to the Company and may
result in higher acquisition prices. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
companies or successfully integrate such additional companies into the Company
without substantial costs, delays or other problems. In addition, there can be
no assurance that companies acquired in the future will achieve sales and
profitability that justify the investment therein. The Company's inability to
identify appropriate acquisition candidates, to acquire such candidates at
prices acceptable to the Company or to manage such acquired businesses
profitably could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, acquisitions may
involve a number of special risks, including adverse short-term effects on the
Company's reported operating results, Manufacturer representation conflicts,
diversion of management's attention, dependence on retention, hiring and
training of key personnel, risks associated with unanticipated problems or
legal liabilities and amortization of acquired intangible assets, some or all
of which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Business
Strategy."
The Company's growth strategy includes broadening its service and product
offerings, implementing an aggressive marketing plan, and deploying leading
technologies. There can be no assurance that the Company's systems, procedures
and controls will be adequate to support the Company's operations as they
expand. Any
12
<PAGE>
future growth also will impose significant added responsibilities on members
of senior management, including the need to identify, recruit and integrate
new senior level managers and executives. There can be no assurance that such
additional management can be identified and retained by the Company. The
inability of the Company to manage its growth or recruit and retain additional
qualified management could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Business Strategy" and "Management."
The Company currently intends to finance future acquisitions by using cash,
bank financing or additional debt or equity financing. There can be no
assurance that the Company will be able to obtain such financing if and when
it is needed or that, if available, such financing will be on terms acceptable
to the Company. Any debt financing will result in additional leverage and any
further equity financing may result in dilution to the Company's stockholders.
In the event that the Company does not have sufficient cash resources, or if
the Common Stock does not maintain a sufficient valuation, or if potential
acquisition candidates are unwilling to accept shares of Common Stock as
consideration, the Company may be unable to implement its acquisition
strategy. The Company is obligated to make payments to the sellers of certain
businesses acquired by Merkert and Rogers, some of which are payable only in
the event that the earnings attributable to any of such businesses exceed
specific thresholds determined at the time of acquisition. The Company may
incur similar obligations with respect to acquisitions completed after the
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business--
Business Strategy."
There can be no assurance that the Company's growth strategy will be
successful or that the Company will be able to generate cash flow sufficient
to fund its operations and to support internal growth. The Company's inability
to achieve internal earnings growth or otherwise execute its growth strategy
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Business Strategy."
MATERIALITY OF GOODWILL
The Company's balance sheet immediately following the Offering and
consummation of the Combination will include an amount designated as
"goodwill" that represents approximately 64% of assets and approximately 94%
of stockholders' equity. Goodwill arises when an acquiror pays more for a
business than the fair value of the tangible and separately measurable
intangible net assets. Generally accepted accounting principles require that
goodwill and all other intangible assets be amortized over the period
benefited. Management has determined this amortization period to be 40 years.
If management used a 40-year amortization period for goodwill or any other
material intangible asset having an actual benefit period of less than 40
years, earnings reported in periods following the acquisition of such goodwill
or intangible asset would be overstated. If the amortization period used by
management is longer than the related benefit period, in later years the
Company would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the business. In addition, earnings in later years
could also be significantly affected if management determined then that the
remaining balance of goodwill was impaired. Management has concluded that the
anticipated future cash flows associated with intangible assets recognized in
the Combination will continue for 40 years and that there is no persuasive
evidence that any material portion will dissipate over a period shorter than
40 years. See the Unaudited Pro Forma Combined Financial Statements of the
Company and the Notes thereto included elsewhere in this Prospectus.
MANUFACTURER REPRESENTATION CONFLICTS
Certain Manufacturers may not allow food brokers they have engaged to
represent any lines or products such Manufacturers believe to be in
competition with their own line of products in a given market territory.
Manufacturers can be subjective in their definition of a conflict. In
addition, a Manufacturer may object to the Company's private label business or
its representation of another Manufacturer which produces a similar product
for sale in other geographic regions or trade channels. The Company is
sensitive to potential conflicts and must exercise care in determining how to
resolve conflicts and potential conflicts as new food broker businesses are
acquired and as Manufacturers continue to grow, merge and expand into new
product categories and geographic
13
<PAGE>
areas. The Combination may result in certain Manufacturer conflicts,
particularly in the mid-Atlantic where the operations of Merkert and Rogers
overlap. The Company may be required, in order to resolve a conflict, to
choose to represent particular lines or products in lieu of others, and the
Company may not select the lines of products that are ultimately the most
successful. The inability of the Company to resolve or deal with Manufacturer
representation conflicts or potential conflicts could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, industry practice is that food brokers' relationships
with Manufacturers are governed by contracts which are typically terminable by
either party upon 30 days' notice. In the ordinary course of business the
Company experiences turnover in these relationships as a result of
Manufacturer conflicts and strategic decisions by the Company or a
Manufacturer.
POTENTIAL CHANGES IN INDUSTRY
The food brokerage industry is presently being affected by changes in the
industries of both Manufacturers and Retailers as well as by changes in the
food brokerage industry itself. Consolidation among both Manufacturers and
Retailers has resulted in a competitive advantage for food brokers which can
offer products and services on a regional or national basis and as a
consequence has contributed to the consolidation of the food brokerage
industry. In addition, mass merchandisers such as warehouse clubs and
superstores have experienced significant growth in recent years. Historically,
many mass merchandisers have tended to use fewer brokerage services and,
instead, rely on direct relationships with Manufacturers. These changes in the
food industry marketplace will require the Company to adapt its operations.
There can be no assurance that the Company will be able to adjust to such
industry changes or that the changes the Company undertakes will be effective
and enable the Company to operate its business profitably. The inability of
the Company to make appropriate adjustments in response to these trends could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The food brokerage industry is highly fragmented and competitive. The
Company's competitors include several large privately held companies and
hundreds of small privately held food brokers. The food brokerage industry is
currently undergoing substantial consolidation. In addition, many
Manufacturers, including some of the Manufacturers served by the Company,
employ sales personnel to sell directly to Retailers and distributors.
Further, food brokers also compete with specialty distributors, wholesalers
and other entities engaged in businesses which provide avenues of distribution
linking Manufacturers, Retailers, food service establishments and/or
consumers. Certain of these competitors may have lower overhead costs than the
Company, have greater financial resources than the Company or have better
knowledge of, or relationships in, local and regional markets which may give
such competitors advantages in offering services and products that are similar
to those of the Company. Consequently, the Company may encounter significant
competition in its efforts to achieve both its acquisition and internal growth
objectives. There can be no assurance that the Company will be successful
against such competition. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company will depend on Gerald R. Leonard, Chairman and Chief Executive
Officer, and Douglas H. Holstein, Chief Operating Officer. In addition, the
Company will rely on many of the executives of each of Merkert and Rogers,
whose reputations and relationships with Manufacturers and Retailers have
contributed in large part to the success of Merkert and Rogers, respectively.
Though the Company will be entering into employment agreements with certain
key executives, there can be no assurance that the Company will be able to
retain the services of such executives or any other management or key sales
personnel. A loss of the services of any of these individuals could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Business Strategy" and "Management."
SEASONALITY OF OPERATING RESULTS
Each of Merkert and Rogers has experienced and the Company expects to
continue to experience fluctuations in quarterly revenues and operating
results as a result of seasonal patterns. The Company's business
14
<PAGE>
is seasonal in nature, as many Retailers generate relatively lower revenues in
January, February, July and August. As a result, the Company has historically
generated lower revenues in the first and third quarters of the year. Results
of operations for any particular quarter therefore are not necessarily
indicative of the results of operations for any future period. Future seasonal
and quarterly fluctuations could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MERKERT ENTERPRISES, INC.-- HISTORY OF LOSSES
One of the companies to be acquired in the Combination, Merkert Enterprises,
Inc., incurred a net loss in each of the three years ended December 31, 1995,
1996 and 1997. In addition, Merkert Enterprises, Inc.'s cash flow from
operations and available borrowings have been insufficient to satisfy its
capital requirements, which are principally to fund obligations to sellers in
connection with previous acquisitions, working capital and income taxes
payable. As a result of this historical working capital deficit at Merkert
Enterprises, Inc., Arthur Andersen LLP has qualified its report for the period
ended December 31, 1997 relative to the ability of Merkert Enterprises, Inc.
to continue as a going concern. After giving effect to the Offering and the
expected application of the net proceeds therefrom, the Company will not have
a working capital deficit. However, there can be no assurance that the Company
will be able to generate sufficient cash flow to meet its future capital
requirements or that the Company will not have a working capital deficit in
the future. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--Merkert" and "--Liquidity
and Capital Resources--Merkert."
YEAR 2000 ISSUES
The Company recognizes the importance of ensuring that its business
operations are not disrupted as a result of Year 2000 related computer system
and software issues. The Company is working with Manufacturers, Retailers and
other parties with which it does business to coordinate Year 2000 conversion
efforts. At the present time, the Company believes that its computer systems
and software are substantially Year 2000 compliant, and it is in the process
of upgrading or replacing those systems that are not compliant. Additionally,
the Company has determined that several PBX (telephone) systems and personal
computers must be replaced, but the Company does not expect Year 2000 issues
to materially affect its products, services, competitive position or financial
performance. However, there can be no assurance that this will be the case. In
addition, the ability of third parties with whom the Company transacts
business to adequately address their Year 2000 issues is outside the Company's
control. Although the Company is working with Manufacturers, Retailers and
other parties, there can be no assurance that the failure of such third
parties to adequately address their respective Year 2000 issues will not have
a material adverse effect on the Company's business, financial condition and
results of operations.
VOTING CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
After giving effect to the Offering, the directors and executive officers of
the Company and their affiliates will beneficially own in the aggregate
approximately 35.1% of the outstanding Common Stock (approximately 32.5% if
the Underwriters exercise the over-allotment options in full). This percentage
ownership does not give effect to the exercise of options to purchase 245,000
shares of Common Stock held by or to be granted to certain of these
individuals, which, if exercised in whole or in part, will further concentrate
ownership of the Common Stock. As a result, these stockholders, if they were
to act together, could have the ability, as a practical matter, to
significantly influence the outcome of the election of the Company's directors
and all other matters requiring approval by a majority of the stockholders of
the Company including, in many cases, significant corporate transactions, such
as mergers and sales of all or substantially all of the Company's assets. Such
concentration of ownership, together, in some cases, with certain provisions
of the Company's Amended and Restated Certificate of Incorporation and Amended
and Restated By-laws and certain sections of the Delaware General Corporation
Law, may have the effect of delaying or preventing a "change in control" of
the Company. See "--Anti-takeover Effect of Certificate of Incorporation and
By-law Provisions and Delaware Law," "Management--Directors and Executive
Officers" and "Principal Stockholders."
15
<PAGE>
BENEFITS TO CERTAIN PARTIES
Assuming an initial offering price of $22.00 per share, Monroe & Company II,
LLC, and Gerald R. Leonard will own, upon the consummation of the Offering, in
the aggregate, 3,001,644 shares of Common Stock, which will represent
approximately 30.0% of the outstanding Common Stock following consummation of
the Offering. Of these shares of Common Stock, 1,413,408 shares are Restricted
Common Stock. Each share of Restricted Common Stock is entitled to 1/10th of
one vote on all matters submitted to the stockholders of the Company. Holders
of Restricted Common Stock will control, in the aggregate, approximately 19.8%
of the votes of all shares of Common Stock outstanding upon consummation of
the Offering. The number of shares of Common Stock held by Monroe & Company
II, LLC, and Gerald R. Leonard will vary if the initial offering price is
greater or less than $22.00 per share. See "Principal Stockholders" and
"Certain Transactions."
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AND
DELAWARE LAW
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws, certain sections of the
Delaware General Corporation Law and the ability of the Company's Board of
Directors (the "Board of Directors") to issue shares of preferred stock and to
establish the voting rights, preferences and other terms thereof may be deemed
to have an anti-takeover effect and may discourage takeover attempts not first
approved by the Board of Directors, including takeovers which certain
stockholders may deem to be in their best interests. In addition, these
provisions could delay or frustrate the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption of
control would be beneficial to stockholders. Such provisions include, among
other things, a classified Board of Directors initially serving staggered two-
year terms and eventually three-year terms, the elimination of the absence of
cumulative voting for directors and certain advance notice requirements for
stockholder proposals and nominations for election to the Board of Directors.
See "Description of Capital Stock--Certain Provisions of Certificate and By-
laws" and "--Statutory Business Combination Provision."
POSSIBLE FUTURE SALES OF SHARES
Sales of substantial amounts of Common Stock in the public market after the
Offering pursuant to Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), or otherwise, or the perception that such sales could
occur, may adversely affect prevailing market prices of the Common Stock and
could impair the future ability of the Company to raise capital through an
offering of its equity securities or to effect acquisitions using shares of
its Common Stock. The shares of Common Stock outstanding prior to the Offering
are, and the shares to be issued in the Combination will be, "restricted
securities" within the meaning of Rule 144. Unless the resale of such shares
is registered under the Securities Act (including pursuant to registration
rights granted by the Company (see "Certain Transactions")), these shares may
not be sold in the open market until after the first anniversary of the
transaction in which they were acquired, and then only in compliance with the
applicable requirements of Rule 144. See "Shares Eligible for Future Sale."
The Company, the holders of all shares outstanding prior to the Offering and
all stockholders of Merkert and Rogers have agreed with the U.S.
Representatives (as defined herein under the caption "Underwriting"), with
certain exceptions, not to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the written consent of the U.S. Representatives. The
Company intends to register additional shares of Common Stock under the
Securities Act after completion of the Offering for issuance in connection
with future acquisitions. These shares generally will be freely tradeable
after their issuance by persons not affiliated with the Company unless the
Company contractually restricts their resale. The Company also intends to
register, soon after the consummation of the Offering, at least 1,300,000
shares of Common Stock issuable pursuant to the 1998 Stock Plan. Shares of
Common Stock issued upon the exercise of options under the 1998 Stock Plan
after such registration will be available for sale in the open market, subject
to the Rule 144 and lock-up limitations described above. See "Management--1998
Stock Option and Incentive Plan," "Certain Transactions," "Shares Eligible for
Future Sale" and "Underwriting."
16
<PAGE>
RESTRICTIONS ON PAYMENT OF DIVIDENDS
Following the consummation of the Offering, the Company intends to retain
earnings to finance the growth and development of its business and does not
anticipate paying cash dividends in the foreseeable future. Declaration of any
future dividends will depend upon, among other things, the Company's results
of operations, financial condition, acquisitions, capital requirements, the
terms and provisions of any debt financing agreements, and general business
condition. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Combined Liquidity and Capital
Resources Following the Combination."
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE AND FLUCTUATIONS IN
MARKET PRICE
Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop after the
Offering or, if developed, that it will be sustained. The initial public
offering price has been determined by negotiation between the Company and the
U.S. Representatives and may not be indicative of prices that will prevail in
the trading market after the Offering. Following the Offering, the trading
price of the Common Stock may be subject to significant fluctuations in
response to variations in the annual or quarterly operating results of the
Company, changes in earnings estimates for the Company by investment analysts,
the failure of the Company to meet such estimates or changes in business or
regulatory conditions affecting the Company, its Manufacturers or Retailers or
its competitors. See "Underwriting" for a description of the factors
considered in determining the initial public offering price.
IMMEDIATE AND SUBSTANTIAL DILUTION TO PURCHASERS IN OFFERING
The initial public offering price is substantially higher than the book
value per share of Common Stock. Accordingly, purchasers in the Offering will
suffer immediate and substantial dilution in the net tangible book value per
share of $21.68. Additional dilution will occur upon the exercise of
outstanding options to purchase shares of Common Stock granted by the Company
to non-employee members of its Board of Directors and certain of the Company's
employees, including certain members of the Company's management, pursuant to
the 1998 Stock Plan. Under the 1998 Stock Plan, the Company is authorized to
issue options for up to thirteen percent of the number of shares of Common
Stock outstanding from time to time. Upon consummation of the Offering,
1,300,000 shares of Common Stock will be reserved for issuance under the 1998
Stock Plan (1,407,250 shares of Common Stock will be reserved for issuance
under the 1998 Stock Plan if the Underwriters' over-allotment options are
exercised in full). See "Dilution" and "Management--1998 Stock Option and
Incentive Plan."
17
<PAGE>
THE COMBINATION
The Company was organized in March 1998 and, to date, has conducted
operations only in connection with the Combination and the Offering.
Simultaneously with the consummation of the Offering, the Company will
purchase all of the issued and outstanding capital stock of each of Merkert
and Rogers. In connection with the Company's purchase of Merkert and Rogers,
the Company will amend and restate its Certificate of Incorporation to, among
other things, increase the Company's authorized shares of Common Stock and
authorize a class of preferred stock, and will declare a stock dividend. Such
transactions are referred to herein collectively as the "Combination." For a
description of the transactions pursuant to which each of Merkert and Rogers
will be acquired by the Company, see "Certain Transactions--Organization of
the Company."
The aggregate consideration to be paid by the Company at the closing of the
Combination is $86.3 million, consisting of approximately $53.2 million in
cash (representing approximately 48.8% of the estimated net proceeds of the
Offering) and 1,503,691 shares of Common Stock (assuming an initial public
offering price of $22.00 per share). If the initial public offering price is
other than $22.00 per share, the number of shares issued to the former
stockholders of Merkert and Rogers will be increased or decreased so that such
stockholders receive an aggregate of approximately $33.1 million of Common
Stock valued at the initial public offering price. However, the total number
of shares of Common Stock outstanding following the Combination will not vary
as a result of an initial public offering price of other than $22.00 per share
because the size of the stock dividend that will be declared by the Company
prior to the consummation of the Combination will increase as the initial
offering price increases and decrease as the initial offering price decreases.
As a result, upon the consummation of the Combination (but without giving
effect to the Offering), there will be outstanding a total of 4,500,000 shares
of Common Stock. In connection with the Combination, the Company will repay,
in the aggregate, approximately $15.6 million of indebtedness of Merkert and
Rogers from the net proceeds of the Offering. The consideration to be paid by
the Company for Merkert and Rogers was determined by arm's length negotiations
between the Company and representatives of each of Merkert and Rogers,
respectively, and was based primarily on a percentage of the historical
revenues and pro forma EBITDA (earnings before interest, taxes, depreciation
and amortization) of each of Merkert and Rogers. For a more detailed
description of these transactions, see "Certain Transactions--Organization of
the Company."
The stockholders of Merkert and Rogers will hold approximately 1,503,691
shares of Common Stock immediately following the Offering and have the right
in certain circumstances to include some or all of their shares of Common
Stock in a registration statement filed by the Company. The Company also
intends to register, soon after the consummation of the Offering, at least
1,300,000 shares of Common Stock issuable pursuant to the 1998 Stock Plan. See
"Management--1998 Stock Option and Incentive Plan," "Certain Transactions" and
"Shares Eligible for Future Sale."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,500,000 shares of
Common Stock in the Offering (assuming an initial public offering price of
$22.00 per share), after deducting the underwriting discounts and estimated
offering expenses payable by the Company, will be approximately $109.0 million
($125.9 million if the Underwriters' over-allotment options are exercised in
full). The uses of such net proceeds will be as follows: (i) approximately
$53.2 million will be used to pay the cash portion of the purchase price for
Merkert and Rogers, (ii) approximately $15.6 million will be used to repay
certain indebtedness of Merkert and Rogers assumed in connection with the
Combination (which indebtedness bears interest at a weighted average interest
rate of approximately 8.5% and has a weighted average maturity of
approximately 5 years), (iii) approximately $18.0 million will be used to pay
certain obligations to certain sellers of previously acquired businesses, (iv)
approximately $500,000 will be used to repay a note payable to Monroe &
Company II, LLC which is attributable to certain of the Company's expenses,
(v) approximately $1.5 million will be used to fund buyouts of employment
arrangements of certain departing executives of Merkert and Rogers, (vi)
approximately $1.0 million will be used to pay expenses incurred by Merkert
American Corporation, and each of Merkert and Rogers and their respective
stockholders in connection with the Combination and (vii) the remaining net
proceeds of approximately $19.2 million will be used for general corporate
purposes, which may include future acquisitions. Until used, the proceeds of
the Offering will be invested in short-term, investment grade, interest-
bearing obligations.
DIVIDEND POLICY
The Company intends to retain earnings to finance the growth and development
of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will be at the discretion
of the Board of Directors and will depend upon the financial condition,
capital requirements and earnings of the Company and such other factors as the
Board of Directors may deem relevant. In addition, the Company may in the
future enter into financing arrangements that may place restrictions on the
Company's ability to pay dividends. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
19
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the short-term and long-term obligations and
capitalization at March 31, 1998 of the Company on a pro forma combined basis
to give effect to: (i) the proposed amendment and restatement of the Company's
Certificate of Incorporation, (ii) the issuance of 499,385 shares of Common
Stock to Gerald R. Leonard after March 31, 1998; (iii) a stock dividend of
878.3897 shares of Common Stock and 785.2264 shares of Restricted Common Stock
in respect of each issued and outstanding share of Common Stock; (iv) the
purchase of Merkert and Rogers by the Company and the sale or distribution of
certain real estate and non-operating assets and liabilities; and (v) the
Offering and the application of a portion of the estimated net proceeds
therefrom. This table should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------
PRO FORMA AS
COMBINED ADJUSTED(1)
--------- -----------
<S> <C> <C>
Short-term debt including current portion of long
term debt (2)..................................... $37,829 $ 4,229
======= ========
Long-term debt, less current portion (3)........... $26,477 $ 26,477
------- --------
Stockholders' equity:
Undesignated preferred stock, 1,000,000 shares
authorized
none issued or outstanding...................... -- --
Common stock, $.01 par value per share,
54,000,000 authorized shares, 4,500,000 shares
issued and outstanding pro forma, 10,000,000
shares issued and outstanding pro forma as
adjusted (4).................................... 45 100
Additional paid-in capital....................... 28,074 137,049
Retained earnings................................ -- --
------- --------
Total stockholders' equity..................... 28,119 137,149
------- --------
Total capitalization............................... $54,596 $163,626
======= ========
</TABLE>
- --------
(1) Reflects the consummation of the Offering and the expected application of
the net proceeds therefrom.
(2) For a description of the Company's debt, see the Notes to Unaudited Pro
Forma Combined Financial Statements and the Notes to the Merkert and
Rogers Financial Statements.
(3) Includes the portion of the estimated amount of acquisition obligations of
Merkert and Rogers to be paid within the next twelve months.
(4) Excludes (i) incentive stock options to purchase up to 545,000 shares to
be granted to members of the Company's management upon consummation of the
Offering at an exercise price per share equal to the price to the public
in the Offering, (ii) non-qualified stock options to purchase up to
245,000 shares granted to certain members of the Company's management at
an exercise price of $16.50 (estimated fair market value at the date of
grant) per share and (iii) options to purchase up to 65,000 shares to be
granted to the Company's Independent Directors upon consummation of the
Offering at an exercise price per share equal to the price to the public
in the Offering. See "Management--1998 Stock Option and Incentive Plan"
and "--Option Grants."
20
<PAGE>
DILUTION
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The deficit in pro forma net tangible book value of the Company at March 31,
1998 was approximately $105.8 million, or $23.52 per share of Common Stock.
The deficit in net tangible book value per share represents the amount of the
Company's stockholders' equity, less the intangible assets, divided by the
number of shares of Common Stock issued and outstanding after giving effect to
the purchase of Merkert and Rogers by the Company. Net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the Offering and the pro forma net
tangible book value per share of Common Stock immediately after completion of
the Offering. After giving effect to the sale of 5,500,000 shares of Common
Stock by the Company in the Offering and the application of the estimated net
proceeds therefrom, the pro forma net tangible book value of the Company as of
March 31, 1998 would have been $3.2 million or $0.32 per share. This
represents an immediate increase in pro forma net tangible book value of
$23.84 per share to stockholders as of March 31, 1998, and an immediate
dilution in pro forma net tangible book value of $21.68 per share to
purchasers of Common Stock in the Offering. The following table illustrates
the dilution per share:
<TABLE>
<CAPTION>
<S> <C>
Initial public offering price per share......................... $22.00
Pro forma deficit in net tangible book value per share before
the Offering................................................. (23.52)
Increase in pro forma net tangible book value per share
attributable to new investors................................ 23.84
Pro forma net tangible book value per share after the Offering.. 0.32
Dilution per share to new investors............................. $21.68
</TABLE>
The following table sets forth, on a pro forma basis to give effect to the
Combination as of March 31, 1998 and after giving effect to the sale of Common
Stock in the Offering at a price of $22.00 per share, the number and
percentage of shares of Common Stock purchased from the Company, the aggregate
cash consideration paid and the average price per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PER SHARE
---------- ------- ------------------- -------------
<S> <C> <C> <C> <C>
Existing Stockholders... 4,500,000 45.0% $ 1,500,000 $ 0.33
New Investors........... 5,500,000 55.0 121,000,000 22.00
---------- ----- ------------
Total................. 10,000,000 100.0% $122,500,000
========== ===== ============
</TABLE>
21
<PAGE>
SELECTED FINANCIAL DATA FOR MERKERT AND ROGERS
(DOLLARS IN THOUSANDS)
The following selected consolidated statement of income data for each of the
three years ended December 31, 1997 and consolidated balance sheet data at
December 31, 1996 and 1997 are derived from consolidated financial statements
of each of Merkert and Rogers which have been audited by Arthur Andersen LLP,
independent auditors, and are included elsewhere herein. The selected
financial information at December 31, 1995 and for the years ended December
31, 1993 and 1994 for Merkert and October 31, 1993 and 1994 for Rogers are
derived from unaudited financial statements not included herein. The
consolidated income data for the three months ended March 31, 1997 and 1998
and the consolidated balance sheet data at March 31, 1998 are derived from
unaudited consolidated financial statements also included elsewhere in the
Prospectus. The unaudited consolidated financial statements have been prepared
by each of Merkert and Rogers on a basis consistent with the audited financial
statements of each of Merkert and Rogers and, in the opinion of management,
include all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the consolidated financial position and
results of operations of each of Merkert and Rogers for these periods. The
consolidated results of operations for the three months ended March 31, 1998
are not necessarily indicative of results for the year ending December 31,
1998 or any future period. See the Unaudited Pro Forma Combined Financial
Statements and the Notes thereto and the Merkert and Rogers financial
statements and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
MERKERT
STATEMENT OF OPERATIONS
DATA
Commissions........... $ 66,686 $ 68,247 $ 73,336 $ 80,661 $104,274 $ 26,201 $ 24,168
Sales................. 28,582 37,395 49,233 44,916 43,105 11,257 12,424
-------- -------- -------- -------- -------- --------- ---------
Revenues............. 95,268 105,642 122,569 125,577 147,379 37,458 36,592
Operating income
(loss)............... 713 (329) 2,434 633 1,373 (1,705) (283)
Net (loss)............ (192) (750) (461) (2,074) (3,449) (2,994) (1,615)
OTHER FINANCIAL DATA
EBITDA(1)............. 3,747 2,054 4,566 3,080 5,857 (556) 854
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Total Assets............. $28,418 $27,759 $31,425 $47,422 $58,699 $56,648
Long-term debt, less
current maturities...... 3,554 1,508 3,458 15,590 21,278 24,193
Convertible preferred
stock................... 6,360 6,360 6,360 6,360 5,720 5,720
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
OCTOBER 31, DECEMBER 31, MARCH 31,
--------------- ------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ROGERS
STATEMENT OF OPERATIONS
DATA
Commissions........... $27,365 $30,626 $47,496 $63,311 $82,985 $ 20,025 $ 20,831
Operating income
(loss)............... 463 816 3,149 107 4,085 (425) 1,190
Net income (loss)..... 145 13 1,034 (1,089) 745 (509) 232
OTHER FINANCIAL DATA
EBITDA(1)............. 931 1,245 4,222 1,753 6,601 211 1,825
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
--------------- ----------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Total Assets............. $10,948 $13,406 $23,318 $37,761 $38,999 $39,636
Long-term debt, less cur-
rent maturities......... 5,812 7,093 15,009 28,849 30,830 22,209
</TABLE>
- --------
(1) EBITDA represents earnings before interest, taxes, depreciation and
amortization. The Company believes that EBITDA may be useful to investors
for measuring the Company's ability to service debt, to make new
investments and to meet working capital requirements. EBITDA as calculated
by the Company may not be consistent with calculations of EBITDA by other
companies. EBITDA should not be considered in isolation from or as a
substitute for net income (loss), cash flows from operating activities or
other statements of operations or cash flows prepared in accordance with
generally accepted accounting principles or as a measure of profitability
or liquidity.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ significantly from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Prospectus. The following discussion and analysis should be read in
conjunction with the Company's unaudited pro forma combined financial
statements and Merkert's and Rogers' respective financial statements and
related notes thereto presented elsewhere in this Prospectus.
INTRODUCTION
The Company was organized in March 1998 to create a leading food brokerage
firm providing outsourced sales, merchandising and marketing services to
Manufacturers. The Company acts as an independent sales and marketing
representative, selling grocery and consumer products on behalf of
Manufacturers and coordinating the execution of Manufacturers' marketing
programs with Retailers. The Company's principal source of revenue is
commissions it receives from Manufacturers. The Company's other activities
include managing private label programs on behalf of selected Retailers.
To date, the Company has conducted operations only in connection with the
Combination and the Offering and will purchase all of the issued and
outstanding capital stock of Merkert and Rogers in the Combination. Prior to
the Combination, Merkert and Rogers have operated throughout the periods
presented as independent, owned entities. For financial reporting purposes,
the Company is presented as the acquiror of Merkert and Rogers.
Merkert, headquartered in Canton, Massachusetts, was founded in 1950 and is
one of the three largest food brokers in the northeastern United States.
Merkert operates 12 offices throughout New England, New York, and the mid-
Atlantic, from Maine west to Ohio and south to Virginia. Rogers, headquartered
in Charlotte, North Carolina, was founded in 1934 and is one of the three
largest food brokers in the southeastern United States. Rogers operates 22
offices throughout the southeastern and mid-Atlantic United States.
The Company has long-standing relationships with many of its Manufacturers
and represents more than 750 Manufacturers. Industry practice is that food
brokers' relationships with Manufacturers are generally governed by contracts
which are typically terminable by either party upon 30 days' notice. In the
ordinary course of business the Company experiences turnover in these
relationships as a result of Manufacturer conflicts or strategic decisions by
the Company or a Manufacturer. Additionally, the Company currently estimates
that a loss in revenues of approximately $2.5 million will be incurred as a
result of Manufacturer conflicts associated with the Combination. However,
there can be no assurance that additional losses in revenue will not be
incurred as a result of potential Manufacturer conflicts associated with the
Combination.
ACQUISITION HISTORY
The food brokerage industry has experienced significant consolidation as the
number of food brokerage firms has decreased from 2,500 to 1,100 over the past
ten years. There are approximately 12 large regional firms, which have emerged
as the result of the consolidation of competitors. A number of the companies
in the food brokerage industry, including Merkert and Rogers, have
participated in the trend towards consolidation by acquiring other food
brokerage businesses, generally financing these transactions with debt and/or
by deferring the payment of a portion of the purchase price.
As part of their business development, both Merkert and Rogers have been
active in pursuing acquisition opportunities. Since 1995, each of Merkert and
Rogers has completed several acquisitions, although their respective
acquisition strategies resulted in different operational outcomes.
Merkert has focused on larger acquisitions within its existing markets which
have given it the opportunity to consolidate operations and achieve greater
efficiencies. Merkert, based on its analysis of the Manufacturer
24
<PAGE>
relationships of acquisition candidates, selected what it viewed as the
strongest on-going relationships between Manufacturers it represented and
Manufacturers represented by the acquired companies.
Since the beginning of 1995, Merkert has completed five asset acquisitions
of food brokerage companies, including the asset purchases of Food Service
Sales in metropolitan New York (January 1995), ABD Sales, Inc. ("ABD") in
metropolitan New York (October 1996), DelGrosso, Richardson, Morrison, Inc.
("DRM") in the mid-Atlantic region (October 1996), JP Luciano, Inc. and
Luciano Food Brokers, Inc. ("Luciano") in upstate New York (January 1997) and
Toomey-DeLong, Inc. ("T-D") in New England (January 1997). DRM was the only
acquisition outside an existing territory of Merkert.
Merkert has achieved cost savings through the consolidation of its
acquisitions within its existing markets by eliminating duplicative offices
and combining sales and administrative organizations. These acquisitions have
allowed Merkert to further penetrate its existing markets.
Rogers has focused on the expansion of its geographic coverage. Rogers'
acquisitions have generally represented opportunities for entry into
territories not previously covered by Rogers. Rogers' acquisition program has
been driven by a strategy designed to ensure that it is capable of
representing its most significant Retailers in all the territories these
Retailers serve as they expand.
Since the beginning of 1995, Rogers has completed ten significant
acquisitions of food brokerage companies including, among others, Clarke &
Wittekind in Tennessee (March 1995), Dopson-Hicks in Florida (November 1995),
G.B.S. (October 1996) and Fitzwater (November 1996) in the mid-Atlantic
region, Sales Support in South Carolina (November 1996) and Marketing
Performance, Inc. in Alabama (November 1996).
Rogers has been able to achieve significant growth in revenues as a result
of capturing new business from existing Manufacturers in new territories
acquired. Because many of Rogers' acquisitions have been in new territories,
Rogers has not experienced the same degree of cost saving opportunities
through consolidation as Merkert. See "Results of Operations--Rogers."
RESULTS OF OPERATIONS
The following defined terms are used in conjunction with both Merkert's and
Rogers' discussion of operating results.
Revenues. Revenues are derived mainly from commissions earned from
Manufacturers based on the Manufacturers' invoices to Retailers for products
sold. Commissions are usually expressed as a percentage of the invoice as
agreed by contract between the Manufacturer and broker. Commission rates
typically range from 3% for full brokerage services to 1% for retail-only
services. Merkert also derives revenues, referred to as "Sales," from the sale
of products including private label packaging materials and frozen products,
such as fruits and vegetables, to certain Retailers, and other products for
certain Manufacturers. See "Business-- Services and Operations."
Cost of sales. Cost of sales are primarily the direct cost of private label
products sold by Merkert, such as the cost of packaging and frozen vegetables
purchased from suppliers.
Selling, general and administrative expenses. Selling expenses are
predominately comprised of salaries, fringe benefits and incentives for
personnel directly involved in providing services to Manufacturers and
Retailers. Other selling expenses include, among other things, automobiles
utilized by the sales personnel, promotional expenses, and travel and
entertainment. General and administrative expenses consist primarily of
salaries and fringe benefits for administrative and corporate personnel,
occupancy and other office expenses, information technology, communications
and insurance.
25
<PAGE>
Depreciation and amortization expenses. Depreciation and amortization
expenses relate to intangible assets, including goodwill incurred and
noncompete agreements entered into in connection with the Company's
acquisition program, and property, plant and equipment.
Following the Combination, the Company expects to achieve certain savings as
a result of its consolidation of operations in geographic areas where Merkert
and Rogers both have operations. Certain of these savings are reflected in the
pro forma combined statement of operations.
RESULTS OF OPERATIONS--MERKERT
The following table sets forth the results of operations of Merkert on a
historical basis. The historical results of Merkert discussed below do not
reflect the operations of Rogers or the effect of any pro forma adjustments
(dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------- ------------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions............. $ 73,336 $ 80,661 $104,274 $ 26,201 $ 24,168
Sales................... 49,233 44,916 43,105 11,257 12,424
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Revenues................ $122,569 100.0% $125,577 100.0% $147,379 100.0% $ 37,458 100.0% $ 36,592 100.0%
Cost of sales........... 45,615 37.2 41,890 33.4 39,027 26.5 10,467 27.9 11,420 31.2
Selling expenses........ 45,717 37.3 52,510 41.8 69,913 47.4 19,181 51.2 16,144 44.1
General and
administrative......... 26,671 21.8 28,097 22.4 32,582 22.1 8,366 22.3 8,174 22.3
Depreciation and
amortization........... 2,132 1.7 2,447 1.9 4,484 3.0 1,149 3.1 1,137 3.1
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Operating income
(loss)................. 2,434 2.0 633 0.5 1,373 0.9 (1,705) (4.6) (283) (0.8)
Interest expense........ 1,660 1.4 2,283 1.8 5,010 3.4 1,222 3.3 1,129 3.1
Other (income) expense.. (33) 0.0 (380) (0.3) (79) (0.1) 27 0.1 103 0.3
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Income (loss) before
income taxes........... 807 0.7 (1,270) (1.0) (3,558) (2.4) (2,954) (7.9) (1,515) 4.1
Provision (benefit) for
income taxes........... 1,268 1.0 804 0.6 (109) (0.1) 40 (0.1) 100 0.0
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Net income (loss)....... (461) (0.4) (2,074) (1.7) (3,449) (2.3) (2,994) (8.0) (1,615) (4.4)
Preferred stock
dividend............... 445 0.4 445 0.4 445 0.3 111 0.3 100 0.3
-------- ----- -------- ----- -------- ----- -------- ------ -------- ------
Net income available to
common stockholders.... $ (906) (0.7)% $ (2,519) (2.0)% $ (3,894) (2.6)% $ (3,105) (8.3)% $ (1,715) (4.7)%
======== ===== ======== ===== ======== ===== ======== ====== ======== ======
</TABLE>
- --------
Note: Merkert derives its Sales primarily from sales of private label
products, price marking devices and bio-degreasers. Cost of Sales is directly
related to this activity. Selling expenses relate to Merkert's commission
revenues.
Merkert results for the first quarter of 1998 compared to the first quarter of
1997:
Revenues. Revenues decreased by $0.9 million, or 2.3%, from $37.5 million in
the first quarter of 1997 to $36.6 million in the first quarter in 1998.
Revenues from commissions decreased by $2.0 million, or 7.8%, from $26.2
million in the first quarter of 1997 to $24.2 million in the first quarter of
1998. The decrease is primarily due to the impact of a discontinued
merchandising operation, which had been established in 1995 to serve one
specific Retailer and which was shut down in October 1997, and decreases due
to lost business, principally in the mid-Atlantic region, including one major
Manufacturer which switched to retail-only brokerage service in 1997, but has
since returned to a hybrid brokerage service relationship in 1998. Sales of
products increased by $1.2 million, or 10.4%, from $11.3 million in the first
quarter of 1997 to $12.4 million in the first quarter of 1998 primarily as a
result of the growth of a major customer of private label frozen foods.
Selling, general and administrative expenses. Selling expenses, principally
related to payroll, auto and related costs, decreased by $3.0 million, or
15.8%, from $19.2 million in the first quarter of 1997 to $16.1 million in the
first quarter of 1998, due to reductions in personnel associated with the
synergies achieved from the
26
<PAGE>
acquisitions in overlapping geographic areas which were made in late 1996 and
early 1997. Administrative expenses decreased by $0.2 million, or 2.3%, from
$8.4 million in the first quarter of 1997 to $8.2 million in the first quarter
of 1998, also due to the personnel reductions noted above. The full effects of
the reduction of payroll were not experienced until the second half of 1997.
As a percentage of revenues, selling, general and administrative expenses
decreased from 73.5% in the first quarter of 1997 to 66.4% in the first
quarter of 1998. Merkert's practice with respect to acquisitions is to achieve
efficiencies through the reduction of costs associated with redundant
administrative and other functions and the leveraging of Merkert's information
technology, purchasing power and other strengths.
Depreciation and amortization. Depreciation and amortization remained
consistent between quarters.
Interest expense. Interest expense remained consistent between quarters.
Income (loss) before income taxes. The loss before income taxes decreased by
$1.4 million, or 48.7%, from ($3.0) million in the first quarter of 1997 to
($1.5) million in the first quarter of 1998 mainly due to the benefits derived
from the payroll reduction discussed above.
Provision (benefit) for income taxes. Provision for income taxes represents
a net provision of $0.1 million in the first quarter of 1998.
Net income (loss). Net loss decreased by $1.4 million, or 46.1%, from ($3.0)
million in the first quarter of 1997 to ($1.6) million in the first quarter of
1998. The first quarter is historically Merkert's weakest quarter due to the
factors discussed in "Seasonality; Fluctuations in Quarterly Operating
Results" below.
Preferred stock dividends. Preferred stock dividends to participants in
Merkert's Employee Stock Ownership Plan ("ESOP") totalling $0.1 million were
accrued in the first quarter of 1998. These dividends are a direct charge to
retained earnings and do not impact the net loss as reported.
Net income (loss) applicable to common stockholders. The loss applicable to
common stockholders decreased $1.4 million, or 44.8%, from ($3.1) million in
the first quarter of 1997 to ($1.7) million in the first quarter of 1998.
Merkert results for 1997 compared to 1996:
Revenues. Revenues increased by $21.8 million, or 17.4%, from $125.6 million
in 1996 to $147.4 million in 1997. Revenues from commissions increased by
$23.6 million, or 29.3% from $80.7 million to $104.3 million, substantially
all of which is attributable to acquisitions consummated in late 1996 and
early 1997 net of account resignations associated with product conflicts
related to the acquired companies. Sales of products decreased by $1.8
million, or 4.0%, from $44.9 million in 1996 to $43.1 million in 1997
primarily as a result of a major Retailer choosing to manage its private label
frozen vegetable program internally in the fourth quarter of 1996.
Selling, general and administrative expenses. Selling expenses, principally
related to payroll, auto and related costs, increased by $17.4 million, or
33.1%, from $52.5 million in 1996 to $69.9 million in 1997 due to increased
personnel associated with the acquisitions. General and administrative
expenses increased by $4.5 million, or 16.0%, from $28.1 million in 1996 to
$32.6 million in 1997 also due principally to costs associated with the full
year effect of the acquisitions.
1997 was devoted to the integration of these acquisitions into Merkert's
operating system. Included in these activities was the reduction of selling,
general and administrative expenses in connection with Merkert's metropolitan
New York operations. The Boerner Division, which operated as one of three
separate Merkert divisions in the metropolitan New York area following the ABD
acquisition, was merged into Merkert's remaining two metropolitan New York
divisions. Additionally, Merkert undertook staff reductions in the mid-
Atlantic region in response to competitive conditions.
27
<PAGE>
Annualized payroll was reduced by $12.0 million, or 18.5%, from $65.0
million in January 1997 to $53.0 million in December 1997 as a result of these
efforts as well as the discontinuation of the merchandising operation. As the
changes were made over the course of the year, the historical periods do not
reflect the full effect of the implementation of these cost-saving
initiatives. Selling, general and administrative expenses in 1997 also reflect
the impact of approximately $1.0 million of restructuring costs associated
with severance of personnel and the elimination of duplicative offices as a
result of these acquisitions.
Depreciation and amortization. Depreciation and amortization increased by
$2.0 million, or 83.2%, from $2.4 million in 1996 to $4.5 million in 1997,
primarily as a result of the amortization of goodwill and other intangible
assets associated with acquisitions.
Interest expense. Interest expense increased by $2.7 million from $2.3
million in 1996 to $5.0 million in 1997, due mainly to interest expense
related to obligations to sellers in connection with acquisitions. Interest
expenses associated with the revolving line of credit and Merkert's real
estate mortgage increased by $0.6 million due to increased borrowings to fund
working capital as well as a new corporate headquarters which was completed
late in 1997.
Income (loss) before income taxes. The loss before income taxes increased by
$2.3 million from ($1.3) million in 1996 to ($3.6) million in 1997, mainly due
to the effects of the charges for amortization and interest associated with
the acquisitions.
Provision (benefit) for income taxes. Provision for income taxes represented
a benefit of ($0.1) million in 1997 versus a $0.8 million provision in 1996.
The 1996 provision resulted from an increase in the valuation allowance of
$1.6 million for deferred tax assets not likely to be realized, as well as to
permanent non-deductible expenses, principally related to travel and
entertainment expenses.
Net income (loss). The net loss increased by $1.4 million, or 66.3%, from
($2.1) million in 1996 to ($3.4) million in 1997 due to the significant
increase in acquisition-related amortization, interest expense and other
factors as discussed above.
Preferred stock dividends. Preferred stock dividends paid to participants in
the ESOP totalled $0.4 million in 1996 and 1997. These dividends are a direct
charge to retained earnings and do not impact the net loss as reported.
Net income (loss) applicable to common stockholders. The net loss applicable
to common stockholders increased by $1.4 million, or 54.6%, from ($2.5)
million in 1996 to ($3.9) million in 1997 as "Net income (loss)" and "Net
income (loss) available to common stockholders" differ only by the direct
retained earnings charge for the preferred stock dividend.
Merkert results for 1996 compared to 1995:
Revenues. Revenues increased by $3.0 million, or 2.5%, from $122.6 million
in 1995 to $125.6 million in 1996. Revenues from commissions increased by $7.3
million, or 10.0%, from $73.3 million in 1995 to $80.7 million in 1996
primarily resulting from acquisitions consummated in late 1996, including ABD
in New York and DRM in the mid-Atlantic region. These acquisitions represent
82% of the increase. Internal growth represents the balance of the increase.
Sales of products decreased by $4.3 million, or 8.8%, from $49.2 million in
1995 to $44.9 million in 1996 primarily as a result of the loss of a private
label frozen vegetable program due to a major Retailer choosing to manage
their program internally.
Selling, general and administrative expenses. Selling expenses principally
related to payroll, auto and related costs, increased by $6.8 million, or
14.9%, from $45.7 million in 1995 to $52.5 million in 1996 due to increased
personnel associated with the acquisitions. General and administrative
expenses increased by $1.4 million, or 5.3%, in 1995 to $28.1 million in 1996
also due principally to costs associated with the acquisitions in the fourth
quarter of 1996. As a percentage of revenue, selling, general and
administrative expenses increased from 59.1% in 1995 to 64.2% of revenue in
1996.
28
<PAGE>
Depreciation and amortization. Depreciation and amortization increased by
$0.3 million, or 14.8%, from $2.1 million in 1995 to $2.4 million in 1996,
largely due to the amortization of goodwill and other intangible assets
associated with the acquisitions.
Interest expense. Interest expense increased by $0.6 million, or 37.5%, to
$2.3 million in 1996, due mainly to interest expense associated with Merkert's
revolving line of credit to fund working capital.
Income (loss) before income taxes. The loss before taxes decreased by $2.1
million from income before taxes of $0.8 million in 1995 to a loss before
income taxes of ($1.3) million in 1996 mainly due to the effects of the
additional operating costs associated with the acquisitions.
Provision (benefit) for income taxes. The provision for income taxes
decreased by $0.5 million from $1.3 million in 1995 to $0.8 million in 1996.
The 1996 provision, despite the loss before income taxes, is due to the $1.1
million increase in the valuation allowance.
Net income (loss). Net loss increased by $1.6 million from ($0.5) million in
1995 to ($2.1) million in 1996.
Preferred stock dividend. The required dividend was $0.4 million in both
periods.
Net income (loss) applicable to common stockholders. The loss applicable to
common stockholders was $0.9 million in 1995 and $2.5 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES -- MERKERT
At March 31, 1998, Merkert's working capital deficit was $22.8 million,
compared to $25.0 million and $17.4 million at December 31, 1997 and 1996,
respectively. Merkert's principal capital requirements are to fund its
obligations to sellers in connection with its previous acquisitions, its
working capital and its obligation relating to income taxes payable.
Historically, these requirements were met by cash flows generated from
operations and borrowings under bank credit facilities. Merkert financed such
acquisitions, in part, with debt and/or by deferring the payment of a portion
of the purchase price. A portion of the net proceeds to be received by the
Company in the Offering will be used to repay certain of Merkert's
acquisition-related obligations. Primarily as a result of such obligations, as
well as a substantial tax liability, Merkert has experienced losses and a
working capital deficit in recent years. The stockholders of Merkert have
agreed to pay such tax liability from cash otherwise payable to them in
connection with the Combination. After giving effect to the Offering and the
expected application of the net proceeds therefrom, the Company will not have
a working capital deficit. See "Risk Factors--Merkert Enterprises, Inc.--
History of Losses."
Net cash provided by (used in) operating activities for the first quarter of
1998 and the three years ended 1997, 1996 and 1995 were $(2.7) million, $3.5
million, $4.1 million and $6.2 million, respectively. The 1998 change was
principally due to increases in accounts receivable from increases in revenue.
The changes in cash from operations in 1997, 1996, and 1995 were due to
decreases in accounts receivable resulting from improved collections and
increases in accounts payable and accrued expenses associated with Merkert's
higher operating volume.
Net cash provided by (used in) investing activities for the first quarter of
1998 and the three years ended 1997, 1996 and 1995 were $0.1 million, $(7.3)
million, $(4.7) million and $(1.3) million, respectively. Additions to
property, plant and equipment, including a new corporate headquarters
completed in late 1997, were $7.3 million, $3.4 million and $1.4 million in
1997, 1996 and 1995, respectively. Initial cash payments for acquisitions were
$0.7 million and $1.4 million in 1997 and 1996, respectively.
Net cash provided by (used in) financing activities for the first quarter of
1998 and the three years ended 1997, 1996 and 1995 were $2.4 million, $3.9
million, $(0.5) million and $(2.8) million, respectively. The 1998 cash
provided by financing activities relates to the refinancing of the mortgage
debt in February 1998. The 1997 cash provided by financing activities relates
to borrowings under Merkert's credit facility to fund working capital of $4.5
million and increases in the mortgage of $3.4 million to fund the construction
of Merkert's new corporate
headquarters, offset by payments on notes payable of $2.5 million, $0.6
million of redemptions of preferred stock
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<PAGE>
from the ESOP and stock repurchases from former officers of Merkert of $1.5
million. Merkert's working capital credit facility is expected to be paid in
full with a portion of the net proceeds from the Offering. 1996 and 1995 cash
provided by financing activities relates primarily to the repurchase of stock
and repayment of notes payable.
RESULTS OF OPERATIONS--ROGERS
The following table sets forth the results of operations of Rogers on a
historical basis. The historical results of Rogers discussed below do not
reflect the operations of Merkert or the effect of any pro forma adjustments
(dollars in thousands).
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------------- -----------------------------------
1995 1996 1997 1997 1998
------------- -------------- ------------- ----------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commissions............. $47,496 100.0% $63,311 100.0 % $82,985 100.0% $ 20,025 100.0 % $ 20,831 100.0%
Selling expenses........ 35,817 75.4 50,614 79.9 63,361 76.3 16,625 83.0 15,785 75.8
General and
administrative......... 7,457 15.7 10,944 17.3 13,023 15.7 3,189 15.9 3,221 15.5
Depreciation and
amortization........... 1,073 2.3 1,646 2.6 2,516 3.0 636 3.2 635 3.0
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Operating income
(loss)................. 3,149 6.6 107 0.2 4,085 5.0 (425) (2.1) 1,190 5.7
Interest expense........ 1,176 2.4 1,656 2.6 2,536 3.1 660 3.3 650 3.1
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Income (loss) before
income taxes........... 1,973 4.2 (1,549) (2.4) 1,549 1.9 (1,085) (5.4) 540 2.6
Provision (benefit) for
income taxes........... 939 2.0 (460) (0.7) 804 1.0 (576) (2.9) 308 1.5
------- ----- ------- ----- ------- ----- -------- ------ -------- ------
Net income (loss)....... $ 1,034 2.2% $(1,089) (1.7)% $ 745 0.9% $ (509) (2.5)% $ 232 1.1%
======= ===== ======= ===== ======= ===== ======== ====== ======== ======
</TABLE>
Rogers results for the first quarter of 1998 compared to the first quarter of
1997:
Revenues. Commission revenues increased $0.8 million, or 4.0%, from $20.0
million for the first quarter of 1997 to $20.8 million for the first quarter
of 1998. This increase is due to growth from both business gained from
Manufacturers not previously represented by Rogers and from expansion of
business with Manufacturers already represented by Rogers.
Selling, general and administrative expenses. Selling expenses, principally
related to payroll, decreased $0.8 million, or 5.1%, from $16.6 million for
the first quarter of 1997 to $15.8 million for the first quarter of 1998. This
decrease is due to cost savings achieved through the integration of
acquisitions. General and administrative expenses remained consistent between
the first quarter of 1997 and the first quarter of 1998. Salaries and related
expenses declined as a percentage of commission revenues from 65.9% in the
first quarter of 1997 to 59.5% in the first quarter of 1998.
Depreciation and amortization. Depreciation and amortization remained
consistent between quarters.
Interest expense. Interest expense remained consistent between quarters.
Income (loss) before taxes. Income before taxes increased by $1.6 million
from a loss of ($1.1) million for the first quarter of 1997 to income of $0.5
million for the first quarter of 1998. This increase is due to internal growth
in commission revenues coupled with the integration of acquisitions into
Rogers.
Provision (benefit) for income taxes. Provision for income taxes increased
by $0.9 million from a benefit of ($0.6) million for the first quarter of 1997
to $0.3 million for the first quarter of 1998. This increase is due to the
corresponding increase in income before taxes.
Net income (loss). Net income increased by $0.7 million, from a loss of
($0.5) million for the first quarter of 1997 to income of $0.2 million for the
first quarter of 1998. This increase is due to the corresponding increase in
income before taxes.
Rogers results for 1997 compared to 1996:
Revenues. Commission revenues increased by $19.7 million, or 31.1%, from
$63.3 million in 1996 to $83.0 million in 1997. Approximately $13.0 million of
the increase is due to acquisitions made in late 1996,
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<PAGE>
mainly in the mid-Atlantic region (Fitzwater and G.B.S.). The balance of the
increase, $6.7 million, is due to revenue growth from both new Manufacturers
and existing Manufacturers represented. This represents an internal growth
rate of 10.6% and is largely attributable to the development of Manufacturer
relationships in newly acquired regions, including significant growth in
Florida.
Selling, general and administrative expenses. Selling expenses, principally
related to payroll, auto and related costs, increased by $12.8 million, or
25.2%, from $50.6 million for 1996 to $63.4 million for 1997, due to temporary
increases in staffing levels associated with acquisitions. General and
administrative expenses increased by $2.1 million or 19.0% from $10.9 million
in 1996 to $13.0 million in 1997 also due principally to increased costs
associated with acquisitions. Salaries and related expenses declined as a
percentage of commission revenues from 66.1% in 1996 to 61.0% in 1997 due to
the continuing integration of acquisitions into Rogers and related synergies
coupled with improved utilization of existing personnel relating to the
internal growth.
Depreciation and amortization. Depreciation and amortization increased by
$0.9 million, or 52.9%, from $1.6 million in 1996 to $2.5 million in 1997 due
to the amortization of goodwill and other intangible assets associated with
the acquisitions.
Interest expense. Interest expense increased by $0.8 million, or 53.1%, from
$1.7 million in 1996 to $2.5 million in 1997, due mainly to continuing
principal payments on obligations to sellers in connection with acquisitions.
Interest expense associated with Rogers' revolving line of credit increased by
$0.4 million due to increased borrowings to fund Rogers' working capital.
Income (loss) before taxes. Income before taxes increased by $3.0 million
from a loss of ($1.5) million in 1996 to income of $1.5 million in 1997.
Provision (benefit) for income taxes. Provision for income taxes increased
by $1.3 million from a benefit of ($0.5) million in 1996 to a provision of
$0.8 million in 1997. This increase results from the corresponding increase in
income before taxes.
Net income (loss). Net income increased by $1.8 million from a loss of
($1.1) million in 1996 to income of $0.7 million in 1997. This increase is a
result of the corresponding increase in income before taxes.
Rogers results for 1996 compared to 1995:
Revenues. Commission revenue increased by $15.8 million, or 33.3%, from
$47.5 million in 1995 to $63.3 million for 1996. Approximately $11.0 million
of the growth was due to acquisitions made in 1995 including Dopson-Hicks and
Clarke & Wittekind. The balance of the increase, $4.8 million, is due to
growth from both business gained from Manufacturers not previously represented
by Rogers and from expansion of business with Manufacturers already
represented by Rogers. This represents an internal growth rate of 10.1%.
Selling, general and administrative expenses. Selling expenses, principally
related to payroll, auto and related costs increased $14.8 million, or 41.3%,
from $35.8 million for 1995 to $50.6 million for 1996 due to increased
personnel associated with the acquisitions. General and administrative
expenses increased by $3.4 million, or 46.8%, from $7.5 million in 1995 to
$10.9 million in 1996 also due principally to increased costs associated with
acquisitions. Salaries and related expenses increased as a percentage of
commission revenues from 63.8% in 1995 to 66.1% in 1996.
Depreciation and amortization. Depreciation and amortization increased by
$0.5 million, or 45.5%, from $1.1 million in 1995 to $1.6 million in 1996
largely due to the amortization of goodwill and other intangible assets
associated with the acquisitions.
Interest expense. Interest expense increased by $0.5 million, or 41.7%, from
$1.2 million in 1995 to $1.7 million in 1996 due mainly to interest expense
incurred on the payment of obligations to sellers in connection with
acquisitions.
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<PAGE>
Income (loss) before taxes. Income before taxes decreased by $3.5 million
from income of $2.0 million in 1995 to a loss of ($1.5) million in 1996. This
decrease is due to a substantial increase in payroll relating to the
assumption of personnel in acquisitions as well as additions to administrative
and other support personnel to support Rogers' rapid growth.
Provision (benefit) for income taxes. Provision for income taxes decreased
by $1.4 million from a provision of $0.9 million in 1995 to a benefit of
($0.5) million in 1996. This decrease is a result of the corresponding
decrease in income before taxes.
Net income (loss). Net income decreased by $2.1 million from $1.0 million in
1995 to a loss of ($1.1) million in 1996. This decrease is a result of the
corresponding decrease in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES -- ROGERS
At March 31, 1998, Rogers' working capital (deficit) was $(4.5) million,
compared to $3.1 million and $(4.7) million at December 31, 1997 and 1996.
Rogers' principal capital requirements are to fund its obligations with
respect to acquisitions and its working capital requirements. Historically,
these requirements have been met by cash flows generated from operations and
borrowings under bank credit facilities. The March 31, 1998 deficit is due to
the classification of Rogers' borrowings of $9.5 million under its revolving
line of credit as a current liability, because the term expires on January 31,
1999. This debt will be repaid with a portion of the proceeds of the Offering.
Net cash provided (used) by operating activities for the first quarter 1998
and the three years ended 1997, 1996 and 1995 were $(1.1) million, $(0.9)
million, $0.2 million, and $5.3 million, respectively. The changes were
principally due to increases in working capital associated with the growth in
commission revenues.
Net cash provided (used) in investing activities for the first quarter of
1998 and the three years ended 1997, 1996 and 1995 were $0.1 million, $(1.4)
million, $(12.8) million and $(12.5) million, respectively. Payments for
acquisitions were $11.2 million and $11.6 million in 1996 and 1995,
respectively. Additions to property, plant and equipment and increases in the
cash surrender value of life insurance accounted for the balance of the uses.
Net cash provided by financing activities for the first quarter of 1998 and
the three years ended 1997, 1996 and 1995 were $0.9 million, $2.2 million,
$13.1 million and $7.2 million, respectively. The 1998 and 1997 activity
related to net borrowings under Rogers' credit facility to fund working
capital was $4.5 million and $1.2 million, respectively. Rogers' credit
facility is expected to be paid in full with a portion of the net proceeds
from the Offering. In 1996 and 1995, obligations to sellers of $10.2 million
and $7.9 million, respectively, were incurred in connection with acquisitions.
COMBINED LIQUIDITY AND CAPITAL RESOURCES FOLLOWING THE COMBINATION
At March 31, 1998, the combined working capital deficit of Merkert and
Rogers was $(27.3) million. Following the completion of the Offering and the
application of the net proceeds therefrom, the Company will have working
capital of approximately $15.3 million. See the Unaudited Pro Forma Combined
Financial Statements and Notes thereto presented elsewhere in this Prospectus.
The Company anticipates that its cash flow from operations and cash on hand
will provide cash sufficient to satisfy the Company's working capital needs,
debt service requirements and planned capital expenditures for at least the
next 12 months.
On a combined basis, Merkert and Rogers used $3.8 million of net cash from
operating activities for the first quarter of 1998 due to increases in
accounts receivable as March revenues were high for Merkert and Rogers.
Receivables are substantially collected within 45 days of the recognition of
commission revenues, therefore increases in accounts receivable are normally
associated with increases in revenues. On a combined basis, cash flows from
financing activities were $3.4 million for the first quarter of 1998 due to
borrowing activity at Merkert and Rogers.
32
<PAGE>
The Company intends to pursue acquisition opportunities and expects to fund
future acquisitions through the issuance of additional Common Stock,
borrowings, cash on hand following the Offering and cash flow from operations.
The Company is obligated to make payments to the sellers of certain
businesses acquired by Merkert and Rogers. In addition, the Company is
obligated to make payments relative to the mortgage on the Merkert
headquarters. The Company estimates the total principal and interest payments
under these various obligations will be approximately $6.0 million over each
of the next two years, decreasing to approximately $5.0 million over each of
the three succeeding years. The Company is engaged in negotiations with
several sellers of certain businesses acquired by Merkert and Rogers to pay
off the obligations to such sellers prior to their scheduled maturities. The
Company expects to finance any such payoffs out of the net proceeds of the
Offering or cash flow from operations. The $9.5 million mortgage, which is a
twenty year obligation at an interest rate of 8.56%, does not contain any
financial covenants, but prohibits prepayment. The mortgage is payable in
equal monthly installments over its life.
Merkert currently has in place an $8.5 million revolving line of credit (the
"Credit Line") which is scheduled to expire on February 1, 1999. Borrowings
under the Credit Line bear interest at the lender's base lending rate. The
terms of the Credit Line include certain negative covenants which include,
without limitation, prohibitions on selling or otherwise disposing of material
assets, incurring additional debt, and other customary negative covenants.
Borrowings under the Credit Line are secured by a continuing security interest
in Merkert's accounts receivable and all other debts, obligations and
liabilities owing to Merkert.
Rogers currently has in place a $10.0 million revolving credit facility (the
"Credit Facility") which is scheduled to expire on January 31, 1999.
Borrowings under the Credit Facility bear interest at the lower of: (i) the
lender's one-month LIBOR index plus 2.70% and (ii) the lender's prime lending
rate. The terms of the Credit Facility include certain negative covenants
which include, without limitation, restrictions on changes in ownership of
Rogers, creation of liens on Rogers' assets, merger and acquisition
transactions, dispositions of assets, and other customary negative covenants.
Borrowings under the Credit Facility are secured by a lien on Rogers' accounts
receivable and a second mortgage on its corporate headquarters.
Upon the consummation of the Offering, the Company expects to use a portion
of the net proceeds therefrom to repay all of the outstanding indebtedness of
Merkert and Rogers under the Credit Line and the Credit Facility. See "Use of
Proceeds."
The Company estimates that its ongoing requirements for capital
expenditures, based on the requirements of Merkert and Rogers, will be
approximately $2.0 million per year. Capital expenditures will be made to
ensure that the Company maintains its strong position in information
technology and systems and anticipates that significant capital will be
required to upgrade and integrate the systems of companies acquired in the
future. On a combined basis, Merkert and Rogers made capital expenditures of
$1.5 million in 1997, exclusive of $5.5 million for the construction of a new
corporate headquarters for Merkert.
The Company has identified up to $2.0 million in integration costs
associated with the Combination. These costs are currently being provided for
by the operating cash flows of both Merkert and Rogers. The Company
anticipates to continue to satisfy the obligations from its operating cash
flow.
The Company is seeking, and has begun negotiations with a lender for, a
revolving credit facility for acquisitions, working capital and other general
corporate purposes and within 60 days following the completion of the
Offering, intends to close on a senior credit facility with availability,
subject to certain limitations, of up to $100.0 million.
33
<PAGE>
SEASONALITY; FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Merkert and Rogers have both experienced, and the Company expects to
continue to experience, fluctuations in quarterly revenues and operating
results as a result of seasonal patterns. The Company's business is seasonal
in nature, as many Retailers generate relatively lower revenues in the first
and third calendar quarters. As a result, Merkert and Rogers have historically
generated lower revenues in the first and third calendar quarters.
Rogers' business has been stronger in the first calendar quarter compared to
Merkert due to its presence in Florida; while Merkert's business has been
stronger in the fourth calendar quarter as a result of the historically strong
sales in the northeast associated with the holiday season. Merkert, due to the
production patterns of a significant Manufacturer, also has historically
experienced a strong August.
Quarterly results may also be impacted by the timing of any future
acquisitions as well as the timing of any consolidation activities undertaken.
The Company's revenues may also be adversely impacted by disruptions in food
production by Manufacturers it represents, particularly as it relates to
weather dependent production, such as fresh produce.
INFLATION
The Company does not believe that its revenues have been materially affected
by inflation.
34
<PAGE>
BUSINESS
OVERVIEW
The Company was organized in March 1998 to create a leading food brokerage
firm providing outsourced sales, merchandising and marketing services to
Manufacturers. The Company acts as an independent sales and marketing
representative, selling grocery and consumer products on behalf of
Manufacturers and coordinating the execution of Manufacturers' marketing
programs with Retailers. The Company's principal source of revenues is
commissions that it receives from Manufacturers. The Company's other
activities include managing private label programs on behalf of selected
Retailers.
The Company has long-standing relationships with many of its Manufacturers,
including Dean Foods/Birds Eye (41 years), H.J. Heinz (24 years), Minute Maid
(44 years), Ocean Spray (29 years) and Pillsbury (19 years). Key Retailer
relationships include C&S Wholesale Grocers, Inc., Food Lion Supermarkets,
Giant Foods, Hannaford Brothers, Kroger, Publix Supermarkets, Royal Ahold
(including Stop & Shop and Bi-Lo), Safeway, Wakefern (Shop Rite), and Winn-
Dixie. The Company represents more than 750 Manufacturers and more than 70,000
food and non-food stock-keeping units ("SKUs"), and does business with key
Retailers in 22 states.
Since 1994, Merkert and Rogers have acquired and integrated 21 companies,
successfully adding coverage of new geographic markets and expanding
representation of Manufacturers' product offerings within existing markets.
The Company's strategic acquisition plan includes the selection, acquisition
and management of businesses in brokerage market segments, including the
retail food brokerage, food service brokerage and private label brokerage
market segments.
The Company will be the first publicly held food broker in the United
States. The Company is the only food broker with comprehensive geographic
coverage of the eastern United States and the capability to provide service to
the region's largest Retailers. The eastern United States is the most highly
concentrated retail store region in the United States and represents
approximately 43% of national food store sales. The Company has 34 offices
serving Retailers in 22 states. In 1997, the Company had pro forma combined
revenue of approximately $230.4 million and pro forma combined net income of
approximately $3.4 million.
To date, the Company has conducted operations only in connection with the
Combination and the Offering and will purchase all of the issued and
outstanding capital stock of Merkert and Rogers in the Combination.
INDUSTRY OVERVIEW
The Company estimates, based on information published by industry sources,
that the food brokerage industry in the United States had annual commission
revenues of approximately $6 billion in 1997. Food brokers serve
Manufacturers, Retailers and food service providers. Retail food brokers
represent approximately 3,200 Manufacturers that sell to approximately 128,000
Grocery Stores and more than 700 wholesalers nationwide. The industry includes
three types of food brokers, as follows:
Retail Food Brokers. Manufacturers of branded food and non-food products use
retail food brokers as a cost effective alternative to a direct sales force
and rely on retail food brokers to provide local market penetration,
integrated brand and category-management and access to local merchandising
data. Retail food brokers typically perform two types of services on behalf of
Manufacturers: headquarters functions and retail store functions.
Headquarters functions include services provided to both Manufacturers and
Retailers at the headquarters level. Retail food brokers conduct business
development activities, including sales calls and new product introductions to
Retailers, on behalf of Manufacturers. Retail food brokers also assist
Manufacturers in developing, reviewing and executing annual marketing plans.
Other headquarters services include order management, supervision of shelf
space management, coordination of Manufacturers' promotional spending, and
facilitating the resolution of billing issues between Manufacturers and
Retailers. In connection with the implementation of category management at the
Retailers' headquarters level, retail food brokers assist Retailers
35
<PAGE>
by gathering and analyzing demographic, consumer, and store sales information
utilized in the management of product categories as strategic business units.
Retail store functions generally include execution of sales plans for
Manufacturers' products at the store level by assisting in merchandising,
shelf and display management, new store set-ups, implementation of promotional
plans, and placement of point-of-sale coupons, signs and other information.
Retail food brokers also assist Retailers with coupon and advertising
programs, quality assurance and technical training (primarily in relation to
prepared foods). In addition, retail food brokers assist Retailers and
Manufacturers in the collection, analysis and application of retail sales
data.
The retail food brokerage industry has been growing as food brokers
represent an increasing percentage of the volume of all commodities sold
through Grocery Stores (the "ACV"). In 1997, the percentage of ACV sold
through Grocery Stores was approximately 55% compared to 45% in 1985.
According to Progressive Grocer, Grocery Store revenues, of which an
increasing portion is represented by food brokers, are generally not adversely
affected by economic downturns and have grown from approximately $292 billion
in 1985 to $436 billion in 1997.
The Company believes that the retail food brokerage industry is highly
fragmented and is experiencing significant consolidation. In the past ten
years, the number of food brokerage firms has decreased from 2,500 to 1,100,
while the number of sales representatives employed by such firms increased
from 35,000 to 42,000. There are four multi-regional food brokerage firms,
including the Company, each with approximately 3% market share. Additionally,
there are approximately 12 large regional food brokerage firms in the United
States. A number of the companies in the food brokerage industry, including
Merkert and Rogers, have participated in the trend towards consolidation by
acquiring other food brokerage businesses, generally financing these
transactions with debt and/or by deferring the payment of a portion of the
purchase price.
The Company believes that the consolidation of food brokers is primarily the
result of a desire by Manufacturers and Retailers to manage their businesses
more efficiently and effectively by reducing the number of brokers they
interact with in a given region. Additionally, management believes that
consolidation within the food brokerage industry is being driven, in part, by
the consolidation of Retailers and Manufacturers and the increasing demand for
the application of more sophisticated information technology on the part of
food brokers.
Food Service Brokers. Food service providers include operators of
restaurants, school and hospital cafeterias and other similar establishments.
Food brokers sell Manufacturers' products to food service providers through a
number of means, including headquarters sales calls and the representation of
Manufacturers' products at trade shows. The food service segment of the
industry has experienced significant growth in recent years as an increasing
percentage of consumer spending for food in the United States has shifted to
meals away from home.
Private Label Food Brokers. Private label food brokers work with
Manufacturers to develop and manage the private label programs on behalf of
Retailers. A food broker's responsibilities in connection with a private label
program may include procurement and inventory management and in-store delivery
of private label products. The private label segment has been a substantial
growth segment for Retailers in recent years.
BUSINESS STRATEGY
The Company's objective is to become the leading national provider of
outsourced sales, merchandising and marketing services to Manufacturers,
Retailers and food service providers throughout the United States. The
Company's business strategy comprises the following key elements:
Expand Current and Develop New Manufacturer Relationships. The Company seeks
to increase its representation of existing Manufacturers' product lines by
representing Manufacturers' products in new geographic markets and non-
supermarket trade channels, including mass merchandisers, food service
providers, membership warehouses, drug stores and convenience stores. The
Company also seeks to increase the range of
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<PAGE>
products it represents on behalf of the Manufacturers it currently serves and
enter into new relationships with Manufacturers.
Provide Effective Marketing Support and Valuable Category Management
Technology. The Company's marketing expertise and information technology
system allow it to utilize local demographic information and information about
retail store level conditions to understand consumer purchasing preferences in
local markets. As a result, the Company is able to develop and implement
targeted consumer sales promotions for its Manufacturers' products. The
Company also deploys category analysts who use local sales data to assist
Retailers with shelf schematics, category layouts and total store space
management.
Growth Through Strategic Acquisitions. The Company intends to pursue
strategic acquisitions in the food brokerage industry. Since 1994, Merkert and
Rogers have acquired and integrated 21 companies, successfully adding coverage
of new geographic markets and expanding representations of Manufacturers'
product offerings in existing markets. The Company's plans include the
selection, acquisition and management of businesses in the following brokerage
market segments:
. Retail: A key element of the Company's acquisition strategy is to expand
its geographic coverage by acquiring existing retail food brokerage
firms in new geographic markets. The Company also seeks acquisition
candidates that conduct business within the Company's existing territory
and offer the Company the opportunity to expand its representation of
Manufacturers and product categories and its coverage of Retailers
within existing markets. The Company's acquisition strategy is also
focused on candidates that will enable it to represent additional
product categories and cover additional distribution channels. In
particular, the Company believes that health and beauty care and general
merchandise brokerage and bakery, deli, meat, seafood, floral and
produce brokerage have significant growth potential. The Company's
strategic plans also include the coverage of convenience stores, as it
believes convenience stores will account for an increasingly larger
portion of food sales as sales of meal replacements and non-traditional
grocery items continue to grow. Retail food brokerage represented
approximately 78% of the Company's revenues for the year ended December
31, 1997 on a pro forma basis.
. Food Service: Sales to entities in the food service segment of the food
industry represented approximately 3% of the Company's revenues for the
year ended December 31, 1997 on a pro forma basis. The Company believes
that it will be able to expand its operations within the fragmented food
service segment through the acquisition of existing food service brokers
who sell Manufacturers' products to food service providers.
. Private Label: The Company believes that the private label food
brokerage segment is currently fragmented and that the Company can
further develop its private label operations through targeted
acquisitions of private label food brokers within this growing segment
of the food industry. Private label sales and brokerage represented
approximately 15% of the Company's revenues for the year ended December
31, 1997 on a pro forma basis.
The Company believes that its acquisition strategy will enable it to:
. Strengthen Market Presence: By expanding its geographic coverage, the
Company will be able to offer Manufacturers more extensive and better
coordinated coverage of Retailers who operate across geographic regions.
As the Company expands the portion of a given Manufacturer's sales that
it represents, it will be better positioned to meet Manufacturers' needs
by providing a wide range of services across a broader geographic area.
This will enable Manufacturers to increase the effectiveness of their
marketing programs and reduce the costs associated with managing their
brokerage networks by using fewer food brokerage companies.
. Benefit from Increased Economies of Scale: As the Company expands the
number of Manufacturers and product lines it represents, it expects to
realize certain economies which will result from the low incremental
cost of representing additional Manufacturers and product lines. The
Company also expects to recognize certain economies of scale as the
Company expands its operations to cover a larger geographic region.
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<PAGE>
. Improve Operating Efficiencies: The Company believes that as it
integrates acquired companies it will be able to eliminate certain
duplicative operations, facilities and personnel. The Company expects to
realize cost savings through the consolidation of certain administrative
functions.
Increase Private Label Brokerage. The Company has a division that
specializes in the development, procurement and inventory management of
private label frozen products, including fruits, vegetables and other products
on behalf of certain Retailers. The Company's private label division currently
works in conjunction with Retailers such as A&P, Price Chopper, Publix and
Royal Ahold (including Stop & Shop and Bi-Lo). In addition, the increasing
geographic coverage of the Company will provide the Company with the
opportunity to offer private label services to more retailers and more retail
locations.
Expand Food Service Brokerage. Sales to entities in the food service
brokerage segment of the food industry currently represent a small part of the
Company's business. The Company believes that there is a high degree of
fragmentation in this industry segment and that the food service brokerage
segment presents opportunities for profitable growth through strategic
acquisitions, as well as through developing new account relationships through
its existing operations. The Company intends to pursue expansion of its food
service brokerage line within its existing geographic coverage and to develop
food service brokerage in new territories.
Seek International Opportunities. The Company believes that many
opportunities exist outside the United States for sales, marketing and food
brokerage services in connection with retail food stores and in the
development of private label programs for Retailers. Certain Retailers,
including Royal Ahold, J. Sainsbury PLC and Food Lion Supermarkets, among
others, currently operate on an international basis. The Company believes that
international expansion would involve the acquisition of food brokers in
countries where food brokers are used by Manufacturers and Retailers. The
Company has recently entered into an agreement to provide private label
services to a Retailer based in Japan for its peanut butter and red wine
products.
Empower Local Management and Develop Professional Staff. The senior
management of the Company will provide overall strategic direction and
guidance with respect to acquisitions, financing, marketing and operations. In
general, however, it is the intention of the Company to continue to operate
its day-to-day business on a locally oriented basis. The Company intends to
continue the development of proprietary "best practices" by emphasizing an
entrepreneurial culture at the local level. The Company believes that the
flexibility of a locally oriented approach to operational matters enables the
Company to effectively respond to changes in the competitive environment.
The Company believes that a key factor to its continuing success is the
strength of its professionals. The development and training of employees has
contributed to the Company's continued growth and profitability. In keeping
with the Company's philosophy and operating structure, the Company intends to
continue to manage employee relations and human resource development at the
local level. Management at the local level is responsible for developing and
training the professional staff which reports to them and for creating an
environment that promotes employee satisfaction and optimal performance.
COMPANY HISTORY
The Company was organized in March 1998 and, to date, has conducted
operations only in connection with the Combination and the Offering. See
"Certain Transactions--Organization of the Company" and "The Combination."
Unless the context otherwise requires, references to the "Company" herein mean
Merkert American Corporation together with Merkert and Rogers after
consummation of the Combination.
Merkert Enterprises, Inc., one of the entities to be acquired in the
Combination, has operated as a food broker in the northeastern and mid-
Atlantic regions of the United States since 1950. In 1997, Merkert
Enterprises, Inc. had total revenues of approximately $147.4 million, the
principal source of which was from commissions it received from Manufacturers.
Merkert Enterprises, Inc. also manages private label programs on behalf of
selected Retailers. Merkert Enterprises, Inc. has grown its revenues through
both internally generated growth and through
38
<PAGE>
acquisitions, having acquired and integrated six smaller food brokers since
1994. Merkert Enterprises, Inc. financed such acquisitions, in part, with debt
and/or by deferring payment of a portion of the purchase price. A portion of
the net proceeds to be received by the Company in the Offering will be used to
repay certain of such acquisition-related obligations of Merkert Enterprises,
Inc. Primarily as a result of such obligations, as well as a substantial tax
liability, Merkert Enterprises, Inc. has experienced losses and a working
capital deficit in recent years. The stockholders of Merkert Enterprises, Inc.
have agreed to pay such tax liability from cash otherwise payable to them in
connection with the Combination. After giving effect to the Offering and the
expected application of the net proceeds therefrom, the Company will not have
a working capital deficit. See "Risk Factors--Implementation of Acquisition
Strategy; Risks Related to Growth Strategy," "--Merkert Enterprises, Inc.--
History of Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Merkert," and "--
Liquidity and Capital Resources--Merkert."
Rogers has operated as a food broker in the southeastern region of the
United States since 1934. In 1997, Rogers had total revenues of approximately
$83.0 million, all of which was derived from commissions it received from
Manufacturers. Rogers has grown its revenues through both internally generated
growth and through acquisitions, having acquired and integrated 15 smaller
food brokers since l994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Rogers."
SERVICES AND OPERATIONS
The Company has traditionally provided Manufacturers with a full array of
sales, marketing and administrative services and has been paid a commission by
Manufacturers. In certain cases, the Company has entered into "hybrid"
arrangements with Manufacturers under which the Company provides less than
full geographic coverage and/or services. Commissions from full and hybrid
services represented approximately 82% of the Company's revenues for the year
ended December 31, 1997 on a pro forma basis. The functions and services
provided by the Company are described below.
Full Services. The Company currently provides full services to approximately
92% of the Manufacturers that it represents. When the Company provides full
services to a Manufacturer in connection with the sale of its products to
Retailers, the commission is generally 3% of the Manufacturer's net sales to
such Retailers. The services that the Company provides to Manufacturers in a
full services arrangement include:
. Account Service and Business Development: In general, the Company's
Manufacturers are serviced by business managers, each of whom is
responsible for identified products of a number of Manufacturers within
one region (such as New England). The Company's business managers,
customer service personnel and support staff utilize information
developed by the Company to assist Manufacturers in devising strategic
sales plans and achieving merchandising goals and in utilizing retail
information to develop customized marketing strategies, including
determining the assortment of current and new products to be offered and
promotions designed to increase revenues and profitability. The
activities of these business managers are supervised by general managers
who manage categories of products such as groceries, frozen foods and
perishables, or health, beauty care and confection products.
The Company's Regional Business Managers ("RBMs") are Company
executives who provide the primary link between the Company and certain
of the Company's largest Manufacturers. Each of the Company's RBMs is
dedicated to a single Manufacturer and directs a multi-regional team (a
"Manufacturer Team") comprised of business managers (each of whom
manages the Company's activities on behalf of a Manufacturer in a
specified region), customer service personnel and support staff. These
RBMs provide their Manufacturers with services similar to those
provided by business managers.
. Administrative Management: The Company handles both order management and
certain billing management services for Manufacturers. The Company's
order management system enables it to perform all major order management
functions relating to orders for goods from Retailers to Manufacturers.
The Company has developed a centralized order management system to
generate electronic orders through electronic data interchange ("EDI").
This system enables the Company to verify quantities, product codes,
pricing, pack sizes and promotions pertaining to an order. The
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<PAGE>
Company's order management system also reconciles Manufacturer invoices
with Retailer purchase orders and manages and processes promotional
allowances and credits for Retailers. In addition, the Company
facilitates the resolution of billing issues between Manufacturers and
Retailers.
. Category and Shelf Space Management: The Company's category management
analysts and shelf space management analysts serve as liaisons, linking
the Company, RBMs, business managers and Manufacturer Teams with
retailer teams, comprised of headquarters account managers and retail
merchandisers ("Retailer Teams"). These retail analysts develop
information from retail data collected by the Company's Retailer Teams
and by outside sources, including ACNielson Corp. and Information
Resources, Inc. RBMs and business managers use this information in
developing multi-regional, regional and local strategies with
Manufacturers. Retailer Teams also use this information, as well as
store-specific sales and demographic information provided by these
analysts, to implement sales and merchandising strategies at the local
level. These category management activities enable Manufacturers to
prepare fact-based selling strategies used in product and promotional
planning. These activities also enable Retailers to increase sales and
profitability by more effectively utilizing their resources, including
shelf space as well as marketing and promotional expenditures.
. Retail Services: In general, the Company's headquarters account managers
and retail merchandisers represent a wide range of Manufacturers'
products to specified Retailers within a region. The Company's
headquarters account managers call upon Retailers at the headquarters
level and represent numerous products on behalf of the Company's
Manufacturers. The Company's largest Retailers are called upon by
multiple headquarters account managers, each representing specific
product categories such as groceries, frozen food/perishables or health,
beauty care and confectionery products. Smaller Retailers are generally
called upon by headquarters account managers who represent multiple
product categories. Headquarters account managers help execute sales
plans developed by RBMs, business managers and Manufacturers. Through
their frequent service calls, the Company's retail merchandisers develop
relationships with store managers and in-store category managers and
assist headquarters account managers to execute sales plans for
Manufacturers' products. The Company's retail merchandisers execute
sales plans at the store level by providing shelf and display
management, new store set-ups, stocking of new items and placement of
point-of-sale coupons and signs.
The Company's largest Retailers are serviced by dedicated Retailer
Teams. In some cases, these dedicated Retailer Teams include shelf space
management analysts who provide shelf management and display expertise.
The Company also initiates and executes local marketing events on behalf
of Manufacturers in order to build Manufacturer brand recognition. These
efforts include the preparation and display of special signage, coupon
programs and other promotional activities between Manufacturers and
Retailers.
Hybrid Services. In response to increasing demand from certain Manufacturers
who are outsourcing more of their retail services functions, the Company has
recently entered into "hybrid" agreements under which the Company provides
only specified services, geographic coverage and Retailer coverage to a
Manufacturer. The Company has entered into hybrid agreements with
approximately 5% of the Manufacturers the Company represents. The fee for such
services varies based on the particular services provided. By providing a
flexible alternative to commission-based pricing, the Company has increased
the total number of Manufacturers it represents and believes that such hybrid
services may also result in sales of additional services to Manufacturers.
Providing retail-only services is a common hybrid arrangement. Retail-only
services primarily include initial retail shelf set-ups and subsequent store
shelf space management. The Company provides retail-only services to
approximately 3% of the Manufacturers it represents. These retail-only
services generally provide for compensation equivalent to a commission of
approximately 1.0% of the value of product sales to the Retailer.
Private Label. The Company's private label division, which accounted for
approximately 14% of the Company's revenues for the year ended December 31,
1997 on a pro forma basis, develops, procures, and manages inventory of
private label products (including frozen fruits and vegetables and other
products) on behalf of certain Retailers. This division works in conjunction
with major Retailers such as A&P, Price Chopper, Publix
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<PAGE>
and Royal Ahold. The Company intends to expand its private label programs into
all of its regional markets as part of the integrated package of services the
Company offers.
Store Supplies. The Company's store supplies division, which accounted for
approximately 4% of the Company's revenues for the year ended December 31,
1997 on a pro forma basis, operates as a distributor for Monarch Marking
Systems, Inc. and sells price marking equipment, labels and other related
store supplies to Retailers in New England and metropolitan New York City. In
addition, the Company sells a bio-degreaser product to Retailers' supermarket,
meat and bakery departments, restaurants and other food service customers
directly and through local distributors. The Company intends to expand
distribution of this bio-degreaser product into all its markets.
MANUFACTURERS AND RETAILERS
Manufacturers. The Company has had up to 44 years of successful
relationships with companies such as Dean Foods/Birds Eye, H.J. Heinz, Lipton,
Mars, Minute Maid, Ocean Spray, Pillsbury, Quaker and hundreds of others.
These companies manufacture grocery-related and food service products covering
a wide spectrum of categories and sub-categories from staples to perishables.
The Company acts as the exclusive broker for certain products of a
Manufacturer only within specific geographic regions. Manufacturers typically
use multiple food brokers, divided by product line or geographic market. No
single Manufacturer represented more than 5% of the Company's revenues for the
year ended December 31, 1997, on a pro forma basis.
Retailers. On the retail side, the Company has a long established history
with many large and mid-sized Retailers in the food industry. Many of these
Retailers are, or are owned by, some of the world's largest food retailers,
while others are leading regional players. No single Retailer represented more
than 6% of the Company's revenues for the year ended December 31, 1997, on a
pro forma basis. The top Retailers serviced by the Company based on 1997
revenues include those listed below:
<TABLE>
<CAPTION>
RETAILER NAME OPERATING REGION
------------- -------------------------------
<S> <C>
C&S Wholesale Grocers, Inc................. Northeast US
Food Lion, Inc./Delhaize................... Southeast US
Hannaford Brothers......................... New England and southeast US
J. Sainsbury PLC (Shaws Supermarkets and
Giant Foods).............................. New England and mid-Atlantic US
Kroger..................................... Southeast US
Publix Supermarkets........................ Southeast US
Royal Ahold (including Stop & Shop and Bi-
Lo)....................................... Eastern US
Safeway.................................... Mid-Atlantic US
Supervalu.................................. Northeast and southeast US
White Rose................................. Northeast US
Wakefern (Shop Rite)....................... Mid-Atlantic US
Winn-Dixie................................. Southeast US
</TABLE>
INFORMATION TECHNOLOGY
The application of information technology has become an increasingly
important element in the food brokerage industry. In order to provide
Manufacturers and Retailers with the most efficient and useful information and
services, the Company has invested in current retail information technology.
Electronic Data Interchange. The EDI system, which was first used in the
industry in 1980, streamlines order communications among food brokers,
Retailers and Manufacturers. EDI has played a growing role as an increasing
number of Manufacturers, Retailers and food brokers have integrated their
systems with EDI. Orders sent by EDI are transmitted on-line from the Retailer
to the Company and entered automatically into the Company's order databases.
Orders are reviewed by the Company to verify that quantities, product codes,
pricing, pack sizes and promotions have been correctly submitted. The Company
then places orders with certain Manufacturers via EDI. By reducing manual
order processing, the system significantly curtails order input errors,
expedites order processing and reduces the number of personnel required to
fulfill this function.
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Retail Information. The Company utilizes a retail reporting system to update
Manufacturers with store-specific information regarding their products. The
Company's retail representatives record information on in-store merchandise
conditions, including product placement and pricing information. This
information is then entered into the Company's retail reporting system. The
Company's retail reporting system allows both the Company and its
Manufacturers to easily access store-level information. The Company believes
that it is one of only a few food brokers offering comprehensive merchandising
information regarding store-specific retail conditions.
Local Area Network and Web Technology. The Company was among the first food
brokers to install a company-wide local area network and wide area network,
enabling it to provide on-line information to Manufacturers and Retailers. To
disseminate this information, the Company utilizes the internet and dedicated
extranets. The Company's internet site on the worldwide web is being developed
to market the Company's services to potential Manufacturers and Retailers. The
Company's on-line service allows it to communicate with Retailers and
Manufacturers and to provide them with marketing, sales and other information
related to their products and operations.
COMPETITION
The food brokerage market is large and fragmented, with brokers serving
numerous local markets and a few large brokers serving multiple regions in the
United States. The Company acts as the exclusive broker for certain products
of a Manufacturer only within specific geographic markets. Manufacturers
typically use multiple food brokers, divided by product line or geographic
market. The Company competes with other food brokers for the right to
represent Manufacturers' product lines to Retailers. As a result of the large
and fragmented food brokerage market, the Company competes with brokers
serving local markets as well as large brokers serving multiple regions.
Competition is based primarily on breadth of geographic coverage, and the
quality and scope of services provided. In addition, many Manufacturers,
including some of the Manufacturers served by the Company, employ sales
personnel to sell directly to Retailers and distributors. See "Risk Factors--
Competition."
The entire food distribution chain, including Manufacturers, Retailers, and
food brokers, has been consolidating over the past ten years. As the market
becomes more concentrated in terms of the total number of Manufacturer and
Retailer accounts served by food brokers, the Company believes that large
brokers that can provide a full array of services to leading Manufacturers and
Retailers across multiple geographic markets have a competitive advantage. The
Company believes that Manufacturers will favor large regional and national
food brokers with the personnel and technology resources necessary to operate
in an increasingly sophisticated and complex environment, and the capability
to provide the local market focus required by Manufacturers and Retailers.
The Company will, upon completion of the Offering, become the first publicly
held food broker in the United States, with operations spanning most of the
eastern United States. The Company is one of the four largest food brokers in
the United States and competes with the nation's multi-regional food brokers,
Richmont Marketing Specialists, Sales Mark and Acosta-PMI. Additionally, there
are approximately 12 large regional food brokerage firms in the United States.
On a local and regional basis the Company competes with Pezrow, Budd Mayer,
REM, and MAI. Some of the Company's competitors include alliances of smaller
regional food brokers.
COMBINATION--INTEGRATION OF FUNCTIONS
In connection with the Combination, the Company has developed an integration
program to implement appropriate organizational and operational changes in
connection with the Combination. This program provides a framework by which
the administrative functions of both Merkert and Rogers may be rationalized
and combined into a single unit. Payroll administration and reporting, for
example, will be centralized at the Company's headquarters to eliminate
redundancies. Financial and management reporting systems will also be
integrated, using the systems already in place at Rogers. Moreover, as both
Merkert and Rogers already utilize the same order processing system (with the
exception of Rogers' mid-Atlantic operations), this administrative
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<PAGE>
function will be integrated and provide the Company with further operating
efficiencies. The Company intends to substantially complete the integration of
Merkert and Rogers prior to the end of 1998. The Company expects to incur
expenses of approximately $2.0 million in connection with the integration
process. The Company's integration program includes coordination efforts with
Manufacturers to minimize Manufacturer conflicts and any related losses in
connection with the Combination.
EMPLOYEES
The Company has approximately 3,200 full and part time employees. The
Company believes that its relations with its employees are good. Management
believes that none of the Company's employees is a member of any labor union.
PROPERTIES
The Company's executive offices are located at 490 Turnpike Street, Canton,
Massachusetts 02021. The Company's telephone number at such location is (781)
828-4800. In addition to its executive offices, the Company maintains 34 sales
offices in 22 states in the eastern United States, the two largest of which
are:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION PRINCIPAL USAGE AREA IN SQ. FT. LEASED/OWNED
-------- --------------- --------------- ------------
<S> <C> <C> <C>
Charlotte, NC Office 54,000 Owned*
Canton, MA Office 50,000 Owned
</TABLE>
- --------
* This facility is currently owned by Rogers. Following the Combination, the
Company will sell this facility to a third party. Such third party will
lease this facility to the Company. The net proceeds of the sale will be
distributed to certain Rogers shareholders. See "Certain Transactions."
The Company believes that its properties are generally well maintained and
in good condition. The Company believes that its properties are adequate for
present needs and that suitable additional or replacement space will be
available as required.
LEGAL PROCEEDINGS
Merkert and Rogers have separately received written notices from the sellers
of two food brokerage businesses acquired by them alleging the breach of
certain covenants contained in agreements with such sellers. In each case,
such sellers are claiming that such breaches have caused the acceleration of
certain payments to such sellers of the deferred purchase price and
employment-related obligations. In the case of Merkert, such sellers are
threatening litigation in order to accelerate such payments and are seeking
other unspecified damages. In the case of Rogers, the obligations to such
sellers are secured by a lien on the assets and a pledge of the capital stock
of Rogers' Florida subsidiary, Rogers-American Company of Florida, Inc. The
Company believes that such matters, if determined adversely to the Company,
would not have a material adverse effect on the Company. Merkert is currently
the subject of an audit with respect to its federal income tax returns for its
fiscal years 1995, 1996 and 1997. Merkert has established reserves in various
years which it believes will be adequate to cover any potential liability;
however the ultimate outcome of this matter is uncertain. The Company is from
time to time a party to litigation arising in the ordinary course of business.
There can be no assurance that the Company's insurance coverage will be
adequate to cover all liabilities occurring out of such claims. In the opinion
of management, any liability that the Company might incur upon the resolution
of this litigation will not, in the aggregate, have a material adverse effect
on the financial condition or results of operations of the Company.
YEAR 2000 COMPLIANCE
The Company has evaluated its information technology infrastructure,
software and communications platforms for potential exposure to problems
associated with Year 2000 compliance. This evaluation has included testing,
inquiries of vendors and other research.
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Significant system upgrade activity in the past two years, including the
upgrade of the order processing system at Merkert and the financial system at
Rogers has substantially reduced potential Year 2000 problems.
The Company has determined that the Merkert financial system is not Year
2000 compliant and has decided to replace it with the existing Rogers system,
which is compliant. This replacement is expected to be completed by March,
1999 and is estimated to cost approximately $0.2 million. Additionally,
Rogers' mid-Atlantic operations will migrate to the order processing system,
which is compliant and is already in use at Merkert and the other regions of
Rogers, in the first quarter of 1999. This is estimated to cost approximately
$0.1 million. See "--Combination--Integration of Functions."
The Company has determined that several PBX (telephone) systems at Rogers
must be replaced as they are not Year 2000 compliant. The cost of the new
phone systems is estimated at $0.1 million. In addition, approximately $0.2
million of personal computers will need to be replaced as they cannot be
upgraded. This replacement and upgrade will occur in 1998.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers and those persons who will become directors
and executive officers upon consummation of the Offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gerald R. Leonard............... 51 Chairman of the Board, Chief Executive
Officer and President
James L. Monroe................. 39 Non-Executive Chairman of the Board
Douglas H. Holstein............. 54 Chief Operating Officer of the Company,
President of Rogers (a subsidiary of the
Company) and Director
Sidney D. Rogers, Jr............ 46 Chief Financial Officer
Marty D. Carter................. 38 Vice President of Acquisitions and Chief
Financial Officer of Rogers (a
subsidiary of the Company)
Glenn F. Gillam................. 46 President of Merkert (a subsidiary of
the Company)
Edward P. Grace, III............ 47 Director
James A. Schlindwein............ 69 Director
</TABLE>
Gerald R. Leonard will become Chairman of the Board, Chief Executive Officer
and President of the Company upon consummation of the Offering. Mr. Leonard
has been Chief Executive Officer of Merkert since September 1994. From May
1992 to September 1994, Mr. Leonard served Merkert as President of the Food
Enterprises, New England Division, and has been with Merkert in various
executive capacities since 1983. Mr. Leonard has also held sales and
management positions with Procter & Gamble, William Underwood Company and
Green Giant Company. Mr. Leonard has more than 26 years of experience in food
brokerage, manufacturing and related industries.
James L. Monroe has served as President of the Company since March 1998.
Upon consummation of the Offering, Mr. Monroe will serve as Non-Executive
Chairman of the Board of the Company. In 1997, Mr. Monroe founded Monroe &
Company, LLC, a merchant banking firm that invests in companies in
consolidating industries. From January 1994 until December 1996, Mr. Monroe
was a Senior Vice President of Oppenheimer & Co., Inc. where he managed the
Boston Corporate Finance department and the national consumer industry banking
practice. From 1992 until 1993, Mr. Monroe was a Managing Director at Advest,
Inc., an investment banking and brokerage firm. Mr. Monroe has thirteen years
of investment and merchant banking experience.
Douglas H. Holstein will become Chief Operating Officer, President of
Rogers, and a director of the Company upon consummation of the Offering. Mr.
Holstein has been President of Rogers since January 1993, and has been with
Rogers in various executive capacities since 1981. Prior to joining Rogers,
Mr. Holstein was the Regional Director of the Southeast for the Green Giant
Company.
Sidney D. Rogers, Jr. will become the Chief Financial Officer of the Company
upon consummation of the Offering. Mr. Rogers has been Chief Financial Officer
and Vice President of Merkert since 1994 and has been with Merkert since 1977.
Prior to serving as Chief Financial Officer of Merkert, Mr. Rogers was Vice
President Administration of Merkert since 1986.
Marty D. Carter will become Vice President of Acquisitions of the Company
and Chief Financial Officer of Rogers (a subsidiary of the Company) upon
consummation of the Offering. Mr. Carter has been the Chief Financial Officer
of Rogers since 1987. From 1984 to 1987, Mr. Carter was in the audit practice
group of Touche Ross & Co.
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Glenn F. Gillam became President of Merkert (a subsidiary of the Company) on
June 1, 1998. Mr. Gillam has been President of the Food Enterprises, New
England Division, of Merkert since 1994, and has been with Merkert in various
capacities since 1983. Mr. Gillam has held sales and management positions with
companies involved in health and beauty care/general merchandise, frozen food,
confection and grocery since 1973.
Edward P. Grace, III will become a director upon consummation of the
Offering. Mr. Grace is President of Phelps Grace International, Inc., a
restaurant consulting and investment company. From 1989 until September 1996,
Mr. Grace served as Chairman of the Board, President and Chief Executive
Officer of Bugaboo Creek Steak House, Inc., operator of Bugaboo Creek Steak
House and The Capital Grille restaurants. Mr. Grace is Vice Chairman and a
director of RARE Hospitality International, Inc. and a director of
Professional Facilities Management, Inc. He also serves as a Trustee of the
University of Vermont and of Johnson & Wales University.
James A. Schlindwein will become a director of the Company upon consummation
of the Offering. Mr. Schlindwein has been a director of Merkert since 1995.
Prior to his retirement in September 1994, Mr. Schlindwein served as Executive
Vice President, Merchandising Services, and a director of Sysco Corporation, a
national institutional food service distributor, where he had served since
1980. He is also a director of Tri-Valley Growers, EMMPAK Foods, Inc. Alaska
Seafood International, Chilay Corporation and Thompson's Pet Pasta Products,
Inc.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. After consummation of the Combination and the Offering, the Board
of Directors will consist of five directors. The Company's Amended and
Restated Certificate of Incorporation provides that the Board of Directors
shall be divided into two classes until the later to occur of (i) the first
day after the second anniversary of the consummation of the Offering and (ii)
the first day after the first election of Class II Directors occurring after
the consummation of the Offering and shall thereafter be divided into three
classes (such event, the "Board Conversion"). The members of each class of
directors shall initially serve for staggered two-year terms. The Board of
Directors will initially be composed of two Class I Directors (Messrs.
Holstein and Schlindwein) and three Class II Directors (Messrs. Grace, Leonard
and Monroe), whose initial terms will expire upon the election and
qualification of directors at the annual meetings of stockholders held
following the years ending 1999 and 2000, respectively. The Amended and
Restated Certificate of Incorporation further provides that upon the
occurrence of the Board Conversion, each class of the Board of Directors will
be chosen for staggered three-year terms upon the expiration of their then-
current terms and each year one class of directors will be elected by the
stockholders. The Company believes that classification of the Board of
Directors will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Holders of shares of Common Stock will have no right to cumulative voting in
the election of directors. Consequently, at each annual meeting of
stockholders, the holders of a majority of the shares of Common Stock will be
able to elect all of the successors of the class of directors whose terms
expire at that meeting.
Following consummation of the Offering, the Board of Directors will
establish an audit committee (the "Audit Committee") and a Compensation
Committee (the "Compensation Committee"). The Audit Committee, a majority of
which will be outside directors, will recommend to the Board of Directors the
firm to be appointed as independent accountants to audit financial statements
and to perform services related to the audit, review the scope and results of
the audit with the independent accountants, review with management and the
independent accountants the Company's year-end operating results, consider the
adequacy of the internal accounting procedures and consider the effect of such
procedures on the accountants' independence. The Compensation Committee, which
will consist solely of outside directors, will review and recommend to the
Board of Directors the compensation arrangements for all directors and
officers, approve such arrangements for other senior level employees and
administer and take such other action as may be required in connection with
certain compensation and incentive plans of the Company. The Compensation
Committee will also determine the number of options to be granted or shares of
Common Stock to be issued to eligible persons under the Company's 1998 Stock
Plan. In addition, the Compensation Committee will construe and interpret the
1998 Stock Plan and issuances thereunder, and establish, amend and revoke
rules and regulations for administration of the 1998 Stock Plan.
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Members of the Board of Directors who are also employees of the Company do
not receive compensation for their services on the Board of Directors or any
committee thereof. Each director who is not an employee of the Company (an
"Independent Director") receives an annual fee of $25,000. Upon consummation
of the Offering, each Independent Director will be granted an option to
purchase 20,000 shares of Common Stock at an exercise price equal to the
initial public offering price per share of Common Stock. Under the 1998 Stock
Plan, each new Independent Director elected following the Offering is entitled
to receive an initial grant of an option to purchase 20,000 shares of Common
Stock upon his or her election to the Board of Directors, and each Independent
Director who is serving as a director of the Company on the fifth business day
after each annual meeting of stockholders, beginning with the 1999 annual
meeting, will automatically be granted an option to purchase 5,000 shares of
Common Stock. In addition, the Independent Director who serves as chairman of
the Audit Committee of the Board of Directors will receive options to purchase
an additional 5,000 shares of Common Stock upon consummation of the Offering
and an additional 5,000 shares of Common Stock on the fifth business day after
each annual meeting of stockholders beginning with the 1999 annual meeting.
All options granted to Independent Directors under the 1998 Stock Plan shall
vest 50% upon the first anniversary of the grant date, and the remaining 50%
shall vest in equal annual installments over the number of years remaining in
each Director's term as of the first anniversary of the date of grant, shall
terminate upon the tenth anniversary of the date of grant and will have an
exercise price per share equal to the fair market value of the Common Stock on
the date of such grant. See "--1998 Stock Option and Incentive Plan-Stock
Options Granted to Independent Directors."
All members of the Board of Directors are reimbursed for travel expenses
incurred in attending meetings of the Board of Directors and its committees.
EXECUTIVE COMPENSATION; EMPLOYMENT AND NONCOMPETITION AGREEMENTS
The Company was incorporated in March 1998, has conducted no operations
other than those associated with the Offering and the Combination, and will
not pay any of its executive officers any compensation prior to the
consummation of the Offering. The Company will enter into employment and
noncompetition agreements upon consummation of the Offering with certain of
its executive officers. The material terms of these agreements are summarized
below.
Each of Messrs. Leonard, Holstein, Rogers, Carter and Gillam will enter into
employment and noncompetition agreements with the Company providing for base
salaries of $350,000, $300,000, $195,000, $175,000 and $250,000, respectively.
Each employment and noncompetition agreement will be for a term of three
years, and unless terminated or not renewed by the Company or the executive
officer, the term will continue thereafter. In general, these agreements will
provide that the executive officer's employment with the Company may be
terminated for "cause" by the Company for (i) dishonest statements or acts
which constitute material disloyalty or dishonesty toward the Company or cause
significant damage to the Company; (ii) the commission by or indictment of the
executive officer for a felony, or any misdemeanor involving moral turpitude,
deceit, dishonesty or fraud; (iii) an uncured failure by the executive officer
to perform a substantial portion of his duties and responsibilities; (iv)
uncured gross negligence, willful misconduct or insubordination; or (v) an
uncured material breach of any of his material obligations under the
employment and noncompetition agreement. In the event of termination of
employment by the Company without cause, the executive officer will be
entitled to receive from the Company continuation of his then current base
salary until the later of expiration of the initial term or twelve months from
the date of termination of employment, provided that in the case of Messrs.
Holstein and Carter, the executive officer will also be entitled to receive
from the Company continuation of health plan benefits and automobile benefits
until the expiration of the initial term. Each employment and noncompetition
agreement will contain a covenant not to compete with the Company during the
initial term of the agreement and for a period of one year following
termination of employment or, if longer, for the period during which the
executive officer shall be entitled to receive continuation of his base salary
following termination of employment by the Company without cause.
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1998 STOCK OPTION AND INCENTIVE PLAN
On May 20, 1998, the Board of Directors of the Company adopted, and the
stockholders approved, the initial 1998 Stock Plan and on July 1, 1998, the
Board of Directors of the Company adopted, and the stockholders approved, the
Amended and Restated 1998 Stock Option and Incentive Plan. The 1998 Stock Plan
is designed and intended as a performance incentive for officers, employees,
consultants and Independent Directors to promote the financial success and
progress of the Company. The Company anticipates that providing such persons
with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby
stimulating their efforts on the Company's behalf and strengthening their
desire to remain with the Company. All officers and Independent Directors are
eligible to participate in the 1998 Stock Plan.
The 1998 Stock Plan provides for the issuance of up to thirteen percent of
the number of shares of Common Stock outstanding from time to time. Upon
consummation of the Offering, the Company will have reserved 1,300,000 shares
of Common Stock for issuance under the 1998 Stock Plan, of which 855,000
shares will be subject to outstanding options and 445,000 will remain
available for issuance. On and after the date the 1998 Stock Plan becomes
subject to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), options with respect to no more than the total number of
available shares of Common Stock may be granted to any one individual in any
calendar year.
The following summary description does not purport to be complete and is
qualified in its entirety by the 1998 Stock Plan, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Plan Administration; Eligibility. The 1998 Stock Plan is administered by the
Board of Directors or the Compensation Committee thereof. All members of the
Committee must be "non-employee directors" as that term is defined under the
rules promulgated by the Securities and Exchange Commission and "outside
directors" as defined in Section 162(m) of the Code and the regulations
promulgated thereunder.
The Compensation Committee has full power to select, from among the
employees and other persons eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to participants, and
to determine the specific terms and conditions of each award, subject to the
provisions of the 1998 Stock Plan. The Compensation Committee may permit
Common Stock, and other amounts payable pursuant to an award, to be deferred.
In such instances, the Compensation Committee may permit dividends or deemed
dividends, if any, to be credited to the amount of deferrals.
Persons eligible to participate in the 1998 Stock Plan will be those
officers, employees and other key persons, such as consultants, of the Company
and its subsidiaries who are responsible for or contribute to the management,
growth or profitability of the Company and its subsidiaries, as selected from
time to time by the Compensation Committee. Independent Directors will also be
eligible for certain awards under the 1998 Stock Plan.
Stock Options. The 1998 Stock Plan permits the granting of (i) options to
purchase Common Stock intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Options") and (ii) options that do not so
qualify ("Non-Qualified Options"). Only employees of the Company and its
subsidiaries may be granted Incentive Options. The option exercise price of
each option will be determined by the Compensation Committee but may not be
less than 100% of the fair market value of the Common Stock on the date of
grant in the case of Incentive Options, and may not be less than 85% of the
fair market value of the Common Stock on the date of grant in the case of Non-
Qualified Options.
The term of each option will be fixed by the Compensation Committee and may
not exceed ten years from the date of grant in the case of an Incentive
Option. The Compensation Committee will determine at what time or times each
option may be exercised and, subject to the provisions of the 1998 Stock Plan,
the period of time,
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<PAGE>
if any, after retirement, death, disability or termination of employment
during which options may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Compensation Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Compensation Committee or, if the Compensation Committee so permits, by
delivery of shares of Common Stock already owned by the optionee. The exercise
price may also be delivered to the Company by a broker pursuant to irrevocable
instructions to the broker from the optionee.
At the discretion of the Compensation Committee, stock options granted under
the 1998 Stock Plan may include a "re-load" feature pursuant to which an
optionee exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock
equal to the number delivered to exercise the original stock option. One of
the purposes of this feature is to enable participants to maintain an equity
interest in the Company without dilution.
To qualify as Incentive Options, options must meet additional U.S. Federal
tax requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
Stock Options Granted to Independent Directors. The 1998 Stock Plan provides
for the automatic grant to each Independent Director of a Non-Qualified Option
to purchase 20,000 shares of Common Stock in connection with the consummation
of the Offering. The 1998 Stock Plan also provides for the automatic grant to
each Independent Director of a Non-Qualified Option to purchase 20,000 shares
of Common Stock upon his or her initial election to the Board of Directors
following the Offering. Each Independent Director who is serving as a director
of the Company on the fifth business day after each annual meeting of
stockholders, beginning with the 1999 annual meeting of stockholders, will
also automatically be granted on such day a Non-Qualified Option to acquire
5,000 shares of Common Stock. In addition, the Independent Director who serves
as chairman of the Audit Committee of the Board of Directors will receive
options to purchase an additional 5,000 shares of Common Stock upon
consummation of the Offering and an additional 5,000 shares of Common Stock on
the fifth business day after each annual meeting of stockholders beginning
with the 1999 annual meeting. The exercise price of each such Non-Qualified
Option will be the fair market value of the Common Stock on the date of grant.
All of such Non-Qualified Options granted to Independent Directors shall vest
50% upon the first anniversary of the grant date, and the remaining 50% shall
vest in equal annual installments over the number of years remaining in each
Director's term as of the first anniversary of the date of grant and shall
terminate on the tenth anniversary of the date of grant.
Stock Appreciation Right. The Compensation Committee may award a stock
appreciation right ("SAR") either as a freestanding award or in tandem with a
stock option. Upon exercise of the SAR, the holder will be entitled to receive
an amount equal to the excess of the fair market value on the date of exercise
of one share of Common Stock over the exercise price per share specified in
the related stock option (or, in the case of freestanding SAR, the price per
share specified in such right, which price may not be less than 85% of the
fair market value of the Common Stock on the date of grant) times the number
of shares of Common Stock with respect to which the SAR is exercised. This
amount may be paid in cash, Common Stock, or a combination thereof, as
determined by the Committee. If the SAR is granted in tandem with a stock
option, exercise of the SAR cancels the related option to the extent of such
exercise.
Restricted Stock. The Compensation Committee may also award shares of Common
Stock to officers, other employees and key persons of the Company subject to
such conditions and restrictions as the Compensation Committee may determine
("Restricted Stock"). These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. The purchase price of shares of
Restricted Stock will be determined by the Compensation Committee. If
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<PAGE>
the performance goals and other restrictions are not attained, the employees
will forfeit their awards of Restricted Stock.
Unrestricted Stock. The Compensation Committee may also grant shares (at no
cost or for a purchase price determined by the Committee) which are free from
any restrictions under the 1998 Stock Plan ("Unrestricted Stock").
Unrestricted Stock may be issued to employees and key persons in recognition
of past services or other valid consideration, and may be issued in lieu of
cash bonuses to be paid to such employees and key persons.
Performance Share Awards. The Compensation Committee may also grant
performance share awards to employees or other key persons of the Company
entitling the recipient to receive shares of Common Stock upon the achievement
of individual or Company performance goals and such other conditions as the
Compensation Committee shall determine ("Performance Share Award").
Dividend Equivalent Rights. The Compensation Committee may grant dividend
equivalent rights, which give the recipient the right to receive credits for
dividends that would be paid if the grantee had held specified shares of
Common Stock. Dividend equivalent rights may be granted as a component of
another award or as a freestanding award. Dividend equivalents credited under
the 1998 Stock Plan may be paid currently or be deemed to be reinvested in
additional shares of Common Stock, which may thereafter accrue additional
dividend equivalents at fair market value at the time of deemed reinvestment
or on the terms then governing the reinvestment of dividends under the
Company's dividend reinvestment plan, if any. Dividend equivalent rights may
be settled in cash, shares, or a combination thereof, in a single installment
or installments, as specified in the award. Awards payable in cash on a
deferred basis may provide for crediting and payment of interest equivalents.
Adjustments for Stock Dividends, Mergers, Etc. The Compensation Committee
will make appropriate adjustments in outstanding awards to reflect stock
dividends, stock splits and similar events. In the event of a merger,
liquidation, sale of the Company or similar event, the Compensation Committee,
in its discretion, may provide for substitution or adjustments of outstanding
options and SARs, or may terminate all unexercised options and SARs with or
without payment of cash consideration.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1998 Stock Plan and the Compensation Committee may at any time
amend or cancel outstanding awards for the purpose of satisfying changes in
the law or for any other lawful purpose. No such action may be taken, however,
which adversely affects any rights under outstanding awards without the
holder's consent. Further, amendments to the 1998 Stock Plan shall be subject
to approval by the Company's stockholders if and to the extent required by the
Securities Exchange Act of 1934, as amended (the "1934 Act"), to ensure that
awards granted under the 1998 Stock Plan are exempt under Rule 16b-3
promulgated under the 1934 Act, or required by the Code to preserve the
qualified status of Incentive Options.
Change in Control Provisions. The 1998 Stock Plan provides that in the event
of a sale of all or substantially all of the assets or Common Stock of the
Company, a merger or consolidation which results in a change in control of the
Company or the liquidation or dissolution of the Company (a "Change in
Control"), all stock options and stock appreciation rights shall automatically
become fully exercisable. In addition, at any time prior to or after a Change
in Control, the Compensation Committee may accelerate awards and waive
conditions and restrictions on any awards to the extent it may determine
appropriate.
U.S. FEDERAL INCOME TAX CONSEQUENCES
Non-Qualified Stock Options. The grant of a Non-Qualified Option will not
result in the recognition of taxable income by the participant or in a
deduction to the Company. Upon exercise, a participant will recognize ordinary
income in an amount equal to the excess of the fair market value of the
Company's Common Stock purchased over the exercise price. The Company is
required to withhold tax on the amount of income so recognized, and a tax
deduction is allowable equal to the amount of such income (subject to the
satisfaction of
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certain conditions in the case of options exercised by Section 162(m)
officers). Gain or loss upon a subsequent sale of any of the Company's Common
Stock received upon the exercise of a Non-Qualified Option generally would be
taxed as capital gain or loss (long-term or short-term, depending upon the
holding period of the Common Stock sold). Certain additional rules apply if
the exercise price for an option is paid in Common Stock previously owned by
the participant.
Incentive Stock Options. Upon the grant or exercise of an Incentive Stock
Option within the meaning of Section 422 of the Code, no income will be
realized by the participant for federal income tax purposes and the Company
will not be entitled to any deduction. However, the excess of the fair market
value of the Company's Common Stock as of the date of exercise over the
exercise price will constitute an adjustment to taxable income for purposes of
the alternative minimum tax. If the shares of the Company's Common Stock are
not disposed of within the one-year period beginning on the date of the
transfer of such Common Stock to the participant, or within the two-year
period beginning on the date of grant of the option, any profit realized by
the participant upon the disposition of such Common Stock will be taxed as
long-term capital gain and no deduction will be allowed to the Company. If the
shares of the Company's Common Stock are disposed of within the one-year
period from the date of transfer of such Common Stock to the participant or
within the two-year period from the date of grant of the option, the excess of
the fair market value of the Common Stock upon the date of exercise or, if
less, the fair market value on the date of disposition, over the exercise
price will be taxable as ordinary income of the participant at the time of
disposition, and a corresponding deduction will be allowable. Certain
additional rules apply if the exercise price for an option is paid in Common
Stock previously owned by the participant. If an option intended to qualify as
an Incentive Option is exercised by a person who was not continually employed
by the Company or certain of its affiliates from the date of grant of such
option to a date not more than three months prior to such exercise (or one
year if such person is disabled), then such option will not qualify as an
Incentive Option and will instead be taxed as a Non-Qualified Option, as
described above.
OPTION GRANTS
In May 1998, the Company granted Non-Qualified Options under the 1998 Stock
Plan to the following persons who will be officers of the Company following
the consummation of the Offering: Glenn F. Gillam (75,000 shares), Murray
Rosen (50,000 shares), Sidney D. Rogers, Jr. (50,000 shares), Thomas Studer
(40,000 shares) and Douglas H. Holstein (30,000 shares). These options were
issued at an exercise price of $16.50 (estimated fair market value at the date
of grant). One-fourth of these options become exercisable upon consummation
of the Offering, and one-fourth become exercisable on each of the first,
second and third anniversaries of the date of grant. See "Certain
Transactions." In addition, upon consummation of the Offering, the Company
will grant to certain employees of the Company, including Glenn F. Gillam who
will receive options for an additional 25,000 shares of Common Stock, and
options under the 1998 Stock Plan to purchase an aggregate of 545,000 shares
of Common Stock. Each such option will have a per share price equal to the
Offering price, will expire ten years from the date of grant and generally
will become exercisable as to one-fourth of the shares covered by such option
on each of the first, second, third and fourth anniversaries of the date of
grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions will be made by the
Compensation Committee. The Compensation Committee will review and make
recommendations regarding the compensation for management and key employees of
the Company, including salaries and bonuses.
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
The Combination will be accomplished through separate purchases by the
Company of all of the issued and outstanding capital stock of each of Merkert
and Rogers. As a result, after the closing of the Combination and the Offering
(the "Closing"), each of Merkert and Rogers will exist as a separate wholly
owned subsidiary of the Company. Each of the stock purchase agreements
provides for the Company to pay the stockholders of Merkert and Rogers,
respectively, (i) a fixed amount of cash at the Closing and (ii) shares of
Common Stock at the Closing having a fixed dollar value, with the final number
of shares being determined by the Offering Price.
The aggregate consideration to be paid by the Company in the Combination
consists of approximately $86.3 million consisting of approximately $53.2
million in cash (representing approximately 48.8% of the net proceeds of the
Offering) and 1,503,691 shares of Common Stock (assuming an initial public
offering price of $22.00 per share).
The consideration to be paid for each of Merkert and Rogers was determined
through arm's length negotiations between the Company and representatives of
each of Merkert and Rogers. The factors considered by the parties in
determining the consideration to be paid included, among others, the
historical revenues and pro forma EBITDA of each of Merkert and Rogers.
In connection with the Combination, the former stockholders of each of
Merkert and Rogers who will become directors and/or executive officers of the
Company will receive the following consideration pursuant to the Combination:
<TABLE>
<CAPTION>
SHARES OF
CASH COMMON STOCK
---------- ------------
<S> <C> <C>
Gerald R. Leonard...................................... $ 60,597* 5,335
Douglas H. Holstein.................................... 3,700,000 81,818
Sidney D. Rogers, Jr................................... 49,847* 4,389
Marty D. Carter........................................ 1,250,000 34,091
Glenn F. Gillam........................................ 37,726* 3,323
</TABLE>
- --------
* Includes cash paid to the Merkert Enterprises, Inc. Employee Stock
Ownership Trust and allocable to such individuals.
In addition, certain expenses incurred by the former stockholders of each of
Merkert and Rogers in connection with the Combination will be paid by the
Company.
As a result of negotiations between the stockholders of Rogers and Merkert
American Corporation regarding the purchase of Rogers, in connection with the
Combination, Messrs. Holstein and Carter, together with certain other former
stockholders of Rogers, will receive (i) the net proceeds, estimated to be
approximately $2,500,000 (of which 10% will be paid to Mr. Holstein and 10%
will be paid to Mr. Carter), resulting from the sale by Rogers to a third
party of its Charlotte, North Carolina headquarters, (ii) cash bonuses in an
aggregate amount equal to approximately $950,000 (of which 28% will be paid to
Mr. Holstein and 10% will be paid to Mr. Carter) based upon certain income tax
refunds receivable by the Company and (iii) cash bonuses, previously accrued
by Rogers, in the aggregate amount of approximately $600,000.
In connection with the Combination, the Company expects to use a portion of
the net proceeds of the Offering to fund the buyouts of Merkert Enterprises,
Inc.'s employment arrangements with Messrs. Merkert and Crane for cash
payments of $876,924 and $583,900, respectively. In connection with such
buyouts, the Company will also provide family health insurance benefits and
disability insurance coverage for three years to Mr. Merkert and will transfer
two automobiles to Messrs. Merkert and Crane.
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The consummation of the Combination is subject to completion of the Offering
and customary conditions including, among others, the continuing accuracy at
the Closing of the representations and warranties made by Merkert or Rogers,
as appropriate, and the Company in the stock purchase agreements, receipt of
all necessary consents and approvals, delivery of opinions of counsel, the
performance of covenants included in the agreements relating to the
Combination, and the nonexistence of a material adverse change in the business
of each of Merkert and Rogers. The stock purchase agreements provide that the
stockholders of Merkert and Rogers, respectively, will indemnify the Company
against certain liabilities, including breaches of Merkert's or Rogers'
representations and warranties thereunder, as appropriate.
In connection with the founding and organization of the Company, on March 4,
1998, Monroe & Company II, LLC purchased 2,496,924 shares of Common Stock for
an aggregate purchase price of $150. On May 11, 1998, Monroe & Company, LLC, a
Delaware limited liability company, entered into a consulting agreement with
the Company pursuant to which Monroe & Company, LLC was engaged to render
certain business consulting, financial advisory and investment banking
services to the Company on an exclusive basis for three years. Pursuant to the
consulting agreement, Monroe & Company, LLC will be paid a financial advisory
fee equal to (i) 5% of any consideration paid by the Company in connection
with any transaction which results in the merger, consolidation or combination
of the Company and a third party, the acquisition by the Company of the
capital stock or assets of a third party or a joint venture with any third
party ("Consideration") up to $1 million, plus (ii) 4% of the Consideration
paid in excess of $1 million and up to $2 million, plus (iii) 3% of the
Consideration paid in excess of $2 million and up to $3 million, plus (iv) 2%
of the Consideration paid in excess of $3 million and up to $4 million, plus
(v) 1% of the Consideration paid in excess of $4 million. Under the consulting
agreement, Monroe & Company, LLC will also be paid a fee equal to 0.75% of any
principal amount committed under a senior credit facility for the Company from
a lending institution. An additional fee shall be payable to Monroe & Company,
LLC upon increases in such amount or upon refinancings with a new lender
during the term of the consulting agreement. Monroe & Company, LLC will also
be entitled to consulting fees based on projects and fee schedules to be
mutually agreed upon by Monroe & Company, LLC and the independent directors of
the Company. The Company has agreed to indemnify Monroe & Company, LLC against
certain liabilities.
During 1997, certain members of the management team and consultants were
assembled, and subsequently Monroe & Company II, LLC was organized to pursue
the consolidation of companies in the food brokerage industry. Mr. Monroe, who
will become Non-Executive Chairman of the Board of the Company upon
consummation of the Offering, is a member and the sole manager of Monroe &
Company II, LLC and Monroe & Company, LLC, and Mr. Grace, who will become a
director of the Company upon consummation of the Offering, is a member of
Monroe & Company II, LLC. Monroe & Company II, LLC provided the Company with
advice and expertise regarding the consolidation process. Expenses paid by the
Company prior to the Closing in connection with the Combination and the
Offering have been financed with funds advanced to the Company by Monroe &
Company II, LLC. Outstanding advanced amounts bear interest at the applicable
federal rate in effect under Section 1274(d) of the Internal Revenue Code of
1986, as amended, as of the respective dates on which the advances were made,
compounded semi-annually. The Company will repay the advanced amounts plus
interest to Monroe & Company II, LLC at the Closing out of the proceeds of the
Offering. See "Use of Proceeds." Monroe & Company II, LLC has advanced
approximately $500,000 to the Company for such expenses.
In April 1998, Gerald R. Leonard, who will become Chairman of the Board,
Chief Executive Officer and President of the Company upon the consummation of
the Offering, purchased 499,385 shares of Common Stock from the Company for an
aggregate purchase price of $1,500,000. The purchase price for such stock was
paid by a promissory note from Mr. Leonard to the Company in the principal
amount of $1,500,000 (the "Leonard Note"). The Leonard Note provides that
amounts outstanding thereunder will bear interest at a rate per annum of 6%,
compounded semi-annually and that the entire principal amount and accrued
interest will be due and payable on April 8, 2003. Mr. Leonard's obligations
under the Leonard Note are secured by a pledge of the 499,385 shares of Common
Stock purchased thereby pursuant to a stock pledge agreement. The Leonard Note
is a recourse
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obligation of Mr. Leonard with respect to the sum of (i) the outstanding
principal amount from time to time less $750,000 (but not less than $0) plus
(ii) one-half of the accrued and unpaid interest at such time.
In May 1998, the Company granted Non-Qualified Options under the 1998 Stock
Plan to the following persons who will be officers of the Company following
the consummation of the Offering: Glenn F. Gillam (75,000 shares), Murray
Rosen (50,000 shares), Sidney D. Rogers, Jr. (50,000 shares), Thomas Studer
(40,000 shares) and Douglas H. Holstein (30,000 shares). These options were
issued at an exercise price of $16.50 (estimated fair market value at the date
of grant). One-fourth of these options become exercisable upon consummation of
the Offering, and one-fourth become exercisable on each of the first, second
and third anniversaries of the date of grant. In addition, upon consummation
of the Offering, the Company will grant to Glenn F. Gillam, Incentive Options
to purchase up to 25,000 shares of Common Stock. These options will have a per
share exercise price equal to the Offering price, will expire ten years from
the date of grant, and will become exercisable as to one-fourth of the shares
covered on each of the first, second, third and fourth anniversaries of the
date of grant.
The Company and Messrs. Monroe and Leonard are parties to a Registration
Rights Agreement dated May 18, 1998, pursuant to which Messrs. Monroe and
Leonard have the right, subject to certain restrictions, beginning on the date
that is 180 days following the completion of the Offering, to cause the
Company to effect a registration of their shares of Common Stock under the
Securities Act of 1933, as amended (the "1933 Act"), on not more than two
occasions. Messrs. Monroe and Leonard also have certain "piggyback"
registration rights in the event the Company registers any of its securities
for either itself or for security holders exercising their registration
rights.
Upon the consummation of the Offering, the Company will also enter into
Registration Rights Agreements with the former stockholders of Merkert and
Rogers, respectively, including Messrs. Leonard, Gillam, Rosen, Rogers and
Holstein, pursuant to which such former stockholders will have the right,
subject to certain restrictions, to include their shares of Common Stock
received in the Combination in a registration statement filed by the Company
under the Securities Act.
Mr. Monroe represented the Company in connection with each of the
transactions described above.
COMPANY POLICY
The Company's policy is that any future transactions with directors,
officers, employees or affiliates of the Company be approved in advance by a
majority of the Company's Board of Directors, including a majority of the
disinterested members of the Board, and be on terms no less favorable to the
Company than the Company could obtain from non-affiliated parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock after giving effect to the
Combination, and as adjusted to reflect the Offering, by (i) each person known
by the Company to beneficially own five percent or more of the outstanding
shares of the Common Stock, (ii) each director, nominee for director and
certain executive officers of the Company, and (iii) all directors, nominees
for director and executive officers of the Company as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED AFTER
NAME OF BENEFICIAL OWNER(1) OFFERING(2)(3) PERCENTAGE
- --------------------------- -------------- ----------
<S> <C> <C>
Gerald R. Leonard(4)................................. 504,720 5.05%
Douglas H. Holstein(5)............................... 89,318 *
Sidney D. Rogers, Jr.(6)............................. 16,889 *
Marty D. Carter...................................... 34,091 *
Glenn F. Gillam(7)................................... 22,073 *
James L. Monroe(8)................................... 2,496,924 24.97
Edward P. Grace, III(9).............................. -- *
James A. Schlindwein(10)............................. 399,263 3.99
Eugene F. Merkert(11)................................ 581,995 5.82
Robert Q. Crane(12).................................. 653,891 6.54
Tuyet Payne(13)...................................... 561,725 5.62
All directors, director nominees and executive
officers as a group (8 persons)..................... 3,553,537 35.40
</TABLE>
- --------
* less than 1%
(1) Unless otherwise indicated, the mailing address for each stockholder and
director is c/o the Company, 490 Turnpike Street, Canton, Massachusetts
02021.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person, shares of Common Stock
subject to options held by that person that are currently exercisable or
exercisable within 60 days of this Prospectus are deemed outstanding, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Share information assumes an initial public offering price of $22.00 per
share. The acquisition agreements for each of Merkert and Rogers specify
the aggregate dollar values, but not the share amounts, of the Common
Stock to be received by their stockholders in the Combination. As a
result, if the initial public offering price is less or greater than
$22.00, the stockholders of Merkert and Rogers, respectively, will receive
a larger or smaller number of shares of Common Stock, respectively. In
addition, the Company will declare a stock dividend on all outstanding
Common Stock prior to the closing of the Combination such that, without
giving effect to the Offering (but giving effect to the Combination),
there will be outstanding a total of 4,500,000 shares of Common Stock. The
size of the stock dividend (and, as a result, the number of shares of
Common Stock held by Monroe & Company II, LLC and Gerald R. Leonard) will
vary if the initial offering price is less or greater than $22.00, with
the size of the dividend increasing if the initial public offering price
increases and decreasing if the initial public offering price decreases.
(4) Includes 3,682 shares of Common Stock held by the Merkert Enterprises,
Inc. Employee Stock Ownership Trust and allocable to Mr. Leonard.
(5) Includes 7,500 shares which may be acquired upon the exercise of options
exercisable within 60 days of the Offering. Excludes 22,500 shares of
Common Stock subject to options not exercisable within 60 days of the
Offering.
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<PAGE>
(6) Includes 12,500 shares which may be acquired upon the exercise of options
exercisable within 60 days of the Offering and 2,736 shares held by the
Merkert Enterprises, Inc. Employee Stock Ownership Trust and allocable to
Mr. Rogers. Excludes 37,500 shares subject to options not exercisable
within 60 days of the Offering.
(7) Includes 18,750 shares which may be acquired upon the exercise of options
exercisable within 60 days of the Offering and 3,323 shares held by the
Merkert Enterprises, Inc. Employee Stock Ownership Trust and allocable to
Mr. Gillam. Excludes 81,250 shares subject to options not exercisable
within 60 days of the Offering.
(8) Includes 2,496,924 shares of Common Stock held by Monroe & Company II,
LLC, of which Monroe & Company, LLC is the sole manager. Mr. Monroe is the
sole manager of Monroe & Company, LLC. Excludes 20,000 shares which may be
acquired upon the exercise of options not exercisable within 60 days of
the Offering to be granted to Mr. Monroe as a Director of the Company upon
consummation of the Offering.
(9) Excludes 20,000 shares which may be acquired upon the exercise of options
not exercisable within 60 days of the Offering to be granted to Mr. Grace
as a Director of the Company upon consummation of the Offering.
(10) Includes 399,263 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust, of which Mr. Schlindwein is the trustee. Mr.
Schlindwein disclaims beneficial ownership of the shares held by the
Merkert Enterprises, Inc. Stock Ownership Trust. Excludes 25,000 shares
which may be acquired upon the exercise of options not exercisable within
60 days of the Offering to be granted to Mr. Schlindwein as a Director of
the Company upon consummation of the Offering.
(11) Includes 250 shares held by the Merkert Enterprises, Inc. Employee Stock
Ownership Trust and allocable to Mr. Merkert. Also includes 561,725
shares held by the Eugene F. Merkert 1984 Revocable Trust (the "Revocable
Trust"), of which Mr. Merkert is a trustee, and 20,020 shares held by the
Eugene F. Merkert 1991 Charitable Remainder Unitrust (the "Charitable
Trust"), of which Mr. Merkert is a trustee. Voting of the shares held by
the Revocable Trust requires a vote of a majority of the three trustees.
Mr. Merkert disclaims beneficial ownership of the shares held by the
Revocable Trust and the Charitable Trust.
(12) Includes 6,012 shares held by the Merkert Enterprises, Inc. Employee
Stock Ownership Trust and allocable to Mr. Crane. Also includes 561,725
shares held by the Revocable Trust, of which Mr. Crane is a trustee, and
20,020 shares held by the Charitable Trust, of which Mr. Crane is a
trustee. Voting of the shares held by the Revocable Trust requires a vote
of a majority of the three trustees. Mr. Crane disclaims beneficial
ownership of the shares held by the Revocable Trust and the Charitable
Trust.
(13) Includes 561,725 shares held by the Revocable Trust, of which Ms. Payne
is a trustee. Voting of the shares held by the Revocable Trust requires
a vote of a majority of the three trustees. Ms. Payne disclaims
beneficial ownership of the shares held by the Revocable Trust.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 54,000,000 shares of
Common Stock, $0.01 par value per share, of which 4,000,000 are designated as
Restricted Common Stock (the "Restricted Common Stock"), and 1,000,000 shares
of undesignated preferred stock issuable in series by the Board of Directors
("Preferred Stock"). There will be 10,000,000 shares of Common Stock,
including 1,413,408 shares of Restricted Common Stock, outstanding after
giving effect to the Offering (assuming no exercise of the Underwriters' over-
allotment options and no exercise of outstanding options). The following
summary description of the capital stock of the Company does not purport to be
complete and is qualified in its entirety by reference to the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and
Amended and Restated By-laws (the "By-laws"), copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
Certificate and By-laws have been adopted by the stockholders of the Company
and the Board of Directors.
Common Stock and Restricted Common Stock. The holders of Common Stock are
entitled to one vote per share on all matters to be voted on by stockholders.
The holders of Restricted Common Stock are entitled to 1/10th of one vote for
each share held on all matters on which they are entitled to vote. Holders of
Restricted Common Stock are entitled to vote on all matters on which holders
of Common Stock are entitled to vote. Holders of Common Stock and Restricted
Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Board of Directors from funds legally
available therefor. See "Dividend Policy." The possible issuance of Preferred
Stock with a preference over Common Stock and Restricted Common Stock as to
dividends could impact the dividend rights of holders of Common Stock and
Restricted Common Stock. Holders of Common Stock and Restricted Common Stock
are not entitled to cumulative voting rights. Therefore, the holders of a
majority of the votes cast in the election of directors can elect all of the
directors then standing for election, subject to the rights of the holders of
any then outstanding Preferred Stock, if and when issued. The holders of
Common Stock and Restricted Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock or the Restricted
Common Stock (except for the right, in certain circumstances, to convert
Restricted Common Stock into Common Stock). Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, the net assets of the
Company shall be distributed pro rata to the holders of the Common Stock and
Restricted Common Stock in accordance with their respective rights and
interests, subject to the rights and interests of the holders of Preferred
Stock, if and when issued. All outstanding shares of Common Stock and
Restricted Common Stock, including the shares of Common Stock offered hereby,
are, or will be upon consummation of the Offering, fully paid and non-
assessable.
The Certificate and By-laws provide, subject to the rights of the holders of
any Preferred Stock then outstanding, that the number of directors shall be
fixed by the Board of Directors. The directors, other than those who may be
elected by the holders of any Preferred Stock, are divided into two classes
until the Board Conversion. The Certificate further provides that upon the
occurrence of the Board Conversion, each class of the Board of Directors will
be chosen for staggered three-year terms upon the expiration of their then-
current terms and each year one class of directors will be elected by the
stockholders. Subject to any rights of the holders of Preferred Stock to elect
directors and to remove any director whom the holders of any such stock had
the right to elect, any director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such director. See "Management--Board of Directors."
Each share of Restricted Common Stock will automatically convert into Common
Stock on a share for share basis upon a disposition of such shares of
Restricted Common Stock which (i) occurs after the later to occur of (x) the
first day after the second anniversary of the consummation of the Offering and
the Combination and (y) the first day after the first election of Class II
Directors occurring after the consummation of the Offering and the
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<PAGE>
Combination and (ii) is made to a party (whether a natural person or an
entity) which is not (x) a party (a "Prior Stockholder") which held shares of
the Company's capital stock prior to the Offering or the Combination, (y) a
party related to any Prior Stockholder in any manner described in Section
267(b) or 707(b) of the Internal Revenue Code of 1986, as amended and in
effect as of the date hereof (the "Code"), or (z) a party through which
ownership of shares of the Company's capital stock could be attributed to any
Prior Stockholder under the provisions of Section 318 of the Code.
The Company has applied to list the Common Stock for quotation on the Nasdaq
National Market under the symbol "MERK."
Undesignated Preferred Stock. The Board of Directors is authorized, without
further action of the stockholders of the Company, to issue up to 1,000,000
shares of Preferred Stock in classes or series and to fix the designations,
powers, preferences and the relative, participating, optional or other special
rights of the shares of each series and any qualifications, limitations and
restrictions thereon as set forth in the Certificate. Any such Preferred Stock
issued by the Company may rank prior to the Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or seeking to acquire, a significant portion of the
outstanding Common Stock.
CERTAIN PROVISIONS OF CERTIFICATE AND BY-LAWS
General. A number of provisions of the Company's Certificate and By-laws
concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Board of Directors
to issue shares of Preferred Stock and to set the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors,
including takeovers which certain stockholders may deem to be in their best
interests. To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Company's Common Stock, which may
result from actual or rumored takeover attempts, may be inhibited. These
provisions, together with the classified Board of Directors and the ability of
the Board of Directors to issue Preferred Stock without further stockholder
action, also could delay or frustrate the removal of incumbent directors or
the assumption of control by stockholders, even if such removal or assumption
would be beneficial to stockholders of the Company. These provisions also
could discourage or make more difficult a merger, tender offer or proxy
contest, even if a transaction or contest could be favorable to the interests
of stockholders, and could potentially depress the market price of the Common
Stock. The Board of Directors believes that these provisions are appropriate
to protect the interests of the Company and all of its stockholders. The Board
of Directors has no present plans to adopt any other measures or devices which
may be deemed to have an "anti-takeover effect."
Meetings of Stockholders. The Company's By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law. The Company's By-laws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted upon at such special meeting, unless otherwise provided by law. In
addition, the Company's By-laws set forth certain other requirements, such as
advance notice and informational requirements and time limitations on any
director nomination or any new business which a stockholder wishes to propose
for consideration at an annual meeting of stockholders.
No Stockholder Action by Written Consent. The Certificate provides that for
so long as the Company has a class of stock registered pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, any action
required or permitted to be taken by the stockholders of the Company at an
annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders
in lieu thereof.
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Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and in the discretion of the
Board of Directors non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company, and further permits
the advancing of expenses incurred in defense of claims. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contractual right and shall not be exclusive of any other right now possessed
or hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence
or gross negligence in business combinations, unless the director has breached
his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the federal securities laws. In addition, this
provision does not affect the availability of equitable remedies, such as an
injunction or rescission, for breach of fiduciary duty.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and
(with certain exceptions) thereafter approved by the holders of a majority of
the outstanding shares entitled to vote on such amendment, and the affirmative
vote of a majority of the outstanding shares of each class entitled to vote
thereon as a class; provided, however, that the affirmative vote of not less
than two-thirds of the outstanding shares entitled to vote on such amendment,
and the affirmative vote of not less than two-thirds of the outstanding shares
of each class entitled to vote thereon as a class, is required to amend
provisions of the Certificate relating to the establishment, composition and
powers of the Board of Directors and amendments to the Certificate.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of the holders of at least two-thirds of the total votes
present and eligible to be cast by holders of voting stock voting as a single
class with respect to such amendment or repeal at an annual meeting of
stockholders or a special meeting called for such purpose, unless the Board of
Directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal shall only require the
affirmative vote of a majority of the total votes present and eligible to be
cast by holders of voting stock voting as a single class with respect to such
amendment or repeal.
Ability to Adopt Stockholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares, to implement a stockholder rights plan which creates voting or other
impediments or under which shares are distributed to a third-party investor, a
group of investors or stockholders or issued to an employee stock ownership
plan to discourage persons seeking to gain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, if such change in control
is not in the best interests of the Company and its stockholders. The Board of
Directors has no present intention of adopting a stockholder rights plan and
is not aware of any attempt to obtain control of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person, or an affiliate or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting
in a person becoming an interested stockholder, or the business combination,
is approved by the board of directors of the corporation before the person
becomes an interested stockholder; (ii) the interested stockholder acquired
85% or more of the
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outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares owned by persons who are both
officers and directors of the corporation, and shares held by certain employee
stock ownership plans); or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (i) the owner of 15% or more of the outstanding voting stock of
the corporation or (ii) an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage; provided, however, that
such by-law or charter amendment shall not become effective until 12 months
after the date the stockholders adopt such exclusion. Neither the Certificate
nor the By-laws contains any such exclusion.
TRANSFER AGENT AND REGISTRAR
BankBoston, N.A. is the transfer agent and registrar for the Company's
Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Combination and the Offering, the Company will have
10,000,000 shares of Common Stock outstanding (assuming the Underwriters'
over-allotment options are not exercised), excluding (i) 245,000 shares
issuable upon exercise of options to purchase shares of Common Stock granted
on May 22, 1998 under the 1998 Stock Plan (ii) 610,000 shares issuable upon
exercise of options to purchase Common Stock to be granted upon consummation
of the Offering and (iii) 445,000 shares of Common Stock reserved for issuance
upon grant or exercise of future awards under the 1998 Stock Plan (1,407,250
shares of Common Stock will be reserved for issuance under the 1998 Stock Plan
if the Underwriters' over-allotment options are exercised in full). Of the
total shares outstanding, only the 5,500,000 shares sold in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act, except for any shares purchased by affiliates of the Company,
which will be subject to the limitations of Rule 144 under the Securities Act
("Rule 144"). All of the remaining 4,500,000 shares outstanding (the
"Restricted Shares") may be sold only pursuant to an effective Registration
Statement filed by the Company or an applicable exemption, including, without
limitation, sales meeting the applicable requirements of Rule 144 under the
Securities Act.
None of the 2,996,309 shares of Common Stock owned by current stockholders
of the Company will be eligible for sale in accordance with Rule 144 prior to
March 4, 1999, at which time 2,496,924 shares of Common Stock will be eligible
for sale in the public market.
In general, Rule 144 as currently in effect provides that any person (or
persons whose shares are aggregated), including a person who may be deemed an
"affiliate" of the Company (as defined under the Securities Act), whose
Restricted Shares have been fully paid for and held for at least one year from
the later of the date of issuance by the Company or acquisition from an
affiliate of the Company is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of (i) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
the date on which notice of such sale is filed on Form 144 with the Securities
and Exchange Commission (the "Commission") and (ii) 1% of the shares of Common
Stock then outstanding (approximately 100,000 shares upon consummation of the
Offering). In addition, sales under Rule 144 are subject to certain other
restrictions regarding the manner of sale, required notice and availability of
public information concerning the Company. Persons who are not affiliates at
the time of sale and who have not been affiliates of the Company for at least
90 days prior to a sale, and who have beneficially owned the shares proposed
to be sold for at least two years (including the holding period of any prior
owner other than an affiliate), are entitled to sell such shares under Rule
144(k) without the limitations referenced above. Affiliates, including members
of the Board of Directors and senior management, continue to be subject to the
limitations under Rule 144, including volume of sale limitations for all
shares held by them, regardless of the time period held. Shares of Common
Stock sold by the Company to, among others, its employees, officers and
directors upon exercise of options granted pursuant to written compensation
plans or contracts (including certain options granted under the 1998 Stock
Plan), and in reliance on Rule 701 under the Securities Act, may be resold,
beginning 90 days after the effective date of this Prospectus, in reliance on
Rule 144 by such persons who are not affiliates subject only to the provisions
of Rule 144 regarding manner of sale, and by such persons who are affiliates
subject to all provisions of Rule 144 except its one-year minimum holding
period requirement.
Under the 1998 Stock Plan, the Company is authorized to issue options for up
to thirteen percent of the number of shares of Common Stock outstanding from
time to time, of which 245,000 shares are issuable upon the exercise of
outstanding stock options. Upon consummation of the Offering, 1,300,000 shares
of Common Stock will be reserved for issuance under the 1998 Stock Plan
(1,407,250 shares of Common Stock will be reserved for issuance under the 1998
Stock Plan if the Underwriters' over-allotment options are exercised in full).
See "Management--1998 Stock Option and Incentive Plan" and "Management--Option
Grants." The Company intends to file a Registration Statement under the
Securities Act to register the shares of Common Stock reserved for issuance
under the 1998 Stock Plan. Such Registration Statement is expected to be filed
as soon as practicable after the date of this Prospectus and will become
automatically effective upon filing. Shares of Common Stock issued upon the
exercise of options under the 1998 Stock Plan after the effective date of such
Registration Statement generally will be available for sale in the open
market, subject to Rule 144 limitations with respect to affiliates, and
subject to the lock-up agreements described below.
61
<PAGE>
LOCK-UP AGREEMENTS
The Company and the holders of all shares of Common Stock outstanding prior
to the Offering, including the directors and officers and the holders of
shares issued in connection with the Combination, holding in the aggregate
4,500,000 shares of Common Stock, have agreed that they will not, except under
the limited circumstances described in the respective lock-up agreements,
without the prior written consent of the U.S. Representatives, agree to sell,
contract to sell or otherwise dispose of any shares of Common Stock of the
Company for a period of 180 days after the date of this Prospectus.
REGISTRATION RIGHTS
Following the Combination, the holders of 4,500,000 shares of Common Stock
will have the right, in certain circumstances, to require the Company to
include their shares in a registration statement filed by the Company under
the Securities Act. In addition, the holders of 2,996,309 of such shares of
Common Stock will have the right, in certain circumstances, beginning on the
date that is 180 days following the consummation of the Offering, to require
the Company to register their shares of Common Stock under the Securities Act.
See "Certain Transactions."
EFFECT OF FUTURE SALES
Prior to the Offering, there has been no trading market for shares of Common
Stock, and the effect, if any, that future market sales of shares of Common
Stock or the availability of shares of Common Stock for sale will have on the
prevailing market prices for the Common Stock cannot be predicted.
Nevertheless, sales of a substantial number of shares in the public market, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's future
ability to raise capital through an offering of its equity securities. See
"Risk Factors--Possible Future Sales of Shares."
62
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), BT
Alex. Brown Incorporated and Lehman Brothers Inc. are acting as
representatives (the "U.S. Representatives") of each of the underwriters named
below (the "U.S. Underwriters"). Subject to the terms and conditions set forth
in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company
and the U.S. Underwriters, and concurrently with the sale of 1,100,000 shares
of Common Stock to the International Managers (as defined below), the Company
has agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters
severally and not jointly has agreed to purchase from the Company the number
of shares of Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITER SHARES
---------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
BT Alex. Brown Incorporated.......................................
Lehman Brothers Inc. .............................................
---------
Total........................................................ 4,400,000
=========
</TABLE>
The Company has also entered into an international purchase agreement (the
"International Purchase Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International,
BT Alex. Brown International, a division of Bankers Trust International PLC,
and Lehman Brothers International (Europe) are acting as lead managers (the
"Lead Managers"). Subject to the terms and conditions set forth in the
International Purchase Agreement, and concurrently with the sale of 4,400,000
shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement, the Company has agreed to sell to the International Managers, and
the International Managers severally have agreed to purchase from the Company,
an aggregate of 1,100,000 shares of Common Stock. The initial public offering
price per share and the total underwriting discount per share of Common Stock
are identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. Under certain circumstances, under the U.S.
Purchase Agreement and the International Purchase Agreement, the commitments
of non-defaulting Underwriters may be increased. The closings with respect to
the sale of shares of Common Stock to be purchased by the U.S. Underwriters
and the International Managers are conditioned upon one another.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted options to the U.S. Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
660,000 additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting
discount. The U.S. Underwriters may exercise these options solely to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby.
To the extent that the U.S. Underwriters exercise these options, each U.S.
Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of Common Stock proportionate to such U.S.
Underwriter's initial amount reflected in the foregoing table. The Company
also has
63
<PAGE>
granted options to the International Managers, exercisable for 30 days after
the date of this Prospectus, to purchase up to an aggregate of 165,000
additional shares of Common Stock to cover over-allotments, if any, on terms
similar to those granted to the U.S. Underwriters.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 5% of the shares offered hereby to be
sold to certain directors, officers, and employees of the Company and certain
business associates of the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the Offering
will be offered by the U.S. Underwriters to the general public on the same
terms as the other shares offered hereby.
The Company and holders of all shares of Common Stock outstanding prior to
the Offering, including the Company's executive officers and directors and the
holders of shares of Common Stock issued in connection with the Combination
have agreed, subject to certain exceptions, not to directly or indirectly (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant for the sale of or otherwise dispose of or transfer any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
Common Stock, whether now owned or thereafter acquired by the person executing
the agreement or registration statement under the Securities Act with respect
to the foregoing or (ii) enter into any swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership of the
Common Stock whether any such swap or transaction is to be settled by delivery
of Common Stock or other securities, in cash or otherwise, without the prior
written consent of Merrill Lynch on behalf of the Underwriters for a period of
180 days after the date of this Prospectus. See "Shares Eligible for Future
Sale."
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and the International Managers are permitted
to sell shares of Common Stock to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company, the U.S. Representatives and the Lead
Managers. The factors considered in determining the initial public offering
price, in addition to prevailing market conditions, are price-earnings ratios
of publicly traded companies that the U.S. Representatives believe to be
comparable to the Company, certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which it
competes, and an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development, and the above factors in
relation to market value and various valuation measures of other companies
engaged in activities similar to the Company. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above
the initial public offering price. See "Risk Factors--Absence of Public
Market; Determination of Offering Price and Fluctuations in Market Price."
The Company has applied to list the Common Stock for quotation on the Nasdaq
National Market under the symbol "MERK."
64
<PAGE>
The Underwriters do not expect sales of Common Stock to any accounts over
which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company has agreed to indemnify the U.S. Underwriters and the
International Managers against certain liabilities, including certain
liabilities under the Securities Act, or to contribute to payments the U.S.
Underwriters and International Managers may be required to make in respect
thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the U.S. Representatives are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the Common Stock to the extent
that it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Shearman & Sterling, New York, New
York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent of and for the periods indicated in the
reports, have been audited by Arthur Andersen LLP, independent public
accountants, or Hege Kramer Connell Murphy & Goldkamp, P.C. as indicated in
their respective reports with respect thereto, and are included herein in
reliance upon the authority of said firms as experts in giving said reports.
Arthur Andersen LLP's report on the financial statements of Merkert
Enterprises, Inc. and subsidiary as of and for the three years ended December
31, 1997, dated May 22, 1998 and included herein, includes a qualification
stating that there exists a substantial doubt about the ability of Merkert
Enterprises, Inc. to continue as a going concern.
65
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information
pertaining to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other documents,
each such statement being qualified in all respects by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such materials can also be inspected at a world wide web
site maintained by the Commission at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
(which, after the Offering, will include the Company) that file electronically
with the Commission.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Basis of Presentation................................................... F-2
Notes to Unaudited Pro Forma Combined Financial Statements.............. F-3
Pro Forma Combined Balance Sheet as of March 31, 1998 and notes thereto
(unaudited)............................................................ F-4
Pro Forma Combined Statement of Operations for the Year Ended December
31, 1997 and notes thereto (unaudited)................................. F-7
Pro Forma Combined Statement of Operations for the Quarter Ended March
31, 1998 and notes thereto (unaudited)................................. F-9
HISTORICAL FINANCIAL STATEMENTS
MERKERT AMERICAN CORPORATION
Report of Independent Public Accountants................................ F-11
Balance Sheet........................................................... F-12
Notes to Financial Statements........................................... F-13
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................ F-16
Consolidated Balance Sheets............................................. F-17
Consolidated Statements of Operations................................... F-18
Consolidated Statements of Stockholders' Deficit........................ F-19
Consolidated Statements of Cash Flows................................... F-20
Notes to Consolidated Financial Statements.............................. F-21
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
Report of Independent Public Accountants................................ F-31
Consolidated Balance Sheets............................................. F-32
Consolidated Statements of Operations................................... F-33
Consolidated Statements of Stockholders' Equity......................... F-34
Consolidated Statements of Cash Flows................................... F-35
Notes to Consolidated Financial Statements.............................. F-36
FITZWATER INC.
Independent Auditors' Report............................................ F-45
Balance Sheet........................................................... F-46
Statements of Income.................................................... F-47
Statement of Stockholders' Equity....................................... F-48
Statements of Cash Flows................................................ F-49
Notes to Financial Statements........................................... F-50
</TABLE>
F-1
<PAGE>
MERKERT AMERICAN CORPORATION, MERKERT AND ROGERS
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the purchases by Merkert American Corporation (the "Company") of the
outstanding capital stock of Merkert Enterprises, Inc. ("Merkert") and Rogers
American Company, Inc. ("Rogers"). These purchases will occur simultaneously
with the closing of the Company's initial public offering (the "Offering") and
will be accounted for using the purchase method of accounting. Merkert
American Corporation has been designated as the accounting acquiror pursuant
to SAB 97, because it will own the largest portion of Common Stock after the
consummation of the Offering and the Combination.
The unaudited pro forma combined balance sheet gives effect to the
Combination and the Offering as if they had occurred on March 31, 1998. The
unaudited pro forma combined statement of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998 give effect to
these transactions as if they had occurred on January 1, 1997.
The pro forma adjustments discussed herein are based on estimates, and
certain assumptions. It is management's opinion that the final allocation of
the purchase price will not differ materially from the preliminary estimated
amounts. Management anticipates that the final price allocation will be
completed soon after the consummation of the Combination. The pro forma
financial data do not purport to represent what the Company's financial
position or results of operations would actually have been if such
transactions had in fact occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations of
the Company for any future period. The unaudited pro forma combined financial
statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus. See "Risk Factors"
included elsewhere herein.
F-2
<PAGE>
MERKERT AMERICAN CORPORATION, MERKERT AND ROGERS
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GENERAL
Merkert American Corporation was founded to become a leading national food
broker. The Company has conducted no operations to date and will acquire
Merkert and Rogers concurrently with and as a condition of this Offering.
The historical financial statements reflect the financial position and
results of operations of Merkert and Rogers and were derived from the Merkert
and Rogers financial statements where indicated. The periods included in these
financial statements are as of March 31, 1998 and for the twelve months ended
December 31, 1997 and for the three months ended March 31, 1998. The audited
historical financial statements are included elsewhere herein.
2. PURCHASE OF MERKERT AND ROGERS
Concurrently with and as a condition to the consummation of this Offering,
the Company will purchase all of the outstanding capital stock of Merkert and
Rogers. The Combination will be accounted for using the purchase method of
accounting.
Upon the consummation of the Combination, the Company plans to integrate the
two companies. As part of this integration, the Company will consolidate
several offices in geographic locations in which both Merkert and Rogers
currently operate. The Company anticipates achieving significant savings
associated with these consolidations including payroll and other operating
costs associated with reduced headcount and office expenses. In addition, the
Company expects to eliminate several executive, selling and general
administrative personnel that the management of the Company believe will no
longer be required upon the integration.
The estimated results of the Company's plans of integration are directly
attributable to the Combination and accordingly are included in the
accompanying Pro forma Combined Financial Statements, assuming each of the
described events occurs in conjunction with the Offering.
Following the Combination, Rogers intends to sell its corporate headquarters
to a third party, Rogers will then distribute the net cash proceeds from the
sale, after paying the related mortgage note payable, to certain stockholders.
In addition Rogers will assign the life insurance policies on key executives
to certain stockholders. Also, the principal stockholders of Rogers have
agreed to transfer a portion of their shares to certain minority stockholders
prior to the Offering. Rogers will record a compensation charge for each of
these events in their financial statements at the date of these events.
Upon the Combination, Merkert intends to settle the employment contracts of
two executives which requires a cash payment of approximately $1,500. Merkert
will record a compensation charge for this amount in its financial statements
at that date.
The consideration to be paid in cash and in shares of Common Stock to the
common stockholders of Merkert and Rogers is as follows: Merkert: cash of
$27,550 and Common Stock of $23,631; Rogers, cash of $25,635 and Common Stock
of $9,450. For purposes of computing the estimated purchase price for
accounting purposes, the fair value of the shares is determined by applying a
15% discount to the expected market value of the shares issued in connection
with the Offering due to restrictions on the sale and transferability of the
shares issued. The shares issued in the Combination will be unregistered
shares. Accordingly, unless registered, these shares cannot be sold except
under Rule 144 or another applicable exemption from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Additionally, the
shares are subject to a six-month contractual lock-up in favor of the
Underwriters. Allocations of the purchase prices are preliminary and subject
to change. The excess of the purchase price over the fair value of the net
liabilities assumed has been assigned to goodwill, subject to an appraisal of
the assets.
F-3
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS FOR PRO FORMA ADJUSTMENTS FOR AS
MERKERT ROGERS COMPANY THE COMBINATION COMBINED THE OFFERING ADJUSTED
------- ------- ------- --------------- --------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 334 $ 494 $500 -- $ 1,328 $ 19,245 (e) $ 20,573
Restricted cash......... 639 682 -- -- 1,321 -- 1,321
Accounts Receivable,
net.................... 16,018 10,301 -- -- 26,319 -- 26,319
Inventories............. 1,659 -- -- -- 1,659 -- 1,659
Deferred Income taxes... -- 639 -- -- 639 -- 639
Prepaid expenses and
other.................. 2,108 240 289 -- 2,637 (289) (e) 2,348
------- ------- ---- ------- -------- -------- --------
Total current as-
sets................ 20,758 12,356 789 -- 33,903 18,956 52,859
Plant and equipment,
net.................... 12,094 5,966 -- ($3,800) (a) 14,260 -- 14,260
Noncompete agreements,
net ................... 4,916 4,182 -- (4,538) (i) 4,560 -- 4,560
Goodwill................ 18,115 13,725 -- 92,715 (b) 129,093 -- 129,093
4,538 (i) -- -- --
Deferred income taxes... -- 149 -- -- 149 -- 149
Other assets............ 765 3,258 -- (3,239) (a) 784 -- 784
--
------- ------- ---- ------- -------- -------- --------
Total assets......... $56,648 $39,636 $789 $85,676 $182,749 $ 18,956 $201,705
======= ======= ==== ======= ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and
accrued liabilities.... $33,341 $ 5,380 $789 $ 1,500 (a) $ 36,660 $ (3,289) (e) $ 33,371
(4,350) (g)
Current maturities of
long term debt......... 10,195 11,509 -- 16,125 (d) 37,829 (33,600) (e) 4,229
Payable to
stockholders........... -- -- -- 53,185 (b) 53,185 (53,185) (e) --
------- ------- ---- ------- -------- -------- --------
Total current liabil-
ities............... 43,536 16,889 789 66,460 127,674 (90,074) 37,600
Long term debt, net of
current portion........ 24,193 22,209 -- (3,800) (a) 26,477 -- 26,477
(16,125) (d)
Other................... -- 479 -- -- 479 -- 479
------- ------- ---- ------- -------- -------- --------
Total liabilities.... 67,729 39,577 789 46,535 154,630 (90,074) 64,556
Redeemable Preferred
Stock.................. 5,720 -- -- (5,720) (c) -- -- --
Common stock subject to
redemption............. 1,619 -- -- (1,619) (f) -- -- --
Stockholders' equity
Common Stock........... 14 1 -- 30 (c) 45 55 100
Additional paid in
capital............... 3,126 37 -- 24,911 (h) 28,074 108,975 (e) 137,049
Retained earnings (Ac-
cumulated deficit).... (17,657) 21 -- 17,636 (c) -- -- --
Treasury stock......... (3,903) -- -- 3,903 (c) -- -- --
------- ------- ---- ------- -------- -------- --------
Total stockholders'
equity (deficit).... (18,420) 59 -- 46,480 28,119 109,030 137,149
--
------- ------- ---- ------- -------- -------- --------
Total liabilities and
stockholders' equity... $56,648 $39,636 $789 $85,676 $182,749 $ 18,956 $201,705
======= ======= ==== ======= ======== ======== ========
</TABLE>
F-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
BALANCE SHEET ADJUSTMENTS
AS OF MARCH 31, 1998
(a) Records the distribution, to certain selling shareholders of Rogers, the
net cash proceeds from the sale of real estate and life insurance policies
with a net book value of $3,239. Also records a liability for the cash
settlement for $1,500 of employment contracts to be paid to certain
selling stockholders of Merkert who are departing the Company.
(b) Records the goodwill resulting from the Combination of Merkert and Rogers
by the Company. The goodwill is calculated as follows:
<TABLE>
<S> <C>
Cash paid..................................................... $ 53,185
Fair value of shares of common stock issued................... 28,119
Transaction costs............................................. 1,000
--------
82,304
Plus: fair value of net tangible liabilities assumed.......... 51,349
--------
133,653
Less: intangible assets allocated to noncompete agreements.... (4,560)
--------
Goodwill...................................................... $129,093
========
</TABLE>
The pro forma combined balance sheet does not reflect the income tax
liability assumed by certain selling stockholders which is to be paid in
full to the applicable tax authorities at the closing date.
(c) Records the increase in additional paid-in capital for the shares issued
to the selling stockholders of Merkert and Rogers of $28,119. Also records
the elimination of the historical equity accounts of Merkert and Rogers.
(d) Records the current portion of the estimated amount of obligations at
Merkert and Rogers assumed by the Company to be settled in full and paid
with a portion of the net proceeds of the Offering.
(e) Records the net proceeds from the Offering, net of Underwriters' discount,
of $112,530. Also allocates to paid-in capital $3,500 of deferred Offering
costs, including $289 of costs deferred as of March 31, 1998 and records
the anticipated use of proceeds from the Offering as follows:
<TABLE>
<S> <C>
Net Proceeds................................................. $112,530
Offering costs............................................... (3,500)
Cash paid to selling shareholders............................ (53,185)
Repayment of bank debt and other notes payable............... (14,600)
Repayment of other notes payable............................. (1,000)
Repayment of acquisition obligations......................... (18,000)
Severance and other amounts, including acquisition costs..... (3,000)
--------
$ 19,245
(f) Records the retirement of redeemable common stock associated with the
Merkert ESOP.
(g) Records the adjustment to accrued liabilities as follows:
Income tax liability assumed by certain selling
shareholders................................................ $(15,350)
Severance and other costs associated with the closure of
certain offices and operations.............................. 10,000
Transaction costs............................................ 1,000
--------
Net reduction to accrued liabilities......................... $ (4,350)
========
</TABLE>
F-5
<PAGE>
(h) Records the paid-in capital resulting from the Combination of Merkert and
Rogers by the Company.
<TABLE>
<S> <C>
Fair value of shares issued.................................. $ 28,119
Less: allocated to common stock.............................. (45)
--------
28,074
Less: Paid in capital recorded on the books of Merkert and
Rogers...................................................... (3,163)
--------
Net increase to paid in capital.............................. $ 24,911
========
</TABLE>
(i) Records the elimination of non-compete agreements associated with the
prepayment of certain acquisition obligations.
F-6
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(F)
PRO FORMA PRO FORMA
MERKERT ROGERS COMPANY ADJUSTMENTS COMBINED
-------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................... $ 43,105 $ -- $ -- $ -- $ 43,105
Commission income....... 104,274 82,985 -- -- 187,259
-------- ------- ----- ------ -----------
Revenues................ 147,379 82,985 -- -- 230,364
Cost of sales........... 39,027 -- -- -- 39,027
Selling, general and
administrative
expense................ 102,495 76,384 -- (1,580)(a),(b) 177,299
Depreciation and
Amortization........... 4,484 2,516 -- (1,372)(c) 5,628
-------- ------- ----- ------ -----------
Operating income........ 1,373 4,085 -- 2,952 8,410
Interest expense........ 5,010 2,536 -- (4,921)(d) 2,625
Other (income) expense,
net.................... (79) -- -- -- (79)
-------- ------- ----- ------ -----------
Income (loss) before
income taxes........... (3,558) 1,549 -- 7,873 5,864
Provision (benefit) for
income taxes........... (109) 804 -- 1,814 (e) 2,509
-------- ------- ----- ------ -----------
Net income (loss)....... $ (3,449) $ 745 $ -- $6,059 $ 3,355
======== ======= ===== ====== ===========
Basic net income per
share.................. $ 0.34
===========
Shares used in computing
basic net income per
share(g)............... 10,000,000
===========
Diluted net income per
share.................. $ 0.33
===========
Shares and potential
dilutive shares used in
computing diluted
earnings per share(g).. 10,061,250
===========
</TABLE>
F-7
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS ADJUSTMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(a) Represents the salaries, fringe benefits and other directly attributable
expenses of certain stockholders of Merkert and Rogers who will no longer
be employed per written agreement.
(b) In connection with the Combination and the Offering, the Company intends
to achieve significant cost savings through the integration of the
operations of Merkert and Rogers. The savings primarily will result from
the closing of offices due to overlapping geographic coverage and the
elimination of duplicative operations. The cost savings include the
elimination of employee payroll and benefits, certain rental and office
expenses relating to the closing of offices, as well as other direct
costs. These savings will be slightly offset by an anticipated loss of
revenue resulting from manufacturer conflicts. In addition, the Company
expects to incur an increase in lease expense and a reduction in
depreciation expense as a result of the sale of Rogers' headquarters to a
third party and the related leaseback of the facility to the Company. The
Company expects the impact of these integration adjustments on Pro Forma
Combined Net Income to be as follows (in thousands):
<TABLE>
<S> <C>
Pro Forma Combined Net Income (per above).......................... $ 3,355
Elimination of salaries, benefits, bonuses and other direct
costs............................................................ 13,392
Elimination of rental and other office expenses................... 1,000
Loss of revenue resulting from Manufacturer conflicts............. (2,500)
Increase in lease expense offset by reduction in depreciation ex-
pense resulting from the sale of Rogers' headquarters and associ-
ated leaseback................................................... (566)
Tax effect of the above items..................................... (5,155)
-------
Pro Forma Combined Net Income (after integration adjustments)...... $ 9,526
=======
</TABLE>
(c) Represents the net decrease of amortization of goodwill and other
intangibles as a result of the purchase of Merkert and Rogers. The Company
is in the process of allocating the excess purchase price to certain
intangibles and goodwill and has assigned a 40-year life for goodwill and
lives ranging from 5 to 7 years for other intangibles.
(d) Represents the reduction of interest expense as a result of the Company's
intention to pay down the following obligations with a portion of the
proceeds from the Offering:
<TABLE>
<CAPTION>
APPROXIMATE 1997 INTEREST
DESCRIPTION AMOUNT RATE EXPENSE
----------- ------- ----------- -------------
<S> <C> <C> <C>
Revolving line of credit................. $ 6,000 8.50% $ 553
Revolving line of credit................. 8,600 8.70% 583
Mortgage note............................ 3,800 8.56% 326
IRS...................................... 10.00% 1,527
Promissory notes......................... 1,000 8.50% 149
Acquisition obligations of Merkert and
Rogers.................................. 18,000 10.00% 1,783
------
$4,921
======
</TABLE>
(e) Represents the adjustment to record the income tax provision to reflect
the Company's estimated consolidated effective tax rate of 46%, after
considering non-deductible goodwill amortization.
(f) The pro forma combined statement of operations excludes approximately
$27.0 million of aggregate non-recurring compensation charges to be
recorded in the second and third quarters of 1998 by Merkert American,
Merkert and Rogers prior to the purchase. These compensation charges
relate to: (1) employment contract settlements of $1,500 paid to certain
executives of Merkert who are departing the Company; (2) the cash and life
insurance policies to be distributed to certain stockholders of Rogers;
and (3) the transfer of shares of common stock of Rogers by the principal
stockholders to certain minority stockholders and (4) a non-cash stock
compensation charge related to the purchase of Common Stock by Gerald R.
Leonard.
(g) Includes (1) shares to be issued to the stockholders of Merkert and
Rogers, (2) shares issued to the management of and consultants to the
Company, and (3) shares sold in this Offering necessary to pay the cash
portion of the Combination consideration, retire certain indebtedness
relating to outside bank debt and acquisition obligations of Merkert and
Rogers and pay the expenses of the Offering and the Combination. In
addition, shares and potential dilutive shares used in computing diluted
earnings per share include the dilutive effect of currently outstanding
options to purchase shares of Common Stock.
F-8
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(F)
PRO FORMA PRO FORMA
MERKERT ROGERS COMPANY ADJUSTMENTS COMBINED
------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales................... $12,424 $ -- $ -- $ -- $ 12,424
Commissions............. 24,168 20,831 -- -- 44,999
------- ------- ----- ------- -----------
Total revenue........... 36,592 20,831 -- -- 57,423
Cost of sales........... 11,420 -- -- -- 11,420
Selling, general and
administrative
expense................ 24,318 19,006 -- (395)(a),(b) 42,929
Depreciation and
amortization........... 1,137 635 -- (368)(c) 1,404
------- ------- ----- ------- -----------
Operating income (283) 1,190 -- 763 1,670
Interest expense........ 1,129 650 -- (1,217)(d) 562
Other (income) expense,
net.................... 103 -- -- -- 103
------- ------- ----- ------- -----------
Income (loss) before
income taxes........... (1,515) 540 -- 1,980 1,005
Provision (benefit) for
income taxes........... 100 308 -- 15(e) 423
------- ------- ----- ------- -----------
Net income (loss)....... $(1,615) $ 232 $ -- $ 1,965 $ 582
======= ======= ===== ======= ===========
Basic net income per
share ................. $ 0.06
Shares used in computing
basic net income per
share(g)............... 10,000,000
===========
Diluted net income per
share ................. $ 0.06
===========
Shares and potential
dilutive shares used in
computing diluted
earnings per share(g).. 10,061,250
===========
</TABLE>
F-9
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENT OF OPERATIONS ADJUSTMENTS
FOR THE QUARTER ENDED MARCH 31, 1998
(a) Represents the salaries, fringe benefits and other directly attributable
expenses of certain stockholders of Merkert and Rogers who will no longer
be employed per written agreement.
(b) In connection with the Combination and the Offering, the Company intends
to achieve significant cost savings through the integration of the
operations of Merkert and Rogers. The savings primarily will result from
the closing of offices due to overlapping geographic coverage and the
elimination of duplicative operations. The cost savings include the
elimination of employee payroll and benefits, certain rental and office
expenses relating to the closing of offices, as well as other direct
costs. These savings will be slightly offset by an anticipated loss of
revenue resulting from Manufacturer conflicts. In addition, the Company
expects to incur an increase in lease expense and a reduction in
depreciation expense as a result of the sale of Rogers' headquarters to a
third party and the related leaseback of the facility to the Company. The
Company expects the impact of these integration adjustments on Pro Forma
Combined Net Income to be as follows (in thousands):
<TABLE>
<S> <C>
Pro Forma Combined Net Income (per above)........................... $ 582
Elimination of salaries, benefits, bonuses and other direct costs.. 3,304
Elimination of rental and other office expenses.................... 250
Loss of revenue resulting from Manufacturer conflicts.............. (500)
Increase in lease expense offset by reduction in depreciation ex-
pense resulting from the sale of Rogers' headquarters and associ-
ated lease back................................................... (142)
Tax effect of the above items...................................... (1,343)
------
Pro Forma Combined Net Income (after integration adjustments)....... $2,151
======
</TABLE>
(c) Represents the net decrease of amortization of goodwill and other
intangibles as a result of the purchase of Merkert and Rogers. The Company
is in the process of allocating the excess purchase price to certain
intangibles and goodwill and has assigned a 40-year life for goodwill and
lives ranging from 5 to 7 years for other intangibles.
(d) Represents the reduction of interest expense as a result of the Company's
intention to pay down the following obligations with a portion of the
proceeds from the Offering.
<TABLE>
<CAPTION>
APPROXIMATE Q1 98 INTEREST
DESCRIPTION AMOUNT RATE EXPENSE
----------- ------- ----------- --------------
<S> <C> <C> <C>
Revolving line of credit................ $ 6,000 8.50% $ 138
Revolving line of credit................ 8,600 8.70% 175
Mortgage note........................... 3,800 8.56% 82
IRS..................................... 10.00% 382
Promissory notes........................ 1,000 8.50% 37
Acquisition obligations of Merkert and
Rogers................................. 18,000 10.00% 403
------
$1,217
======
</TABLE>
(e) Represents the adjustment to record the income tax provision to reflect
the Company's estimated consolidated effective tax rate of 46%, after
considering non-deductible goodwill amortization.
(f) The pro forma combined statement of operations excludes in the aggregate
approximately $27.0 million of aggregate, non-recurring compensation
charges to be recorded in the second and third quarters of 1998 by Merkert
American, Merkert and Rogers prior to the purchase. These compensation
charges relate to: (1) employment contract settlements of $1,500 paid to
certain executives of Merkert who are departing the Company; (2) cash and
life insurance policies to be distributed to certain stockholders of
Rogers; and (3) the transfer of shares of common stock of Rogers by the
principal stockholders to certain minority stockholders; and (4) a non-
cash stock compensation charge related to the purchase of Common Stock by
Gerald R. Leonard.
(g) Includes (1) shares to be issued to stockholders of Merkert and Rogers,
(2) shares issued to the management of and consultants to the Company, and
(3) shares sold in this Offering necessary to pay the cash portion of the
Combination consideration, retire certain indebtedness relating to outside
bank debt and acquisition obligations of Merkert and Rogers and pay the
expenses of the Offering. In addition, shares and potential dilutive
shares used in computing diluted earnings per share include the dilutive
effect of currently outstanding options to purchase shares of Common
Stock.
F-10
<PAGE>
After the stock dividend discussed in Note 6 to Merkert American
Corporation's financial statements is effected, we expect to be in a position
to render the following report.
Arthur Andersen LLP
May 22, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Merkert American Corporation:
We have audited the accompanying balance sheet of Merkert American
Corporation (the "Company") as of March 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express
an opinion on the balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Merkert American Corporation as
of March 31, 1998, in conformity with generally accepted accounting
principles.
F-11
<PAGE>
MERKERT AMERICAN CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
1998
ASSETS ---------
<S> <C>
Cash................................................................ $500
Deferred Offering and Combination Costs............................. 289
----
Total Assets...................................................... $789
====
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued Expenses.................................................... $289
Notes Payable....................................................... 500
----
Preferred Stock, 0 shares issued and outstanding.................... --
Common Stock, $.01 par value--54,000,000 shares authorized,
2,496,924 shares issued and outstanding............................ --
----
Total Liabilities and Stockholder's Equity........................ $789
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-12
<PAGE>
MERKERT AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Merkert American Corporation (the "Company") was incorporated on March 4,
1998 in order to create a leading national food broker through the acquisition
of Merkert Enterprises, Inc. and Subsidiary ("Merkert") and Rogers-American
Company, Inc. and Subsidiary ("Rogers"). These acquisitions (hereinafter
referred to as the "Combination") will occur concurrently with and as a
condition of an initial public offering (the "Offering"). The Company intends
to complete the Offering of its common stock and subsequent to the Offering
continue to acquire, through merger or purchase, similar companies in order to
expand its regional and national operations.
The Company's primary assets at March 31, 1998 are cash and deferred
Offering and Combination costs. The Company's only operations to date have
related to the Offering and the Combination. Funding for the deferred Offering
and Combination costs has been provided by Monroe & Company II, LLC (See Note
3).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Stock Based Compensation Plans
The Company intends to account for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25. It will adopt the disclosure only
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
Accounting for Stock-Based Compensation that requires stock-based compensation
to be disclosed at its fair value.
Earnings Per Share
In February, 1997 the Financial Accounting Standard Board issued SFAS No.
128 Earnings per Share. SFAS No. 128 requires the presentation of basic
earnings per share ("EPS") and diluted earnings per share. Basic EPS excludes
dilution and is calculated using the weighted average number of common shares
outstanding for the period. Diluted EPS is calculated using the weighted
average number of common shares and dilutive potential common shares
outstanding for the period. Dilutive potential shares consist of stock options
and are calculated using the treasury stock method.
Deferred Offering and Combination costs
Deferred Offering and Combination costs consist primarily of legal,
accounting and other professional fees incurred in connection with the
Offering and the Combination. All costs associated with the Combination will
be included as a component of purchase price pursuant to the purchase method
of accounting. All costs associated with the Offering will be charged to
Stockholder's Equity as a reduction to the proceeds when the Offering closes.
3. RELATED PARTY TRANSACTIONS
In connection with the founding and organization of the Company, Monroe &
Company II, LLC purchased 2,496,924 shares of Common Stock for an aggregate
purchase price of $150. On May 11, 1998, Monroe & Company, LLC entered into a
consulting agreement with the Company pursuant to which Monroe & Company, LLC
was engaged to render certain business consulting, financial advisory and
investment banking services to the Company
F-13
<PAGE>
MERKERT AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
on an exclusive basis for three years. Pursuant to the consulting agreement,
Monroe & Company, LLC will be paid a financial advisory fee equal to (i) 5% of
any consideration paid by the Company in connection with any transaction which
results in the merger, consolidation or combination of the Company and a third
party, the acquisition by the Company of the capital stock or assets of a
third party or a joint venture with any third party ("Consideration") up to $1
million, plus (ii) 4% of the Consideration paid in excess of $1 million and up
to $2 million, plus (iii) 3% of the Consideration paid in excess of $2 million
and up to $3 million, plus (iv) 2% of the Consideration paid in excess of $3
million and up to $4 million, plus (v) 1% of the Consideration paid in excess
of $4 million. Under the consulting agreement, Monroe & Company, LLC will also
be paid a fee equal to 0.75% of any principal amount committed under a senior
credit facility for the Company from a lending institution. An additional fee
shall be payable to Monroe & Company, LLC upon increases in such amount or
upon refinancings with a new lender during the term of the consulting
agreement. Monroe & Company, LLC will also be entitled to consulting fees
based on projects and fee schedules to be mutually agreed upon by Monroe &
Company, LLC and the independent directors of the Company (the "Board"). All
fees related to financial advisory services and private placement will be paid
to Monroe & Company, LLC in cash at the closing of the respective transaction.
Consulting fees are paid on a monthly basis as services are rendered.
In April 1998, Gerald R. Leonard, who will become Chairman of the Board,
Chief Executive Officer and President of the Company upon consummation of the
Offering, purchased 499,385 shares of Common Stock from the Company for an
aggregate purchase price of $1,500,000. As a result, the Company expects to
record a non-recurring compensation charge of approximately $6 million in the
second quarter of 1998. The purchase price for such stock was paid by a
promissory note from Mr. Leonard to the Company in the principal amount of
$1,500,000 (the "Leonard Note"). The Leonard Note provides that amounts
outstanding thereunder will bear interest at a rate of 6% per annum, and that
the entire principal amount and accrued interest will be due and payable on
April 8, 2003. Mr. Leonard's obligations under the Leonard Note are secured by
a pledge of the 300 shares of Common Stock purchased thereby pursuant to a
stock pledge agreement. The Leonard Note is a recourse obligation of Mr.
Leonard with respect to the sum of (i) the outstanding principal amount from
time to time less $750,000 (but not less than zero dollars) and (ii) one-half
of the accrued and unpaid interest at such time.
4. CAPITAL STOCK
Upon amendment and restatement of the Company's Certificate of
Incorporation, the Company's authorized capital stock will consist of
50,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000
shares of undesignated preferred stock.
Common Stock
At March 31, 1998, there were 2,996,309 shares of Common Stock outstanding.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters to be submitted to a vote of the stockholders.
In the event of any liquidation, dissolution or winding-up of the affairs of
the Company, holders of Common Stock will be entitled to share ratably in the
assets of the Company remaining after payment or provision for payment of all
of the Company's debts and obligations and after liquidation payments to
holders of the outstanding shares of undesignated preferred stock, if any.
Undesignated Preferred Stock
At March 31, 1998, there were no shares of undesignated preferred stock
outstanding. Holders of undesignated preferred stock would have priority over
the holders of Common Stock with respect to dividends, and to other
distributions, including the distribution of assets upon liquidation. The
Board of Directors has the authority, without stockholder authorization, to
issue shares of undesignated preferred stock in one or more series and to fix
the terms, limitations, relative rights and preferences and variations.
F-14
<PAGE>
MERKERT AMERICAN CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. STOCK OPTION PLAN
The Company has adopted the Merkert American Corporation 1998 Stock Option
and Incentive Plan (the "1998 Stock Plan"), which provides for the award of
incentive stock options ("ISOs"), non-qualified stock options ("NQSOs"), stock
appreciation rights, deferred stock awards, restricted and unrestricted stock
awards, performance share awards and dividend equivalent rights to all
directors and employees of and consultants to the Company. The number of
shares authorized for issuance under the 1998 Stock Plan is 1,300,000. In
general, the terms of the awards granted will be established by either the
Board of Directors or a committee established by the Board of Directors, which
will consist of no less than two non-employee directors.
In May 1998, the Company granted Non-Qualified Stock Options to purchase up
to 245,000 shares of Common Stock under the 1998 Stock Plan to persons who
will be officers of the Company following the consummation of the Offering.
These options were issued at an exercise price of $16.50 per share (estimated
fair market value at the date of grant). One-fourth of these options become
exercisable upon consummation of the Offering, and one-fourth become
exercisable on each of the first, second and third anniversaries of the date
of grant. See "Certain Transactions." In addition, in connection with the
Offering, the Company will grant to employees of the Company options under the
1998 Stock Plan to purchase an aggregate of 545,000 shares of Common Stock.
Each such option will have a per share exercise price equal to the Offering
price, will expire ten years from the date of grant and generally will become
exercisable in four annual installments beginning on the first anniversary of
the date of grant.
6. SUBSEQUENT EVENTS
On May 22, 1998, Rogers entered into a stock purchase agreement with Merkert
American Corporation and the stockholders of Rogers. Pursuant to this stock
purchase agreement, the Company will purchase all of the outstanding shares of
common stock of Rogers for approximately $35 million in cash and stock of the
Company. The consummation of the purchase is subject to a number of
conditions, including the successful completion of an initial public offering
of the Common Stock of the Company. There can be no assurances that this stock
purchase agreement will be consummated.
On May 20, 1998, Merkert entered into a stock purchase agreement with
Merkert American Corporation and the stockholders of Merkert. Pursuant to this
stock purchase agreement, the Company will purchase all of the outstanding
shares of common and convertible redeemable preferred stock of Merkert for
approximately $51.2 million in cash and stock of the Company. The
consideration shall be reduced by the amount payable by Merkert as a result of
the current examination of Merkert's federal and state tax filings for 1992,
1993 and 1994. The consummation of the purchase is subject to a number of
conditions, including the successful completion of an initial public offering
of the Common Stock of the Company. In addition, Merkert has agreed to settle
the employment contracts of two executives upon the consummation of this stock
purchase agreement and will record a compensation charge of $1,500 at that
time. There can be no assurances that the stock purchase agreement will be
consummated.
The Company and Messrs. Monroe and Leonard are parties to a Registration
Rights Agreement, dated May 18, 1998, pursuant to which Messrs. Monroe and
Leonard have the right, subject to certain restrictions, beginning on the date
that is 180 days following the completion of the Offering, to cause the
Company to effect a registration of their shares of Common Stock under the
Securities Act of 1933, as amended (the "Securities Act"), on not more than
two occasions. Messrs. Monroe and Leonard also have certain "piggy-back"
registration rights in the event the Company registers any of its securities
for either itself or for security holders exercising their registration
rights.
In connection with the Combination, the Company will enter into Registration
Rights Agreements with the former stockholders of Merkert and Rogers,
respectively, pursuant to which such former stockholders will have the right,
subject to certain restrictions, to include their shares of Common Stock
received in the Combination in a registration statement filed by the Company
under the Securities Act.
Upon the effective date of the Company's initial public offering as
described elsewhere in this prospectus, the Company expects to declare a stock
dividend of 878.3897 shares of Common Stock and 785.2264 shares of Restricted
Common Stock in respect of each issued and outstanding shares of Common Stock.
All share and per share amounts give effect to such stock dividend.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Merkert Enterprises, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Merkert
Enterprises, Inc. and Subsidiary ("Merkert") as of December 31, 1996 and 1997,
and the related consolidated statements of operations, stockholders' deficit
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Merkert
Enterprises, Inc. and Subsidiary as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Merkert will continue as a going concern. As discussed in Note 2 to the
financial statements, Merkert has suffered net losses in 1996 and 1997 and has
a net working capital deficiency at December 31, 1997 that raises substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
May 22, 1998
F-16
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
1996 1997 1998
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 730 $ 566 $ 334
Restricted cash............................... 368 595 639
Accounts receivable, less allowance for
doubtful accounts of $225, $575 and $575,
respectively................................. 16,708 18,437 16,018
Inventories................................... 1,834 1,911 1,659
Prepaid expenses and advances................. 240 318 2,108
------- -------- --------
Total current assets........................ 19,880 21,827 20,758
------- -------- --------
Property, plant and equipment, net.............. 8,155 12,628 12,094
------- -------- --------
Intangibles, net of amortization................ 18,027 23,613 23,031
------- -------- --------
Other assets.................................... 1,360 631 765
------- -------- --------
Total assets................................ $47,422 $ 58,699 $ 56,648
======= ======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt.......... $ 651 $ 693 $ 948
Revolving line of credit...................... 1,430 5,883 5,923
Current maturities of notes payable and
lease........................................ 2,746 4,085 3,324
Accounts payable.............................. 8,611 8,184 3,054
Accrued expenses.............................. 23,844 27,942 30,287
------- -------- --------
Total current liabilities................... 37,282 46,787 43,536
------- -------- --------
Long-term debt and notes payable, less current
maturities..................................... 15,590 21,278 24,193
------- -------- --------
Commitments and contingencies
Convertible redeemable preferred stock:
$.01 par value, at redemption value--
Authorized--500,000 shares
Issued and outstanding--237,446 shares in
1996 and 213,566 shares in 1997............. 6,360 5,720 5,720
Common Stock, subject to redemption $.01 par
value
Issued and outstanding--370,753 and 411,853
shares, respectively........................... 805 1,619 1,619
Stockholders' deficit:
Common stock, $.01 par value--
Authorized--3,500,000 shares
Issued and outstanding--1,232,582 and
1,224,582 shares, respectively.............. 14 14 14
Additional paid-in capital.................... 3,126 3,126 3,126
Accumulated deficit........................... (12,048) (15,942) (17,657)
Treasury stock--at cost....................... (3,707) (3,903) (3,903)
------- -------- --------
(12,615) (16,705) (18,420)
------- -------- --------
Total liabilities and stockholders'
deficit.................................... $47,422 $ 58,699 $ 56,648
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions.................. $73,336 $ 80,661 $104,274 $26,201 $24,168
Sales........................ 49,233 44,916 43,105 11,257 12,424
------- -------- -------- ------- -------
122,569 125,577 147,379 37,458 36,592
Operating expenses:
Selling expenses............. 45,717 52,510 69,913 19,181 16,144
Cost of sales................ 45,615 41,890 39,027 10,467 11,420
General and administrative... 26,671 28,097 32,582 8,366 8,174
Depreciation and
amortization................ 2,132 2,447 4,484 1,149 1,137
------- -------- -------- ------- -------
Operating income (loss).... 2,434 633 1,373 (1,705) (283)
------- -------- -------- ------- -------
Other income (expense):
Interest income.............. 155 133 56 13 --
Interest expense............. (1,660) (2,283) (5,010) (1,222) (1,129)
Other income (expense)....... (122) 247 23 (40) (103)
------- -------- -------- ------- -------
Total other income
(expense)................. (1,627) (1,903) (4,931) (1,249) (1,232)
------- -------- -------- ------- -------
Income (loss) before provision
for income taxes.............. 807 (1,270) (3,558) (2,954) (1,515)
Provision (benefit) for income
taxes......................... 1,268 804 (109) 40 100
------- -------- -------- ------- -------
Net loss................... (461) (2,074) (3,449) (2,994) (1,615)
Preferred stock dividends...... 445 445 445 111 100
------- -------- -------- ------- -------
Net loss applicable to common
stockholders.................. $ (906) $ (2,519) $ (3,894) $(3,105) $(1,715)
======= ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK,
$.01 PAR VALUE TREASURY STOCK ADDITIONAL
---------------- ---------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 1,447,582 $ 14 -- $ -- $3,126 $ (8,623) $ (5,483)
Net income............ -- -- -- -- -- (461) (461)
Preferred dividend
declared............. -- -- -- -- -- (445) (445)
Purchase of treasury
stock................ -- -- 123,000 2,042 -- -- (2,042)
--------- ---- ------- ------- ------ -------- ---------
Balance, December 31,
1995................... 1,447,582 14 123,000 2,042 3,126 (9,529) (8,431)
Net loss.............. -- -- -- -- -- (2,074) (2,074)
Preferred dividend
declared............. -- -- -- -- -- (445) (445)
Purchase of treasury
stock................ -- -- 92,000 1,665 -- -- (1,665)
--------- ---- ------- ------- ------ -------- ---------
Balance, December 31,
1996................... 1,447,582 14 215,000 3,707 3,126 (12,048) (12,615)
Net loss.............. -- -- -- -- -- (3,449) (3,449)
Preferred dividend
declared............. -- -- -- -- -- (445) (445)
Issuance of stock--
401(k)............... -- -- (10,500) (174) -- -- 174
Purchase of treasury
stock................ -- -- 18,500 370 -- -- (370)
--------- ---- ------- ------- ------ -------- ---------
Balance, December 31,
1997................... 1,447,582 14 223,000 3,903 3,126 (15,942) (16,705)
Net loss (unaudited).. (1,615) (1,615)
Preferred dividend
declared
(unaudited).......... -- -- -- -- -- (100) (100)
--------- ---- ------- ------- ------ -------- ---------
Balance, March 31, 1998
(unaudited)............ 1,447,582 $ 14 223,000 $ 3,903 $3,126 $(17,657) $ (18,420)
========= ==== ======= ======= ====== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $ (461) $(2,074) $(3,449) $(2,994) $(1,615)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities--
Depreciation and amortization... 2,132 2,447 4,484 1,149 1,137
Loss (gain) on disposal of fixed
assets......................... (31) 45 115 6 (224)
Changes in assets and
liabilities, exclusive of
acquisitions--
(Increase) decrease in--
Accounts receivable, net...... (1,269) (1,565) (1,729) (1,538) 2,419
Inventories, prepaid expenses
and advances................. 189 718 (155) 399 (1,537)
Other assets.................. 86 (348) 527 3 (131)
Accounts payable.............. 2,868 2,266 (427) (2,772) (5,130)
Accrued expenses.............. 2,664 2,584 4,098 7,177 2,345
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities......... 6,178 4,073 3,464 1,430 (2,736)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Additions to property, plant and
equipment...................... (1,435) (3,356) (7,273) (2,030) (410)
Net proceeds from sale of
property, plant and equipment.. 149 117 530 24 512
Acquisitions, net of cash
acquired....................... -- (1,421) (748) (748) --
(Increase) decrease in cash
surrender value, net of
increase in policy loans....... (19) (26) 202 (17) (3)
------- ------- ------- ------- -------
Net cash (used in) provided by
investing activities......... (1,305) (4,686) (7,289) (2,771) 99
------- ------- ------- ------- -------
Cash flows from financing
activities:
Dividends paid.................. (445) (445) (445) -- --
Borrowings under revolving line
of credit...................... -- 1,430 4,453 4,348 40
Issuance (repayment) of long-
term debt...................... -- 1,473 3,419 (4,113) 3,170
Net (repayment) issuance of
notes payable.................. (275) (1,292) (2,529) 876 (761)
Redemption of convertible
preferred stock................ -- -- (640) -- --
Repurchase of treasury stock.... (2,042) (1,665) (370) -- --
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities......... (2,762) (499) 3,888 1,111 2,449
------- ------- ------- ------- -------
Net increase (decrease) in
cash......................... 2,111 (1,112) 63 (230) (188)
Cash:
Beginning of year............... 99 2,210 1,098 1,098 1,161
------- ------- ------- ------- -------
End of period................... $ 2,210 $ 1,098 $ 1,161 $ 868 $ 973
======= ======= ======= ======= =======
Supplemental disclosures of:
Cash flow information--
Cash payments for--
Interest...................... $ 563 $ 934 $ 3,501 $ -- $ --
======= ======= ======= ======= =======
Income taxes.................. $ 822 $ 1,825 $ 21 $ 6 $ 1,756
======= ======= ======= ======= =======
Non-cash flow information--
Purchase price financed by
seller....................... $ 1,158 $13,947 $ 6,292 $ 6,292 $ --
======= ======= ======= ======= =======
Liabilities assumed........... $ -- $ 724 $ 560 $ 560 $ --
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
1. NATURE OF BUSINESS
Merkert Enterprises, Inc. ("Merkert") is a broker of food and various food-
related products. Merkert provides sales, marketing and merchandising services
to manufacturers ("Manufacturers") of consumer goods and serves as an
intermediary between the Manufacturers and retailers and wholesalers of the
consumer goods. Merkert also provides development, inventory management and
procurement and packaging services of private label frozen fruit and vegetable
products for several retailers. Merkert primarily operates throughout the
northeast and mid-Atlantic regions of the United States.
2. LIQUIDITY
Merkert incurred net losses in 1996 and 1997 and has a net working capital
deficiency of $24,960 as of December 31, 1997, which results in a substantial
doubt about Merkert's ability to continue as a going concern. Management's
plans to alleviate the net working capital deficiency include the sale of all
of the outstanding shares of Merkert's common and convertible redeemable
preferred stock to another entity (see Note 12). This new entity intends to
finance the acquisition through an initial public offering of equity (the
"Offering"). The proceeds from a successful offering will also be used to
repay certain indebtedness of Merkert. Also, Merkert plans to seek to obtain a
new revolving credit facility sufficient to meet Merkert's working capital
requirements. The accompanying consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Merkert and
its wholly owned subsidiary Merkert Laboratories, Inc. ("Merkert Labs"). All
intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The financial statements as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998 are unaudited. Merkert believes these financial
statements include all adjustments, consisting of normal recurring
adjustments, that Merkert considers necessary for a fair presentation of the
financial position and of the results of operations for the respective
periods.
It should also be noted that the results for the interim periods are not
necessarily indicative of the results expected for any other interim period or
full year.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-21
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Revenue Recognition
Commissions are earned and recognized upon shipment by the Manufacturer to
the retailer or wholesaler; product sales revenue is recognized upon shipment
by Merkert.
Marketable Securities
Merkert accounts for its marketable securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Merkert's investments were
classified as available-for-sale and are recorded at market value. During
1995, all investments were sold and the resulting gain of $567 was included in
other income in the consolidated statement of operations.
Inventories
Inventories are primarily finished goods and consist of price marking guns
and labels as well as other supplies purchased by retailers. Inventories are
stated at the lower of cost or market and are valued on a first-in, first-out
(FIFO) basis.
Fair Value
Effective December 31, 1995, Merkert adopted SFAS No. 107, Disclosures About
Fair Value of Financial Instruments. SFAS No. 107 requires that Merkert
disclose estimated fair values for certain of its financial instruments.
Merkert's financial instruments consist of cash, accounts receivable, notes
payable, accounts payable and long-term debt. The carrying value of Merkert's
financial instruments approximates fair value at December 31, 1995, 1996 and
1997.
Concentration of Credit Risk
Financial instruments that potentially subject Merkert to concentrations of
credit risk principally consist of trade receivables. Merkert's trade
receivables result primarily from commission sales. Merkert maintains reserves
for potential credit losses and such losses have been immaterial.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed
principally by accelerated methods over the estimated useful lives of the
assets.
Intangibles
Intangibles consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Goodwill................................................... $17,160 $20,595
Noncompete agreements...................................... 1,857 5,883
------- -------
19,017 26,478
Accumulated amortization................................... (990) (2,865)
------- -------
$18,027 $23,613
======= =======
</TABLE>
F-22
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Goodwill, the excess of the acquired business purchase price over the fair
value of the acquired assets, is amortized on a straight-line basis over
estimated useful lives which range from 10 to 20 years. Noncompete agreements
are amortized on a straight-line basis over the life of the respective
agreement. Amortization expense was $467, $861 and $2,615 for the years ended
December 31, 1995, 1996 and 1997, respectively.
Income Taxes
Merkert provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. SFAS No. 109 recognizes tax assets and
liabilities for the cumulative effect of all temporary differences between the
financial statement carrying amounts and the tax basis of assets and
liabilities and are measured using the enacted tax rates which will be in
effect when these differences are expected to reverse.
Impairment of Long-Lived Assets
Merkert evaluates the carrying value of its long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of. Accordingly, Merkert evaluates the
carrying value of its long-lived assets including equipment and goodwill
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Under SFAS No. 121, an assessment is made to determine
whether the sum of the expected future undiscounted cash flows from the use of
the assets and eventual disposition is less than the carrying value. If the
sum of the expected undiscounted cash flows is less than the carrying value,
an impairment loss is recognized by measuring the excess of carrying value
over fair value (generally estimated by projected future discounted cash flows
for the applicable operation or independent appraisal). At December 31, 1996
and 1997, management believes no such impairment of assets was indicated.
Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Accrued compensation......................................... $ 3,125 $ 3,589
Taxes........................................................ 14,353 16,972
Other........................................................ 6,366 7,381
------- -------
$23,844 $27,942
======= =======
</TABLE>
4. ACQUISITIONS
Merkert completed acquisitions of several food brokerage businesses during
1995, 1996 and 1997.
The acquisitions are accounted for using the purchase method of accounting;
accordingly, the results of operations are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The purchase price has been allocated to assets acquired and liabilities
assumed based upon their estimated fair values at the date of acquisition. A
portion of the purchase price in certain acquisitions is payable contingent
upon achieving defined performance criteria. Merkert's policy is to estimate
the net present value of the expected payments and record that amount as part
of the purchase price. Merkert records any ultimate changes to the estimate as
an adjustment to the goodwill. Purchase price in excess of net identified
F-23
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
tangible and intangible assets is recorded as goodwill and amortized on a
straight-line basis over periods ranging from 10 to 20 years. The following is
a summary of the acquisitions which were consummated in 1995, 1996 and 1997:
<TABLE>
<CAPTION>
PURCHASE PRICE NET
----------------- TANGIBLE
CASH FINANCED ASSETS OTHER
ACQUISITION DATE PAID BY SELLER ACQUIRED GOODWILL INTANGIBLES
----------- ------------ ------ --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Food Service Sales...... January 1995 $ -- $(1,158) $ -- $ 1,158 $ --
ABD Sales, Inc.......... October 1996 (1,121) (9,275) (63) 10,147 312
DelGrosso-Richardson,
Morrison, Inc.......... October 1996 (300) (4,672) 88 3,554 1,330
Toomey-DeLong, Inc. .... January 1997 (635) (5,144) 593 1,160 4,026
Luciano................. January 1997 (113) (1,148) (405) 1,666 --
</TABLE>
Had each of these acquisitions been consummated on January 1, 1996, the
unaudited pro forma revenues and net loss for Merkert for the year ended
December 31, 1996 would have been $164,877 and $(1,787), respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
DEPRECIABLE
1996 1997 LIFE IN YEARS
------- ------- -------------
<S> <C> <C> <C>
Land........................................... $ 693 $ 693 --
Buildings...................................... 5,780 10,113 25-39
Furniture and equipment........................ 4,744 5,590 5
Data processing................................ 4,010 5,497 3
Motor vehicles................................. 1,061 354 5
Leasehold improvements......................... 1,036 217 5
------- -------
17,324 22,464
Less--Accumulated depreciation................. 9,169 9,836
------- -------
$ 8,155 $12,628
======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was $1,665, $1,586 and $1,869, respectively.
6. EMPLOYEE BENEFIT PLANS
Merkert sponsors the Merkert Enterprises, Inc. Employee Stock Ownership Plan
and Trust ("ESOP"). On January 1, 1997, Merkert amended its ESOP to provide
for a contributory plan under the provisions of Section 401(k) (the"401(k)
Plan") of the Internal Revenue Code. As of January 1, 1997, eligible employees
can make voluntary contributions to the 401(k) Plan.
Under the provisions of the 401(k) Plan, Merkert currently matches 100% of
an eligible employee's contribution up to certain limits determined by Merkert
(currently 4%) of the employee's salary. Prior to the adoption of the 401(k)
Plan, Merkert's contributions were made at the discretion of the Board of
Directors.
F-24
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
For the years ended December 31, 1995, 1996 and 1997, Merkert expensed
approximately $2,275, $1,249 and $988, respectively, under the terms of the
ESOP and 401(k) Plans. On December 23, 1997, the Board of Directors authorized
the issuance to the ESOP of 51,600 shares, held as treasury stock to satisfy
the fiscal 1997 obligation. The value of the common stock issued to the 401(k)
was at fair value based on an independent appraisal.
At December 31, 1997, the ESOP owned 25% of the common stock and 100% of the
redeemable convertible preferred stock outstanding. Furthermore, under the
terms of the ESOP, Merkert may be required to repurchase both common and
preferred stock issued to either the ESOP or an employee upon the occurrence
of certain events.
7. CONVERTIBLE REDEEMABLE PREFERRED STOCK
The convertible redeemable preferred stock was issued in September 1991.
Each share is convertible into one share of common stock under certain
circumstances. The convertible redeemable preferred stock is subject to a
cumulative annual dividend of $1.875 per share and has pro rata participation
rights in any common stock dividends. The convertible redeemable preferred
stock is redeemable by the holder at any time; only to the extent necessary
for such holder to provide for distributions to participants in the ESOP. The
preferred stock is redeemable at a price equal to the greater of the appraised
value per share or $26.785 per share plus any unpaid dividends. All shares of
common and convertible redeemable preferred stock have equal voting rights.
8. CONTINGENCIES
Merkert is involved in various legal proceedings which have arisen in the
ordinary course of business. Management believes the outcome of such legal
proceedings will not have a material adverse impact on Merkert's consolidated
financial position or results of operations.
9. COMMITMENTS
Promotional Funds
Certain Manufacturers provide Merkert with funds to be used solely for
advertising and other promotional activities. At December 31, 1996 and 1997,
Merkert had cash of $368 and $595, respectively, use of which was restricted
to payment for promotional activities on behalf of its Manufacturers. The
offsetting liability is included in accrued liabilities in the balance sheet
at December 31, 1996 and 1997.
Legal Proceedings
Merkert has received written notice from the seller of a food brokerage
business acquired by Merkert alleging that Merkert has breached certain
covenants contained in an agreement with such seller, claiming that such
breaches have caused the acceleration of certain obligations of Merkert to
such seller and threatening litigation in connection with such claims. Merkert
believes that this matter, if determined adversely to Merkert, would not have
a material adverse effect on Merkert. Merkert is from time to time a party to
litigation arising in the ordinary course of business. There can be no
assurance that Merkert's insurance coverage will be adequate to cover all
liabilities occurring out of such claims. In the opinion of management, any
liability that Merkert might incur upon the resolution of this litigation will
not, in the aggregate, have a material adverse effect on the financial
condition or results of operations of Merkert.
F-25
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Leases
Merkert leases certain office and warehouse facilities under operating
leases expiring on various dates through 2005.
Rental costs, including real estate taxes, amounted to approximately $3,273,
$3,469 and $4,386 in 1995, 1996 and 1997, respectively.
The following is a schedule of future minimum rental payments exclusive of
real estate taxes required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1997:
<TABLE>
<CAPTION>
RENT
PAYMENTS
--------
<S> <C>
Year ending December 31,
1998............................................................... $ 2,559
1999............................................................... 2,232
2000............................................................... 1,740
2001............................................................... 1,458
2002............................................................... 1,462
Thereafter......................................................... 3,094
-------
Total............................................................. $12,545
=======
</TABLE>
10 INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------ ---- -----
<S> <C> <C> <C>
Federal--
Current.................................................. $ 632 $603 $ (82)
Deferred................................................. 320 -- --
------ ---- -----
952 603 (82)
------ ---- -----
State--
Current.................................................. 210 201 (27)
Deferred................................................. 106 -- --
------ ---- -----
316 201 (27)
------ ---- -----
$1,268 $804 $(109)
====== ==== =====
</TABLE>
A reconciliation between the provision for income taxes computed at U.S.
federal statutory rates and the effective rates reflected in the accompanying
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
1995 1996 1997
------ ----- -------
<S> <C> <C> <C>
U.S. federal statutory provision.................... $ 274 $(432) $(1,210)
State income taxes, net of federal income tax
effect............................................. 48 (76) (213)
Change in valuation allowance....................... 4 1,137 1,613
Permanent items..................................... 282 314 459
Other............................................... 660 (139) (758)
------ ----- -------
Effective tax provision........................... $1,268 $ 804 $ (109)
====== ===== =======
</TABLE>
F-26
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
The tax effect of temporary differences which give rise to deferred income
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Assets--
Accrued interest......................................... $ 1,900 $ 2,487
Intangibles.............................................. 244 1,737
Receivable reserves...................................... 90 230
Health insurance......................................... 15 240
Net operating loss....................................... -- 164
Alternative minimum tax credit........................... -- 157
Other.................................................... 1,255 1,062
------- -------
Total assets........................................... 3,504 6,077
------- -------
Valuation allowance...................................... (3,390) (5,003)
------- -------
Total assets, net of valuation allowance............... 114 1,074
------- -------
Liabilities--
Property basis differences............................... -- (264)
Prepaid expenses......................................... (114) (164)
Other.................................................... -- (646)
------- -------
Total liabilities...................................... (114) (1,074)
------- -------
Net assets (liabilities)............................... $ -- $ --
======= =======
</TABLE>
Merkert has provided a valuation allowance on the portion of the net
deferred tax assets that are not likely to be realized. The valuation
allowance increased in fiscal 1997 and fiscal 1996 by approximately $1,613 and
$1,137, respectively.
Merkert's federal and state tax filings for 1992, 1993 and 1994 are
currently under examination by tax authorities. The examinations are not
complete and Merkert expects to challenge certain preliminary conclusions of
the examinations. Merkert has established reserves in various years which it
believes will be adequate to cover the range of potential liability; however,
the ultimate outcome of the matter is uncertain (see Note 12).
F-27
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
11. LONG-TERM DEBT
As of December 31, debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Revolving line of credit....................................... $ 1,430 $ 5,883
Bank--mortgage and term loans.................................. 2,834 6,253
Commercial promissory notes.................................... 1,951 1,242
Leases......................................................... -- 186
Acquisition Agreement--DRM..................................... 4,577 3,532
Acquisition Agreement--ABD..................................... 8,723 8,513
Acquisition Agreement--FSS..................................... 625 327
Acquisition Agreement--Luciano................................. -- 1,345
Acquisition Agreement--Toomey-DeLong........................... -- 4,509
Other.......................................................... 277 149
------- -------
20,417 31,939
Less--Current maturities....................................... 4,827 10,661
------- -------
Net long-term debt........................................... $15,590 $21,278
======= =======
</TABLE>
The amounts due under the acquisition agreements represent the total
estimated payments to be made pursuant to these agreements. The total
estimated payments have been discounted using a rate of approximately 10%. The
amounts due under these notes are unsecured and extend through 2009. They are
payable in either monthly or quarterly payments.
On October 31, 1996, Merkert entered into an $8,500 secured revolving line
of credit agreement with a bank. The revolving line of credit bears interest
at the bank's base rate (8.5% at December 31, 1997). On December 23, 1997, the
revolving line of credit agreement was amended to extend the term of the
agreement through February 1, 1999. Amounts outstanding under the revolving
line of credit are secured by eligible accounts receivables. The agreement
contains restrictive covenants customary in this type of financing
arrangement.
On September 5, 1996, a bank mortgage secured by a building was refinanced
and Merkert entered into a new loan agreement with a bank. The agreement
provided for a $4,335 mortgage loan and amended the existing term loan to
increase the availability under the loan to $2,765. Proceeds from these
borrowings were used to refinance the old bank mortgage note, existing
commercial promissory note, and to fund construction of Merkert's new office
space. The mortgage loan required monthly interest payments only, beginning
October 5, 1996 through July 5, 1997. Effective July 5, 1997, both principal
and interest are due monthly. The mortgage loan matures September 5, 2006, at
which time a balloon payment of the remaining balance would have been due. The
interest rates will float at the bank's base rate, or may be fixed at rates
tied to the London Interbank Offered Rate or U.S. Treasury Rates, at Merkert's
option. The term loan required monthly principal payments of $50, plus
interest and matures September 2, 2001.
The September 5, 1996 loan agreement and the revolving line of credit
agreement contain restrictive covenants customary in these types of financing
arrangements, including limitations on obtaining additional indebtedness and
certain financial covenants including a maximum leverage ratio and minimum
tangible net worth requirements. During 1997, Merkert was in default with
respect to the leverage ratios and the minimum tangible net worth covenant. On
December 23, 1997, Merkert obtained a waiver of these defaults.
F-28
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
On February 13, 1998, Merkert entered into a $9,500 secured mortgage
agreement, effective April 1, 1998, with a real estate lender which replaced
their existing mortgage and term loans. The mortgage note bears interest at
8.56%. The loan requires monthly payments of $82, beginning April 1, 1998 and
matures March 1, 2018.
In September 1995, Merkert repurchased 115,000 shares of common stock for an
aggregate purchase price of $1,909. Merkert paid $581 in cash and delivered an
unsecured promissory note in the amount of $1,328. The note requires three
annual principal payments of $443 and bears interest at 8.75%.
In February 1996, Merkert repurchased 92,000 shares of common stock for an
aggregate purchase price of $1,665. Merkert paid $333 and delivered an
unsecured subordinated promissory note in the amount of $1,332. The note
requires five annual principal payments of $266 and bears interest at 8.25%.
In July 1997, Merkert elected to repurchase 8,000 shares of common stock for
an aggregate purchase price of $160. At December 31, 1997, Merkert had
delivered an unsecured subordinated promissory note in settlement of this
obligation.
In conjunction with the acquisitions discussed in Note 4, elements of the
purchase price were financed by the sellers. These amounts are included in the
following table.
Future principal payments on long-term debt for the years ending December
31, are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 4,778
1999................................................................. 3,049
2000................................................................. 2,726
2001................................................................. 1,899
2002................................................................. 2,084
Thereafter........................................................... 11,520
-------
Total.............................................................. $26,056
=======
</TABLE>
12. SUBSEQUENT EVENTS
On May 20, 1998, Merkert entered into a stock purchase agreement with
Merkert American Corporation and the stockholders of Merkert. Pursuant to this
stock purchase agreement Merkert American Corporation will purchase all of the
outstanding shares of common and convertible redeemable preferred stock of
Merkert for approximately $51.2 million in cash and stock of Merkert American
Corporation. The consideration shall be reduced by the amount payable by
Merkert as a result of the current examination of Merkert's federal tax
filings for 1992, 1993 and 1994 and state tax filings for 1994. The
consummation of the purchase is subject to a number of conditions, including
the successful completion of an initial public offering of the common stock of
Merkert American Corporation. In addition, Merkert has agreed to settle the
employment contracts of two executives upon the consummation of the Purchase
Agreement and will record a compensation charge of $1,500 at that time. There
can be no assurances that the stock purchase agreement will be consummated.
On May 22, 1998, Merkert entered into agreements with certain former
stockholders of businesses previously acquired by Merkert. These agreements
provide Merkert with an option to settle, for a predetermined cash payment,
the outstanding obligation due from Merkert to the respective former
stockholder. The cash payouts per these options approximate the amounts
recorded as liabilities in the accompanying consolidated financial statements.
These options expire December 31, 1998. If and when the option is exercised,
any differences between the option amount and the carrying amount in the
accompanying financial statements will be recorded as an adjustment to
purchase price.
F-29
<PAGE>
MERKERT ENTERPRISES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
On May 18, 1998, Merkert entered into a settlement with the Internal Revenue
Service ("IRS") which resolved matters raised by the IRS in connection with
Merkert's tax filings for 1992, 1993 and 1994. In connection with the
settlement, Merkert will pay approximately $15.3 million, in aggregate, to
both the IRS and the applicable state tax authorities. The amount of the
settlement did not differ materially from recorded reserves. Pursuant to the
stock purchase agreement among Monroe, Inc., Merkert and the stockholders of
Merkert, the former stockholders of Merkert will use a portion of the cash
proceeds received to pay the tax settlement.
In May, 1998 Merkert became subject to an audit with respect to its federal
income tax returns for its fiscal years 1995, 1996, and 1997. Merkert has
established reserves in various years which it believes will be adequate to
cover any potential liability, however the ultimate outcome of this matter is
uncertain.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Rogers-American Company, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of Rogers-
American Company, Inc. ("Rogers") and Subsidiary as of December 31, 1996 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of Rogers'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rogers and
Subsidiary as of December 31, 1996 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
May 22, 1998
F-31
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash........................................... $ 730 $ 556 $ 494
Restricted cash................................ 220 505 682
Accounts receivable, less allowance for
doubtful accounts of $484, $799 and $799 in
1996, 1997 and 1998, respectively............. 6,413 9,072 10,301
Prepaid expenses and advances.................. 292 218 240
Income taxes receivable........................ 512 -- --
Deferred tax asset............................. 546 639 639
------- ------- -------
Total current assets......................... 8,713 10,990 12,356
------- ------- -------
Property, plant and equipment, net............... 5,953 5,931 5,966
------- ------- -------
Intangibles, net of amortization................. 20,519 18,671 17,907
------- ------- -------
Other assets:
Cash value of life insurance, net.............. 2,449 3,239 3,239
Deferred tax asset............................. 117 149 149
Other noncurrent assets........................ 10 19 19
------- ------- -------
Total other assets........................... 2,576 3,407 3,407
------- ------- -------
Total assets................................. $37,761 $38,999 $39,636
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........... $ 6,344 $ 1,949 $11,509
Accounts payable............................... 3,087 2,034 1,732
Accrued expenses............................... 3,971 3,880 3,648
------- ------- -------
Total current liabilities.................... 13,402 7,863 16,889
------- ------- -------
Long-term debt, less current maturities.......... 24,849 30,830 22,209
------- ------- -------
Other noncurrent liabilities..................... 316 479 479
------- ------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value--
Authorized--100,000 shares
Issued--955 shares............................ 1 1 1
Additional paid-in capital..................... 149 37 37
Retained earnings (accumulated deficit)........ (956) (211) 21
------- ------- -------
Total stockholders' equity (deficit)......... (806) (173) 59
------- ------- -------
Total liabilities and stockholders' equity... $37,761 $38,999 $39,636
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions................ $47,496 $63,311 $82,985 $ 20,025 $ 20,831
------- ------- ------- --------- ---------
Operating expenses:
Selling expenses........... 35,817 50,614 63,361 16,625 15,785
General and
administrative............ 7,457 10,944 13,023 3,189 3,221
Depreciation and
amortization.............. 1,073 1,646 2,516 636 635
------- ------- ------- --------- ---------
Operating income (loss).. 3,149 107 4,085 (425) 1,190
Interest expense............. (1,176) (1,656) (2,536) (660) (650)
------- ------- ------- --------- ---------
Income (loss) before
provision for income taxes.. 1,973 (1,549) 1,549 (1,085) 540
Income tax provision
(benefit)................... 939 (460) 804 (576) 308
------- ------- ------- --------- ---------
Net income (loss)........ $ 1,034 $(1,089) $ 745 $ (509) $ 232
======= ======= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK,
$1.00 PAR VALUE ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
-------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994...... 1,120 $ 1 $ 258 $ (901) $ (642)
Net income.................... -- -- -- 1,034 1,034
Issuance of 40 shares at
$1,151.85 per share.......... 40 -- 46 -- 46
Redemption of 69 shares at
$1,151.85 per share.......... (69) -- (79) -- (79)
-------- ------ ----- ------- -------
Balance, December 31, 1995...... 1,091 1 225 133 359
Net loss...................... -- -- -- (1,089) (1,089)
Redemption of 59 shares at
$1,292.16 per share.......... (59) -- (76) -- (76)
-------- ------ ----- ------- -------
Balance, December 31, 1996...... 1,032 1 149 (956) (806)
Net income.................... -- -- -- 745 745
Redemption of 76.4 shares at
$1,470.80 per share.......... (77) -- (112) -- (112)
-------- ------ ----- ------- -------
Balance, December 31, 1997...... 955 1 37 (211) (173)
Net income (unaudited)........ -- -- -- 232 232
-------- ------ ----- ------- -------
Balance, March 31, 1998 (unau-
dited)......................... 955 $ 1 $ 37 $ 21 $ 59
======== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $ 1,034 $ (1,089) $ 745 $ (509) $ 232
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities--
Depreciation and
amortization............... 1,073 1,646 2,516 636 635
Loss on disposal of fixed
assets..................... 85 -- -- -- --
Deferred income taxes....... 72 (500) (126) -- --
Changes in assets and
liabilities exclusive of
acquisitions (increase)
decrease in--
Restricted cash............. 218 (20) (285) -- (177)
Accounts receivable, net.... (1,106) (1,707) (2,659) (2,731) (1,229)
Income taxes receivable..... -- (512) 512 512 --
Prepaid expenses and
advances................... 414 (77) 74 (139) (22)
Accounts payable............ 484 1,588 (1,053) (720) (302)
Accrued expenses............ 2,212 129 (91) (961) (231)
Other liabilities........... 891 711 (572) 77 --
Other assets................ (39) 29 (9) (2) --
-------- -------- ------- ------- -------
Net cash provided by (used
in) operating
activities............... 5,338 198 (948) (3,837) (1,094)
-------- -------- ------- ------- -------
Cash flows from investing activ-
ities:
Additions to property, plant
and equipment................ (387) (1,045) (453) (146) (66)
Acquisition of businesses, net
of cash acquired............. (11,594) (11,231) (192) (199) 159
Increase in cash surrender
value, net of increase in
policy loans................. (478) (487) (789) -- --
-------- -------- ------- ------- -------
Net cash provided by (used
in) investing
activities............... (12,459) (12,763) (1,434) (345) 93
-------- -------- ------- ------- -------
Cash flows from financing activ-
ities:
Borrowings on revolving line
of credit.................... -- 3,024 8,370 3,825 9,560
Principal payments on line of
credit....................... (660) -- (3,824) -- (8,369)
Issuance of long-term debt.... 7,916 10,157 -- -- --
Repayment of long-term debt... -- -- (2,226) (350) (252)
Issuance of Common Stock...... 46 -- -- -- --
Redemption of common stock.... (79) (76) (112) -- --
-------- -------- ------- ------- -------
Net cash provided by
financing activities..... 7,223 13,105 2,208 3,475 939
-------- -------- ------- ------- -------
Net increase (decrease) in
unrestricted cash........ 102 540 (174) (707) (62)
-------- -------- ------- ------- -------
Unrestricted cash:
Beginning of year............. 88 190 730 730 556
-------- -------- ------- ------- -------
End of year................... $ 190 $ 730 $ 556 $ 23 $ 494
-------- -------- ------- ------- -------
Supplemental disclosures of cash
flow information:
Cash payments for--
Interest.................... $ 1,172 $ 1,635 $ 2,486 $ 610 $ 569
-------- -------- ------- ------- -------
Income taxes................ $ 488 $ 722 $ 180 $ 113 $ 582
-------- -------- ------- ------- -------
Noncash flow information:
Purchase price financed by
seller....................... $ 5,519 $ 10,626 $ 48 $ 48 $ --
-------- -------- ------- ------- -------
Liabilities assumed........... $ 682 $ 1,227 $ -- $ -- $ --
-------- -------- ------- ------- -------
</TABLE>
F-35
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDES CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
1. NATURE OF BUSINESS
Rogers-American Company, Inc. ("Rogers") is a broker of food and various
food-related products. Rogers provides sales, marketing and merchandising
services to manufacturers ("Manufacturers") of consumer goods and serves as an
intermediary between the Manufacturers and retailers and wholesalers of the
consumer goods. Rogers primarily operates throughout the southeast and mid-
Atlantic regions of the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of Rogers' significant accounting policies follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Rogers and its
wholly owned subsidiary Rogers-American Company of Florida, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The financial statements as of March 31, 1998 and for the three months ended
March 31, 1997 and 1998 are unaudited. Rogers believes these financial
statements include all adjustments, consisting of normal recurring
adjustments, that Rogers considers necessary for a fair presentation of the
financial position and of the results of operations for the respective
periods. It should also be noted that the results for the interim periods are
not necessarily indicative of the results expected for any other interim
period or the full year.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
assumptions.
Revenue Recognition
Commissions are earned and recognized upon shipment by the Manufacturers to
the retailer or wholesaler.
Fair Value of Financial Instruments
Effective December 31, 1995, Rogers adopted Statement of Financial
Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial
Instruments. SFAS No. 107 requires that Rogers disclose estimated fair values
for certain of its financial instruments. Rogers' financial instruments
consist of cash and cash equivalents, accounts and notes receivable, notes
payable, accounts payable and long-term debt. Each of these instruments' fair
value approximates carrying value at December 31, 1995, 1996 and 1997.
Concentration of Credit Risk
Financial instruments that potentially subject Rogers to concentrations of
credit risk consist principally of trade receivables. Rogers' trade
receivables result from commission sales. Rogers maintains reserves for
potential credit losses and such losses have been immaterial.
F-36
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the following estimated useful lives of
the assets:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIVES
-------------------- ------------
<S> <C>
Building........................................................ 40 years
Leasehold improvements.......................................... 20 years
Furniture and office equipment.................................. 5-7 years
Motor vehicles.................................................. 3-5 years
</TABLE>
Intangibles
Intangibles for the years ended December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Goodwill................................................... $17,283 $17,460
Noncompete agreements...................................... 6,589 6,604
------- -------
Accumulated amortization................................... (3,353) (5,393)
------- -------
$20,519 $18,671
======= =======
</TABLE>
Goodwill, the excess of the acquired business purchase price over the fair
value of the acquired assets, is amortized on a straight-line basis over its
estimated useful life which ranges from 5 to 20 years. Noncompete agreements
are amortized on a straight-line basis over the life of the respective
agreement. Amortization expense was $831, $1,285 and $2,040 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Cash Surrender Value of Life Insurance
Included within other noncurrent assets is the cash surrender value of life
insurance, net of policy loans. Rogers maintains these life insurance policies
with a face amount of $32,266 on certain officers and key employees. The cash
surrender value of the policies amounted to $3,727 and $4,305, against which
Rogers has loans of $1,278 and $1,066 on December 31, 1996 and December 31,
1997, respectively.
Income Taxes
Rogers provides for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes. SFAS No. 109 recognizes tax assets and liabilities for the
cumulative effect of all temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities and are measured
using the enacted tax rates expected to be in effect when these differences
are expected to reverse.
Impairment of Long-Lived Assets
Rogers evaluates the carrying value of its long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets To Be Disposed Of. Accordingly, Rogers evaluates the
carrying value of its long-lived assets, including equipment and goodwill,
whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Under SFAS No. 121, an assessment is made to determine
whether the sum of the expected future undiscounted cash flows from
F-37
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
the use of the assets and eventual disposition is less than the carrying
value. If the sum of the expected undiscounted cash flows is less than the
carrying value, an impairment loss is recognized by measuring the excess of
carrying value over fair value (generally estimated by projected future
discounted cash flows for the applicable operation or independent appraisal).
At December 31, 1996 and 1997, management believes no such impairment of
assets was indicated.
Accrued Expenses
Accrued expenses for the years ended December 31, 1996 and 1997 consist of
the following:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Payroll and employee benefits................................. $1,361 $ 535
Promotional funds............................................. 220 505
Income taxes.................................................. 996 1,270
Health insurance.............................................. 351 476
Interest...................................................... 49 99
Other......................................................... 994 995
------ ------
$3,971 $3,880
====== ======
</TABLE>
3. ACQUISITIONS
Rogers completed acquisitions of several food brokerage businesses during
1995, 1996 and 1997.
The acquisitions are accounted for using the purchase method of accounting;
accordingly, the results of operations are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The purchase price has been allocated to assets acquired and liabilities
assumed based upon their estimated fair values at the date of acquisition. A
portion of the purchase price in certain acquisitions is payable contingent
upon achieving defined performance criteria. Rogers' policy is to estimate the
net present value of the expected payments and record that amount as part of
the purchase price. Rogers records any ultimate changes to the estimate as an
adjustment to goodwill. Purchase price in excess of identified tangible and
intangible assets is recorded as goodwill and amortized on a straight-line
basis over periods ranging from 5 to 20 years. The following is a summary of
the acquisitions which were consummated in 1995, 1996 and 1997.
<TABLE>
<CAPTION>
PURCHASE PRICE NET
------------------- TANGIBLE
FINANCED ASSETS
ACQUISITION DATE CASH PAID BY SELLER ACQUIRED GOODWILL OTHER INTANGIBLES
----------- ------------- --------- --------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Clarke & Wittekind March 1995 $ -- $(1,403) $282 $ 897 $ 224
A.A. Green October 1995 -- (1,374) -- 1,099 275
Dopson-Hicks October 1995 (206) (3,142) 606 2,194 548
G.B.S. October 1996 -- (982) 288 555 139
Fitzwater November 1996 (800) (5,924) 800 4,739 1,185
Sales Support Inc. November 1996 -- (997) -- -- 997
Tinney & Associates November 1996 -- (1,377) 218 927 232
Brown & Stagner November 1996 -- (1,905) 97 1,446 362
Others Various -- (1,001) 36 486 479
</TABLE>
F-38
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Had each of these acquisitions been consummated on January 1, 1996, the
unaudited pro forma revenues and net income (loss) for Rogers would have been
$81,328 and $(1,033), respectively, for the year ended December 31, 1996, and
$83,100 and $(771), respectively, for the year ended December 31, 1997.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Land.......................................................... $ 500 $ 500
Buildings..................................................... 3,500 3,500
Furniture and equipment....................................... 3,117 3,476
Motor vehicles................................................ 79 79
Leasehold improvements........................................ 694 789
------ ------
7,890 8,344
Less--Accumulated depreciation................................ 1,937 2,413
------ ------
$5,953 $5,931
====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was $242, $361 and $476, respectively.
5. EMPLOYEE BENEFIT PLANS
Rogers sponsors the Rogers-American Company, Inc. 401(k) Profit Sharing Plan
(the "401(k) Plan") under the provisions of Section 401(k) of the Internal
Revenue Code. The 401(k) Plan covers all employees, except flexible part-time
employees, who are at least 21 years of age with at least six months of
employment service. These eligible employees can make voluntary contributions
to the 401(k) Plan.
Under the provisions of the 401(k) Plan, Rogers currently matches 25% of an
eligible employee's contribution up to certain limits determined by Rogers
(currently 6%) of the employee's salary. On an annual basis, Rogers may make a
discretionary contribution into the profit sharing component of the 401(k)
Plan. For the years ended December 31, 1995, 1996 and 1997, Rogers expensed
approximately $738, $615 and $403, respectively, under the terms of the 401(k)
Plan.
6. CONTINGENCIES
Rogers is subject to various legal proceedings that arise in the ordinary
course of business. Based on the opinion of Rogers' external legal counsel,
management believes the outcome of such legal proceedings will not have a
material adverse impact on Rogers' consolidated financial position or results
of operations.
7. COMMITMENTS
Commitments
Certain of Rogers' Manufacturers provide Rogers with funds to be used solely
for marketing, advertising and other promotional activities. At December 31,
1997, Rogers had cash of $505 which use was restricted to payment of
promotional funds on behalf of its Manufacturers. The offsetting liability was
recorded as promotional funds in the balance sheet at December 31, 1997. At
December 31, 1996, Rogers had $220 of restricted cash and promotional funds
liability on the balance sheet.
F-39
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Several key employees of Rogers have employment agreements that contain
incentive bonus awards. The awards are discretionary in nature and are in
effect for the period from 1999 to 2007. As of December 31, 1997, Rogers has
not accrued a liability for these awards and no amount is due for the year
ended December 31, 1997. Rogers may terminate any of the employment agreements
for just cause without incurring any liability.
Rogers has various supplemental pension agreements with individual
employees. These agreements provide benefits to those individuals at age 65 or
upon the termination of their employment with Rogers, whichever is later. The
estimated liability under the agreement is being accrued over the expected
remaining years of employment on a present value basis. At December 31, 1996
and 1997, Rogers had accrued approximately $316 and $479, respectively. The
vested benefits are payable in 120 equal monthly installments subsequent to
the employee's separation or retirement from Rogers. There were no required
expenses in 1995 and 1996 and $163 was expensed in 1997 under these
agreements.
Rogers has an agreement with its stockholders whereas in the event of death,
disability or retirement of the stockholder, Rogers shall purchase all of the
stock owned by each respective stockholder or his or her estate, payable over
a 10-year period. This agreement is partially funded by insurance.
Rogers has an agreement with a stockholder for the redemption of 584 shares
of common stock owned by the stockholder evenly over a 10-year period from
January 1, 1993 through January 1, 2002. Rogers shall redeem the shares at the
book value per share on the last day of the preceding fiscal year applicable
to the option exercise date or October 31 1992, whichever is higher.
Leases
Rogers leases certain office and warehouse facilities and automobiles under
operating leases expiring on various dates through 2003.
Rental costs, including real estate taxes, amounted to approximately $3,871,
$5,773 and $7,985 in 1995, 1996 and 1997, respectively.
The following is a schedule of future minimum rental payments, exclusive of
real estate taxes, required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1997:
<TABLE>
<CAPTION>
RENT
PAYMENTS
--------
<S> <C>
Year ending December 31,
1998............................................................... $3,258
1999............................................................... 2,688
2000............................................................... 1,884
2001............................................................... 1,201
2002............................................................... 91
Thereafter......................................................... 17
------
Total............................................................. $9,139
======
</TABLE>
8. RELATED PARTY TRANSACTIONS
Rogers provides office space to an affiliated merchandising entity which
began operations in 1997. Rogers owns 49% of the outstanding voting common
stock of this entity. In addition, Rogers has guaranteed a $500 line of credit
with a bank to this affiliate. At December 31, 1997, approximately $75 was
outstanding under the line of credit. Sales and net income of the affiliate
for 1997 were $922 and $(1). Total assets at December 31, 1997 were $218.
Rogers had no trade receivables outstanding at December 31, 1997 from this
affiliate. During 1997, Rogers had no sales to this affiliate.
F-40
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
Rogers is a co-guarantor on a $750 line of credit with a bank for another
affiliated entity. Certain of Rogers' shareholders, as a group, own 49% of the
voting common stock of this entity. At December 31, 1997, approximately $644
was outstanding under the line of credit. During 1996 and 1997, Rogers
recorded commission revenues of approximately $230 and $183 from this
affiliate. Trade receivables at December 31, 1996 and 1997 were $48 and $56,
respectively.
9. INCOME TAXES
The (benefit) provision for income taxes for the years ended December 31
1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Federal--
Current................................................. $713 $ 30 $698
Deferred................................................ (8) (375) (95)
---- ----- ----
705 (345) 603
---- ----- ----
State--
Current ................................................ 237 10 232
Deferred ............................................... (3) (125) (31)
---- ----- ----
234 (115) 201
---- ----- ----
$939 $(460) $804
==== ===== ====
</TABLE>
A reconciliation between the provision for income taxes computed at U.S.
federal statutory rates and the effective rates reflected in the accompanying
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------
1995 1996 1997
---- ----- ----
<S> <C> <C> <C>
Computed expected tax provision (benefit)................. $671 $(527) $527
State income taxes, net of federal benefit................ 115 (74) 87
Permanent items........................................... 178 171 140
Other..................................................... (25) (30) 50
---- ----- ----
$939 $(460) $804
==== ===== ====
</TABLE>
The tax effect of temporary differences which give rise to deferred income
tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------ ------
<S> <C> <C>
Assets--
Net operating loss carryforwards........................... $ 362 $ --
Tax credit carryforwards................................... 24 --
Receivable reserves........................................ 189 312
Other...................................................... 170 585
------ ------
Total assets............................................. 745 897
------ ------
Valuation allowance........................................ -- --
------ ------
Total assets, net of valuation allowance................. 745 897
------ ------
Liabilities--
Property basis differences................................. (35) (53)
Other...................................................... (47) (56)
------ ------
Total liabilities........................................ (82) (109)
------ ------
Net assets............................................... $ 663 $ 788
====== ======
</TABLE>
F-41
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
10. LONG-TERM DEBT
As of December 31, long-term debt consists of:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revolving line of credit................................... $ 3,824 $ 8,370
Mortgage loan.............................................. 3,871 3,794
Acquisition Agreement--Clarke & Wittekind.................. 1,224 1,147
Acquisition Agreement--A.A. Green.......................... 1,050 930
Acquisition Agreement--Dopson-Hicks........................ 2,659 2,396
Acquisition Agreement--G.B.S............................... 972 823
Acquisition Agreement--Fitzwater........................... 6,812 5,193
Acquisition Agreement--Sales Support Inc................... 997 1,002
Acquisition Agreement--Tinney & Associates................. 1,098 990
Acquisition Agreement--Brown & Stagner..................... 1,790 1,806
Other acquisitions......................................... 6,800 6,268
Bank--Notes payable........................................ 96 60
------- -------
31,193 32,779
Less--Current maturities................................... (6,344) (1,949)
------- -------
$24,849 $30,830
======= =======
</TABLE>
On November 8, 1996, Rogers entered into a $10,000 secured revolving credit
facility with a bank. The revolving line of credit bears interest at a
variable rate based on the lesser of the bank's prime rate or LIBOR plus 2.7%,
(8.67% at December 31, 1997). Interest is payable monthly. In April 1998, the
revolving line-of-credit agreement was amended to extend the term of the
agreement through January 31, 1999. Rogers' borrowings under the agreement are
limited to certain percentages of eligible receivables and cash surrender
value of life insurance. The line is collateralized by commission receivables,
cash value of life insurance, intangible assets and proceeds thereof. At
December 31, 1997, Rogers had available to it, unused borrowing capacity of
$1,630 under the line of credit. The agreement contains certain restrictive
covenants. At December 31, 1997, Rogers was in compliance with these
covenants.
A mortgage note was entered into in February 1991 and refinanced in February
1995. The note is secured by land, building and fixtures. The note bears
interest at 8.5% with monthly payments of $34 including interest through
December 1999 and a balloon payment of $3,646 on January 2000.
The amounts due under the acquisition agreements represent the total
estimated payments to be made pursuant to these agreements. The total
estimated payments have been discounted using a rate of approximately 8%. The
amounts due under these notes payable are unsecured and extend through 2011.
These amounts are payable in either monthly or quarterly installments.
Rogers has the following debt resulting from business acquisitions:
Bay Brokerage--Unsecured notes payables bearing interest at 10% per annum
with monthly payments of $4 through June 2007 and various other assumed
liabilities with various payments through September 2007.
T&M--Unsecured notes payable bearing interest at 8% per annum, with monthly
payments of $2 through September 1999 and $6 through September 2004.
F-42
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
G.B.S.--Unsecured note payable bearing interest at 7% per annum with monthly
payments of $1 starting October 1998 through January 2000. Unsecured note
payable bearing interest at 7% per annum with monthly payments of $8 starting
October 1997 through September 1998, $7 through September 2005, $5 through
August 2006, and one final payment of $7 due on September 2006. Unsecured note
payable bearing interest at 7% per annum with monthly payments of $1 starting
October 1999 through September 2009.
Tinney & Associates--Unsecured note payable with imputed interest at 10% per
annum, with monthly payments of $6 through July 2000.
Brown & Stagner--Unsecured note payable with imputed interest of 8% per
annum and monthly payments of $3 through July 2000.
Clarke & Wittekind--Unsecured note payable with imputed interest of 7.8% per
annum and monthly payments of $1 through March 2005.
Dopson-Hicks--Note payable secured by certain tangible assets and stock of
the subsidiary bearing interest at 8% per annum and monthly payments of $13
through October 2000, $33 through October 2005 and $21 through October 2010.
Rogers has unsecured notes payable to various banks bearing interest at 10%
and 8.5% with monthly payments of $3 and $1 through June 1999 and through
February 2000, respectively.
Notes Payable
Future principal payments on long-term debt for the years ending December
31, are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 1,949
1999............................................................. 10,593
2000............................................................. 5,688
2001............................................................. 2,207
2002............................................................. 2,144
Thereafter....................................................... 10,198
-------
Total.......................................................... $32,779
=======
</TABLE>
11. SUBSEQUENT EVENTS
On May 22, 1998, Rogers entered into a stock purchase agreement with Merkert
American Corporation and the stockholders of Rogers (the "Purchase
Agreement"). Pursuant to the Purchase Agreement, Merkert American Corporation
will purchase all of the outstanding shares of common stock of Rogers for
approximately $35 million in cash and stock of Merkert American Corporation.
The consummation of the purchase is subject to a number of conditions,
including the successful completion of an initial public offering of the
common stock of Merkert American Corporation. There can be no assurance that
the Purchase Agreement will be consummated.
In connection with the consummation of the Purchase Agreement, Rogers
intends to sell its corporate headquarters and distribute the net cash
proceeds to certain stockholders. In addition, Rogers will assign the life
insurance policies on key executives to certain stockholders. Also, the
principal stockholders of Rogers have agreed to transfer a portion of their
shares of common stock to certain minority stockholders to compensate those
employees for
F-43
<PAGE>
ROGERS-AMERICAN COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(INCLUDING CERTAIN DATA APPLICABLE TO UNAUDITED PERIODS)
valuable prior services. Rogers will record a compensation charge for each of
these events in their financial statements at that date.
On May 22, 1998, Rogers entered into agreements with certain sellers of
businesses acquired by Rogers. These agreements provide Rogers with the option
to settle, for a predetermined cash payment, any outstanding obligation due
from Rogers to the respective seller as a result of the acquisition. The cash
payouts per these options approximate the amounts recorded as liabilities in
the accompanying consolidated financial statements. These options expire on
September 30, 1998.
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors Fitzwater Inc.:
We have audited the accompanying balance sheet of Fitzwater Inc. as of
December 31, 1995, and the related statements of income, stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fitzwater Inc. as of
December 31, 1995, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
Hege Kramer Connell Murphy & Goldkamp,
P.C.
March 14, 1996
F-45
<PAGE>
FITZWATER INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 817,429
Accounts receivable............................................. 1,851,471
Advances to employees........................................... 25,905
Prepaid expenses................................................ 19,460
-----------
Total current assets.......................................... 2,714,265
-----------
Property and equipment:
Land and land improvements...................................... 176,679
Buildings....................................................... 1,353,540
Furniture and office equipment.................................. 1,789,564
Equipment under lease........................................... 89,331
-----------
3,409,114
Less accumulated depreciation................................... 1,536,228
-----------
1,872,886
-----------
Deposits.......................................................... 69,148
Note receivable................................................... 50,000
Goodwill, less accumulated amortization of $420,636............... 46,737
Cash surrender value of officers' life insurance.................. 893,001
-----------
$ 5,646,037
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............................ $ 314,181
Promotional advances............................................ 693,024
Accounts payable................................................ 115,702
Due to affiliate................................................ 23,239
Accrued liabilities:
ESOP contribution............................................. 700,000
Payroll and payroll taxes, withheld and accrued............... 181,179
Cash and deferred plan contribution........................... 80,065
Health insurance.............................................. 86,083
Other......................................................... 113,857
-----------
Total current liabilities................................... 2,307,330
-----------
Deferred taxes.................................................... 66,562
Long-term debt, less current maturities........................... 2,030,186
Stockholders' equity:
Common stock--par value $.01 per share; authorized 200,000
shares, issued 189,800......................................... 1,898
Additional paid-in capital...................................... 984,652
Unearned ESOP compensation...................................... (3,292,800)
Retained earnings............................................... 3,548,209
-----------
Total stockholders' equity.................................. 1,241,959
-----------
$ 5,646,037
===========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
FITZWATER INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED OCTOBER 31, 1996
DECEMBER 31, 1995 (UNAUDITED)
----------------- ----------------
<S> <C> <C>
Commissions and operating revenues......... $14,690,831 $11,646,636
Operating expenses (including interest of
$27,818 in 1995).......................... 12,809,863 10,952,583
----------- -----------
Operating profit....................... 1,880,968 694,053
----------- -----------
Other income (expense):
Excise tax............................... -- (329,820)
ESOP contribution........................ (700,000) --
Special commissions...................... (62,214) (65,800)
Amortization expense..................... (46,737) (46,737)
Interest income.......................... 87,087 66,739
----------- -----------
(721,864) (375,618)
----------- -----------
Income before income taxes............. 1,159,104 318,435
Income taxes............................... 516,805 296,315
----------- -----------
Net income............................. $ 642,299 $ 22,120
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
FITZWATER INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995 AND TEN MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNEARNED
COMMON PAID-IN ESOP RETAINED
STOCK CAPITAL COMPENSATION EARNINGS TOTAL
------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $1,898 $984,652 $ -- $2,905,910 $ 3,892,460
Net income............ -- -- -- 642,299 642,299
Loan to ESOP for
purchase of common
stock................ -- -- (3,292,800) -- (3,292,800)
------ -------- ----------- ---------- -----------
Balance at December 31,
1995................... $1,898 $984,652 $(3,292,800) $3,548,209 $ 1,241,959
====== ======== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
FITZWATER INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 OCTOBER 31, 1996
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................. $ 642,299 $ 22,120
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on sale of assets.................... 849 7,880
Depreciation and amortization............. 436,198 341,870
(Increase) decrease in assets:
Accounts receivable...................... (219,888) 1,338,336
Advances to employees.................... 16,690 25,905
Prepaid expenses......................... 14,347 (924,511)
Deposits................................. (38,858) 62,270
Cash surrender value of officer's life
insurance............................... (180,816) (158,792)
Increase (decrease) in liabilities:
Promotional advances..................... 345,933 (640,573)
Accounts payable......................... (2,983) (115,702)
Accrued liabilities...................... (131,950) (701,597)
Deferred taxes........................... (3,063) 8,785
----------- -----------
Total adjustments....................... 236,459 (756,129)
----------- -----------
Net cash provided by operating
activities.............................. 878,758 (734,009)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........ (284,215) (125,863)
Proceeds from the sale of property and
equipment................................. 2,665 895,610
Proceeds on disposal of life insurance
policies, net of policy loans............. -- 1,051,793
----------- -----------
Net cash used in investing activities.... (281,550) 1,821,540
----------- -----------
Cash flows from financing activities:
Increase in amount due to affiliate........ 24,240 (23,239)
Repayment of debt.......................... (115,260) (1,518,220)
Bank borrowings............................ 2,200,000
Payment on notes receivable................ -- 50,000
Loan to ESOP for purchase of common stock.. (3,292,800) --
----------- -----------
Net cash provided by (used in) financing
activities.............................. (1,183,820) (1,491,459)
----------- -----------
Increase (decrease) in cash and cash
equivalents............................. (586,612) (403,928)
Cash and cash equivalents:
Beginning of year.......................... 1,404,041 817,429
----------- -----------
End of year................................ $ 817,429 $ 413,501
=========== ===========
Supplemental cash flow information:
Cash paid during the year for:
Interest.................................. $ 27,818 $ 137,094
Income taxes.............................. 428,217 1,344,282
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
FITZWATER INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Fitzwater Inc. (the "Company") is a food brokerage firm which represents
national food product producers in the states of Delaware, Maryland, New
Jersey, and Pennsylvania. Accounts receivable are comprised primarily of
commissions from the various principals represented by the Company.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
both the straight-line and accelerated methods for accounting and tax purposes
over the following estimated and useful lives: buildings--27 to 39 years,
furniture and office equipment--5 to 10 years. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is charged to
income as incurred, whereas significant renewals and betterments are
capitalized.
Goodwill
Goodwill is being amortized over a ten-year period using the straight-line
method. The amortization expense is $46,737 for 1995 and 1996.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with maturities of three months or less at the
date of purchase to be cash equivalents.
Concentration of Credit Risk
The Company maintains cash deposits at certain financial institutions in
amounts that exceed federal insured limits of $100,000.
Income Taxes
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes was issued by the Financial Accounting Standards Board (FASB) in
February 1992. Under SFAS 109, deferred tax assets and liabilities are based
on provisions of the enacted tax law; the effect of future changes in tax laws
or rates are not anticipated. The item creating the deferred tax liability is
depreciation.
(2) LONG-TERM DEBT
Long-term debt at December 31, 1995 was comprised of the following:
<TABLE>
<S> <C>
Subordinated note payable to former stockholder, payable in
monthly installments of $12,033 including 14% interest.......... $ 144,367
Notes payable to bank, payable in quarterly installments of
$104,200 including 7.65% interest............................... 2,200,000
----------
2,344,367
Less current portion............................................. 314,181
----------
$2,030,186
==========
</TABLE>
F-50
<PAGE>
FITZWATER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The proceeds of the notes payable to bank were used to finance the loan to
the ESOP (note 6). The notes payable are secured by property and equipment and
other various assets.
Maturities of long-term debt will be as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 314,181
1997.............................................................. 281,919
1998.............................................................. 291,282
1999.............................................................. 314,212
2000.............................................................. 338,948
Thereafter........................................................ 803,825
----------
$2,344,367
==========
</TABLE>
(3) LINE OF CREDIT
The Company has a line of credit with a bank which provides for borrowings
of up to $600,000, and bears interest at the lender's prime rate. The line of
credit is secured by the Company's assets. There are no outstanding borrowings
at December 31, 1995.
(4) LEASES
Leases of branch sales offices, office space, computer software and
automobiles are accounted for as operating leases. Total rental expense
amounted to $923,285 for 1995.
The following is a schedule of future minimum lease commitments for the
operating leases (with initial terms in excess of one year) as of December 31,
1995:
<TABLE>
<S> <C>
1996................................................................ $808,570
1997................................................................ 562,082
1998................................................................ 167,943
1999................................................................ 31,000
2000................................................................ 20,667
</TABLE>
(5) PROFIT-SHARING PLAN
The Company has a profit sharing/401(k) plan which is the result of the
Company merging its cash and deferred plan into its profit sharing plan to
create one plan effective January 1, 1994. All employees are eligible, and
contributions are voluntary. The Company makes an annual matching contribution
equal to 25% of the amount contributed by the particpant, limited to the first
6% of the amount contributed by the participant. The annual addition to a
participant's account cannot exceed the lesser of $30,000 or 25% of the
employee's total compensation from the employer during the plan year. The
Company's matching contributions were $80,065 for 1995.
(6) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan (ESOP) effective as of
January 1, 1995. All of the Company's full-time employees are eligible to
participate in the ESOP. The ESOP borrowed $3,292,800 from Fitzwater, Inc. and
used the proceeds to purchase 58,500 shares of the Company's common stock from
two shareholders who are officers of the Company. Unearned ESOP compensation
(equal to the outstanding balance of the ESOP loan) of $3,292,800 is reflected
as a reduction of stockholder's equity at December 31, 1995. The loan is
secured by the shares of the Company's common stock held by the ESOP. The loan
will be reduced by the Company's future contributions to the ESOP. The Company
accrued a contribution to the ESOP of $700,000 for 1995.
F-51
<PAGE>
FITZWATER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
The provision for income taxes is comprised as follows:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
OCTOBER 31, 1996 1995
---------------- --------
<S> <C> <C>
Currently payable:
Federal......................................... $215,838 $396,202
State........................................... 71,692 123,666
-------- --------
287,530 519,868
Deferred tax (benefit)............................ 8,785 (3,063)
-------- --------
$296,315 $516,805
======== ========
</TABLE>
The change in the deferred tax liability is summarized as follows:
<TABLE>
<S> <C>
Balance, December 31, 1994.......................................... $69,625
Change for the year............................................... (3,063)
-------
Balance, December 31, 1995.......................................... $66,562
=======
</TABLE>
(8) RELATED PARTY TRANSACTIONS
The Company allocated certain operating and administrative expenses to an
affiliate of $74,400 during 1995. These expenses represent expenses actually
incurred by the Company on behalf of the affiliate.
The Company leases an office building for its Western Division in Harrisburg
from a related party. The current lease period began in 1993 and expires
November 14, 1997. Annual lease payments were $160,328 for 1995. Lease
commitments subsequent to 1995 are included in note 4.
(9) COMMITMENTS
In connection with the change in the Company's ownership in 1986, the
Company agreed to compensate the former owner under a noncompete and
consulting agreement at $3,125 per month until December 1996.
(10) STOCKHOLDERS' EQUITY
In 1995, the Company had a 100-for-1 stock split and changed the par value
of the common stock from $1 per share to $.01 per share. This resulted in an
increase in authorized and outstanding shares to 189,800 shares at December
31, 1995.
All shares owned by the stockholders are subject to the terms of a
Stockholder Agreement, dated December 1, 1995, which imposes certain
preconditions and restrictions on any attempted sale, assignment, transfer, or
other disposition of the shares by a stockholder.
(11) DEPRECIATION
Depreciation expense was $389,461 for the year ended December 31, 1995 and
$295,133 for the period ended October 31, 1996.
F-52
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
The Combination.......................................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data for Merkert and Rogers........................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 35
Management............................................................... 45
Certain Transactions..................................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 61
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Available Information.................................................... 66
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPEC-
TUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,500,000 SHARES
MERKERT AMERICAN CORPORATION
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
BT ALEX. BROWN
LEHMAN BROTHERS
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TOBUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 20, 1998
PROSPECTUS
5,500,000 SHARES
MERKERT AMERICAN CORPORATION
COMMON STOCK
------------
All of the 5,500,000 shares of Common Stock offered hereby are being sold by
Merkert American Corporation (the "Company"). Of the 5,500,000 shares of Common
Stock offered hereby, 1,100,000 are being offered for sale initially outside
the United States and Canada by the International Managers and 4,400,000 shares
are being offered for sale in a concurrent offering in the United States and
Canada by the U.S. Underwriters. The initial public offering price and the
underwriting discount per share will be identical for both offerings. See
"Underwriting."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $21.00 and $23.00 per share. For a discussion relating to factors to be
considered in determining the initial public offering price, see
"Underwriting." Application has been made to list the Common Stock for
quotation on the Nasdaq National Market under the symbol "MERK."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
- --------------------------------------------------------------------------------
Total(3).................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $3,500,000.
(3) The Company has granted the International Managers and the U.S.
Underwriters options to purchase up to an additional 165,000 and 660,000
shares of Common Stock, respectively, in each case exercisable within 30
days after the date hereof, solely to cover over-allotments, if any. If
such options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
LEHMAN BROTHERS
------------
The date of this Prospectus is , 1998.
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
non-resident alien individual, a foreign corporation, a foreign partnership or
a foreign estate or foreign trust (a "non-U.S. holder"). This discussion does
not consider the specific facts and circumstances that may be relevant to
particular holders and does not address the treatment of non-U.S. holders of
Common Stock under the laws of any state, local or foreign taxing
jurisdiction. Further, the discussion is based on provisions of the Code,
Treasury regulations thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change on a possibly retroactive basis. Each prospective holder
is urged to consult a tax advisor with respect to the United States federal
tax consequences of acquiring, holding and disposing of Common Stock, as well
as any tax consequences that may arise under the laws of any state, local or
foreign taxing jurisdiction.
An individual may, subject to certain exceptions, be deemed to be a resident
alien (as opposed to non-resident alien) by virtue of being present in the
United States for (i) at least 31 days in the current calendar year and (ii)
for an aggregate of at least 183 days during a three-year period ending in the
current calendar year (counting for the purposes of such 183 days all of the
days present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the second
preceding year). U.S. resident aliens are subject to U.S. federal income
taxation as if they were U.S. citizens.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the non-U.S. holder within the United States (and are attributable to a United
States permanent establishment of such holder, if an applicable income tax
treaty so requires as a condition for the non-U.S. holder to be subject to
United States income tax on a net income basis in respect of such dividends).
Certain certification and disclosure requirements must be complied with in
order to be exempt from withholding under the effectively connected income
exemption or to claim the benefit of an applicable treaty rate. Such
"effectively connected" dividends are subject to tax at rates applicable to
United States citizens, resident aliens and domestic United States
corporations, and generally are not subject to withholding. Any such
effectively connected dividends received by a non-United States corporation
may also, under certain circumstances, be subject to an additional "branch
profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address in a foreign country are presumed to be paid to a resident of that
country (unless the payor has knowledge to the contrary) for purposes of the
withholding discussed above and, under the current interpretation of United
States Treasury regulations, for purposes of determining the applicability of
a tax treaty rate. Under recently finalized United States Treasury regulations
(the "Final Withholding Regulations") effective for payments made after
December 31, 1999, however, generally backup withholding at a rate of 31% will
apply unless a non-U.S. holder of Common Stock satisfies applicable
certification requirements.
A non-U.S. holder of Common Stock that is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate claim for
refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain recognized on a disposition of Common Stock
except in the following circumstances: (i) the gain is effectively connected
with a trade or business conducted by the non-U.S. holder in the United States
(and is attributable to a permanent establishment maintained in the United
States by such non-U.S. holder if an applicable income tax
63
<PAGE>
treaty so requires as a condition for such non-U.S. holder to be subject to
United States taxation on a net income basis in respect of gain from the sale
or other disposition of the Common Stock); (ii) in the case of a non-U.S.
holder who is an individual and holds the Common Stock as a capital asset,
such holder is present in the United States for 183 or more days in the
taxable year of the sale and certain other conditions exist; or (iii) the
Company is or has been a "United States real property holding corporation" for
federal income tax purposes and assuming that the Common Stock is "regularly
traded on an established securities market" for such purposes, the non- U.S.
holder held, directly or indirectly at any time during the five-year period
ending on the date of disposition, more than 5% of the Common Stock (and is
not eligible for any treaty exemption). Effectively connected gains realized
by a corporate non-U.S. Holder may also, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty.
The Company has not been, is not, and does not anticipate becoming a "United
States real property holding corporation" for federal income tax purposes.
FEDERAL ESTATE TAXES
Common Stock held by a non-U.S. holder at the time of death will be included
in such holder's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to each
non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. Under current law, United States
information reporting requirements (other than reporting of dividend payments
for purposes of the withholding tax noted above) and backup withholding tax
generally will not apply to dividends paid to non-U.S. holders that are either
subject to the 30% withholding discussed above or that are not so subject
because an applicable tax treaty reduces such withholding. Otherwise, backup
withholding of United States federal income tax at a rate of 31% generally
will apply to dividends paid with respect to Common Stock to holders that are
not "exempt recipients" and that fail to provide certain information
(including the holder's United States taxpayer identification number).
Generally, unless the payor of dividends has definite knowledge that the payee
is a United States person, the payor may treat dividend payments to a payee
with a foreign address as exempt from information reporting and backup
withholding. However, under the Final Withholding Regulations, dividend
payments generally will be subject to information reporting and backup
withholding unless applicable certification requirements are satisfied. See
"--Dividends."
In general, United States information reporting and backup withholding
requirements also will not apply to a payment made outside the United States
of the proceeds of a sale of Common Stock through an office outside the United
States of a non-United States broker. However, United States information
reporting (but not backup withholding) requirements will apply to a payment
made outside the United States of the proceeds of a sale of Common Stock
through an office outside the United States of a broker that is a United
States person, that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, or that
is a "controlled foreign corporation" as to the United States, unless the
broker has documentary evidence in its records that the holder or beneficial
owner is a non-United States person or the holder or beneficial owner
otherwise establishes an exemption. Payment of the proceeds of the sale of
Common Stock to or through a United States office of a broker is currently
subject to both United States backup withholding and information reporting
unless the holder certifies its non-United States status under penalties of
perjury or otherwise establishes an exemption.
A non-United States holder generally may obtain a refund of any excess
amounts withheld under the backup withholding rules by filing the appropriate
claim for refund with the United States Internal Revenue Service.
THE FOREGOING DISCUSSION IS A SUMMARY OF THE PRINCIPAL UNITED STATES FEDERAL
INCOME AND ESTATE TAX CONSEQUENCES OF THE OWNERSHIP, SALE OR OTHER DISPOSITION
OF COMMON STOCK BY NON-U.S. HOLDERS. ACCORDINGLY, INVESTORS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF COMMON STOCK, INCLUDING
THE APPLICATION AND EFFECT OF THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAXING JURISDICTION.
64
<PAGE>
UNDERWRITING
Merrill Lynch International, BT Alex. Brown International, a division of
Bankers Trust International PLC, and Lehman Brothers International (Europe)
are acting as lead managers (the "Lead Managers") of each of the International
Managers named below (the "International Managers"). Subject to the terms and
conditions set forth in an international purchase agreement (the
"International Purchase Agreement") among the Company and the International
Managers, and concurrently with the sale of 4,400,000 shares of Common Stock
to the U.S. Underwriters (as defined below), the Company agreed to sell to the
International Managers, and each of the International Managers, severally and
not jointly has agreed to purchase from the Company the number of shares of
Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International.......................................
BT Alex. Brown International, a division of Bankers Trust
International PLC................................................
Lehman Brothers International (Europe)............................
---------
Total........................................................ 1,100,000
=========
</TABLE>
The Company has also entered into a U.S. purchase agreement (the "U.S.
Purchase Agreement") with certain underwriters in the United States and Canada
(the "U.S. Underwriters" and, together with the International Managers, the
"Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), BT Alex. Brown Incorporated and Lehman Brothers Inc. are
acting as representatives (the "U.S. Representatives"). Subject to the terms
and conditions set forth in the U.S. Purchase Agreement, and concurrently with
the sale of 1,100,000 shares of Common Stock to the International Managers
pursuant to the International Purchase Agreement, the Company has agreed to
sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed
to purchase from the Company, an aggregate of 4,400,000 shares of Common
Stock. The initial public offering price per share and the total underwriting
discount per share of Common Stock are identical under the International
Purchase Agreement and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such agreement if any of the shares of Common Stock being sold pursuant
to such agreement are purchased. Under certain circumstances, under the
International Purchase Agreement and the U.S. Purchase Agreement, the
commitments of non-defaulting Underwriters may be increased. The closings with
respect to the sale of shares of Common Stock to be purchased by the
International Managers and the U.S. Underwriters are conditioned upon one
another.
The Lead Managers have advised the Company that the International Managers
propose initially to offer the shares of Common Stock to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $
per share of Common Stock. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of Common Stock
on sales to certain other dealers. After the initial public offering, the
public offering price, concession and discount may be changed.
The Company has granted options to the International Managers, exercisable
for 30 days after the date of this Prospectus, to purchase up to an aggregate
of 165,000 additional shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The International Managers may exercise these options solely to
cover over-allotments, if any, made on the sale of the Common Stock offered
hereby. To the extent that the International Managers exercise these options,
each International Manager will be obligated, subject to certain conditions,
to purchase a number of additional shares of Common Stock proportionate to
such International Manager's initial amount reflected in the foregoing table.
The Company also has granted options to the U.S. Underwriters, exercisable for
30 days after the date of this
65
<PAGE>
Prospectus, to purchase up to an aggregate of 660,000 additional shares of
Common Stock to cover over-allotments, if any, on terms similar to those
granted to the International Managers.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to 5% of the shares offered hereby to be
sold to certain directors, officers, and employees of the Company and certain
business associates of the Company. The number of shares of Common Stock
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of the Offering
will be offered by the Underwriters to the general public on the same terms as
the other shares offered hereby.
The Company and holders of all shares of Common Stock outstanding prior to
the Offering, including the Company's executive officers and directors and the
holders of shares of Common Stock issued in connection with the Combination
have agreed not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise
dispose of or transfer any shares of Common Stock or securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
thereafter acquired by the person executing the agreement or registration
statement under the Securities Act with respect to the foregoing or (ii) enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, without the prior written consent of Merrill Lynch on
behalf of the Underwriters for a period of 180 days after the date of this
Prospectus. See "Shares Eligible for Future Sale."
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the International Managers and the U.S. Underwriters are permitted
to sell shares of Common Stock to each other for purposes of resale at the
initial public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons
who are non-U.S. or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. or Canadian persons, except in
the case of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations among the Company, the U.S. Representatives and the Lead
Managers. The factors considered in determining the initial public offering
price, in addition to prevailing market conditions, are price-earnings ratios
of publicly traded companies that the U.S. Representatives believe to be
comparable to the Company, certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which it
competes, and an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development, and the above factors in
relation to market value, and various valuation measures of other companies
engaged in activities similar to the Company. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above
the initial public offering price. See "Risk Factors--Absence of Public
Market; Determination of Offering Price and Fluctuations in Market Price."
The Company has applied to list the Common Stock for quotation on the Nasdaq
National Market under the symbol "MERK."
66
<PAGE>
The Underwriters do not expect sales of Common Stock to any accounts over
which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company has agreed to indemnify the International Managers and the U.S.
Underwriters against certain liabilities, including certain liabilities under
the Securities Act, or to contribute to payments the International Managers
and the U.S. Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the U.S. Representatives are permitted to engage
in certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the U.S.
Representatives may reduce that short position by purchasing Common Stock in
the open market. The U.S. Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described
above.
The U.S. Representatives may also impose a penalty bid on certain
Underwriters and selling group members. This means that if the U.S.
Representatives purchase shares of Common Stock in the open market to reduce
the Underwriters' short position or to stabilize the price of the Common
Stock, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares as part of the
Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of the Common Stock to the extent
that it discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
Each International Manager has agreed that (i) it has not offered or sold
and, prior to the expiration of the period of six months from the closing of
the International Offering, will not offer or sell any shares of Common Stock
to persons in the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities Regulations of
1995; (ii) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the Common Stock in, form or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issuance of Common Stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of Common
Stock, or the possession, circulation or distribution of this Prospectus or
any other material relating to the Company or shares of Common Stock in any
jurisdiction where action for that purpose is required. Accordingly, the
shares of Common Stock may not be offered or sold, directly or
67
<PAGE>
indirectly, and neither this Prospectus nor any other offering material or
advertisements in connection with the shares of Common Stock may be
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the shares offered hereby may be required to pay stamp taxes
and other charges in accordance with the laws and practices of the country of
purchase in addition to the offering price set forth on the cover page hereof.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Shearman & Sterling, New York, New
York.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent of and for the periods indicated in the
reports, have been audited by Arthur Andersen LLP, independent public
accountants, or Hege Kramer Connell Murphy & Goldkamp, P.C. as indicated in
their respective reports with respect thereto, and are included herein in
reliance upon the authority of said firms as experts in giving said reports.
Arthur Andersen LLP's report on the financial statements of Merkert
Enterprises, Inc. and subsidiary as of and for the three years ended December
31, 1997, dated May 22, 1998 and included herein, includes a qualification
stating that there exists a substantial doubt about Merkert's ability to
continue as a going concern.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information
pertaining to the Company and the Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits thereto and the
financial statements, notes and schedules filed as a part thereof. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or such other documents,
each such statement being qualified in all respects by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. Such materials can also be inspected at a world wide web
site maintained by the Commission at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
(which, after the Offering, will include the Company) that file electronically
with the Commission.
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATED HEREOF.
IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOL-
LARS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
The Combination.......................................................... 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data for Merkert and Rogers........................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 35
Management............................................................... 45
Certain Transactions..................................................... 52
Principal Stockholders................................................... 55
Description of Capital Stock............................................. 57
Shares Eligible for Future Sale.......................................... 61
Certain United States Tax Consequences to Non-U.S. Holders of Common
Stock................................................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 68
Experts.................................................................. 68
Available Information.................................................... 68
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,500,000 SHARES
MERKERT
AMERICAN
CORPORATION
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL
LEHMAN BROTHERS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee, the NASD filing
fee and the Nasdaq National Market listing fee:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ----------
<S> <C>
SEC registration fee............................................. $ 41,050
NASD filing fee.................................................. 15,015
Nasdaq National Market listing fee............................... 78,875
Legal fees and expenses.......................................... 2,000,000
Accounting fees and expenses..................................... 800,000
Blue Sky fees.................................................... 12,000
Printing expenses................................................ 250,000
Transfer agent fee............................................... 2,500
Premium for directors' and officers' insurance................... 130,000
Miscellaneous.................................................... 170,560
----------
Total.......................................................... $3,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of the Registrant's Amended and Restated Certificate of
Incorporation (the "Certificate") provides that no director of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases, or
(iv) for any transaction from which the director derived an improper personal
benefit. In addition, the Certificate provides that if the Delaware General
Corporation Law is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of a director of the
Registrant shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Article V of the Registrant's By-laws provides for indemnification by the
Registrant of its directors and officers and certain non-officer employees
under certain circumstances against expenses (including attorneys' fees,
judgments, penalties, fines and amounts paid in settlement) reasonably
incurred in connection with the defense or settlement of any threatened,
pending or completed legal proceeding in which any such person is involved by
reason of the fact that such person is or was an officer or employee of the
Registrant unless it is determined that such person did not act in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Registrant, and, with respect to criminal actions or
proceedings, such person had no reasonable cause to believe his or her conduct
was unlawful.
The Registrant intends to enter into indemnification agreements with each of
its directors reflecting the foregoing provisions of the By-laws and requiring
the advancement of expenses in proceedings involving directors in most
circumstances and also intends to purchase directors' and officers' insurance
to provide additional protections to the directors and officers of the
Registrant in certain circumstances.
Under the U.S. Purchase Agreement filed as Exhibit 1.1 hereto and the
International Purchase Agreement filed as Exhibit 1.2 hereto, the Underwriters
will agree to indemnify, under certain conditions, the Registrant, its
directors and certain officers and persons who control the Registrant within
the meaning of the Securities Act of 1933, as amended (the "Act"), against
certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In March 1998, the Registrant issued and sold 1,500 shares of Common Stock
to Monroe & Company II, LLC at a purchase price of $.10 per share. No
underwriters or underwriting discounts or commissions were involved.
In April 1998, the Company issued and sold 300 shares of Common Stock to
Gerald R. Leonard for an aggregate purchase price of $1,500,000. No
underwriters or underwriting discounts or commissions were involved. See
"Certain Transactions."
The Company entered into two separate stock purchase agreements with the
stockholders of Merkert and Rogers pursuant to which the Company agreed to
issue to such stockholders shares of Common Stock in the Combination, as
described under "The Combination."
There was no public offering in such transactions, and the Registrant
believes that such transactions were exempt from registration requirements of
the Act, by reason of Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a complete list of exhibits filed or
incorporated by reference as part of this Registration Statement.
<TABLE>
<C> <S>
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2+ Form of Amended and Restated By-laws.
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the
Registrant.
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered.
10.1+ Stock Purchase Agreement, dated May 20, 1998, among the Registrant,
Merkert Enterprises, Inc. and the stockholders of Merkert Enterprises,
Inc.
10.2+ Stock Purchase Agreement, dated May 22, 1998, among the Registrant,
Rogers-American Company, Inc. and the stockholders of Rogers-American
Company, Inc.
10.3+ Form of Employment and Non-Competition Agreement to be entered into by
the Registrant and Gerald R. Leonard, Sidney D. Rogers, Jr. and Glenn
F. Gillam.
10.4+ Form of Employment and Non-Competition Agreement to be entered into by
the Registrant and Douglas H. Holstein and Marty D. Carter.
10.5+ Form of Tax Escrow Agreement to be entered into by the Registrant and
Robert Q. Crane, as Stockholders' Representative.
10.6+ Form of Indemnification Escrow Agreement to be entered into by the
Registrant and Robert Q. Crane, as Stockholders' Representative.
10.7+ Form of General Release to be executed by the stockholders of Merkert
Enterprises, Inc.
10.8+ Agreement, dated May 11, 1998, between the Registrant and Monroe &
Company, LLC.
10.9+ Agreement for the purchase of Common Stock between the Registrant and
Gerald R. Leonard, dated April 8, 1998.
10.10+ Promissory Note of Gerald R. Leonard dated April 8, 1998.
10.11+ Stock Pledge Agreement between the Registrant and Gerald R. Leonard,
dated April 8, 1998.
10.12+ Distributor's Agreement, dated January 1, 1982, between Merkert
Enterprises, Inc. and Monarch Marking Systems, Inc.
10.13+ Agreement, dated October 30, 1997, between Merkert Laboratories, Inc.
and Misco Products Corporation.
10.14+ Registration Rights Agreement, dated May 18, 1998, among the
Registrant, Monroe & Company II, LLC and Gerald R. Leonard.
10.15+ Form of Registration Rights Agreement to be entered into by the
Registrant and the stockholders of Merkert Enterprises, Inc.
10.16+ Form of Registration Rights Agreement to be entered into by the
Registrant and the stockholders of Rogers-American Company, Inc.
10.17 Amended and Restated Merkert American Corporation 1998 Stock Option and
Incentive Plan.
10.18+ Form of Non-Qualified Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.19+ Form of General Release to be executed by the Stockholders, Directors and Officers
of Rogers-American Company, Inc.
10.20+ Form of Indemnification Escrow Agreement to be entered into by the Registrant and
Curtis L. Rogers, Jr. as Stockholders' Representative.
10.21 Security Agreement by and between Rogers-American Company of Florida, Inc. and
Rogers-American Company, Inc.
10.22 Stock Pledge Agreement by and between Rogers-American Company, Inc. and Dopson-Hicks
of Tampa, Inc., Dopson-Hicks of Jacksonville, Inc., Dopson-Hicks of Miami, Inc. and
L.C. Hicks, Jr.
10.23 Indenture of Mortgage, Deed of Trust, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Rents and Leases, dated as of February 13, 1998, between
Merkert Enterprises, Inc. and Corporate Real Estate Capital, LLC.
10.24 Loan Agreement by and between Corporate Real Estate Capital, LLC and Merkert
Enterprises, Inc.
10.25 Promissory Note of Merkert Enterprises, Inc. issued to Corporate Real Estate
Capital, LLC.
10.26 Form of Incentive Stock Option Agreement under the Merkert American Corporation 1998
Stock Option and Incentive Plan.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hege Kramer Connell Murphy & Goldkamp, P.C.
27.1+ Financial Data Schedule.
99.1+ Consent of Edward P. Grace, III to be named as a person to be appointed a Director
of the Registrant in this Registration Statement.
99.2+ Consent of James A. Schlindwein to be named as a person to be appointed a Director
of the Registrant in this Registration Statement.
99.3+ Consent of Gerald R. Leonard to be named as a person to be appointed a Director of
the Registrant in this Registration Statement.
99.4+ Consent of Douglas H. Holstein to be named as a person to be appointed a Director of
the Registrant in this Registration Statement.
</TABLE>
- --------
+ previously filed
(b) The Financial Statement Schedule filed as part of this Registration
Statement is as follows:
Information required by the requested schedules is not applicable or the
required information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CANTON,
COMMONWEALTH OF MASSACHUSETTS, ON JULY 20, 1998.
Merkert American Corporation
By: /s/ James L. Monroe
--------------------------
JAMES L. MONROE, PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE DATE
/s/ James L. Monroe President and July 20, 1998
- ------------------------------------- Director (principal
JAMES L. MONROE executive,
accounting and
financial officer,
sole director)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2+ Form of Amended and Restated By-laws.
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of
the Registrant.
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being offered.
10.1+ Stock Purchase Agreement, dated May 20, 1998, among the Registrant,
Merkert Enterprises, Inc. and the stockholders of Merkert Enterprises,
Inc.
10.2+ Stock Purchase Agreement, dated May 22, 1998, among the Registrant,
Rogers-American Company, Inc. and the stockholders of Rogers-American
Company, Inc.
10.3+ Form of Employment and Non-Competition Agreement to be entered into by
the Registrant and Gerald R. Leonard, Sidney D. Rogers, Jr. and Glenn
F. Gillam.
10.4+ Form of Employment and Non-Competition Agreement to be entered into by
the Registrant and Douglas H. Holstein and Marty D. Carter.
10.5+ Form of Tax Escrow Agreement to be entered into by the Registrant and
Robert Q. Crane, as Stockholders' Representative.
10.6+ Form of Indemnification Escrow Agreement to be entered into by the
Registrant and Robert Q. Crane, as Stockholders' Representative.
10.7+ Form of General Release to be executed by the stockholders of Merkert
Enterprises, Inc.
10.8+ Agreement, dated May 11, 1998, between the Registrant and Monroe &
Company, LLC.
10.9+ Agreement for the purchase of Common Stock between the Registrant and
Gerald R. Leonard, dated April 8, 1998.
10.10+ Promissory Note of Gerald R. Leonard dated April 8, 1998.
10.11+ Stock Pledge Agreement between the Registrant and Gerald R. Leonard,
dated April 8, 1998.
10.12+ Distributor's Agreement, dated January 1, 1982, between Merkert
Enterprises, Inc. and Monarch Marking Systems, Inc.
10.13+ Agreement, dated October 30, 1997, between Merkert Laboratories, Inc.
and Misco Products Corporation.
10.14+ Registration Rights Agreement, dated May 18, 1998, among the
Registrant, Monroe & Company II, LLC and Gerald R. Leonard.
10.15+ Form of Registration Rights Agreement to be entered into by the
Registrant and the stockholders of Merkert Enterprises, Inc.
10.16+ Form of Registration Rights Agreement to be entered into by the
Registrant and the stockholders of Rogers-American Company, Inc.
10.17 Amended and Restated Merkert American Corporation 1998 Stock Option
and Incentive Plan.
10.18+ Form of Non-Qualified Stock Option Agreement under the Merkert
American Corporation 1998 Stock Option and Incentive Plan.
10.19+ Form of General Release to be executed by the Stockholders, Directors
and Officers of Rogers-American Company, Inc.
10.20+ Form of Indemnification Escrow Agreement to be entered into by the
Registrant and Curtis L. Rogers, Jr. as Stockholders' Representative.
10.21 Security Agreement by and between Rogers-American Company of Florida,
Inc. and Rogers-American Company, Inc.
10.22 Stock Pledge Agreement by and between Rogers-American Company, Inc.
and Dopson-Hicks of Tampa, Inc., Dopson-Hicks of Jacksonville, Inc.,
Dopson-Hicks of Miami, Inc. and L.C. Hicks, Jr.
10.23 Indenture of Mortgage, Deed of Trust, Security Agreement, Fixture
Filing, Financing Statement and Assignment of Rents and Leases, dated
as of February 13, 1998, between Merkert Enterprises, Inc. and
Corporate Real Estate Capital, LLC.
10.24 Loan Agreement by and between Corporate Real Estate Capital, LLC and
Merkert Enterprises, Inc.
10.25 Promissory Note of Merkert Enterprises, Inc. issued to Corporate Real
Estate Capital, LLC.
10.26 Form of Incentive Stock Option Agreement under the Merkert American
Corporation 1998 Stock Option and Incentive Plan.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Hege Kramer Connell Murphy & Goldkamp, P.C.
27.1+ Financial Data Schedule.
99.1+ Consent of Edward P. Grace, III to be named as a person to be appointed a Director
of the Registrant in this Registration Statement.
99.2+ Consent of James A. Schlindwein to be named as a person to be appointed a Director
of the Registrant in this Registration Statement.
99.3+ Consent of Gerald R. Leonard to be named as a person to be appointed a Director of
the Registrant in this Registration Statement.
99.4+ Consent of Douglas H. Holstein to be named as a person to be appointed a Director of
the Registrant in this Registration Statement.
</TABLE>
- --------
+ Previously filed
<PAGE>
Exhibit 1.1
================================================================================
MERKERT AMERICAN CORPORATION
(a Delaware corporation)
4,400,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: ________, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
U.S. PURCHASE AGREEMENT...................................................... 1
SECTION 1. Representations and Warranties.............................. 4
(a) Representations and Warranties by the Company............... 4
(i) Compliance with Registration Requirements.......... 4
(ii) Independent Accountants............................ 5
(iii) Financial Statements............................... 5
(iv) No Material Adverse Change in Business............. 5
(v) Good Standing of the Company....................... 6
(vi) Good Standing of Subsidiaries...................... 6
(vii) Capitalization..................................... 6
(viii) Authorization of Agreement......................... 7
(ix) Authorization and Description of Securities........ 7
(x) Absence of Defaults and Conflicts.................. 7
(xi) Absence of Labor Dispute........................... 8
(xii) Absence of Proceedings............................. 8
(xiii) Accuracy of Exhibits............................... 8
(xiv) Possession of Intellectual Property................ 9
(xv) Absence of Further Requirements.................... 9
(xvi) Possession of Licenses and Permits................. 9
(xvii) Title to Property.................................. 10
(xviii) Investment Company Act............................. 10
(xix) Environmental Laws................................. 10
(xx) Registration Rights................................ 11
(xxi) Tax Law Compliance................................. 11
(xxii) The Combination.................................... 11
(xxiii) Combination Agreements............................. 11
(b) Officer's Certificates...................................... 12
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing............. 12
(a) Initial Securities.......................................... 12
(b) Option Securities........................................... 12
(c) Payment..................................................... 13
(d) Denominations; Registration................................. 13
i
<PAGE>
SECTION 3. Covenants of the Company.................................... 13
(a) Compliance with Securities Regulations and Commission
Requests.................................................... 13
(b) Filing of Amendments........................................ 14
(c) Delivery of Registration Statements......................... 14
(d) Delivery of Prospectuses.................................... 14
(e) Continued Compliance with Securities Laws................... 15
(f) Rule 158.................................................... 15
(g) Use of Proceeds............................................. 15
(h) Listing..................................................... 15
(i) Restriction on Sale of Securities........................... 15
(j) Reporting Requirements...................................... 16
(k) Compliance with NASD Rules.................................. 16
(l) The Combination............................................. 16
(m) Blue Sky Qualifications..................................... 17
SECTION 4. Payment of Expenses......................................... 17
(a) Expenses.................................................... 17
(b) Termination of Agreement.................................... 18
SECTION 5. Conditions of U.S. Underwriters' Obligations................ 18
(a) Effectiveness of Registration Statement..................... 18
(b) Opinion of Counsel for Company.............................. 18
(c) Opinion of Counsel for U.S. Underwriters.................... 18
(d) Officers' Certificates...................................... 19
(e) Accountants' Comfort Letter................................. 19
(f) Bring-down Comfort Letter................................... 19
(g) Approval of Listing......................................... 19
(h) No Objection................................................ 19
(i) Lock-up Agreements.......................................... 20
(j) Purchase of Initial International Securities................ 20
(k) The Combination............................................. 20
(l) The Joinder Agreement....................................... 20
(m) Conditions to Purchase of U.S. Option Securities............ 20
(n) Additional Documents........................................ 21
(o) Termination of Agreement.................................... 21
SECTION 6. Indemnification............................................. 22
(a) Indemnification of U.S. Underwriters........................ 22
(b) Indemnification of Company and Its Directors and Officers... 23
ii
<PAGE>
(c) Actions against Parties; Notification....................... 23
(d) Settlement Without Consent if Failure to Reimburse.......... 24
(e) Indemnification for Reserved Securities..................... 24
SECTION 7. Contribution................................................ 25
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.................................................... 26
SECTION 9. Termination of Agreement.................................... 26
(a) Termination; General........................................ 26
(b) Liabilities................................................. 27
SECTION 10. Default by One or More of the U.S. Underwriters............. 27
SECTION 11. Notices..................................................... 28
SECTION 12. Parties..................................................... 28
SECTION 13. GOVERNING LAW AND TIME...................................... 28
SECTION 14. Effect of Headings.......................................... 28
iii
<PAGE>
SCHEDULES
Schedule A - List of Underwriters Sch A-1
Schedule B - Pricing Information Sch B-1
Schedule C - List of Persons and Entities Subject to Lock-up Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel A-1
Exhibit B - Form of Lock-up Letter B-1
ANNEXES
Annex A - Form of Accountants' Comfort Letter Annex A-1
Annex B - Form of Joinder Agreement Annex B-1
iv
<PAGE>
MERKERT AMERICAN CORPORATION
(a Delaware corporation)
4,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
------------------------
_________, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
BT Alex. Brown Incorporated
Lehman Brothers Inc.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Merkert American Corporation, a Delaware corporation, formerly known as
Monroe, Inc. (the "Company"), confirms its agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and each
of the other U.S. Underwriters named in Schedule A hereto (collectively, the
"U.S. Underwriters," which term shall also include any underwriter substituted
as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, BT Alex.
Brown Incorporated and Lehman Brothers Inc. are acting as representatives (in
such capacity, the "U.S. Representatives"), with respect to the issue and sale
by the Company and the purchase by the U.S. Underwriters, acting severally and
not jointly, of the respective numbers of shares of Common Stock, par value $.01
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 660,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 4,400,000 shares of Common Stock (the
"Initial U.S. Securities") to be purchased by the U.S. Underwriters and all or
any part of the 660,000 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called,
collectively, the "U.S. Securities."
<PAGE>
Prior to or simultaneously with the Closing Time (as defined in Section 2
herein), the Company will acquire in separate transactions (the "Combination")
all of the issued and outstanding capital stock of Merkert Enterprises, Inc., a
Massachusetts corporation ("Merkert"), pursuant to the terms of a stock purchase
agreement dated May 20, 1998, and Rogers-American Company, a North Carolina
corporation ("Rogers"), pursuant to the terms of a stock purchase agreement
dated May 22, 1998 (such stock purchase agreements being the "Combination
Agreements"). It is understood that at Closing Time, Rogers, Merkert and the
U.S. Underwriters shall enter into a joinder agreement to this Agreement, which
shall be substantially in the form of Annex B hereto (the "Joinder Agreement").
All references herein to the Company, unless otherwise indicated, shall mean
Merkert American Corporation, including its wholly owned subsidiaries, Merkert
and Rogers and each of their respective subsidiaries.
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 1,100,000 shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International, BT Alex. Brown International,
a division of Bankers Trust International PLC and Lehman Brothers International
(Europe) are acting as lead managers (the "Lead Managers"), and the grant by the
Company to the International Managers, acting severally and not jointly, of an
option to purchase all or any part of the International Managers' pro rata
portion of up to 165,000 additional shares of Common Stock solely to cover over-
allotments, if any (the "International Option Securities" and, together with the
U.S. Option Securities, the "Option Securities"). The Initial International
Securities and the International Option Securities are hereinafter called the
"International Securities." It is understood that the Company is not obligated
to sell and the U.S. Underwriters are not obligated to purchase, any Initial
U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to make a public
offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
2
<PAGE>
The Company and the U.S. Underwriters agree that up to [275,000] shares of
the Initial U.S. Securities to be purchased by the U.S. Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible directors, officers and employees of the Company and certain persons
having business relationships with the Company, as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
purchase by such eligible directors, officers and employees of the Company and
persons having business relationships with the Company by the end of the first
business day after the date of this Agreement, such Reserved Securities may be
offered to the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-53419) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations. Two forms of prospectus are to be used in connection
with the offering and sale of the Securities: one relating to the U.S.
Securities (the "Form of U.S. Prospectus") and one relating to the International
Securities (the "Form of International Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus, except for the front
cover and back cover pages and the information under the caption "Underwriting"
and the inclusion in the Form of International Prospectus of a section under the
caption "Certain United States Tax Considerations for Non-United States
Holders." The information included in any such prospectus that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information." Each Form of U.S. Prospectus and Form of International Prospectus
used before such registration statement became effective, and any prospectus
that omitted the Rule 430A Information that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto at the time it became effective and including the
Rule 430A Information, is herein called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed
with the
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Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each U.S. Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times that the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or prospectus wrapper
prepared in connection therewith, at their respective times of issuance and
at the Closing Time, complied and will comply in all material respects with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectuses and such preliminary prospectuses, as amended or supplemented,
if applicable, are distributed in connection with the offer and sale of
Reserved Securities. Neither of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectuses or any amendments or supplements thereto were issued and at
the Closing Time (and, if any U.S. Option Securities are purchased, at the
Date of Delivery), included or will include an untrue statement of a
material fact or omitted or will omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the U.S. Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement or the U.S. Prospectus.
4
<PAGE>
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules of the Company, Merkert and
Rogers included in the Registration Statement are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements of the
--------------------
Company, and the separate financial statements of each of Merkert and
Rogers, included in the Registration Statement and the Prospectuses, in
each case together with the related schedules and notes, present fairly in
all material respects the financial position of the Company and each of
Merkert and Rogers, at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and each of Merkert and
Rogers for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved.
The supporting schedules included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The [selected consolidated financial data of each of Merkert and
Rogers and the ] summary combined financial information of the Company
included in the Prospectuses present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement. The pro forma
combined financial statements of the Company and the related notes thereto
included in the Registration Statement and the Prospectuses present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its
5
<PAGE>
subsidiaries considered as one enterprise, and (C) except for the stock
dividend to be declared by the Company prior to and in connection with the
Combination, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each "significant subsidiary" of
-----------------------------
the Company (as such term is defined in Rule 1-02 of Regulation S-X), which
term includes Merkert and Rogers (each a "Subsidiary" and, collectively,
the "Subsidiaries"), has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses
and is duly qualified as a foreign corporation to transact business and is
in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly authorized
and validly issued, is fully paid and non-assessable and, after giving
effect to the Combination, will be owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity (except that the shares of
capital stock of Rogers-American Company of Florida, Inc., a North Carolina
corporation and a wholly owned subsidiary of Rogers, have been pledged by
Rogers pursuant to a Stock Pledge Agreement dated October 31, 1995); none
of the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of such
Subsidiary (except to the extent disclosed in the Combination Agreement
relating to Rogers and the schedules and exhibits thereto, which violations
of preemptive rights will be waived by the securityholders of Rogers in
connection with the Combination, to the extent set forth in Exhibit H to
the Combination Agreement relating to Rogers). At Closing Time, the only
subsidiaries of the Company are the subsidiaries listed on Exhibit 21.1 to
the Registration Statement.
(vii) Capitalization. At Closing Time, after giving effect to the
--------------
transactions contemplated by the Offering and the Combination, the
authorized, issued and outstanding
6
<PAGE>
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "As Adjusted" under the caption "Capitalization" (except
pursuant to reservations, agreements or employee benefit plans referred to
in the Prospectuses or pursuant to the exercise of convertible securities
or options referred to in the Prospectuses). After giving effect to the
Combination, the shares of issued and outstanding capital stock of the
Company will have been duly authorized and validly issued and will be fully
paid and non-assessable; none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
(viii) Authorization of Agreement. This Agreement and the
--------------------------
International Purchase Agreement have been duly authorized, executed and
delivered by the Company.
(ix) Authorization and Description of Securities. The Securities to
-------------------------------------------
be purchased by the U.S. Underwriters and the International Managers from
the Company have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and the International Managers
pursuant to the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights of
any securityholder of the Company.
(x) Absence of Defaults and Conflicts. Neither the Company, nor any
---------------------------------
of its Subsidiaries is in violation of its charter or by-laws or in default
in the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the property or assets of the
Company or any of its Subsidiaries is subject (collectively, "Agreements
and Instruments") except for such defaults that would not result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement, the International Purchase Agreement, and the Combination
Agreements by the Company, and the consummation of the transactions
contemplated in this Agreement, the International Purchase Agreement, the
Combination Agreements, and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from the
sale of the Securities as described in the Prospectuses under the caption
"Use of Proceeds"), and compliance by the Company with its obligations
under this Agreement, the International Purchase Agreement, and the
Combination Agreements have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of
7
<PAGE>
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined below) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its Subsidiaries pursuant to, the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse Effect
and except as disclosed in the Registration Statement or in the Combination
Agreements (including the exhibits and schedules thereto)), and will not
result in any violation of (i) the provisions of the charter or by-laws of
the Company or any of its Subsidiaries or (ii) any applicable law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any of its Subsidiaries or any of their
assets, properties or operations except, in the case of clause (ii), to the
extent that any such violation would not have a Material Adverse Effect. As
used herein, a "Repayment Event" means any event or condition which gives
the holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its Subsidiaries.
(xi) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company has no knowledge of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which may reasonably be expected to result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company or its Subsidiaries, threatened, against or affecting the
Company or any of its Subsidiaries, which is required to be disclosed in
the Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect the
properties or assets thereof (taken as a whole) or the consummation of the
transactions contemplated in this Agreement, the International Purchase
Agreement and the Combination Agreements, or the performance by the Company
of its obligations hereunder or thereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any of its
Subsidiaries is a party or of which any of their respective property or
assets is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to result in a Material Adverse
Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
--------------------
that are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required.
8
<PAGE>
(xiv) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any written notice of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities by the Company under this Agreement and the International
Purchase Agreement or the consummation of the transactions contemplated by
this Agreement and the International Purchase Agreement, except (i) such as
have been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations or under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or the rules and regulations promulgated
thereunder (the "1934 Act Regulations"), (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the United States
in which the Reserved Securities are offered, and (iii) such as have been
obtained in connection with the Combination, including all applicable
requirements, if any, of state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder.
(xvi) Possession of Licenses and Permits. Except as would not be
----------------------------------
reasonably expected to have a Material Adverse Effect, the Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies,
including any licenses required under the U.S. Perishable Agricultural
Commodities Act, necessary to conduct the business now operated by them;
the Company and its Subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any written notice of proceedings relating to the
revocation or modification
9
<PAGE>
of any such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses or either Combination Agreement (including
the exhibits and schedules thereto) or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company or any of its Subsidiaries; and all of the leases
and subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds material properties described in the Prospectuses, are
in full force and effect, and neither the Company nor any subsidiary has
any written notice of any material claim of any sort that has been asserted
by anyone adverse to the rights of the Company or any Subsidiary under any
of the material leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the material leased or subleased premises under any such
lease or sublease.
(xviii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the Registration
------------------
Statement or either Combination Agreement (including the exhibits and
schedules thereto), and except as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any applicable federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) to the knowledge of the Company, there are no
pending or threatened administrative, regulatory or judicial actions,
10
<PAGE>
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its Subsidiaries and (D) to the knowledge of
the Company, there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company or any of its Subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xx) Registration Rights. Except as disclosed in the Prospectuses
-------------------
under "Shares Eligible For Future Sale -- Registration Rights," there are
no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxi) Tax Law Compliance. Except as disclosed in the Registration
------------------
Statement or either Combination Agreement (including the exhibits and
schedules thereto), (i) the Company and its Subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to the paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against
any of them, (ii) each of the Company, Merkert and Rogers has made adequate
charges, accruals in the applicable financial statements referred to in
Section 1(iii) above in respect of all federal, state and foreign income
and franchise taxes for all periods as to which the tax liability of the
Company or any of their respective subsidiaries has not been finally
determined, and (iii) the Company has no knowledge of any tax deficiency
which might by asserted against the Company or any of its Subsidiaries
which could have a Material Adverse Effect.
(xxii) The Combination. The Combination has been duly and validly
---------------
authorized by the Company and all the necessary governmental filings,
consents and approvals required to be obtained or made in connection
therewith have been obtained or made, and all such approvals and consents
are in full force and effect; and the Combination will be effected in
compliance with all applicable state and federal laws and regulations and
will be consummated prior to or at the Closing Time.
(xxiii) Combination Agreements. The Company has entered into the
----------------------
Combination Agreements, filed as Exhibits 10.1 and 10.2 to the
Registration Statement, pursuant to which the Company will acquire in
separate transactions all of the capital stock and ownership interests in
Merkert and Rogers. Each of the Combination Agreements has been duly and
validly authorized, executed and delivered by the Company, and is valid and
binding on the Company and is enforceable against the Company in accordance
with its terms and the Company is not in default in any respect thereunder.
A complete and correct copy of each Combination Agreement (including
exhibits and schedules) has been delivered to the U.S. Representatives and,
except with the U.S. Representatives' prior written approval, no material
changes therein will be made subsequent hereto and prior to the Closing
Time. The representations and warranties made in each Combination
Agreement
11
<PAGE>
by the Company and by each of Merkert and Rogers, respectively, and/or each
of their respective stockholders are true and correct in all material
respects to the extent set forth in Section 8.2(b) of each of the
Combination Agreements, except for such changes contemplated by such
Combination Agreement.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its Subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
-----------------------------------------------
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each U.S. Underwriter, severally and not
jointly, and each U.S. Underwriter, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule B, the
number of Initial U.S. Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial U.S. Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the U.S. Underwriters,
severally and not jointly, to purchase up to an additional 660,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery for the U.S. Option Securities (a "Date of Delivery")
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of
Initial U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of Initial U.S. Securities, subject in
each case to such adjustments as the Global Coordinator in its discretion shall
make to eliminate any sales or purchases of fractional shares.
12
<PAGE>
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Goodwin, Procter & Hoar, LLP, Exchange Place, Boston, Massachusetts 02109, or at
such other place as shall be agreed upon by the Global Coordinator and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Global Coordinator and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
U.S. Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A and will notify the Global Coordinator immediately, and confirm
the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any
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supplement to the Prospectuses or any amended Prospectuses shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectuses or for
additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus,
or of the initiation or threatening of any proceedings for any of such
purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule
424(b) was received for filing by the Commission and, in the event that it
was not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), or any
amendment, supplement or revision to either any prospectus included in the
Registration Statement at the time it became effective or to the
Prospectuses, will furnish the Global Coordinator with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Global Coordinator or counsel for the U.S. Underwriters shall reasonably
object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement
as originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the U.S.
Representatives without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the U.S. Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each U.S.
Underwriter, without charge, as many copies of each preliminary prospectus
as such U.S. Underwriter reasonably requested, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act.
The Company will furnish to each U.S. Underwriter, without charge, during
the period when the U.S. Prospectus is required to be delivered under the
1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such
number of copies of the U.S. Prospectus (as amended or supplemented) as
such U.S. Underwriter may reasonably request. The U.S. Prospectus and any
amendments or
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supplements thereto furnished to the U.S. Underwriters will be identical to
the electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement, the International Purchase Agreement and in the Prospectuses.
If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur
or condition shall exist as a result of which it is necessary, in the
opinion of counsel for the U.S. Underwriters or for the Company, to amend
the Registration Statement or amend or supplement any Prospectus in order
that the Prospectuses will not include any untrue statements of a material
fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
existing at the time any such Prospectus is delivered to a purchaser, or if
it shall be necessary, in the opinion of such counsel, at any such time to
amend the Registration Statement or amend or supplement any Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectuses comply with such requirements, and the
Company will furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the U.S. Underwriters may reasonably request.
(f) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(h) Listing. The Company will use its best efforts to effect the
listing of the Common Stock (including the Securities) on the Nasdaq
National Market ("NASDAQ").
(i) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectuses, the Company will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any share of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the
1933 Act with respect to any of the foregoing or (ii) enter
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into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder or
under the International Purchase Agreement, (B) the issuance of options to
purchase Common Stock granted pursuant to the 1998 Employee Stock Option
and Incentive Plan referred to in the Prospectuses, or (C) the registration
of shares of Common Stock with the Securities and Exchange Commission
pursuant to a registration statement relating to one or more acquisitions
to be made by the Company; provided, however, that, during the 180 day
-------- -------
period from the date of the Prospectuses, any further action taken by the
Company with respect to such shares of Common Stock so registered for the
purposes of making such acquisition(s) shall be subject to the prior
written consent of the Global Coordinator, which consent shall not be
unreasonably withheld.
(j) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the rules and regulations of the Commission thereunder.
(k) Compliance with NASD Rules. The Company hereby agrees that it
will ensure that the Reserved Securities will be restricted as required by
the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The
Underwriters will notify the Company as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct
the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company release, or seek to
release, from such restrictions any of the Reserved Securities, the Company
agrees to reimburse the Underwriters for any reasonable expenses
(including, without limitation, legal expenses) they incur in connection
with such release.
(l) The Combination. The Company will (i) perform or satisfy all
conditions on its part to be performed or satisfied pursuant to the
Combination Agreements and to take any action necessary or required
pursuant thereto in order to consummate the Combination prior to or at the
Closing Time and (ii) obtain all applicable authorizations and approvals
and make all filings required under the Combination Agreements in
connection with the Combination. The Company will promptly notify the U.S.
Representatives of the occurrence of any event which may result in the non-
consummation of the Combination prior to or at the Closing Time.
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(m) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Representatives may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not qualified or subject
itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company agrees to pay all expenses incident to the
performance of its obligations under this Agreement and in connection with the
Combination, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, the Intersyndicate Agreement
and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters and the transfer of the Securities between the U.S. Underwriters
and the International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (v) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, the Prospectuses and any amendments or supplements
thereto, (vi) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (vii) the fees and
expenses of any transfer agent or registrar for the Securities, (viii) the
filing fees incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the NASD of the terms of the
sale of the Securities, (ix) the fees and expenses incurred in connection with
the listing of the Securities on NASDAQ and (x) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to certain directors, officers and
employees of the Company and others having a business relationship with the
Company.
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(b) Termination of Agreement. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
--------------------------------------------
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and/or other obligations hereunder,
and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).
(b) Opinion of Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion dated as of
Closing Time, of Goodwin, Procter & Hoar LLP, counsel for the Company, in
form and substance reasonably satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the U.S. Underwriters may
reasonably request.
(c) Opinion of Counsel for U.S. Underwriters. At Closing Time, the
U.S. Representatives shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letter for each of the
other U.S. Underwriters with respect to the matters set forth in clauses
(i), (ii), (v), (vi) (solely as to preemptive or other similar rights
arising by operation of law or under the charter or by-laws of the
Company), (viii) through (x), inclusive, (xiii) (solely as to the
information in the Prospectus under "Description of Capital Stock--
Authorized and Outstanding Capital Stock" and "Underwriting") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the
United States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel
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satisfactory to the U.S. Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company and
its Subsidiaries and certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its Subsidiaries, Merkert and
Rogers, considered as one enterprise, whether or not arising in the
ordinary course of business, and the U.S. Representatives shall have
received certificates of the President or a Vice President and of the chief
financial or chief accounting officer of the Company, dated as of Closing
Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are
true and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending, to their knowledge, or are
contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the U.S. Representatives shall have received from Arthur
Andersen a letter dated such date, in form and substance reasonably
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S. Underwriters
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information of each of the
Company, Merkert and Rogers contained in the Registration Statement and the
Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the Representatives
shall have received from Arthur Anderson a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on NASDAQ, subject only to official notice of
issuance.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
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(i) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received the agreements relating to each of
Rogers and Merkert, substantially in the form of Exhibit B hereto signed by
the persons listed on Schedule C hereto.
(j) Purchase of Initial International Securities. Contemporaneously
with the purchase by the U.S. Underwriters of the Initial U.S. Securities
under this Agreement, the International Managers shall have purchased the
Initial International Securities under the International Purchase
Agreement.
(k) The Combination. With respect to the Combination, at Closing
Time, (i) the Combination Agreements shall have been duly executed and
delivered by each of the Company, Merkert and Rogers, and shall be in full
force and effect and none of the parties thereto shall be in default
thereunder, (ii) each condition to the respective obligations of the
Company, Merkert and Rogers set forth in Section 8 of each of the
Combination Agreements shall have been satisfied, without waiver or
modification, except as may be approved by the U.S. Representatives, (iii)
each of the representations and warranties of the Company contained in
Section 2 of the Combination Agreements shall be true and correct with the
same force and effect as though expressly made at and as Closing Time to
the extent set forth in Section 8.2(b) of each of the Combination
Agreements, (iv) the U.S. Representatives shall have received assurances
reasonably satisfactory to it that all documents required to be filed in
order to effectuate the consummation of each Combination shall have been
approved for filing by the appropriate state and federal authorities and
that all such Combination documents shall have been duly filed prior to
this Agreement and (v) the U.S. Representatives shall have received
opinions from counsel for the Company and counsel for each of Merkert and
Rogers, each substantially in the form of Exhibit F to the Combination
Agreements, to the effect that each Combination (a) has become effective,
(b) was consummated in accordance with the provisions of the respective
Combination Agreement and applicable state and federal laws and (c) has
been duly authorized by the Company, and by each of Merkert and Rogers,
respectively, and their respective stockholders.
(l) The Joinder Agreement. The Joinder Agreement shall have been
entered into by each of Merkert and Rogers and shall have been confirmed
and accepted by the U.S. Underwriters, and is in full force and effect.
(m) Conditions to Purchase of U.S. Option Securities. In the event
that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any subsidiary
of the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S. Representatives
shall have received:
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(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Goodwin, Procter & Hoar LLP, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the U.S. Underwriters, dated such
Date of Delivery, relating to the U.S. Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iii) Opinion of Counsel for U.S. Underwriters. The
----------------------------------------
favorable opinion of Shearman & Sterling, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Arthur Andersen,
-------------------------
in form and substance reasonably satisfactory to the U.S. Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the U.S. Representatives pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished with
such documents and opinions as they may reasonably require for the purpose
of enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be reasonably satisfactory in form and substance to the U.S.
Representatives and counsel for the U.S. Underwriters.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of U.S.
Option Securities on a Date of Delivery which is after the Closing Time,
the obligations of the several U.S. Underwriters to purchase the relevant
Option Securities, may be terminated by the U.S. Representatives by notice
to the Company at any time at or prior to Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without
liability of any party to any other party
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except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of U.S. Underwriters. The Company agrees to indemnify
and hold harmless each U.S. Underwriter and each person, if any, who controls
any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of jurisdictions where Reserved Securities have been
offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in connection with the reservation and sale of the Reserved
Securities to certain directors, officers and employees of the Company and
certain distributors, dealers, business persons, and related persons or the
omission or alleged omission therefrom of a material fact necessary to make
the statements therein, when considered in conjunction with the
Prospectuses or preliminary prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based
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upon any such untrue statement or omission, or any such alleged untrue
statement or omission or in connection with any violation of the nature
referred to in Section 6(a)(ii)(A) hereof, to the extent that any such
expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or any preliminary prospectus or the U.S. Prospectus
(or any amendment or supplement thereto); and provided further that the Company
will not be liable to an Underwriter with respect to any Preliminary Prospectus
to the extent that the Company shall sustain the burden of proving that any such
loss, liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of a requirement of this Agreement or applicable
law, sold Securities to a person to whom such Underwriter failed to send or
give, at or prior to the Closing Time, a copy of the Final Prospectus, as then
amended or supplemented if: (i) the Company has previously furnished copies
thereof (sufficiently in advance of the Closing Time and in sufficient quantity
to allow for distribution by the Closing Time) to the Underwriter and the loss,
liability, claim, damage or expense of such Underwriter resulted from an untrue
statement or omission of a material fact contained in or omitted from the
Preliminary Prospectus which was corrected in the Final Prospectus as, if
applicable, amended or supplemented prior to the Closing Time and such Final
Prospectus was required by law to be delivered at or prior to the written
confirmation of a sale to such person and (ii) such failure to give or send such
Final Prospectus by the Closing Time to the party or parties asserting such
loss, liability, claim, damage or expense would have constituted the sole
defense to the claim asserted by such person.
(b) Indemnification of Company and Its Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company and its
directors, its officers who signed the Registration Statement, and each person,
if any, who controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information, if
applicable, or any preliminary U.S. prospectus or the U.S. Prospectus (or any
amendment or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such U.S. Underwriter through the U.S.
Representatives expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the U.S. Prospectus (or any
amendment or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying
23
<PAGE>
party shall not relieve such indemnifying party from any liability hereunder to
the extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have otherwise than on
account of this indemnity agreement. In the case of parties indemnified pursuant
to Section 6(a) above, counsel to the indemnified parties shall be selected by
Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
-------- -------
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested in writing an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(iii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement of the
nature contemplated by Section 6(a)(iii) effected without its consent if such
indemnifying party (i) reimburses such indemnified party in accordance with such
request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
(e) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of certain eligible directors, officers and employees of
the Company and certain persons having business relationships with the
24
<PAGE>
Company to pay for and accept delivery of Reserved Securities which, by the end
of the first business day following the date of this Agreement, were subject to
a properly confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the U.S. Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of the
U.S. Underwriters on the other hand in connection with the statements or
omissions, or in connection with any violation of the nature referred to in
Section 6(a)(ii)(A) hereof, which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the U.S.
Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus,
bear to the aggregate initial public offering price of the U.S. Securities as
set forth on such cover.
The relative fault of the Company on the one hand and the U.S. Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the U.S. Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation (even if the U.S. Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
25
<PAGE>
Notwithstanding the provisions of this Section, no U.S. Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the U.S. Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
U.S. Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section are
several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
Subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any U.S.
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
------------------------
26
<PAGE>
(a) Termination; General. The U.S. Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the New
York Stock Exchange, or if trading generally on the American Stock Exchange or
the New York Stock Exchange or in the Nasdaq National Market has been suspended
or materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal, New York or
Massachusetts authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
-----------------------------------------------
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, the non-defaulting
U.S. Underwriters shall be obligated, each severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after Closing Time, the
obligation of the U.S. Underwriters to
27
<PAGE>
purchase and of the Company to sell the Option Securities to be purchased
and sold on such Date of Delivery shall terminate without liability on the
part of any non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281, attention of Mark Wittman, Vice
President; and notices to the Company shall be directed to it at 500 Turnpike
Street, Canton, Massachusetts 02021, attention of James L. Monroe, President.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters, the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters, the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
28
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
MERKERT AMERICAN CORPORATION
By
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BT ALEX. BROWN INCORPORATED
LEHMAN BROTHERS INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ______________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
29
<PAGE>
SCHEDULE A
Number of
Initial U.S.
Name of U.S. Underwriter Securities
- --------------------------------------- ------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................................
BT Alex. Brown Incorporated...............................
Lehman Brothers Inc. .....................................
------------
Total 4,400,000
============
Sch A-1
<PAGE>
SCHEDULE B
MERKERT AMERICAN CORPORATION
4,400,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ _____.
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $ _____, being an amount equal to
the initial public offering price set forth above less $ _____ per share;
provided that the purchase price per share for any U.S. Option Securities
purchased upon the exercise of the over-allotment option described in
Section 2(b) shall be reduced by an amount per share equal to any dividends
or distributions declared by the Company and payable on the Initial U.S.
Securities but not payable on the U.S. Option Securities.
Sch B-1
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
John L. Brady, Sr.
14812 Hickory View Lane
Charlotte, NC 28273
Danny L. Broadwater
2964 Harlinsdale Drive
Rock Hill, SC 29730
Marty D. Carter
11402 Pine Valley Club Drive
Charlotte, NC 28277
Edward Cassorla
40 Bristol Road
West Newton, MA 02165
Kenneth D. Chipman
31 Robin Road
Norfolk, MA 02056
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02181
Thomas S. Fincher
9916 Pallisers Terrace
Charlotte, NC 28210
Douglas H. Holstein
5710 Providence Country Club Drive
Charlotte, NC 28277
E. Ray Johnson
10721 Alexander Hill Drive
Charlotte, NC 28277
Sch C-1
<PAGE>
Manley J. Kiley, Jr.
35 Mill Pond Lane
Duxbury, MA 02332
Gerald R. Leonard
339 Far Reach Road
Westwood, MA 02090
Robert J. Maccubbin, Sr.
2138 Granada Drive
Charlotte, NC 28270
Robert J. Maccubbin, Jr.
2226 Vernon Drive
Charlotte, NC 28211
Eugene F. Merkert
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
EUGENE F. MERKERT
1984 REVOCABLE TRUST
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
EUGENE F. MERKERT 1991
CHARITABLE REMAINDER UNITRUST
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
MERKERT ENTERPRISES, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
James A. Schlindwein, as Trustee and not individually
500 Turnpike Street
Canton, MA 02021
Monroe & Company II, LLC
8 Cedar Street
Suite 54A
Woburn, MA 01801
Attention: James L. Monroe
Sch C-2
<PAGE>
Curtis L. Rogers, Jr.
4601 Kuykendall Road
Charlotte, NC 28277
Curtis L. Rogers, III
2334 Overhill Road
Charlotte, NC 28211
Sidney D. Rogers, Jr.
11 Day Street
Norfolk, MA 02056
Murray C. Rosen
11 Fairview Drive
N. Caldwell, NJ 07006
Sch C-3
<PAGE>
Exhibit A
[subject to further negotiation]
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement, the International Purchase Agreement and the Combination
Agreements.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction identified on
Schedule A attached hereto, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectuses in the column entitled "As Adjusted" under the
caption "Capitalization" (except reservations, agreements or employee benefit
plans referred to in the Prospectuses or pursuant to the exercise of convertible
securities or options referred to in the Prospectuses); the shares of issued and
outstanding capital stock of the Company issued prior to Closing have been duly
authorized and validly issued and are fully paid and non-assessable; and none
of the outstanding shares of capital stock of the Company was issued in
violation of preemptive or other similar rights of any securityholder of the
Company.
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued and fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
A-1
<PAGE>
(vii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses and,
is duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction identified on Schedule A attached hereto, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and non-
assessable and, after giving effect to the Combination, will be owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The U.S. Purchase Agreement, the International Purchase
Agreement and the Joinder Agreement have been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that purpose
have been instituted or are pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement and the Rule 430A Information, if applicable, the Prospectuses and
each amendment or supplement to the Registration Statement and the Prospectuses
as of their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted therefrom and
the exhibits to the Registration Statement, as to which we need express no
opinion) complied as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
(xi) The form of certificate used to evidence the Common Stock complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company, and the
requirements of NASDAQ.
(xii) To the knowledge of such counsel, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any Subsidiary is a party, or to which the property of the Company or
any Subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated in the U.S.
Purchase
A-2
<PAGE>
Agreement, International Purchase Agreement and the Combination Agreements or
the performance by the Company of its obligations thereunder.
(xiii) The information in the Prospectuses under "Risk Factors -- Anti-
takeover Effect of Certificate of Incorporation and By-Law Provisions and
Delaware Law," "The Combination," "Business -- Litigation," "Management -- Board
of Directors," "Certain Transactions," "Principal Stockholders," "Description of
Capital Stock," and "Shares Eligible for Future Sale," and in the Registration
Statement under Items 14 and 15, to the extent that it constitutes matters of
law, summaries of legal matters, the Company's charter and by-laws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.
(xiv) To the knowledge of such counsel, there are no statutes or
regulations that are required to be described in the Prospectuses that are not
described as required.
(xv) To the knowledge of such counsel, all descriptions in the Registration
Statement of contracts and other documents to which the Company or its
Subsidiaries are a party are accurate in all material respects; there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvi) Neither the Company nor any subsidiary is in violation of its
charter or by-laws and no default by the Company or any subsidiary exists in the
due performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed or incorporated by reference
as an exhibit to the Registration Statement.
(xvii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of any jurisdiction, or as may be required or which
have been made in connection with the Combination, including all applicable
requirements, if any, of state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder as to which no opinion is
rendered) is necessary or required in connection with the due authorization,
execution and delivery of the U.S. Purchase Agreement, the International
Purchase Agreement and the Combination Agreements or for the offering, issuance,
sale or delivery of the Securities.
(xviii) The execution, delivery and performance of the U.S. Purchase
Agreement, the International Purchase Agreement and the Combination Agreements
and the consummation of the
A-3
<PAGE>
transactions contemplated in the U.S. Purchase Agreement; the International
Purchase Agreement; the Combination Agreements, and in the Registration
Statement (including the issuance and sale of the Securities, and the use of the
proceeds from the sale of the Securities as described in the Prospectuses under
the caption "Use Of Proceeds"), and compliance by the Company with its
obligations under the U.S. Purchase Agreement, the International Purchase
Agreement and the Combination Agreements, do not and will not, whether with or
without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(x) of the Purchase Agreements) under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to, any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company or any Subsidiary is a party or by
which it or any of them may be bound, or to which any of the property or assets
of the Company or any Subsidiary is subject (except for such conflicts, breaches
or defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of (i) the
provisions of the charter or by-laws of the Company or any Subsidiary, or (ii)
any applicable law, statute, rule, regulation, judgment, order, writ or decree,
known to us, of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any Subsidiary or any of their
respective properties, assets or operations, except with respect to this clause
(ii), any such violation which could reasonably be expected to have a Material
Adverse Effect.
(xix) Except as disclosed in the Prospectuses under "Shares Eligible
for Future Sale --Registration Rights," to the knowledge of such counsel, there
are no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xx) The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the 1940 Act.
(xxi) The Combination and the Combination Agreements have been duly
and validly authorized by the Company and all the necessary governmental
filings, consents and approvals required to be obtained or made in connection
therewith have been obtained by the Company and are in full force and effect on
the on the date hereof. The Combination has become effective on or prior to the
date hereof and was consummated in accordance with the provisions of the
Combination Agreements and complies in all material respects with all applicable
state and federal laws and regulations.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information (if applicable), (except for financial statements and schedules and
other financial data included therein or omitted therefrom, as to which we need
make no statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not
A-4
<PAGE>
misleading or that the Prospectuses or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
therein or omitted therefrom, as to which we need make no statement), at the
time the Prospectuses were issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely (i) as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials, and
(ii) on counsel to Merkert and Rogers with respect to matters related to Merkert
and Rogers. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
[Form of lock-up from directors, officers or other stockholders pursuant to
Section 5(i)]
Exhibit B
_____ , 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
BT Alex. Brown Incorporated
Lehman Brothers Inc.
as U.S. Representatives of the several
U.S. Underwriters to be named in the
within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Re: Proposed Public Offering by Merkert American Corporation
--------------------------------------------------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of Merkert
American Corporation, a Delaware corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), BT Alex. Brown Incorporated and Lehman Brothers Inc. propose
to enter into a U.S. Purchase Agreement (the "U.S. Purchase Agreement") with the
Company providing for the public offering of shares (the "Securities") of the
Company's common stock, par value $.01 per share (the "Common Stock"). In
recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder [and an officer and/or director] of the Company,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the undersigned agrees with each underwriter to
be named in the U.S. Purchase Agreement that, during a period of 180 days from
the date of the U.S. Purchase Agreement, the undersigned will not, without the
prior written consent of Merrill Lynch, directly or indirectly, (a) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or file any registration statement under the Securities Act of
1933, as amended, with respect to any of the foregoing or
B-1
<PAGE>
(b) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise.
Notwithstanding the foregoing, the following transfers shall be permitted for
all purposes hereunder: (i) in the case of the Merkert Enterprises, Inc.
Employee Stock Ownership Trust (the "ESOP Trust") any disposition of shares of
Common Stock (x) in connection with the termination of the Merkert Enterprises,
Inc. Employee Stock Ownership Plan (the "ESOP") and (y) in connection with the
termination of any employee of the Company or of its wholly-owned subsidiary
Merkert Enterprises, Inc. who is a participant in the ESOP, and (ii) in the case
of all holders of shares of Common Stock, the disposition of shares of Common
Stock as bona fide gifts, subject, in each of the foregoing cases, to the
execution by the transferee of any such shares of Common Stock of a written
agreement which shall be delivered to the addressees hereof, stating that such
transferee agrees to be bound by the provisions of this letter with respect to
any remaining portion of the lock-up period applying to any shares of Common
Stock so transferred; provided that, with respect to clause (i)(y) above, the
--------
Company shall use its reasonable best efforts to obtain such written agreement.
Very truly yours,
Signature:
-------------------------------
Print Name:
------------------------------
B-2
<PAGE>
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations.
(i) in our opinion, the audited financial statements and the related
financial statement schedules included in the Registration Statement and the
Prospectuses comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the published rules and
regulations thereunder;
(ii) on the basis of procedures (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of the
unaudited interim consolidated financial statements of each of the Company,
Merkert and Rogers for the three-month period ended March 31, 1998 included
in the Registration Statement and the Prospectuses (the "three-month
financials"), a reading of the minutes of all meetings of the stockholders
and directors of each of the Company, Merkert and Rogers, since January 1,
1998, inquiries of certain officials of the Company, Merkert and Rogers,
responsible for financial and accounting matters, a review of interim
financial information in accordance with standards established by the
American Institute of Certified Public Accountants in Statement on Auditing
Standards No. 71, Interim Financial Information ("SAS 71"), with respect to
the three-month financials and such other inquiries and procedures as may be
specified in such letter, nothing came to our attention that caused us to
believe that:
(A) the three-month financials of each of the Company, Merkert and
Rogers included in the Registration Statement and the Prospectuses do not
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations applicable to
unaudited interim financial statements included in registration statements or
any material modifications should be made to the three-month financials
included in the Registration Statement and the Prospectuses for them to be in
conformity with generally accepted accounting principles;
(B) at a specified date not more than five days prior to the date of
this Agreement, there was any change in the capital stock of Merkert or
Rogers, or any decrease in the consolidated net current assets of Merkert or
Rogers, or any increase in the long-term debt of Merkert or Rogers, or any
increase in stockholders' deficit of Merkert or decrease in the stockholders'
equity of Rogers, in each case as compared with amounts shown in the latest
balance sheet included in the Registration Statement, except in each
Annex A-1
<PAGE>
case for changes, decreases or increases that the Registration Statement
discloses have occurred or may occur; or
(C) for the period from December 31, 1998 to March 31, 1998 and for
the period from April 1, 1998 to a specified date not more than five days
prior to the date of this Agreement, there was any decrease in the
consolidated revenues of Merkert or Rogers, or an increase in the
consolidated net loss before provision for income taxes or net loss of
Merkert or any decrease in the consolidated income before provision for
income taxes or net income of Rogers in each case as compared with the
comparable period in the preceding year, except in each case for any
decreases that the Registration Statement discloses have occurred or may
occur;
(iii) based upon the procedures set forth in clause (ii) above and a
reading of the Selected Financial Data included in the Registration
Statement, nothing came to our attention that caused us to believe that the
Selected Financial Data included in the Registration Statement do not comply
as to form in all material respects with the disclosure requirements of Item
301 of Regulation S-K of the 1933 Act;
(iv) we have compared the information in the Registration Statement under
selected captions with the disclosure requirements of Regulation S-K of the
1933 Act and on the basis of limited procedures specified herein, nothing
came to our attention that caused us to believe that this information does
not comply as to form in all material respects with the disclosure
requirements of Items 302 and 402, respectively, of Regulation S-K;
(v) we are unable to and do not express any opinion on the Pro Forma
Combined Statement of Operations (the "Pro Forma Statement") included in the
Registration Statement or on the pro forma adjustments applied to the
historical amounts included in the Pro Forma Statement; however, for purposes
of this letter we have:
(A) read the Pro Forma Statement;
(B) performed a review in accordance with SAS 71 of the financial
statements to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of the Company and its
subsidiaries, Merkert and Rogers, who have responsibility for financial and
accounting matters about the basis for their determination of the pro forma
adjustments and whether the Pro Forma Statement complies as to form in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X; and
(D) proved the arithmetic accuracy of the application of the pro forma
adjustments to the historical amounts in the Pro Forma Statement; and
Annex A-2
<PAGE>
on the basis of such procedures and such other inquiries and procedures as
specified herein, nothing came to our attention that caused us to believe
that the Pro Forma Statement included in the Registration Statement does not
comply as to form in all material respects with the applicable requirements
of Rule 11-02 of Regulation S-X or that the pro forma adjustments have not
been properly applied to the historical amounts in the compilation of those
statements; and
(vii) in addition to the procedures referred to in clause (ii) above, we
have performed other procedures, not constituting an audit, with respect to
certain amounts, percentages, numerical data and financial information
appearing in the Registration Statement, which are specified herein, and have
compared certain of such items with, and have found such items to be in
agreement with, the accounting and financial records of the Company, Merkert
and Rogers.
Annex A-3
<PAGE>
Annex B
[FORM OF JOINDER AGREEMENT]
JOINDER AGREEMENT, dated as of _______ , 1998, among Merkert
Enterprises, Inc., a Massachusetts corporation ("Merkert"), Rogers-American
Company, Inc., a North Carolina corporation ("Rogers"), and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex. Brown Incorporated
and Lehman Brothers Inc., as representatives of the underwriters named in
Schedule A (collectively, the "U.S. Underwriters") to the U.S. Purchase
Agreement dated __________, 1998 (the "Purchase Agreement"), among Merkert
American Corporation, a Delaware corporation (the "Company"), and the U.S.
Underwriters (the U.S. Underwriters together with the Company are referred to
herein as the "Parties"). All capitalized terms used herein but not otherwise
defined shall have the meanings set forth in the Purchase Agreement.
WHEREAS, the Purchase Agreement has been executed and delivered by the
Parties in connection with the purchase and sale of the Securities of the
Company;
WHEREAS, upon the consummation of the purchase and sale of the Securities
as contemplated in the Purchase Agreement, the Company will acquire in two
separate transactions all the outstanding capital stock of each of Merkert and
Rogers pursuant to the terms of two stock purchase agreements (such transactions
being the "Combination");
WHEREAS, simultaneously with the consummation of the Combination and the
purchase and sale of the Securities pursuant to the Purchase Agreement, the
Parties intend that Merkert and Rogers will become parties to the Purchase
Agreement, and become bound to certain provisions contained therein pursuant to
the terms of this Joinder Agreement, as if each of Merkert and Rogers were an
original party to the Purchase Agreement;
NOW, THEREFORE, each of Merkert and Rogers hereby agrees as follows:
SECTION 1. Representations and Warranties of Merkert and Rogers. Each
----------------------------------------------------
of Merkert and Rogers, severally, represents and warrants to each U.S.
Underwriter, as to itself only, as of the date hereof, and if the date hereof is
different than the Closing Time, as of the Closing Time, and as of each Date of
Delivery (if any), and agrees with each U.S. Underwriter, as follows:
(a) each representation and warranty applicable to it in Section 1(a) of
the Purchase Agreement, specifically paragraphs (i), (iii), (iv), (vi), (xii),
(xvii), (xix) and (xxi) contained therein, shall be true and correct.
(b) This Joinder Agreement has been duly authorized, executed and delivered
by it.
(c) The execution, delivery and performance of this Joinder Agreement, and
the transactions contemplated in this Joinder Agreement and in the Purchase
Agreement, and compliance by it with its obligations under this Joinder
Agreement and in the Purchase Agreement, have been duly authorized by all
necessary corporate action and do not and will not, whether with
Annex B-1
<PAGE>
or without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of it pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of it or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign, having
jurisdiction over it or any of its assets, properties or operations.
(d) There is no action, suit, proceeding, inquiry or investigation before
or brought by any court or governmental agency or body, domestic or foreign, now
pending, or, to its knowledge, threatened, against or affecting it, which might
reasonably be expected to result in a material adverse effect in the condition
(financial or otherwise), or in the earnings, business affairs or business
prospects of Merkert or Rogers, as the case may be, or which might reasonably be
expected to materially and adversely affect the consummation of the transactions
contemplated in this Joinder Agreement and in the Purchase Agreement, or the
performance of its obligations hereunder or thereunder.
SECTION 2. Indemnification. Merkert and Rogers jointly and severally
---------------
agree (a) to indemnify and hold harmless each U.S. Underwriter and each person,
if any, who controls any U.S. Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, in accordance with the provisions of
Section 6 of the Purchase Agreement to the same extent as the Company is so
obligated thereunder and (b) to be subject to the provisions relating to
contribution contained in Section 7 of the Purchase Agreement, to the same
extent as the Company is be so obligated thereunder.
SECTION 3. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Joinder
Agreement shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of Merkert or Rogers, and shall survive delivery of
the Securities to the U.S. Underwriters.
SECTION 4. Governing Law. This Joinder Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
SECTION 5. Opinions of Counsels for Merkert and Rogers. At Closing Time,
-------------------------------------------
the U.S. Representatives shall have received the favorable opinion dated as of
Closing Time, of _______________, counsel for Merkert, and _______________,
counsel for Rogers, in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letters for each
of the other U.S. Underwriters to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the U.S. Underwriters may reasonably
request.
SECTION 6. Joinder with Purchase Agreement. This Joinder Agreement shall
-------------------------------
be attached as an exhibit to, and shall be read together with and construed as
part of, the Purchase Agreement.
Annex B-2
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to each of the U.S. Representatives a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the U.S. Underwriters, Merkert and Rogers in accordance with its
terms.
Very truly yours,
MERKERT ENTERPRISES, INC.
By ________________________
Title:
ROGERS-AMERICAN COMPANY, INC.
By _________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BT ALEX. BROWN INCORPORATED
LEHMAN BROTHERS INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By __________________________________________
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A to the Purchase Agreement.
Annex B-3
<PAGE>
Exhibit A
[FORM OF OPINION TO BE DELIVERED
BY COUNSEL TO MERKERT AND ROGERS]
(i) The Joinder Agreement has been duly authorized, executed and delivered
by it and is in full force and effect.
(ii) There is not pending or threatened any action, suit, proceeding,
inquiry or investigation, to which Merkert or Rogers, as the case may be, or any
subsidiary of Merkert or Rogers is a party, or to which the property of Merkert
or Rogers, as the case may be, or any subsidiary of Merkert or Rogers is
subject, before or brought by any court or governmental agency or body, domestic
or foreign, which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the transactions
contemplated in the Joinder Agreement, or by the performance of Merkert or
Rogers, as the case may be, of their obligations thereunder.
(iii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required or which
have been made in connection with the Combination, including all applicable
requirements, if any, of state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder) is necessary or required in
connection with the due authorization, execution and delivery of the Joinder
Agreement.
(iv) The execution, delivery and performance of the Joinder Agreement and
the consummation of the transactions contemplated therein, and compliance by
Merkert or Rogers, as the case may be, with their obligations under the Joinder
Agreement, do not and will not, whether with or without the giving of notice or
lapse of time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined in Section 1(a)(x) of the Purchase Agreement) under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any property or assets of Merkert or Rogers, as the case may be, or any
subsidiary of Merkert or Rogers pursuant to, any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which Merkert or Rogers, as the case may be, or any
subsidiary or Merkert or Rogers is a party or by which it or any of them may be
bound, or to which any of the property or assets of Merkert or Rogers, as the
case may be, or any subsidiary of Merkert or Rogers is subject (except for such
conflicts, breaches or
Annex B-4
<PAGE>
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of Merkert or Rogers, as the case may be, or any
subsidiary of Merkert or Rogers, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over Merkert or Rogers, as the case may be, or any subsidiary of Merkert or
Rogers or any of their respective properties, assets or operations.
Annex B-5
<PAGE>
Exhibit 1.2
================================================================================
MERKERT AMERICAN CORPORATION
(a Delaware corporation)
1,100,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: ________, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
INTERNATIONAL PURCHASE AGREEMENT............................................. 1
SECTION 1. Representations and Warranties.............................. 4
(a) Representations and Warranties by the Company............... 4
(i) Compliance with Registration Requirements.......... 4
(ii) Independent Accountants............................ 5
(iii) Financial Statements............................... 5
(iv) No Material Adverse Change in Business............. 5
(v) Good Standing of the Company....................... 6
(vi) Good Standing of Subsidiaries...................... 6
(vii) Capitalization..................................... 6
(viii) Authorization of Agreement......................... 7
(ix) Authorization and Description of Securities........ 7
(x) Absence of Defaults and Conflicts.................. 7
(xi) Absence of Labor Dispute........................... 8
(xii) Absence of Proceedings............................. 8
(xiii) Accuracy of Exhibits............................... 8
(xiv) Possession of Intellectual Property................ 9
(xv) Absence of Further Requirements.................... 9
(xvi) Possession of Licenses and Permits................. 9
(xvii) Title to Property.................................. 10
(xviii) Investment Company Act............................. 10
(xix) Environmental Laws................................. 10
(xx) Registration Rights................................ 11
(xxi) Tax Law Compliance................................. 11
(xxii) The Combination.................................... 11
(xxiii) Combination Agreements............................. 11
(b) Officer's Certificates...................................... 12
SECTION 2. Sale and Delivery to International Managers; Closing........ 12
(a) Initial Securities.......................................... 12
(b) Option Securities........................................... 12
(c) Payment..................................................... 13
(d) Denominations; Registration................................. 13
i
<PAGE>
SECTION 3. Covenants of the Company.................................... 13
(a) Compliance with Securities Regulations and Commission
Requests.................................................... 13
(b) Filing of Amendments........................................ 14
(c) Delivery of Registration Statements......................... 14
(d) Delivery of Prospectuses.................................... 14
(e) Continued Compliance with Securities Laws................... 15
(f) Rule 158.................................................... 15
(g) Use of Proceeds............................................. 15
(h) Listing..................................................... 15
(i) Restriction on Sale of Securities........................... 15
(j) Reporting Requirements...................................... 16
(k) Compliance with NASD Rules.................................. 16
(l) The Combination............................................. 16
(m) Blue Sky Qualifications..................................... 17
SECTION 4. Payment of Expenses......................................... 17
(a) Expenses.................................................... 17
(b) Termination of Agreement.................................... 18
SECTION 5. Conditions of International Managers' Obligations........... 18
(a) Effectiveness of Registration Statement..................... 18
(b) Opinion of Counsel for Company.............................. 18
(c) Opinion of Counsel for International Managers............... 18
(d) Officers' Certificates...................................... 19
(e) Accountants' Comfort Letter................................. 19
(f) Bring-down Comfort Letter................................... 20
(g) Approval of Listing......................................... 20
(h) No Objection................................................ 20
(i) Lock-up Agreements.......................................... 20
(j) Purchase of Initial U.S. Securities......................... 20
(k) The Combination............................................. 20
(l) The Joinder Agreement....................................... 20
(m) Conditions to Purchase of U.S. Option Securities............ 21
(n) Additional Documents........................................ 22
(o) Termination of Agreement.................................... 22
SECTION 6. Indemnification............................................. 22
(a) Indemnification of International Managers................... 22
ii
<PAGE>
(b) Indemnification of Company and its Directors and Officers... 24
(c) Actions against Parties; Notification....................... 24
(d) Settlement Without Consent if Failure to Reimburse.......... 25
(e) Indemnification for Reserved Securities..................... 25
SECTION 7. Contribution................................................ 25
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.................................................... 27
SECTION 9. Termination of Agreement.................................... 27
(a) Termination; General........................................ 27
(b) Liabilities................................................. 27
SECTION 10. Default by One or More of the International Managers........ 27
SECTION 11. Notices..................................................... 28
SECTION 12. Parties..................................................... 28
SECTION 13. GOVERNING LAW AND TIME...................................... 28
SECTION 14. Effect of Headings.......................................... 28
iii
<PAGE>
SCHEDULES
Schedule A - List of International Managers Sch A-1
Schedule B - Pricing Information Sch B-1
Schedule C - List of Persons and Entities Subject to Lock-up Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel A-1
Exhibit B - Form of Lock-up Letter B-1
ANNEXES
Annex A - Form of Accountants' Comfort Letter Annex A-1
Annex B - Form of Joinder Agreement Annex B-1
iv
<PAGE>
MERKERT AMERICAN CORPORATION
(a Delaware corporation)
1,100,000 Shares of Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
---------------------------------
_________, 1998
Merrill Lynch International
BT Alex. Brown International,
a division of Bankers Trust
International PLC
Lehman Brothers International (Europe)
as Lead Managers of the several
International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC24 9L4
England
Ladies and Gentlemen:
Merkert American Corporation, a Delaware corporation, formerly known as
Monroe, Inc. (the "Company"), confirms its agreement with Merrill Lynch
International ("Merrill Lynch") and each of the other International Managers
named in Schedule A hereto (collectively, the "International Managers," which
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof) for whom Merrill Lynch, BT Alex. Brown International, a
division of Bankers Trust International PLC, and Lehman Brothers International
(Europe) are acting as representatives (in such capacity, the "Lead Mangers"),
with respect to the issue and sale by the Company and the purchase by the
International Managers, acting severally and not jointly, of the respective
numbers of shares of Common Stock, par value $.01 per share, of the Company
("Common Stock") set forth in said Schedule A, and with respect to the grant by
the Company to the International Managers, acting severally and not jointly, of
the option described in Section 2(b) hereof to purchase all or any part of
165,000 additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 1,100,000 Shares of Common Stock (the "Initial International
Securities") to be purchased by the International Managers and all or any part
of the 165,000 shares of Common Stock subject to the option described in Section
2(b) hereof (the
<PAGE>
"International Option Securities") are hereinafter called, collectively, the
"International. Securities."
Prior to or simultaneously with the Closing Time (as defined in Section 2
herein), the Company will acquire in separate transactions (the "Combination")
all of the issued and outstanding capital stock of Merkert Enterprises, Inc., a
Massachusetts corporation ("Merkert"), pursuant to the terms of a stock purchase
agreement dated May 20, 1998, and Rogers-American Company, a North Carolina
corporation ("Rogers"), pursuant to the terms of a stock purchase agreement
dated May 22, 1998 (such stock purchase agreements being the "Combination
Agreements"). It is understood that at Closing Time, Rogers, Merkert and the
U.S. Underwriters shall enter into a joinder agreement to this Agreement, which
shall be substantially in the form of Annex B hereto (the "Joinder Agreement").
All references herein to the Company, unless otherwise indicated, shall mean
Merkert American Corporation, including its wholly owned subsidiaries, Merkert
and Rogers and each of their respective subsidiaries.
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of an aggregate of 5,500,000 shares of Common Stock
(the "Initial U.S. Securities") through arrangements with certain underwriters
in the United States and Canada (the "U.S. Underwriters") for which Merrill
Lynch, Pierce, Fenner & Smith Incorporated, BT Alex. Brown Incorporated and
Lehman Brothers Inc. are acting as representatives (the "U.S. Representatives"),
and the grant by the Company to the U.S. Underwriters, acting severally and not
jointly, of an option to purchase all or any part of the U.S. Underwriters' pro
rata portion of up to 660,000 additional shares of Common Stock solely to cover
over-allotments, if any (the "U.S. Option Securities" and, together with the
International Option Securities, the "Option Securities"). The Initial U.S.
Securities and the U.S. Option Securities are hereinafter called the "U.S.
Securities." It is understood that the Company is not obligated to sell, and
the International Managers are not obligated to purchase, any Initial
International Securities unless all of the Initial U.S. Securities are
contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the International Managers propose to make a
public offering of the International Securities as soon as the Lead Managers
deem advisable after this Agreement has been executed and delivered.
2
<PAGE>
The Company and the U.S. Underwriters agree that up to [275,000] shares of
the Initial U.S. Securities to be purchased by the U.S. Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible directors, officers and employees of the Company and certain persons
having business relationships with the Company, as part of the distribution of
the Securities by the Underwriters, subject to the terms of this Agreement, the
applicable rules, regulations and interpretations of the National Association of
Securities Dealers, Inc. and all other applicable laws, rules and regulations.
To the extent that such Reserved Securities are not orally confirmed for
purchase by such eligible directors, officers and employees of the Company and
persons having business relationships with the Company by the end of the first
business day after the date of this Agreement, such Reserved Securities may be
offered to the public as part of the public offering contemplated hereby.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-53419) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations. Two forms of prospectus are to be used in connection
with the offering and sale of the Securities: one relating to the International
Securities (the "Form of International Prospectus") and one relating to the U.S.
Securities (the "Form of U.S. Prospectus"). The Form of International
Prospectus is identical to the Form of U.S. Prospectus, except for the front
cover and back cover pages and the information under the caption "Underwriting"
and the inclusion in the Form of International Prospectus of a section under the
caption "Certain United States Tax Considerations for Non-United States
Holders." The information included in any such prospectus that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information." Each Form of International Prospectus and Form of U.S. Prospectus
used before such registration statement became effective, and any prospectus
that omitted the Rule 430A Information that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto and schedules thereto at the time it became effective and including the
Rule 430A Information, is herein called the "Registration Statement." Any
registration statement filed by the Company pursuant to Rule 462(b) of the 1933
Act Regulations is herein referred to as the "Rule 462(b) Registration
Statement," and after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement. The final Form of International
Prospectus and the final Form of U.S. Prospectus in the forms first furnished to
the Underwriters for use in connection with the offering of the Securities are
herein called the "International Prospectus" and the "U.S. Prospectus,"
respectively, and collectively, the "Prospectuses." For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed
with the
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Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company. The Company represents
and warrants to each International Manager as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each International
Manager, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times that the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectuses, any
preliminary prospectuses and any supplement thereto or prospectus wrapper
prepared in connection therewith, at their respective times of issuance and
at the Closing Time, complied and will comply in all material respects with
any applicable laws or regulations of foreign jurisdictions in which the
Prospectuses and such preliminary prospectuses, as amended or supplemented,
if applicable, are distributed in connection with the offer and sale of
Reserved Securities. Neither of the Prospectuses nor any amendments or
supplements thereto (including any prospectus wrapper), at the time the
Prospectuses or any amendments or supplements thereto were issued and at
the Closing Time (and, if any International Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
International Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by any International
Manager through the Lead Managers expressly for use in the Registration
Statement or the International Prospectus.
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<PAGE>
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules of the Company, Merkert and
Rogers included in the Registration Statement are independent public
accountants as required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements of the
--------------------
Company, and the separate financial statements of each of Merkert and
Rogers, included in the Registration Statement and the Prospectuses, in
each case together with the related schedules and notes, present fairly in
all material respects the financial position of the Company and each of
Merkert and Rogers, at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and each of Merkert and
Rogers for the periods specified; said financial statements have been
prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved.
The supporting schedules included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The [selected consolidated financial data of each of Merkert and
Rogers and the] summary combined financial information of the Company
included in the Prospectuses present fairly the information shown therein
and have been compiled on a basis consistent with that of the audited
financial statements included in the Registration Statement. The pro forma
combined financial statements of the Company and the related notes thereto
included in the Registration Statement and the Prospectuses present fairly
the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(iv) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its
5
<PAGE>
subsidiaries considered as one enterprise, and (C) except for the stock
dividend to be declared by the Company prior to and in connection with the
Combination, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(v) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vi) Good Standing of Subsidiaries. Each "significant subsidiary"
-----------------------------
of the Company (as such term is defined in Rule 1-02 of Regulation S-X),
which term includes Merkert and Rogers (each a "Subsidiary" and,
collectively, the "Subsidiaries"), has been duly organized and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of
each such Subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and, after giving effect to the Combination, will
be owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity (except that the shares of capital stock of Rogers-American Company
of Florida, Inc., a North Carolina corporation and a wholly owned
subsidiary of Rogers, have been pledged by Rogers pursuant to a Stock
Pledge Agreement dated October 31, 1995); none of the outstanding shares of
capital stock of any Subsidiary was issued in violation of the preemptive
or similar rights of any securityholder of such Subsidiary (except to the
extent disclosed in the Combination Agreement relating to Rogers and the
schedules and exhibits thereto, which violations of preemptive rights will
be waived by the securityholders of Rogers in connection with the
Combination, to the extent set forth in Exhibit H to the Combination
Agreement relating to Rogers). At Closing Time, the only subsidiaries of
the Company are the subsidiaries listed on Exhibit 21.1 to the Registration
Statement.
(vii) Capitalization. At Closing Time, after giving effect to the
--------------
transactions contemplated by the Offering and the Combination, the
authorized, issued and outstanding
6
<PAGE>
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "As Adjusted" under the caption "Capitalization" (except
pursuant to reservations, agreements or employee benefit plans referred to
in the Prospectuses or pursuant to the exercise of convertible securities
or options referred to in the Prospectuses). After giving effect to the
Combination, the shares of issued and outstanding capital stock of the
Company will have been duly authorized and validly issued and will be fully
paid and non-assessable; none of the outstanding shares of capital stock of
the Company was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
(viii) Authorization of Agreement. This Agreement and the U.S.
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(ix) Authorization and Description of Securities. The Securities to
-------------------------------------------
be purchased by the International Managers and the U.S. Underwriters from
the Company have been duly authorized for issuance and sale to the
International Managers pursuant to this Agreement and the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, respectively, and, when issued and
delivered by the Company pursuant to this Agreement and the U.S. Purchase
Agreement, respectively, against payment of the consideration set forth
herein and the U.S. Purchase Agreement, respectively, will be validly
issued, fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments defining
the same; no holder of the Securities will be subject to personal liability
by reason of being such a holder; and the issuance of the Securities is not
subject to the preemptive or other similar rights of any securityholder of
the Company.
(x) Absence of Defaults and Conflicts. Neither the Company, nor
---------------------------------
any of its Subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property or
assets of the Company or any of its Subsidiaries is subject (collectively,
"Agreements and Instruments") except for such defaults that would not
result in a Material Adverse Effect; and the execution, delivery and
performance of this Agreement, the U.S. Purchase Agreement, and the
Combination Agreements by the Company, and the consummation of the
transactions contemplated in this Agreement, the U.S. Purchase Agreement,
the Combination Agreements, and in the Registration Statement (including
the issuance and sale of the Securities and the use of the proceeds from
the sale of the Securities as described in the Prospectuses under the
caption "Use of Proceeds"), and compliance by the Company with its
obligations under this Agreement, the U.S. Purchase Agreement, and the
Combination Agreements have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both, conflict with or constitute a breach of,
or default or Repayment Event (as defined below) under,
7
<PAGE>
or result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its Subsidiaries
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect and except as disclosed in the
Registration Statement or in the Combination Agreements (including the
exhibits and schedules thereto)), and will not result in any violation of
(i) the provisions of the charter or by-laws of the Company or any of its
Subsidiaries or (ii) any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its Subsidiaries or any of their assets, properties or
operations except, in the case of clause (ii), to the extent that any such
violation would not have a Material Adverse Effect. As used herein, a
"Repayment Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any person acting
on such holder's behalf) the right to require the repurchase, redemption or
repayment of all or a portion of such indebtedness by the Company or any of
its Subsidiaries.
(xi) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company has no knowledge of any existing or
imminent labor disturbance by the employees of any of its or any
subsidiary's principal suppliers, manufacturers, customers or contractors,
which may reasonably be expected to result in a Material Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company or its Subsidiaries, threatened, against or affecting the
Company or any of its Subsidiaries, which is required to be disclosed in
the Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect, or
which might reasonably be expected to materially and adversely affect the
properties or assets thereof (taken as a whole) or the consummation of the
transactions contemplated in this Agreement, the U.S. Purchase Agreement
and the Combination Agreements, or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any of its Subsidiaries is
a party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or documents
--------------------
that are required to be described in the Registration Statement or the
Prospectuses or to be filed as exhibits thereto which have not been so
described and filed as required.
8
<PAGE>
(xiv) Possession of Intellectual Property. The Company and its
-----------------------------------
subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
now operated by them, and neither the Company nor any of its subsidiaries
has received any written notice of any infringement of or conflict with
asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject of
any unfavorable decision, ruling or finding) or invalidity or inadequacy,
singly or in the aggregate, would result in a Material Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities by the Company under this Agreement and the U.S. Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the U.S. Purchase Agreement, except (i) such as have been
already obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or the rules and regulations promulgated thereunder (the "1934
Act Regulations"), (ii) such as have been obtained under the laws and
regulations of jurisdictions outside the United States in which the
Reserved Securities are offered, and (iii) such as have been obtained in
connection with the Combination, including all applicable requirements, if
any, of state takeover laws, the pre-merger notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations thereunder.
(xvi) Possession of Licenses and Permits. Except as would not be
----------------------------------
reasonably expected to have a Material Adverse Effect, the Company and its
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate federal, state, local or foreign regulatory agencies or bodies,
including any licenses required under the U.S. Perishable Agricultural
Commodities Act, necessary to conduct the business now operated by them;
the Company and its Subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not have a Material Adverse Effect; and neither the Company nor any of its
Subsidiaries has received any written notice of proceedings relating to the
revocation or modification
9
<PAGE>
of any such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and its
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses or either Combination Agreement (including
the exhibits and schedules thereto) or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company or any of its Subsidiaries; and all of the leases
and subleases material to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or any of its
Subsidiaries holds material properties described in the Prospectuses, are
in full force and effect, and neither the Company nor any Subsidiary has
any written notice of any material claim of any sort that has been asserted
by anyone adverse to the rights of the Company or any Subsidiary under any
of the material leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the material leased or subleased premises under any such
lease or sublease.
(xviii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the Registration
------------------
Statement or either Combination Agreement (including the exhibits and
schedules thereto), and except as would not, singly or in the aggregate,
result in a Material Adverse Effect, (A) neither the Company nor any of its
Subsidiaries is in violation of any applicable federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or rule of
common law or any judicial or administrative interpretation thereof,
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and its Subsidiaries have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance
with their requirements, (C) to the knowledge of the Company, there are no
pending or threatened administrative, regulatory or judicial actions,
10
<PAGE>
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its Subsidiaries and (D) to the knowledge of
the Company, there are no events or circumstances that might reasonably be
expected to form the basis of an order for clean-up or remediation, or an
action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company or any of its Subsidiaries
relating to Hazardous Materials or any Environmental Laws.
(xx) Registration Rights. Except as disclosed in the Prospectuses
-------------------
under "Shares Eligible for Future Sale -- Registration Rights," there are
no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xxi) Tax Law Compliance. Except as disclosed in the Registration
------------------
Statement or either Combination Agreement (including the exhibits and
schedules thereto), (i) the Company and its Subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to the paid by any of them and, if due and
payable, any related or similar assessment, fine or penalty levied against
any of them, (ii) each of the Company, Merkert and Rogers has made adequate
charges, accruals in the applicable financial statements referred to in
Section 1(iii) above in respect of all federal, state and foreign income
and franchise taxes for all periods as to which the tax liability of the
Company or any of their respective subsidiaries has not been finally
determined, and (iii) the Company has no knowledge of any tax deficiency
which might by asserted against the Company or any of its Subsidiaries
which could have a Material Adverse Effect.
(xxii) The Combination. The Combination has been duly and validly
---------------
authorized by the Company and all the necessary governmental filings,
consents and approvals required to be obtained or made in connection
therewith have been obtained or made, and all such approvals and consents
are in full force and effect; and the Combination will be effected in
compliance with all applicable state and federal laws and regulations and
will be consummated prior to or at the Closing Time.
(xxiii) Combination Agreements. The Company has entered into the
----------------------
Combination Agreements, filed as Exhibits 10.1 and 10.2 to the
Registration Statement, pursuant to which the Company will acquire in
separate transactions all of the capital stock and ownership interests in
Merkert and Rogers. Each of the Combination Agreements has been duly and
validly authorized, executed and delivered by the Company, and is valid and
binding on the Company and is enforceable against the Company in accordance
with its terms and the Company is not in default in any respect thereunder.
A complete and correct copy of each Combination Agreement (including
exhibits and schedules) has been delivered to the Lead Managers and, except
with the Lead Managers' prior written approval, no material changes therein
will be made subsequent hereto and prior to the Closing Time. The
representations and warranties made in each Combination Agreement by the
Company
11
<PAGE>
and by each of Merkert and Rogers, respectively, and/or each of
their respective stockholders are true and correct in all material respects
to the extent set forth in Section 8.2(b) of each of the Combination
Agreements, except for such changes contemplated by such Combination
Agreement.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of its Subsidiaries delivered to the Global Coordinator, the Lead
Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing.
----------------------------------------------------
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Manager, severally and
not jointly, and each International Manager, severally and not jointly, agrees
to purchase from the Company, at the price per share set forth in Schedule B,
the number of Initial International Securities set forth in Schedule A opposite
the name of such International Manager, plus any additional number of Initial
International Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the International Managers,
severally and not jointly, to purchase up to an additional 165,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and delivery for
such International Option Securities. Any such time and date of delivery for
the International Option Securities (a "Date of Delivery") shall be determined
by the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager bears to the total number of Initial International
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
12
<PAGE>
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Goodwin, Procter & Hoar, LLP, Exchange Place, Boston, Massachusetts 02109, or at
such other place as shall be agreed upon by the Global Coordinator and the
Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs
after 4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section 10), or
such other time not later than ten business days after such date as shall be
agreed upon by the Global Coordinator and the Company (such time and date of
payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Lead Managers for the respective accounts of the International Managers of
certificates for the International Securities to be purchased by them. It is
understood that each International Manager has authorized the Lead Managers, for
its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Securities and the International
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the International Managers, may (but
shall not be obligated to) make payment of the purchase price for the Initial
International Securities or the International Option Securities, if any, to be
purchased by any International Manager whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such International Manager from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
International Manager as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of
Rule 430A and
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will notify the Global Coordinator immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectuses or
any amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement
to the Prospectuses or for additional information, and (iv) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of
any preliminary prospectus, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect the
filings necessary pursuant to Rule 424(b) and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), or any
amendment, supplement or revision to either any prospectus included in the
Registration Statement at the time it became effective or to the
Prospectuses, will furnish the Global Coordinator with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Global Coordinator or counsel for the International Managers shall
reasonably object.
(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Lead Managers and counsel for the International
Managers, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the Lead
Managers, without charge, a conformed copy of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) for each
of the International Managers. The copies of the Registration Statement
and each amendment thereto furnished to the International Managers will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each International Manager,
without charge, during the period when the U.S. Prospectus is required to
be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the
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"1934 Act"), such number of copies of the U.S. Prospectus (as amended or
supplemented) as such International Securities may reasonably request. The
U.S. Prospectus and any amendments or supplements thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement, the U.S. Purchase Agreement and in the Prospectuses. If at any
time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or condition
shall exist as a result of which it is necessary, in the opinion of counsel
for the International Managers or for the Company, to amend the
Registration Statement or amend or supplement any Prospectus in order that
the Prospectuses will not include any untrue statements of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time any such Prospectus is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to amend the
Registration Statement or amend or supplement any Prospectus in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations,
the Company will promptly prepare and file with the Commission, subject to
Section 3(b), such amendment or supplement as may be necessary to correct
such statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements, and the Company will furnish to
the International Managers such number of copies of such amendment or
supplement as the International Managers may reasonably request.
(f) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(h) Listing. The Company will use its best efforts to effect the
listing of the Common Stock (including the Securities) on the Nasdaq
National Market ("Nasdaq").
(i) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectuses, the Company will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any share of
Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any
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registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Stock, whether any such
swap or transaction described in clause (i) or (ii) above is to be settled
by delivery of Common Stock or such other securities, in cash or otherwise.
The foregoing sentence shall not apply to (A) the Securities to be sold
hereunder or under the International Purchase Agreement, (B) the issuance
of options to purchase Common Stock granted pursuant to the 1998 Employee
Stock Option and Incentive Plan referred to in the Prospectuses, or (C) the
registration of shares of Common Stock with the Securities and Exchange
Commission pursuant to a registration statement relating to one or more
acquisitions to be made by the Company; provided, however, that, during the
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180 day period from the date of the Prospectuses, any further action taken
by the Company with respect to such shares of Common Stock so registered
for the purposes of making such acquisition(s) shall be subject to the
prior written consent of the Global Coordinator, which consent shall not be
unreasonably withheld.
(j) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the rules and regulations of the Commission thereunder.
(k) Compliance with NASD Rules. The Company hereby agrees that it
will ensure that the Reserved Securities will be restricted as required by
the National Association of Securities Dealers, Inc. (the "NASD") or the
NASD rules from sale, transfer, assignment, pledge or hypothecation for a
period of three months following the date of this Agreement. The
Underwriters will notify the Company as to which persons will need to be so
restricted. At the request of the Underwriters, the Company will direct
the transfer agent to place a stop transfer restriction upon such
securities for such period of time. Should the Company release, or seek to
release, from such restrictions any of the Reserved Securities, the Company
agrees to reimburse the Underwriters for any reasonable expenses
(including, without limitation, legal expenses) they incur in connection
with such release.
(l) The Combination. The Company will (i) perform or satisfy all
conditions on its part to be performed or satisfied pursuant to the
Combination Agreements and to take any action necessary or required
pursuant thereto in order to consummate the Combination prior to or at the
Closing Time and (ii) obtain all applicable authorizations and approvals
and make all filings required under the Combination Agreements in
connection with the Combination. The Company will promptly notify the Lead
Managers of the occurrence of any event which may result in the non-
consummation of the Combination prior to or at the Closing Time.
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(m) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions (domestic or foreign) as the Lead Managers may
designate and to maintain such qualifications in effect for a period of not
less than one year from the later of the effective date of the Registration
Statement and any Rule 462(b) Registration Statement; provided, however,
that the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not qualified or subject
itself to taxation in respect of doing business in any jurisdiction in
which it is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such statements
and reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.
SECTION 4. Payment of Expenses.
-------------------
(a) Expenses. The Company agrees to pay all expenses incident to the
performance of its obligations under this Agreement and in connection with the
Combination, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, the Intersyndicate Agreement
and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes and any stamp or other
duties payable upon the sale, issuance or delivery of the Securities to the
Underwriters and the transfer of the Securities between the U.S. Underwriters
and the International Managers, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (v) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, the Prospectuses and any amendments or supplements
thereto, (vi) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (vii) the fees and
expenses of any transfer agent or registrar for the Securities, (viii) the
filing fees incident to, and the reasonable fees and disbursements of counsel to
the Underwriters in connection with, the review by the NASD of the terms of the
sale of the Securities, (ix) the fees and expenses incurred in connection with
the listing of the Securities on Nasdaq and (x) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to certain directors, officers and
employees of the Company and others having a business relationship with the
Company.
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(b) Termination of Agreement. If this Agreement is terminated by the Lead
Managers in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the International Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the International Managers.
SECTION 5. Conditions of International Managers' Obligations. The
-------------------------------------------------
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and/or other obligations hereunder,
and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the
International Managers. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 424(b)
(or a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of Rule
430A).
(b) Opinion of Counsel for Company. At Closing Time, the Lead
Managers shall have received the favorable opinion dated as of Closing
Time, of Goodwin, Procter & Hoar LLP, counsel for the Company, in form and
substance reasonably satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letter for each
of the other International Managers to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the International Managers
may reasonably request.
(c) Opinion of Counsel for International Managers. At Closing Time,
the Lead Managers shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the International
Managers, together with signed or reproduced copies of such letter for each
of the other International Managers with respect to the matters set forth
in clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar
rights arising by operation of law or under the charter or by-laws of the
Company), (viii) through (x), inclusive, (xiii) (solely as to the
information in the Prospectus under "Description of Capital Stock--
Authorized and Outstanding Capital Stock" and "Underwriting") and the
penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the
United States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to the U.S. Representatives.
Such counsel may also state that, insofar as such
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opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its Subsidiaries
and certificates of public officials.
(d) Officers' Certificates. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectuses, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its Subsidiaries, Merkert and
Rogers, considered as one enterprise, whether or not arising in the
ordinary course of business, and the Lead Managers shall have received
certificates of the President or a Vice President and of the chief
financial or chief accounting officer of the Company, dated as of Closing
Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are
true and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied at or
prior to Closing Time, and (iv) no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending, to their knowledge, or are
contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the execution of
this Agreement, the Lead Managers shall have received from Arthur Andersen
a letter dated such date, in form and substance reasonably satisfactory to
the Lead Managers, together with signed or reproduced copies of such letter
for each of the other International Managers containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information of each of the Company, Merkert and Rogers
contained in the Registration Statement and the Prospectuses.
(f) Bring-down Comfort Letter. At Closing Time, the Lead Managers
shall have received from Arthur Anderson a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall have
been approved for listing on Nasdaq, subject only to official notice of
issuance.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
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(i) Lock-up Agreements. At the date of this Agreement, the Lead
Managers shall have received the agreements relating to each of Rogers and
Merkert substantially in the form of Exhibit B hereto signed by the persons
listed on Schedule C hereto.
(j) Purchase of Initial U.S. Securities. Contemporaneously with the
purchase by the International Managers of the Initial International
Securities under this Agreement, the U.S. Underwriters shall have purchased
the Initial U.S. Securities under the U.S. Purchase Agreement.
(k) The Combination. With respect to the Combination, at Closing
Time, (i) the Combination Agreements shall have been duly executed and
delivered by each of the Company, Merkert and Rogers, and shall be in full
force and effect and none of the parties thereto shall be in default
thereunder, (ii) each condition to the respective obligations of the
Company, Merkert and Rogers set forth in Section 8 of each of the
Combination Agreements shall have been satisfied, without waiver or
modification, except as may be approved by the Lead Managers, (iii) each of
the representations and warranties of the Company contained in Section 2 of
the Combination Agreements shall be true and correct with the same force
and effect as though expressly made at and as Closing Time to the extent
set forth in Section 8.2(b) of each of the Combination Agreements, (iv) the
U.S. Representatives shall have received assurances reasonably satisfactory
to it that all documents required to be filed in order to effectuate the
consummation of each Combination shall have been approved for filing by the
appropriate state and federal authorities and that all such Combination
documents shall have been duly filed prior to this Agreement and (v) the
Lead Managers shall have received opinions, from counsel for the Company
and counsel for each of Merkert and Rogers, each substantially in the form
of Exhibit F to the Combination Agreements, to the effect that each
Combination (a) has become effective, (b) was consummated in accordance
with the provisions of the respective Combination Agreement and applicable
state and federal laws and (c) has been duly authorized by the Company, and
by each of Merkert and Rogers, respectively, and their respective
stockholders.
(l) The Joinder Agreement. The Joinder Agreement shall have been
entered into by each of Merkert and Rogers and shall have been confirmed
and accepted by the International Managers, and is in full force and
effect.
(m) Conditions to Purchase of International Option Securities. In
the event that the International Managers exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the International
Option Securities, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by the
Company or any subsidiary of the Company hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery,
the International Managers shall have received:
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(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming that
the certificate delivered at Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of
------------------------------
Goodwin, Procter & Hoar LLP, counsel for the Company, in form and substance
reasonably satisfactory to counsel for the International Managers, dated
such Date of Delivery, relating to the International Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect as
the opinion required by Section 5(b) hereof.
(iii) Opinion of Counsel for International Managers. The
---------------------------------------------
favorable opinion of Shearman & Sterling, counsel for the International
Managers, dated such Date of Delivery, relating to the International Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from Arthur Andersen,
-------------------------
in form and substance reasonably satisfactory to the Lead Managers and
dated such Date of Delivery, substantially in the same form and substance
as the letter furnished to the Lead Managers pursuant to Section 5(f)
hereof, except that the "specified date" in the letter furnished pursuant
to this paragraph shall be a date not more than five days prior to such
Date of Delivery.
(n) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been furnished
with such documents and opinions as they may reasonably require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to the
Lead Managers and counsel for the International Managers.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of
International Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several International Managers to
purchase the relevant Option Securities, may be terminated by the Lead
Managers by notice to the Company at any time at or prior to Closing Time
or such Date of Delivery, as the case may be, and such termination shall
be without liability of any party to any
21
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other party except as provided in Section 4 and except that Sections 1, 6,
7 and 8 shall survive any such termination and remain in full force and
effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of International Managers. The Company agrees to
indemnify and hold harmless each International Manager and each person, if any,
who controls any International Manager within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information, if
applicable, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included in any preliminary prospectus
or the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of jurisdictions where Reserved Securities have been
offered and (B) any untrue statement or alleged untrue statement of a
material fact included in the supplement or prospectus wrapper material
distributed in connection with the reservation and sale of the Reserved
Securities to certain directors, officers and employees of the Company and
certain distributors, dealers, business persons, and related persons or the
omission or alleged omission therefrom of a material fact necessary to make
the statements therein, when considered in conjunction with the
Prospectuses or preliminary prospectuses, not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company; and
(iv) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any
22
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governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof, to the extent that
any such expense is not paid under (i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Managers through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or any preliminary prospectus or the International
Prospectus (or any amendment or supplement thereto); and provided further that
the Company will not be liable to an Underwriter with respect to any Preliminary
Prospectus to the extent that the Company shall sustain the burden of proving
that any such loss, liability, claim, damage or expense resulted from the fact
that such Underwriter, in contravention of a requirement of this Agreement or
applicable law, sold Securities to a person to whom such Underwriter failed to
send or give, at or prior to the Closing Time, a copy of the Final Prospectus,
as then amended or supplemented if: (i) the Company has previously furnished
copies thereof (sufficiently in advance of the Closing Time and in sufficient
quantity to allow for distribution by the Closing Time) to the Underwriter and
the loss, liability, claim, damage or expense of such Underwriter resulted from
an untrue statement or omission of a material fact contained in or omitted from
the Preliminary Prospectus which was corrected in the Final Prospectus as, if
applicable, amended or supplemented prior to the Closing Time and such Final
Prospectus was required by law to be delivered at or prior to the written
confirmation of a sale to such person and (ii) such failure to give or send such
Final Prospectus by the Closing Time to the party or parties asserting such
loss, liability, claim, damage or expense would have constituted the sole
defense to the claim asserted by such person.
(b) Indemnification of Company and its Directors and Officers. Each
International Managers severally agrees to indemnify and hold harmless the
Company and its directors, its officers who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, if applicable, or any preliminary International prospectus or the
International Prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by such
International Managers through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the International Prospectus (or any amendment or supplement thereto).
(c) Actions Against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against
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it in respect of which indemnity may be sought hereunder, but failure to so
notify an indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. In the case of
parties indemnified pursuant to Section 6(a) above, counsel to the indemnified
parties shall be selected by Merrill Lynch, and, in the case of parties
indemnified pursuant to Section 6(b) above, counsel to the indemnified parties
shall be selected by the Company. An indemnifying party may participate at its
own expense in the defense of any such action; provided, however, that counsel
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to the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested in writing an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(iii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, an indemnifying party shall not be liable for any settlement of the
nature contemplated by Section 6(a)(iii) effected without its consent if such
indemnifying party (i) reimburses such indemnified party in accordance with such
request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
(e) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees, promptly upon a request
in writing, to indemnify and hold harmless the Underwriters from and against any
and all losses, liabilities, claims, damages and expenses incurred by them as a
result of the failure of certain eligible directors,
24
<PAGE>
officers and employees of the Company and certain persons having business
relationships with the Company to pay for and accept delivery of Reserved
Securities which, by the end of the first business day following the date of
this Agreement, were subject to a properly confirmed agreement to purchase.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the International Managers on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the International Managers on the other hand in connection with the
statements or omissions, or in connection with any violation of the nature
referred to in Section 6(a)(ii)(A) hereof, which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
International Managers on the other hand in connection with the offering of the
International Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
International Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
International Managers, in each case as set forth on the cover of the
International Prospectus, bear to the aggregate initial public offering price of
the International Securities as set forth on such cover.
The relative fault of the Company on the one hand and the International
Managers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the International Managers and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission or any violation of the nature referred to in
Section 6(a)(ii)(A) hereof.
The Company and the International Managers agree that it would not be just
and equitable if contribution pursuant to this Section were determined by pro
rata allocation (even if the International Managers were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency
25
<PAGE>
or body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no International Manager
shall be required to contribute any amount in excess of the amount by which the
total price at which the International Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such International Manager has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The International Managers' respective obligations to contribute pursuant to
this Section are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of officers of the Company or any of its
Subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the International Managers.
26
<PAGE>
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Lead Managers may terminate this Agreement,
by notice to the Company, at any time at or prior to Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the U.S. Prospectus, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Lead Managers,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the New York Stock
Exchange, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal, New York or Massachusetts authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Managers. If
----------------------------------------------------
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of International Securities to be purchased on such date, the non-
defaulting International Managers shall be obligated, each severally and
not jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after Closing Time, the
obligation of the International Managers to
27
<PAGE>
purchase and of the Company to sell the Option Securities to be purchased
and sold on such Date of Delivery shall terminate without liability on the
part of any non-defaulting International Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectuses or
in any other documents or arrangements. As used herein, the term "International
Manager" includes any person substituted for an International Manager under this
Section.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at Ropemaker
Place, 25 Ropemaker Street, London EC24 9LY, England; and notices to the Company
shall be directed to it at 500 Turnpike Street, Canton, Massachusetts 02021,
attention of James L. Monroe, President.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the International Managers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
International Managers, the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the International Managers, the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any International Manager shall be deemed to be a successor by reason
merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
28
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the International Managers and the Company in accordance with its terms.
Very truly yours,
MERKERT AMERICAN CORPORATION
By
-----------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL,
A DIVISION OF BANKERS TRUST
INTERNATIONAL PLC
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By: MERRILL LYNCH INTERNATIONAL
By _________________________________________
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A hereto.
29
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Name of International Manager Securities
- ------------------------------------------------------------- --------------
<S> <C>
Merrill Lynch International..................................
BT Alex. Brown International, a division of Bankers Trust
International PLC...........................................
Lehman Brothers International (Europe).......................
--------------
Total....................................................... 1,100,000
==============
</TABLE>
Sch A - 1
<PAGE>
SCHEDULE B
MERKERT AMERICAN CORPORATION
1,100,000 Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $ _____.
2. The purchase price per share for the International Securities to
be paid by the several International Managers shall be $ _____, being an
amount equal to the initial public offering price set forth above less $
_____ per share; provided that the purchase price per share for any
International Option Securities purchased upon the exercise of the over-
allotment option described in Section 2(b) shall be reduced by an amount
per share equal to any dividends or distributions declared by the Company
and payable on the Initial International Securities but not payable on the
International Option Securities.
Sch B - 1
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
John L. Brady, Sr.
14812 Hickory View Lane
Charlotte, NC 28273
Danny L. Broadwater
2964 Harlinsdale Drive
Rock Hill, SC 29730
Marty D. Carter
11402 Pine Valley Club Drive
Charlotte, NC 28277
Edward Cassorla
40 Bristol Road
West Newton, MA 02165
Kenneth D. Chipman
31 Robin Road
Norfolk, MA 02056
Robert Q. Crane
7 Mountview Road
Wellesley Hills, MA 02181
Thomas S. Fincher
9916 Pallisers Terrace
Charlotte, NC 28210
Douglas H. Holstein
5710 Providence Country Club Drive
Charlotte, NC 28277
E. Ray Johnson
10721 Alexander Hill Drive
Charlotte, NC 28277
Sch C - 1
<PAGE>
Manley J. Kiley, Jr.
35 Mill Pond Lane
Duxbury, MA 02332
Gerald R. Leonard
339 Far Reach Road
Westwood, MA 02090
Robert J. Maccubbin, Sr.
2138 Granada Drive
Charlotte, NC 28270
Robert J. Maccubbin, Jr.
2226 Vernon Drive
Charlotte, NC 28211
Eugene F. Merkert
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
EUGENE F. MERKERT
1984 REVOCABLE TRUST
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
EUGENE F. MERKERT 1991
CHARITABLE REMAINDER UNITRUST
Eugene F. Merkert, Trustee
2359 South Ocean Boulevard
Highland Beach, FL 33487-1834
MERKERT ENTERPRISES, INC.
EMPLOYEE STOCK OWNERSHIP TRUST
James A. Schlindwein, as Trustee and not individually
500 Turnpike Street
Canton, MA 02021
Monroe & Company II, LLC
8 Cedar Street
Suite 54A
Woburn, MA 01801
Attention: James L. Monroe
Sch C - 2
<PAGE>
Curtis L. Rogers, Jr.
4601 Kuykendall Road
Charlotte, NC 28277
Curtis L. Rogers, III
2334 Overhill Road
Charlotte, NC 28211
Sidney D. Rogers, Jr.
11 Day Street
Norfolk, MA 02056
Murray C. Rosen
11 Fairview Drive
N. Caldwell, NJ 07006
Sch C - 3
<PAGE>
[subject to further negotiation]
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement, the International Purchase Agreement and the Combination
Agreements.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction identified on
Schedule A attached hereto, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectuses in the column entitled "As Adjusted" under
the caption "Capitalization" (except reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the exercise of
convertible securities or options referred to in the Prospectuses); the shares
of issued and outstanding capital stock of the Company issued prior to Closing
have been duly authorized and validly issued and are fully paid and non-
assessable; and none of the outstanding shares of capital stock of the Company
was issued in violation of preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued and fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of being such a holder.
A-1
<PAGE>
(vi) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(vii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses and,
is duly qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction identified on Schedule A attached hereto, whether
by reason of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and non-
assessable and, after giving effect to the Combination, will be owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.
(viii) The U.S. Purchase Agreement, the International Purchase
Agreement and the Joinder Agreement have been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that purpose
have been instituted or are pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement and the Rule 430A Information, if applicable, the Prospectuses and
each amendment or supplement to the Registration Statement and the Prospectuses
as of their respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted therefrom and
the exhibits to the Registration Statement, as to which we need express no
opinion) complied as to form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations.
(xi) The form of certificate used to evidence the Common Stock complies
in all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company, and the
requirements of Nasdaq.
(xii) To the knowledge of such counsel, there is not pending or
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any Subsidiary is a party, or to which the property of the Company or
any Subsidiary is subject, before or brought by any court or governmental agency
or body, domestic or foreign, which might reasonably be expected to
A-2
<PAGE>
result in a Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the consummation of the transactions
contemplated in the U.S. Purchase Agreement, International Purchase Agreement
and the Combination Agreements or the performance by the Company of its
obligations thereunder.
(xiii) The information in the Prospectuses under "Risk Factors -- Anti-
takeover Effect of Certificate of Incorporation and By-Law Provisions and
Delaware Law," "The Combination," "Business -- Litigation," "Management -- Board
of Directors," "Certain Transactions," "Principal Stockholders," "Description of
Capital Stock," and "Shares Eligible for Future Sale," and in the Registration
Statement under Items 14 and 15, to the extent that it constitutes matters of
law, summaries of legal matters, the Company's charter and by-laws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.
(xiv) To the knowledge of such counsel, there are no statutes or
regulations that are required to be described in the Prospectuses that are not
described as required.
(xv) To the knowledge of such counsel, all descriptions in the
Registration Statement of contracts and other documents to which the Company or
its Subsidiaries are a party are accurate in all material respects; there are no
franchises, contracts, indentures, mortgages, loan agreements, notes, leases or
other instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(xvi) Neither the Company nor any subsidiary is in violation of its
charter or by-laws and no default by the Company or any subsidiary exists in the
due performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed or incorporated by reference
as an exhibit to the Registration Statement.
(xvii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and the
1933 Act Regulations, which have been obtained, or as may be required under the
securities or blue sky laws of any jurisdiction, or as may be required or which
have been made in connection with the Combination, including all applicable
requirements, if any, of state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder as to which no opinion is
rendered) is necessary or required in connection with the due authorization,
execution and delivery of the U.S. Purchase Agreement, the International
Purchase Agreement and the Combination Agreements or for the offering, issuance,
sale or delivery of the Securities.
A-3
<PAGE>
(xviii) The execution, delivery and performance of the U.S. Purchase
Agreement, the International Purchase Agreement and the Combination Agreements
and the consummation of the transactions contemplated in the U.S. Purchase
Agreement; the International Purchase Agreement; the Combination Agreements, and
in the Registration Statement (including the issuance and sale of the
Securities, and the use of the proceeds from the sale of the Securities as
described in the Prospectuses under the caption "Use Of Proceeds"), and
compliance by the Company with its obligations under the U.S. Purchase
Agreement, the International Purchase Agreement and the Combination Agreements,
do not and will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or Repayment
Event (as defined in Section 1(a)(x) of the Purchase Agreements) under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any Subsidiary pursuant to, any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any
other agreement or instrument, known to us, to which the Company or any
Subsidiary is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any Subsidiary is subject
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a Material Adverse Effect), nor will such
action result in any violation of (i) the provisions of the charter or by-laws
of the Company or any Subsidiary, or (ii) any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any government,
government instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties, assets
or operations, except with respect to this clause (ii), any such violation which
could reasonably be expected to have a Material Adverse Effect.
(xix) Except as disclosed in the Prospectuses under "Shares Eligible
for Future Sale --Registration Rights," to the knowledge of such counsel, there
are no persons with registration rights or other similar rights to have any
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.
(xxi) The Combination and the Combination Agreements have been duly
and validly authorized by the Company and all the necessary governmental
filings, consents and approvals required to be obtained or made in connection
therewith have been obtained by the Company and are in full force and effect on
the on the date hereof. The Combination has become effective on or prior to the
date hereof and was consummated in accordance with the provisions of the
Combination Agreements and complies in all material respects with all applicable
state and federal laws and regulations.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information (if applicable), (except for financial statements and schedules and
other financial data included therein or omitted therefrom, as to which we need
make no statement), at the time such Registration Statement or any
A-4
<PAGE>
such amendment became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectuses
or any amendment or supplement thereto (except for financial statements and
schedules and other financial data included therein or omitted therefrom, as to
which we need make no statement), at the time the Prospectuses were issued, at
the time any such amended or supplemented prospectus was issued or at the
Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering such opinion, such counsel may rely (i) as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials, and
(ii) on counsel to Merkert and Rogers with respect to matters related to Merkert
and Rogers. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
[Form of lock-up from directors, officers or other stockholders pursuant to
Section 5(i)]
Exhibit B
_____ , 1998
Merrill Lynch International
BT Alex. Brown International,
a division of Bankers Trust International PLC
Lehman Brothers International (Europe)
as Lead Managers of the several
International Managers to be named in the
within-mentioned International Purchase Agreement
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC24 9L4
Re: Proposed Public Offering by Merkert American Corporation
--------------------------------------------------------
Dear Sirs:
The undersigned, a stockholder [and an officer and/or director] of Merkert
American Corporation, a Delaware corporation (the "Company"), understands that
Merrill Lynch International ("Merrill Lynch"), BT Alex. Brown International, a
division of Bankers Trust International PLC, and Lehman Brothers International
(Europe) propose to enter into an International Purchase Agreement (the
"International Purchase Agreement") with the Company providing for the public
offering of shares (the "Securities") of the Company's common stock, par value
$.01 per share (the "Common Stock"). In recognition of the benefit that such an
offering will confer upon the undersigned as a stockholder [and an officer
and/or director] of the Company, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees with each underwriter to be named in the International Purchase Agreement
that, during a period of 180 days from the date of the International Purchase
Agreement, the undersigned will not, without the prior written consent of
Merrill Lynch, directly or indirectly, (a) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition, or
file any registration statement under the Securities Act of 1933, as amended,
with respect to any of the foregoing or (b) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the
B-1
<PAGE>
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise. Notwithstanding the foregoing, the following transfers shall
be permitted for all purposes hereunder: (i) in the case of the Merkert
Enterprises, Inc. Employee Stock Ownership Trust (the "ESOP Trust") any
disposition of shares of Common Stock (x) in connection with the termination of
the Merkert Enterprises, Inc. Employee Stock Ownership Plan (the "ESOP") and (y)
in connection with the termination of any employee of the Company or of its
wholly-owned subsidiary Merkert Enterprises, Inc. who is a participant in the
ESOP, and (ii) in the case of all holders of shares of Common Stock, the
disposition of shares of Common Stock as bona fide gifts, subject, in each of
the foregoing cases, to the execution by the transferee of any such shares of
Common Stock of a written agreement which shall be delivered to the addressees
hereof, stating that such transferee agrees to be bound by the provisions of
this letter with respect to any remaining portion of the lock-up period applying
to any shares of Common Stock so transferred; provided that, with respect to
--------
clause (i)(y) above, the Company shall use its reasonable best efforts to obtain
such written agreement.
Very truly yours,
Signature:
------------------------------
Print Name:
-----------------------------
B-2
<PAGE>
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations.
(i) in our opinion, the audited financial statements and the
related financial statement schedules included in the Registration
Statement and the Prospectuses comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim consolidated financial statements of each
of the Company, Merkert and Rogers for the three-month period ended March
31, 1998 included in the Registration Statement and the Prospectuses (the
"three-month financials"), a reading of the minutes of all meetings of the
stockholders and directors of each of the Company, Merkert and Rogers,
since January 1, 1998, inquiries of certain officials of the Company,
Merkert and Rogers, responsible for financial and accounting matters, a
review of interim financial information in accordance with standards
established by the American Institute of Certified Public Accountants in
Statement on Auditing Standards No. 71, Interim Financial Information ("SAS
71"), with respect to the three-month financials and such other inquiries
and procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:
(A) the three-month financials of each of the Company, Merkert
and Rogers included in the Registration Statement and the Prospectuses do
not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act Regulations
applicable to unaudited interim financial statements included in
registration statements or any material modifications should be made to the
three-month financials included in the Registration Statement and the
Prospectuses for them to be in conformity with generally accepted
accounting principles;
(B) at a specified date not more than five days prior to the date
of this Agreement, there was any change in the capital stock of Merkert or
Rogers, or any decrease in the consolidated net current assets of Merkert
or Rogers, or any increase in the long-term debt of Merkert or Rogers, or
any increase in stockholders' deficit of Merkert or decrease in the
stockholders' equity of Rogers, in each case as compared with amounts shown
in the latest balance sheet included
Annex A-1
<PAGE>
in the Registration Statement, except in each case for changes, decreases
or increases that the Registration Statement discloses have occurred or may
occur; or
(C) for the period from December 31, 1998 to March 31, 1998 and
for the period from April 1, 1998 to a specified date not more than five
days prior to the date of this Agreement, there was any decrease in the
consolidated revenues of Merkert or Rogers, or an increase in the
consolidated net loss before provision for income taxes or net loss of
Merkert or any decrease in the consolidated income before provision for
income taxes or net income of Rogers in each case as compared with the
comparable period in the preceding year, except in each case for any
decreases that the Registration Statement discloses have occurred or may
occur;
(iii) based upon the procedures set forth in clause (ii) above and a
reading of the Selected Financial Data included in the Registration
Statement, nothing came to our attention that caused us to believe that the
Selected Financial Data included in the Registration Statement do not
comply as to form in all material respects with the disclosure requirements
of Item 301 of Regulation S-K of the 1933 Act;
(iv) we have compared the information in the Registration Statement
under selected captions with the disclosure requirements of Regulation S-K
of the 1933 Act and on the basis of limited procedures specified herein,
nothing came to our attention that caused us to believe that this
information does not comply as to form in all material respects with the
disclosure requirements of Items 302 and 402, respectively, of Regulation
S-K;
(v) we are unable to and do not express any opinion on the Pro
Forma Combined Statement of Operations (the "Pro Forma Statement") included
in the Registration Statement or on the pro forma adjustments applied to
the historical amounts included in the Pro Forma Statement; however, for
purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed a review in accordance with SAS 71 of the
financial statements to which the pro forma adjustments were applied;
(C) made inquiries of certain officials of the Company and its
subsidiaries, Merkert and Rogers, who have responsibility for financial and
accounting matters about the basis for their determination of the pro forma
adjustments and whether the Pro Forma Statement complies as to form in all
material respects with the applicable accounting requirements of Rule 11-02
of Regulation S-X; and
Annex A-2
<PAGE>
(D) proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the Pro Forma Statement;
and on the basis of such procedures and such other inquiries and procedures
as specified herein, nothing came to our attention that caused us to
believe that the Pro Forma Statement included in the Registration Statement
does not comply as to form in all material respects with the applicable
requirements of Rule 11-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements; and
(vi) in addition to the procedures referred to in clause (ii) above,
we have performed other procedures, not constituting an audit, with respect
to certain amounts, percentages, numerical data and financial information
appearing in the Registration Statement, which are specified herein, and
have compared certain of such items with, and have found such items to be
in agreement with, the accounting and financial records of the Company,
Merkert and Rogers.
Annex A-2
<PAGE>
Annex B
[FORM OF JOINDER AGREEMENT]
JOINDER AGREEMENT, dated as of _______, 1998, among Merkert Enterprises,
Inc., a Massachusetts corporation ("Merkert"), Rogers-American Company, Inc., a
North Carolina corporation ("Rogers"), and Merrill Lynch International, BT Alex.
Brown International, a division of Bankers Trust International PLC, and Lehman
Brothers International (Europe), as representatives of the underwriters named in
Schedule A (collectively, the "International Managers") to the International
Purchase Agreement dated __________, 1998 (the "Purchase Agreement"), among
Merkert American Corporation, a Delaware corporation (the "Company"), and the
International Managers (the International Managers together with the Company are
referred to herein as the "Parties"). All capitalized terms used herein but not
otherwise defined shall have the meanings set forth in the Purchase Agreement.
WHEREAS, the Purchase Agreement has been executed and delivered by the
Parties in connection with the purchase and sale of the Securities of the
Company;
WHEREAS, upon the consummation of the purchase and sale of the Securities
as contemplated in the Purchase Agreement, the Company will acquire in two
separate transactions all the outstanding capital stock of each of Merkert and
Rogers pursuant to the terms of two stock purchase agreements (such transactions
being the "Combination");
WHEREAS, simultaneously with the consummation of the Combination and the
purchase and sale of the Securities pursuant to the Purchase Agreement, the
Parties intend that Merkert and Rogers will become parties to the Purchase
Agreement, and become bound to certain provisions contained therein pursuant to
the terms of this Joinder Agreement, as if each of Merkert and Rogers were an
original party to the Purchase Agreement;
NOW, THEREFORE, each of Merkert and Rogers hereby agrees as follows:
SECTION 1. Representations and Warranties of Merkert and Rogers. Each
----------------------------------------------------
of Merkert and Rogers, severally, represents and warrants to each International
Manager, as to itself only, as of the date hereof, and if the date hereof is
different than the Closing Time, as of the Closing Time, and as of each Date of
Delivery (if any), and agrees with each International Manager, as follows:
(a) Each representation and warranty applicable to it in Section 1(a)
of the Purchase Agreement, specifically paragraphs (i), (iii), (iv), (vi),
(xii), (xvii), (xix) and (xxi) contained therein, shall be true and
correct.
(b) This Joinder Agreement has been duly authorized, executed and
delivered by it.
(c) The execution, delivery and performance of this Joinder
Agreement, and the transactions contemplated in this Joinder Agreement and
in the Purchase Agreement,
Annex B-1
<PAGE>
and compliance by it with its obligations under this Joinder Agreement and
in the Purchase Agreement, have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default or Repayment Event under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of it pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action result
in any violation of the provisions of the charter or by-laws of it or any
applicable law, statute, rule, regulation, judgment, order, writ or decree
of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over it or any of its assets, properties or
operations.
(d) There is no action, suit, proceeding, inquiry or investigation
before or brought by any court or governmental agency or body, domestic or
foreign, now pending, or, to its knowledge, threatened, against or
affecting it, which might reasonably be expected to result in a material
adverse effect in the condition (financial or otherwise), or in the
earnings, business affairs or business prospects of Merkert or Rogers, as
the case may be, or which might reasonably be expected to materially and
adversely affect the consummation of the transactions contemplated in this
Joinder Agreement and in the Purchase Agreement, or the performance of its
obligations hereunder or thereunder.
SECTION 2. Indemnification. Merkert and Rogers jointly and severally
---------------
agree (a) to indemnify and hold harmless each International Manager and each
person, if any, who controls any International Manager within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, in accordance with the
provisions of Section 6 of the Purchase Agreement to the same extent as the
Company is so obligated thereunder and (b) to be subject to the provisions
relating to contribution contained in Section 7 of the Purchase Agreement, to
the same extent as the Company is be so obligated thereunder.
SECTION 3. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Joinder
Agreement shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any International Manager or controlling
person, or by or on behalf of Merkert or Rogers, and shall survive delivery of
the Securities to the International Managers.
SECTION 4. Governing Law. This Joinder Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
SECTION 5. Opinions of Counsels for Merkert and Rogers. At Closing Time,
-------------------------------------------
the Lead Managers shall have received the favorable opinion dated as of Closing
Time, of _______________, counsel for Merkert, and _______________, counsel for
Rogers, in form and substance satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letters for each of
the other International Managers to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the International Managers may reasonably
request.
Annex B-2
<PAGE>
SECTION 6. Joinder with Purchase Agreement. This Joinder Agreement shall
-------------------------------
be attached as an exhibit to, and shall be read together with and construed as
part of, the Purchase Agreement.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to each of the Lead Managers a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the International Managers, Merkert and Rogers in accordance
with its terms.
Very truly yours,
MERKERT ENTERPRISES, INC.
By ________________________
Title:
ROGERS-AMERICAN COMPANY, INC.
By _________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
BT ALEX. BROWN INTERNATIONAL,
A DIVISION OF BANKERS TRUST INTERNATIONAL PLC
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
By: MERRILL LYNCH INTERNATIONAL
By __________________________________________
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A to the Purchase Agreement.
Annex B-3
<PAGE>
Exhibit A
[FORM OF OPINION TO BE DELIVERED
BY COUNSEL TO MERKERT AND ROGERS]
(i) The Joinder Agreement has been duly authorized, executed and
delivered by it and is in full force and effect.
(ii) There is not pending or threatened any action, suit,
proceeding, inquiry or investigation, to which Merkert or Rogers, as the
case may be, or any subsidiary of Merkert or Rogers is a party, or to which
the property of Merkert or Rogers, as the case may be, or any subsidiary of
Merkert or Rogers is subject, before or brought by any court or
governmental agency or body, domestic or foreign, which might reasonably be
expected to result in a Material Adverse Effect, or which might reasonably
be expected to materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated in the Joinder
Agreement, or by the performance of Merkert or Rogers, as the case may be,
of their obligations thereunder.
(iii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act and
the 1933 Act Regulations, which have been obtained, or as may be required
or which have been made in connection with the Combination, including all
applicable requirements, if any, of state takeover laws, the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations thereunder) is
necessary or required in connection with the due authorization, execution
and delivery of the Joinder Agreement.
(iv) The execution, delivery and performance of the Joinder
Agreement and the consummation of the transactions contemplated therein,
and compliance by Merkert or Rogers, as the case may be, with their
obligations under the Joinder Agreement, do not and will not, whether with
or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(x) of the Purchase Agreement) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of Merkert or Rogers, as the case may be, or any subsidiary of
Merkert or Rogers pursuant to, any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which Merkert or Rogers, as the case may be, or
any subsidiary or Merkert or Rogers is a party or by which it or any of
them may be bound, or to which any of the property or assets of Merkert or
Rogers, as the case may be, or any subsidiary of
Annex B-4
<PAGE>
Merkert or Rogers is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of Merkert or Rogers, as the case may
be, or any subsidiary of Merkert or Rogers, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over Merkert or Rogers, as the case may be, or any
subsidiary of Merkert or Rogers or any of their respective properties,
assets or operations.
Annex B-5
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MERKERT AMERICAN CORPORATION
Merkert American Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The Certificate of Incorporation of Merkert American Corporation was
originally filed in the Office of the Secretary of State of the State of
Delaware on March 4, 1998 under the name of Monroe, Inc. and subsequently
amended.
2. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation
filed with the Secretary of State of the State of Delaware on March 4, 1998, as
heretofore amended (the "Amended Certificate of Incorporation"), and (i) was
duly adopted by the Board of Directors in accordance with the provisions of
Sections 141(f), 242 and 245 of the General Corporation Law of the State of
Delaware (the "DGCL"), (ii) was declared by the Board of Directors to be
advisable and in the best interests of the Corporation and was directed by the
Board of Directors to be submitted to and be considered by the stockholders of
the Corporation entitled to vote thereon for approval by the affirmative vote of
such stockholders in accordance with Section 242 of the DGCL and (iii) was duly
adopted by a stockholder consent in lieu of a meeting of the stockholders, with
the holders of a majority of the outstanding shares of the Company's Common
Stock consenting to the adoption of this Amended and Restated Certificate of
Incorporation in accordance with the provisions of Sections 228 and 242 of the
DGCL such holders being all of the holders of the Corporation's capital stock
entitled to vote thereon.
3. The text of the Amended Certificate of Incorporation is hereby amended
and restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is Merkert American Corporation.
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Number of Shares.
----------------------------
The total number of shares of capital stock which the Corporation shall
have the authority to issue is Fifty-Five Million (55,000,000) shares, of which
(i) Fifty Million (50,000,000) shares shall be Common Stock, par value $.01 per
share (the "Common Stock"), (ii) Four Million (4,000,000) shares shall be
Restricted Common Stock, par value $.01 per share (the "Restricted Common
Stock") and (iii) One Million (1,000,000) shares shall be Undesignated Preferred
Stock, par value $.01 per share (the "Undesignated Preferred Stock"). As set
forth in this Article IV, the Board of Directors or any authorized committee
thereof is authorized from time to time to establish and designate one or more
series of Undesignated Preferred Stock, to fix and determine the variations in
the relative rights and preferences as between the different series of
Undesignated Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may be increased or decreased (but not below the number of shares
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock, without a vote of the holders of the Undesignated Preferred Stock,
pursuant to the resolution or resolutions establishing the class of Undesignated
Preferred Stock or this Amended and Restated Certificate of Incorporation, as it
may be amended from time to time.
2
<PAGE>
Section 2. General.
-------------------
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3, 4
and 5 of this Article IV.
Section 3. Common Stock.
------------------------
Subject to all of the rights, powers and preferences of the Undesignated
Preferred Stock, if any, and except as provided by law or in this Article IV (or
in any certificate of designation of any series of Undesignated Preferred Stock)
or by the Board of Directors or any authorized committee thereof pursuant to
this Article IV:
(a) the holders of the Common Stock shall be entitled to one vote for
each share of Common Stock standing in such holder's name on the books of the
Corporation and, except as may be otherwise required by applicable law, shall
vote together with the holders of shares of Restristed Common Stock as if the
Common Stock and the Restricted Common Stock constituted a single class of
stock.
(b) apart from voting power, the shares of Common Stock and Restricted
Common Stock shall be deemed to be shares of stock of the same class and shall
have equal rights and privileges (including, without limitation, in liquidation
and as to dividends, whether paid in cash, capital stock or other property).
Dividends may be declared and paid or set apart for payment upon the Common
Stock out of any assets or funds of the Corporation legally available for the
payment of dividends, but only when and as declared by the Board of Directors or
any authorized committee thereof. All dividends on shares of Common Stock shall
be paid at the same time and in the same amount per share as dividends on shares
of Restricted Common Stock as if the Common Stock and the Restricted Common
Stock constituted a single class of stock.
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after the distribution or payment to the holders
of shares of any class or series of Undesignated Preferred Stock, if any, as
provided by the Board of Directors with respect to any such class or series of
Undesignated Preferred Stock, the remaining assets of the Corporation available
for distribution to stockholders shall be distributed among and paid to the
holders of Common Stock and Restricted Common Stock ratably in proportion to the
number of shares of Common Stock and Restricted Common Stock held by them,
respectively, as if the Common Stock and the Restricted Common Stock constituted
a single class of stock.
Section 4. Restricted Common Stock
-----------------------------------
Subject to all of the rights, powers and preferences of the Undesignated
Preferred Stock, and except as provided by law, this Article IV (or in any
certificate of designation of any series of Undesignated Preferred Stock), the
Board of Directors or any authorized committee thereof pursuant to this Article
IV:
3
<PAGE>
(a) the holders of Restricted Common Stock shall be entitled to vote
with holders of Common Stock on any matter as to which holders of Common Stock
are entitled to vote and, except as may be otherwise required by applicable law,
shall vote together with the holders of shares of Common Stock on such matters
as if the Common Stock and the Restricted Common Stock constituted a single
class of stock. The holders of Restricted Common Stock shall be entitled to
one-tenth (0.1) of one vote for each share of Restricted Common Stock standing
in such holder's name of the books of the Corporation.
(b) apart from voting power, the shares of Restricted Common Stock and
Common Stock shall be deemed to be shares of stock of the same class and shall
have equal rights and privileges (including, without limitation, in liquidation
and as to dividends, whether paid in cash, capital stock or other property).
Dividends may be declared and paid or set apart for payment upon the Restricted
Common Stock out of any assets or funds of the Corporation legally available for
the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof. All dividends on shares of
Restricted Common Stock shall be paid at the same time and in the same amount
per share as dividends on shares of Common Stock as if the Common Stock and the
Restricted Common Stock constituted a single class of stock.
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, after the distribution or payment to the holders
of shares of any class or series of Undesignated Preferred Stock as provided by
the Board of Directors with respect to any such class or series of Undesignated
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of Restricted
Common Stock and Common Stock ratably in proportion to the number of shares of
Restricted Common Stock and Common Stock held by them, respectively, as if the
Restricted Common Stock and the Common Stock constituted a single class of
stock.
(d) each share of Restricted Common Stock will automatically convert
into Common Stock on a share for share basis upon a disposition of such shares
of Restricted Common Stock which (i) occurs after the later to occur of (x) the
first day after the second anniversary of the consummation of the Corporation's
initial public offering of Common Stock (the "Initial Public Offering") and (y)
the first day after the first election of Class II Directors occurring after the
consummation of the Initial Public Offering and (ii) is made to a party (whether
a natural person or an entity) which is not (x) a party (a "Prior Stockholder")
which held shares of the Corporation's capital stock prior to the Initial Public
Offering, (y) a party related to any Prior Stockholder in any manner described
in Section 267(b) or 707(b) of the Internal Revenue Code of 1986, as amended and
in effect as of the date hereof (the "Internal Revenue Code"), or (z) a party
through which ownership of shares of the Corporation's capital stock could be
attributed to any Prior Stockholder under the provisions of Section 318 of the
Internal Revenue Code. Except as provided in the preceding sentence, shares of
Restricted Common Stock shall not be converted into shares of Common Stock.
4
<PAGE>
Section 5. Undesignated Preferred Stock.
----------------------------------------
Subject to any limitations prescribed by law, the Board of Directors or any
authorized committee thereof is expressly authorized to provide for the issuance
of the shares of Undesignated Preferred Stock in one or more series of such
stock, and by filing a certificate pursuant to applicable law of the State of
Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof.
Any action by the Board of Directors or any authorized committee thereof under
this Article IV.5 shall require the affirmative vote of a majority of the
Directors then in office or a majority of the members of such committee. The
Board of Directors or any authorized committee thereof shall have the right to
determine or fix one or more of the following with respect to each series of
Undesignated Preferred Stock to the extent permitted by law:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
5
<PAGE>
(h) The price or other consideration for which the shares of such
series shall be issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Undesignated
Preferred Stock (or series thereof) and whether such shares may be reissued as
shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
------------------
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
DIRECTORS
---------
Section 1. General.
-------------------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors except as otherwise provided herein or
required by law.
Section 2. Election of Directors.
---------------------------------
Election of Directors need not be by written ballot unless the By-laws of
the Corporation shall so provide.
Section 3. Terms of Directors.
------------------------------
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The Directors, other
than those who may be elected by the holders of any series of Undesignated
Preferred Stock of the Corporation, shall serve for a term of one year and until
each such Director's successor is duly elected and qualified. At each annual
meeting of stockholders, the successor or successors of the Directors
6
<PAGE>
whose term expires at that meeting shall be elected by a plurality of the votes
cast at such meeting and shall hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election. The Directors elected to each class shall hold office until their
successors are duly elected and qualified or until their earlier resignation or
removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this the holders of any one or more series of Undesignated
Preferred Stock shall have the right, voting separately as a series or together
with holders of other such series, to elect Directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Amended and Restated Certificate of Incorporation and any certificate of
designations applicable thereto, and such Directors so elected shall not be
divided into classes pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated Preferred
Stock have the right to elect additional Directors as provided for or fixed
pursuant to the provisions of Article IV hereof, then upon commencement and for
the duration of the period during which such right continues: (i) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions, and
(ii) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Undesignated Preferred Stock having such right to elect additional Directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional Directors elected by the holders of such stock, or
elected to fill any vacancies resulting from the death, resignation,
disqualification or removal of such additional Directors, shall forthwith
terminate and the total and authorized number of Directors of the Corporation
shall be reduced accordingly.
Section 4. Vacancies.
---------------------
Subject to the rights, if any, of the holders of any series of Undesignated
Preferred Stock to elect Directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a Director, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even if less than a quorum
of the Board of Directors. Any Director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created or the vacancy
occurred and until such Director's successor shall have been duly elected and
qualified or until his or her earlier resignation or removal. Subject to the
rights, if any, of the holders of any series
7
<PAGE>
of Undesignated Preferred Stock to elect Directors, when the number of Directors
is increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
Section 5. Removal.
-------------------
Subject to the rights, if any, of any series of Undesignated Preferred
Stock to elect Directors and to remove any Director whom the holders of any such
stock have the right to elect, any Director (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed from
office (i) only with cause and (ii) only by the affirmative vote of at least
two-thirds of the total votes which would be eligible to be cast by stockholders
in the election of such Director. At least 30 days prior to any meeting of
stockholders at which it is proposed that any Director be removed from office,
written notice of such proposed removal shall be sent to the Director whose
removal will be considered at the meeting. For purposes of this Amended and
Restated Certificate of Incorporation, "cause," with respect to the removal of
any Director shall mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court, (iii) gross dereliction of duty, (iv) commission
of any action involving moral turpitude, or (v) commission of an action which
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit and a
material injury to the Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the Director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Amended and Restated
Certificate of Incorporation to authorize corporate action further eliminating
or limiting the personal liability of Directors, then the liability of a
Director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
8
<PAGE>
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
Section 1. Amendment by Directors
----------------------------------
Except as otherwise provided by law, the By-laws of the Corporation may be
amended or repealed by the Board of Directors.
Section 2. Amendment by Stockholders
-------------------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Amended and
Restated Certificate of Incorporation in the manner now or hereafter prescribed
by statute and this Amended and Restated Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation. No amendment or repeal of this Amended and Restated Certificate of
Incorporation shall be made unless the same is first approved by the Board of
Directors pursuant to a resolution adopted by the Board of Directors in
accordance with Section 242 of the DGCL, and, except as otherwise provided by
law, thereafter approved by the stockholders. Whenever any vote of the holders
of voting stock is required, and in addition to any other vote of holders of
voting stock that is required by this Amended and Restated Certificate of
Incorporation or by law, the affirmative vote of a majority of the total votes
eligible to be cast by holders of voting stock with respect to such amendment or
repeal, voting together as a single class, at a duly constituted meeting of
stockholders called expressly for such purpose shall be required to amend or
repeal any provisions of this Amended and Restated Certificate of Incorporation;
provided, however, that the affirmative vote of not less than two-thirds of the
total votes eligible to be cast by holders of voting stock, voting together as a
single class, shall be required to amend or repeal any of the provisions of
Article VI or Article IX of this Amended and Restated Certificate of
Incorporation.
9
<PAGE>
I, James L. Monroe, President of the Corporation, for the purpose of
amending and restating the Corporation's Certificate of Incorporation pursuant
to the General Corporation Law of the State of Delaware, do make this
certificate, hereby declaring and certifying that this is my act and deed on
behalf of the Corporation this 20th day of July, 1998.
/s/ James L. Monroe
--------------------------
James L. Monroe, President
10
<PAGE>
EXHIBIT 4.1
- ---------- -----------
NUMBER MERKERT AMERICAN CORPORATION SHARES
- ---------- -----------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE
IN BOSTON, MA OR NEW YORK, NY
CUSIP 590080 10 7
COMMON STOCK COMMON STOCK
- --------------------------------------------------------------------------------
THIS CERTIFIES that SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
======================== MERKERT AMERICAN CORPORATION ==========================
(herein called the "Corporation"), transferable on the books of the Corporation
in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate and the shares represented hereby are issued
and held subject to the laws of the State of Delaware and to the Certificate of
Incorporation and the By-Laws of the Corporation, as amended from time to time.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and sealed
with the facsimile seal of the Corporation.
Dated:
[CORPORATE SEAL]
/s/ James L. Monroe /s/ Gerald L. Leonard
NON-EXECUTIVE CHAIRMAN CHAIRMAN, CHIEF EXECUTIVE OFFICER
AND PRESIDENT
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/ Mary Penezic
AUTHORIZED SIGNATURE
<PAGE>
MERKERT AMERICAN CORPORATION
The Corporation is authorized to issue more than one class or series of
stock. Upon written request the Corporation will furnish without charge to each
stockholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- __________________ Custodian __________________
TEN ENT -- as tenants by the entireties (cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act ____________________________________________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated ________________________________
-----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
____________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]
July 20, 1998
Merkert American Corporation
490 Turnpike Street
Canton, Massachusetts 02021
Ladies and Gentlemen:
This opinion is furnished in connection with the filing by Merkert American
Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, of a
Registration Statement on Form S-1 (the "Registration Statement") relating to
6,325,000 shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company (the "Registered Shares"), including 825,000 shares
which the Underwriters (as defined below) have options to purchase solely for
the purpose of covering over-allotments. Pursuant to that certain U.S.
Purchase Agreement by and among the Company and the underwriters named below
(the "US Purchase Agreement"), up to 5,060,000 of the Registered Shares
(including an overallotment option of 660,000 shares of Common Stock) will be
offered by the several United States underwriters (the "US Underwriters")
represented by Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex.
Brown Incorporated and Lehman Brothers Inc. Pursuant to that certain
International Purchase Agreement between the Company and the underwriters
named below (together with the US Purchase Agreement, the "Purchase
Agreements"), up to 1,265,000 of the Registered Shares (including an
overallotment option of up to 165,000 shares of Common Stock) will be offered
by the several international underwriters (together with the US Underwriters,
the "Underwriters") represented by Merrill Lynch International, BT Alex. Brown
International and Lehman Brothers International (Europe).
In connection with rendering this opinion, we have examined the form of the
proposed Purchase Agreements; the Amended and Restated Certificate of
Incorporation and By-laws of the Company, each as amended to date; such
records of the corporate proceedings of the Company as we deemed material; and
such other certificates, receipts, records and documents as we considered
necessary for the purposes of this opinion. In our examination, we have
assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as certified,
photostatic or facsimile copies, the authenticity of the originals of such
copies and the authenticity of telephonic confirmations of public officials
and others. As to facts material to our opinion, we have relied upon
certificates or telephonic confirmations of public officials and certificates,
documents, statements and other information of the Company or representatives
or officers thereof.
We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdiction other than the
laws of the United States of America, The Commonwealth of Massachusetts and
the Delaware General Corporation Law.
Based upon the foregoing, we are of the opinion that when the Purchase
Agreements are completed (including the insertion therein of pricing terms)
and executed by the Company and the Underwriters, and the Registered Shares
are sold to the Underwriters and paid for pursuant to the terms of the
Purchase Agreements, the Registered Shares will be duly authorized, validly
issued, fully paid and nonassessable by the Company under Delaware General
Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration
Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 10.17
AMENDED AND RESTATED
MERKERT AMERICAN CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Merkert American Corporation 1998 Stock Option
and Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and
enable the officers, employees, Independent Directors and other key persons
(including consultants) of Merkert American Corporation formerly known as
Monroe, Inc. (the "Company") and its Subsidiaries upon whose judgment,
initiative and efforts the Company largely depends for the successful conduct of
its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company, thereby stimulating their efforts on the Company's behalf and
strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2(a).
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock
Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend
Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Change of Control" is defined in Section 17.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Combination" shall mean the acquisition by the Company of (i) Merkert
Enterprises, Inc. pursuant to that certain Stock Purchase Agreement, dated May
20, 1998, by and among the Company, Merkert Enterprises, Inc. and certain other
parties named therein and (ii) Rogers-American Company, Inc., pursuant to that
certain Stock Purchase Agreement, dated May 22, 1998.
<PAGE>
"Committee" means the Committee of the Board referred to in Section 2.
"Covered Employee" means an employee who is a "Covered Employee" within the
meaning of Section 162(m) of the Code.
"Deferred Stock Award" means Awards granted pursuant to Section 8.
"Dividend Equivalent Right" means Awards granted pursuant to Section 12.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 19.
"Fair Market Value" on any given date means the last reported sale price at
which Stock is traded on such date or, if no Stock is traded on such date, the
next preceding date on which Stock was traded, as reflected on the principal
stock exchange or, if applicable, any other national stock exchange on which the
Stock is traded or admitted to trading. Notwithstanding the foregoing, the Fair
Market Value on the first day of the Company's initial public offering of Stock
shall be the initial public offering price as set forth in the final prospectus
for the Company's initial public offering.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Offering" means that underwritten initial public offering of the Company's
Common Stock to be managed by Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 10.
"Performance Cycle" means one or more periods of time, which may be of
varying and overlapping durations, as the Administrator may select, over which
the attainment of one or more performance criteria will be measured for the
purpose of determining a participant's right to and the payment of a Performance
Share Award, Restricted Stock Award or Deferred Stock Award.
"Restricted Stock Award" means Awards granted pursuant to Section 7.
2
<PAGE>
"Stock" means the Common Stock, par value $.01 per share (the "Common
Stock") and the Restricted Common Stock, par value $0.01 per share (the
"Restricted Common Stock"), of the Company, subject to adjustments pursuant to
Section 3.
"Stock Appreciation Right" means any Award granted pursuant to Section 6.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns stock or other interests possessing 50
percent or more of the economic interest or the total combined voting power of
all classes of stock or other interests in one of the other corporations or
entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 9.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
---------------------------------------------------------
PARTICIPANTS AND DETERMINE AWARDS
---------------------------------
(a) Committee. The Plan shall be administered by either the Board or a
---------
committee of not less than two Independent Directors (in either case, the
"Administrator"). Each member of the Committee shall be an "outside director"
within the meaning of Section 162(m) of the Code and the regulations promulgated
thereunder and a "non-employee director" within the meaning of Rule 16b-
3(b)(3)(i) promulgated under the Act, or any successor definition under said
rule.
(b) Powers of Administrator. The Administrator shall have the power and
-----------------------
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the individuals to whom Awards may from time to time
be granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock
Awards, Performance Share Awards and Dividend Equivalent Rights, or any
combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
3
<PAGE>
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under what
circumstances distribution or the receipt of Stock and other amounts
payable with respect to an Award shall be deferred either automatically or
at the election of the participant and whether and to what extent the
Company shall pay or credit amounts constituting interest (at rates
determined by the Administrator) or dividends or deemed dividends on such
deferrals; and
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
---------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to the granting of
Awards at Fair Market Value, to individuals who are not subject to the reporting
and other provisions of Section 16 of the Act or "covered employees" within the
meaning of Section 162(m) of the Code. Any such delegation by the Administrator
shall include a limitation as to the amount of Awards that may be granted during
the period of the delegation and shall contain guidelines as to the
determination of the exercise price of any Option, the conversion ratio or price
of other Awards and the vesting criteria. The Administrator may revoke or amend
the terms of a delegation at any time but such action shall not invalidate any
prior actions of the Administrator's delegate or delegates that were consistent
with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved and
--------------
available for issuance under the Plan (the "Maximum Share Number") shall be such
aggregate number of shares of Stock as does not exceed the sum of (i) 234 shares
(subject to adjustment in accordance with Section 3(b) hereof); plus (ii) upon
the consummation of the Offering and the Combination, 13.0 percent of the net
increase since the date of the adoption of this Plan in the total number of
shares of Stock actually outstanding; plus (iii) as of January 1, 1999, 13.0
percent of any net increase since the Offering in the total number of shares of
Stock actually outstanding; plus (iv) as of
4
<PAGE>
each January 1 thereafter, 13.0 percent of any net increase since the preceding
January 1 in the total number of shares of Stock actually outstanding.
Notwithstanding the foregoing, the maximum number of shares of Stock for which
Incentive Stock Options may be granted under the Plan shall not exceed the
Maximum Share Number, reduced by the aggregate number of shares subject to
outstanding Awards granted under the Plan. For purposes of this limitation, if
any portion of an Award is forfeited, canceled, reacquired by the Company,
satisfied without the issuance of Stock or otherwise terminated, the shares of
Stock underlying such portion of the Award shall be added back to the shares of
Stock available for issuance under the Plan. Subject to such overall limitation,
shares of Stock may be issued up to such maximum number pursuant to any type or
types of Award; provided, however, that on and after the date the Company is
first subject to the provisions of Section 162(m) of the Code with respect to
grants made or compensation earned under the Plan, Stock Options or Stock
Appreciation Rights with respect to no more than a number of shares of Stock
equal to the Maximum Share Number reduced by the aggregate number of shares
subject to outstanding Awards granted under the Plan of Stock may be granted to
any one individual participant during any one calendar year period. The shares
available for issuance under the Plan may be authorized but unissued shares of
Stock or shares of Stock reacquired by the Company.
(b) Changes in Stock. If, as a result of any reorganization,
----------------
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in the Company's capital stock, the outstanding
shares of Stock are increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company, or additional
shares or new or different shares or other securities of the Company or other
non-cash assets are distributed with respect to such shares of Stock or other
securities, the Administrator shall make an appropriate or proportionate
adjustment in (i) the maximum number of shares reserved for issuance under the
Plan, (ii) the number of Stock Options or Stock Appreciation Rights that can be
granted to any one individual participant, (iii) the number and kind of shares
or other securities subject to any then outstanding Awards under the Plan, and
(iv) the price for each share subject to any then outstanding Stock Options and
Stock Appreciation Rights under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of Stock
Options and Stock Appreciation Rights) as to which such Stock Options and Stock
Appreciation Rights remain exercisable. The adjustment by the Administrator
shall be final, binding and conclusive. No fractional shares of Stock shall be
issued under the Plan resulting from any such adjustment, but the Administrator
in its discretion may make a cash payment in lieu of fractional shares.
The Administrator may also adjust the number of shares subject to
outstanding Awards and the exercise price and the terms of outstanding Awards to
take into consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Administrator that such adjustment is
appropriate to avoid distortion in the operation of the Plan, provided that no
such adjustment shall be made in the case of an Incentive Stock Option, without
the consent of the participant, if it would constitute a modification, extension
or renewal of the Option within the meaning of Section 424(h) of the Code.
5
<PAGE>
(c) Mergers and Other Transactions. In the case of (i) the dissolution or
------------------------------
liquidation of the Company, (ii) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an unrelated person or entity,
(iii) a merger, reorganization or consolidation in which the holders of the
Company's outstanding voting power immediately prior to such transaction do not
own a majority of the outstanding voting power of the surviving or resulting
entity immediately upon completion of such transaction, (iv) the sale of all of
the Stock of the Company to an unrelated person or entity or (v) any other
transaction in which the owners of the Company's outstanding voting power prior
to such transaction do not own at least a majority of the outstanding voting
power of the relevant entity after the transaction (in each case, a
"Transaction"), as of the effective date of such Transaction, all Options and
Stock Appreciation Rights that are not exercisable shall become fully
exercisable and all other Awards which are not vested shall become fully vested,
except as the Committee may otherwise specify with respect to particular Awards.
Upon the effectiveness of the Transaction, the Plan and all outstanding Options,
Stock Appreciation Rights and other Awards granted hereunder shall terminate,
unless provision is made in connection with the Transaction for the assumption
of Awards heretofore granted, or the substitution of such Awards of new Awards
of the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and, if appropriate, the per share exercise prices, as
provided in Section 3(b) above. In the event of such termination, each optionee
shall be permitted to exercise for a period of at least 15 days prior to the
date of such termination all outstanding Options and Stock Appreciation Rights
held by such optionee which are then exercisable or become exercisable upon the
effectiveness of the Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the Plan
-----------------
in substitution for stock and stock based awards held by employees of another
corporation who become employees of the Company or a Subsidiary as the result of
a merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation. The Administrator may direct that the
substitute awards be granted on such terms and conditions as the Administrator
considers appropriate in the circumstances.
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such full or part-time officers and other
employees, Independent Directors and key persons of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its Subsidiaries as are selected from time to
time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
6
<PAGE>
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. To the extent that any Option
does not qualify as an Incentive Stock Option, it shall be deemed a Non-
Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after May 19,
2008.
(a) Stock Options Granted to Employees and Key Persons. The Administrator
--------------------------------------------------
in its discretion may grant Stock Options to eligible employees and key persons
of the Company or any Subsidiary. Stock Options granted pursuant to this
Section 5(a) shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Administrator shall deem desirable. If the Administrator so
determines, Stock Options may be granted in lieu of cash compensation at the
participant's election, subject to such terms and conditions as the
Administrator may establish, as well as in addition to other compensation.
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less
than 100 percent of the Fair Market Value on the date of grant in the case
of Incentive Stock Options, or 85 percent of the Fair Market Value on the
date of grant, in the case of Non-Qualified Stock Options (other than
options granted in lieu of cash compensation). If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the option price of
such Incentive Stock Option shall be not less than 110 percent of the Fair
Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by the
-----------
Administrator, but no Incentive Stock Option shall be exercisable more than
ten years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10 percent of the combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation and an
Incentive Stock Option is granted to such employee, the term of such option
shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
---------------------------------------
become exercisable at such time or times, whether or not in installments,
as shall be determined by the Administrator at or after the grant date;
provided, however, that Stock Options granted in lieu of compensation shall
be exercisable in full as of the grant date. The Administrator may at any
time accelerate the exercisability of all or any portion of any Stock
Option. An optionee shall have the rights of a stockholder only as to
shares acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
7
<PAGE>
(iv) Method of Exercise. Stock Options may be exercised in whole or
------------------
in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods to the extent provided in the
Option Award agreement:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) Through the delivery (or attestation to the ownership) of
shares of Stock that have been purchased by the optionee on the open
market or that have been beneficially owned by the optionee for at
least six months and are not then subject to restrictions under any
Company plan. Such surrendered shares shall be valued at Fair Market
Value on the exercise date;
(C) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable
to the Company for the purchase price; provided that in the event the
optionee chooses to pay the purchase price as so provided, the
optionee and the broker shall comply with such procedures and enter
into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment
procedure; or
(D) By the optionee delivering to the Company a promissory note
if the Board has expressly authorized the loan of funds to the
optionee for the purpose of enabling or assisting the optionee to
effect the exercise of his Stock Option; provided that at least so
much of the exercise price as represents the par value of the Stock
shall be paid other than with a promissory note.
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws. In the event an
optionee chooses to pay the purchase price by previously-owned shares of
Stock through the attestation method, the shares of Stock transferred to
the optionee upon the exercise of the Stock Option shall be net of the
number of shares attested to.
(v) Annual Limit on Incentive Stock Options. To the extent required
---------------------------------------
for "incentive stock option" treatment under Section 422 of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the
shares of Stock with respect to which Incentive Stock Options granted under
this Plan and any other plan of the Company or its parent and subsidiary
corporations become exercisable for the first time
8
<PAGE>
by an optionee during any calendar year shall not exceed $100,000. To the
extent that any Stock Option exceeds this limit, it shall constitute a Non-
Qualified Stock Option.
(b) Reload Options. At the discretion of the Administrator, Options
--------------
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the number delivered to exercise the original Option with an Option term
equal to the remainder of the original Option term unless the Administrator
otherwise determines in the Award agreement for the original Option grant.
(c) Stock Options Granted to Independent Directors.
----------------------------------------------
(i) Automatic Grant of Options.
--------------------------
(A) Each person who is an Independent Director on the effective
date of the Company's initial public offering shall be granted a Non-
Qualified Stock Option to acquire 20,000 shares of Stock (after giving
effect to any stock splits, stock dividends, recapitalizations or other
similar transaction prior to the Offering), provided, however, that if such
Independent Director has been appointed to serve as Chairman of the
Company's Audit Committee as of such date, such Independent Director shall
instead be granted a Non-Qualified Stock Option to acquire 25,000 shares of
Stock (after giving effect to any stock splits, stock dividends,
recapitalizations or other similar transaction occurring prior to the
Offering).
(B) Each Independent Director who is first elected to serve as a
Director after the effective date of the Company's initial public offering
shall be granted, on the fifth business day after his election, a Non-
Qualified Stock Option to acquire 20,000 shares of Stock (after giving
effect to any stock splits, stock dividends, recapitalizations or other
similar transaction prior to the Offering), provided, however, that if such
Independent Director has been appointed to serve as Chairman of the
Company's Audit Committee as of such date, such Independent Director shall
instead be granted a Non-Qualified Stock Option to acquire 25,000 shares of
Stock (after giving effect to any stock splits, stock dividends,
recapitalizations or other similar transaction occurring prior to the
Offering).
(C) Each Independent Director who is serving as Director of the
Company on the fifth business day after each annual meeting of
shareholders, beginning with the 1999 annual meeting, shall automatically
be granted on such day a Non-Qualified Stock Option to acquire 5,000 shares
of Stock (after giving
9
<PAGE>
effect to any stock splits, stock dividends, recapitalizations or other
similar transaction occurring prior to the Offering), provided, however,
that the Independent Director who serves as Chairman of the Company's Audit
Committee on the fifth business day after each annual meeting of
shareholders shall instead be granted a Non-Qualified Stock Option to
acquire 10,000 shares of Stock (after giving effect to any stock splits,
stock dividends, recapitalizations or other similar transaction occurring
prior to the Offering).
(D) The exercise price per share for the Stock covered by a Stock
Option granted under this Section 5(c) shall be equal to the Fair Market
Value of the Stock on the date the Stock Option is granted.
(E) The Administrator, in its discretion, may grant additional
Non-Qualified Stock Options to Independent Directors. Any such grant may
vary among individual Independent Directors.
(ii) Exercise; Termination.
---------------------
(A) Unless otherwise determined by the Administrator, an Option
granted under Section 5(c) shall be exercisable as to fifty percent
(50.0%) of the shares of Stock covered thereby as of the first
anniversary of the grant date, and shall become exercisable as to the
remaining fifty percent (50.0%) of the shares of Stock covered thereby
in that number of equal annual installments which is equal to the
number of years remaining in such Director's term as of the first
anniversary of the date of grant (rounded up to the nearest whole
year). An Option issued under this Section 5(c) shall not be
exercisable after the expiration of ten years from the date of grant.
(B) Options granted under this Section 5(c) may be exercised only
by written notice to the Company specifying the number of shares to be
purchased. Payment of the full purchase price of the shares to be
purchased may be made by one or more of the methods specified in
Section 5(a)(iv). An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of a Stock Option and not
as to unexercised Stock Options.
(d) Non-transferability of Options. No Stock Option shall be transferable
------------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Notwithstanding the foregoing, the
Administrator, in its sole discretion, may provide in the Award agreement
regarding a given Option that the optionee may transfer, without consideration
for the transfer, his Non-Qualified Stock Options to members of his immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of this Plan and the applicable Option.
10
<PAGE>
(e) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement, or subject to Section 15 below, in writing after
the Award agreement is issued, an optionee's rights in all Stock Options shall
automatically terminate upon the participant's termination of employment (or
cessation of business relationship) with the Company and its Subsidiaries for
any reason.
SECTION 6. STOCK APPRECIATION RIGHTS.
-------------------------
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
-----------------------------------
Award entitling the recipient to receive an amount in cash or shares of Stock or
a combination thereof having a value equal to the excess of the Fair Market
Value of the Stock on the date of exercise over the exercise price Stock
Appreciation Right, which price shall not be less than 85 percent of the Fair
Market Value of the Stock on the date of grant (or more than the option exercise
price per share, if the Stock Appreciation Right was granted in tandem with a
Stock Option) multiplied by the number of shares of Stock with respect to which
the Stock Appreciation Right shall have been exercised, with the Administrator
having the right to determine the form of payment.
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation
-----------------------------------------------
Rights may be granted by the Administrator in tandem with, or independently of,
any Stock Option granted pursuant to Section 5 of the Plan. In the case of a
Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option,
such Stock Appreciation Right may be granted either at or after the time of the
grant of such Option. In the case of a Stock Appreciation Right granted in
tandem with an Incentive Stock Option, such Stock Appreciation Right may be
granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem
with a Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation
-------------------------------------------------
Rights shall be subject to such terms and conditions as shall be determined from
time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall be
exercisable at such time or times and to the extent that the related Stock
Options shall be exercisable.
(ii) Upon exercise of a Stock Appreciation Right, the applicable
portion of any related Option shall be surrendered.
(iii) All Stock Appreciation Rights shall be exercisable during the
participant's lifetime only by the participant or the participant's legal
representative.
11
<PAGE>
(d) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement, or subject to Section 15 below, in writing after
the Award agreement is issued, an optionee's rights in all Stock Appreciation
Rights shall automatically terminate upon the participant's termination of
employment (or cessation of business relationship) with the Company and its
Subsidiaries for any reason.
SECTION 7. RESTRICTED STOCK AWARDS
-----------------------
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
---------------------------------
Award entitling the recipient to acquire, at par value or such other higher
purchase price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives. The grant of a Restricted Stock Award is
contingent on the participant executing the Restricted Stock Award agreement.
The terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and participants.
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and payment of any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 7(d) below, and the participant shall be
required, as a condition of the grant, to deliver to the Company a stock power
endorsed in blank.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred,
------------
pledged or otherwise encumbered or disposed of except as specifically provided
herein or in the Restricted Stock Award agreement. If a participant's
employment (or other business relationship) with the Company and its
Subsidiaries terminates for any reason, the Company shall have the right to
repurchase Restricted Stock that has not vested at the time of termination at
its original purchase price, from the participant or the participant's legal
representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
---------------------------
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested." Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 15 below, in
writing after the Award agreement is issued, a participant's rights in any
shares of Restricted Stock that have not vested shall automatically terminate
upon the participant's termination of employment (or other
12
<PAGE>
business relationship) with the Company and its Subsidiaries and such shares
shall be subject to the Company's right of repurchase as provided in Section
7(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock
----------------------------------------------
Award agreement may require or permit the immediate payment, waiver, deferral or
investment of dividends paid on the Restricted Stock.
SECTION 8. DEFERRED STOCK AWARDS
---------------------
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award
-------------------------------
of phantom stock units to a participant, subject to restrictions and conditions
as the Administrator may determine at the time of grant. Conditions may be
based on continuing employment (or other business relationship) and/or
achievement of pre-established performance goals and objectives. The grant of a
Deferred Stock Award is contingent on the participant executing the Deferred
Stock Award agreement. The terms and conditions of each such agreement shall be
determined by the Administrator, and such terms and conditions may differ among
individual Awards and participants. At the end of the deferral period, the
Deferred Stock Award, to the extent vested, shall be paid to the participant in
the form of shares of Stock.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation. The
-----------------------------------------------------------------
Administrator may, in its sole discretion, permit a participant to elect to
receive a portion of the cash compensation or Restricted Stock Award otherwise
due to such participant in the form of a Deferred Stock Award. Any such
election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with rules and
procedures established by the Administrator. The Administrator shall have the
sole right to determine whether and under what circumstances to permit such
elections and to impose such limitations and other terms and conditions thereon
as the Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a participant
-----------------------
shall have no rights as a stockholder; provided, however, that the participant
may be credited with Dividend Equivalent Rights with respect to the phantom
stock units underlying his Deferred Stock Award, subject to such terms and
conditions as the Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of during the deferral
period.
(e) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's right in all Deferred Stock
Awards that have not vested shall automatically terminate upon the participant's
termination of employment (or cessation of business relationship) with the
Company and its Subsidiaries for any reason.
13
<PAGE>
SECTION 9. UNRESTRICTED STOCK AWARDS
-------------------------
Grant or Sale of Unrestricted Stock. The Administrator may, in its sole
-----------------------------------
discretion, grant (or sell at par value or such higher purchase price determined
by the Administrator) an Unrestricted Stock Award to any participant pursuant to
which such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of cash compensation due to such
participant.
SECTION 10. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards. A Performance Share Award is an
----------------------------------
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified performance goals. The Administrator may make Performance Share
Awards independent of or in connection with the granting of any other Award
under the Plan. The Administrator in its sole discretion shall determine
whether and to whom Performance Share Awards shall be made, the performance
goals, the periods during which performance is to be measured, and all other
limitations and conditions.
(b) Rights as a Stockholder. A participant receiving a Performance Share
-----------------------
Award shall have the rights of a stockholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the Performance Share Award agreement (or in a performance plan
adopted by the Administrator).
(c) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's rights in all Performance Share
Awards shall automatically terminate upon the participant's termination of
employment (or cessation of business relationship) with the Company and its
Subsidiaries for any reason.
(d) Acceleration, Waiver, Etc. At any time prior to the participant's
-------------------------
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 15, amend any or all of the goals, restrictions or
conditions applicable to a Performance Share Award.
SECTION 11. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES
---------------------------------------------
Notwithstanding anything to the contrary contained herein, if any
Restricted Stock Award, Deferred Stock Award or Performance Share Award granted
to a Covered Employee is intended to qualify as "Performance-based Compensation"
under Section 162(m) of the Code
14
<PAGE>
and the regulations promulgated thereunder (a "Performance-based Award"), such
Award shall comply with the provisions set forth below:
(a) Performance Criteria. The performance criteria used in performance
--------------------
goals governing Performance-based Awards granted to Covered Employees may
include any or all of the following: (i) the Company's return on equity,
assets, capital or investment, (ii) pre-tax or after-tax profit levels of the
Company or any Subsidiary, a division, an operating unit or a business segment
of the Company, or any combination of the foregoing; (iii) cash flow, funds from
operations or similar measure; (iv) total shareholder return; (v) changes in the
market price of the Stock; (vi) sales or market share; or (vii) earnings per
share.
(b) Grant of Performance-based Awards. With respect to each Performance-
---------------------------------
based Award granted to a Covered Employee, the Committee shall select, within
the first 90 days of a Performance Cycle (or, if shorter, within the maximum
period allowed under Section 162(m) of the Code) the performance criteria for
such grant, and the achievement targets with respect to each performance
criterion (including a threshold level of performance below which no amount will
become payable with respect to such Award). Each Performance-based Award will
specify the amount payable, or the formula for determining the amount payable,
upon achievement of the various applicable performance targets. The performance
criteria established by the Committee may be (but need not be) different for
each Performance Cycle and different goals may be applicable to Performance-
based Awards to different Covered Employees.
(c) Payment of Performance-based Awards. Following the completion of a
-----------------------------------
Performance Cycle, the Committee shall meet to review and certify in writing
whether, and to what extent, the performance criteria for the Performance Cycle
have been achieved and, if so, to also calculate and certify in writing the
amount of the Performance-based Awards earned for the Performance Cycle. The
Committee shall then determine the actual size of each Covered Employee's
Performance-based Award, and, in doing so, may reduce or eliminate the amount of
the Performance-based Award for a Covered Employee if, in its sole judgment,
such reduction or elimination is appropriate.
(d) Maximum Award Payable. The maximum Performance-based Award payable to
---------------------
any one Covered Employee under the Plan for a Performance Cycle equals the
maximum number of Shares reserved and available for issuance during that
Performance Cycle as provided in Section 3(a) hereof (subject to adjustment as
provided in Section 3(b) hereof).
SECTION 12. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award
--------------------------
entitling the recipient to receive credits based on cash dividends that would
have been paid on the shares of Stock specified in the Dividend Equivalent Right
(or other award to which it relates) if such shares had been issued to and held
by the recipient. A Dividend Equivalent Right may be granted hereunder to any
participant as a component of another Award or as a freestanding
15
<PAGE>
award. The terms and conditions of Dividend Equivalent Rights shall be specified
in the grant. Dividend equivalents credited to the holder of a Dividend
Equivalent Right may be paid currently or may be deemed to be reinvested in
additional shares of Stock, which may thereafter accrue additional equivalents.
Any such reinvestment shall be at Fair Market Value on the date of reinvestment
or such other price as may then apply under a dividend reinvestment plan
sponsored by the Company, if any. Dividend Equivalent Rights may be settled in
cash or shares of Stock or a combination thereof, in a single installment or
installments. A Dividend Equivalent Right granted as a component of another
Award may provide that such Dividend Equivalent Right shall be settled upon
exercise, settlement, or payment of, or lapse of restrictions on, such other
award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other award. A Dividend Equivalent
Right granted as a component of another Award may also contain terms and
conditions different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in
--------------------
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the Administrator
-----------
either in the Award agreement or, subject to Section 15 below, in writing after
the Award agreement is issued, a participant's rights in all Dividend Equivalent
Rights or interest equivalents shall automatically terminate upon the
participant's termination of employment (or cessation of business relationship)
with the Company and its Subsidiaries for any reason.
SECTION 13. TAX WITHHOLDING
---------------
(a) Payment by Participant. Each participant shall, no later than the date
----------------------
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant. The Company's obligation to deliver stock certificates
to any participant is subject to and conditioned on tax obligations being
satisfied by the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
16
<PAGE>
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Administrator
otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award for the
purpose of satisfying changes in law or for any other lawful purpose, but no
such action shall adversely affect rights under any outstanding Award without
the holder's consent. The Administrator may provide substitute Awards at the
same or reduced exercise or purchase price or with no exercise or purchase price
in a manner not inconsistent with the terms of the Plan, but such price, if any,
must satisfy the requirements which would apply to the substitute or amended
Award if it were then initially granted under this Plan, but no such action
shall adversely affect rights under any outstanding Award without the holder's
consent. If and to the extent determined by the Administrator to be required by
the Code to ensure that Incentive Stock Options granted under the Plan are
qualified under Section 422 of the Code or to ensure that compensation earned
under Awards qualifies as performance-based compensation under Section 162(m) of
the Code, if and to the extent intended to so qualify, Plan amendments shall be
subject to approval by the Company stockholders entitled to vote at a meeting of
stockholders. Nothing in this Section 15 shall limit the Board's authority to
take any action permitted pursuant to Section 3(c).
SECTION 16. STATUS OF PLAN
--------------
With respect to the portion of any Award that has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
17
<PAGE>
SECTION 17. CHANGE OF CONTROL PROVISIONS
----------------------------
Upon the occurrence of a Change of Control as defined in this Section 17:
(a) Except as otherwise provided in the applicable Award agreement, each
outstanding Stock Option and Stock Appreciation Right shall automatically become
fully exercisable.
(b) Each outstanding Restricted Stock Award, Deferred Stock Award and
Performance Share Award shall be subject to such terms, if any, with respect to
a Change of Control as have been provided by the Administrator in the Award
agreement, or subject to Section 15 above, in writing after the Award agreement
is issued.
(c) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Act (other than the Company, any of its Subsidiaries, or any trustee,
fiduciary or other person or entity holding securities under any employee
benefit plan or trust of the Company or any of its Subsidiaries), together
with all "affiliates" and "associates" (as such terms are defined in Rule
12b-2 under the Act) of such person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company representing 25 percent or more of
the combined voting power of the Company's then outstanding securities
having the right to vote in an election of the Company's Board of Directors
("Voting Securities") (in such case other than as a result of an
acquisition of securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the Company's
Board of Directors (the "Incumbent Directors") cease for any reason,
including, without limitation, as a result of a tender offer, proxy
contest, merger or similar transaction, to constitute at least a majority
of the Board, provided that any person becoming a director of the Company
subsequent to the Effective Date shall be considered an Incumbent Director
if such person's election was approved by or such person was nominated for
election by either (A) a vote of at least a majority of the Incumbent
Directors or (B) a vote of at least a majority of the Incumbent Directors
who are members of a nominating committee comprised, in the majority, of
Incumbent Directors; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company where the stockholders of the
Company, immediately prior to the consolidation or merger, would not,
immediately after the consolidation or merger, beneficially own (as such
term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate 50 percent or more of the voting
shares of the corporation issuing cash or securities in the consolidation
or merger (or of its
18
<PAGE>
ultimate parent corporation, if any), (B) any sale, lease, exchange or
other transfer (in one transaction or a series of transactions contemplated
or arranged by any party as a single plan) of all or substantially all of
the assets of the Company or (C) any plan or proposal for the liquidation
or dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed to
have occurred for purposes of the foregoing clause (i) solely as the result of
an acquisition of securities by the Company which, by reducing the number of
shares of Voting Securities outstanding, increases the proportionate number of
shares of Voting Securities beneficially owned by any person to 25 percent or
more of the combined voting power of all then outstanding Voting Securities or
(ii) any of the foregoing arising out of or in connection with the initial
public offering of the Company's common stock; provided, however, that if any
-------- -------
person referred to in this sentence shall thereafter become the beneficial owner
of any additional shares of Voting Securities (other than pursuant to a stock
split, stock dividend, or similar transaction or as a result of an acquisition
of securities directly from the Company), then a "Change of Control" shall be
deemed to have occurred for purposes of the foregoing clause (i).
SECTION 18. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The Administrator
---------------------------------------------------
may require each person acquiring Stock pursuant to an Award to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to participants
------------------------------
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under
---------------------------
the Plan shall be subject to such Company's insider-trading-policy-related
restrictions, terms and
19
<PAGE>
conditions as may be established by the Administrator, or in accordance with
policies set by the Administrator, from time to time.
SECTION 19. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the votes cast at a meeting of stockholders at which a quorum is present.
Subject to such approval by the stockholders and to the requirement that no
Stock may be issued hereunder prior to such approval, Stock Options and other
Awards may be granted hereunder on and after adoption of this Plan by the Board.
SECTION 20. GOVERNING LAW
-------------
This Plan and all Awards and actions taken thereunder shall be governed by,
and construed in accordance with, the laws of the State of Delaware, applied
without regard to conflict of law principles.
<TABLE>
<S> <C>
Initial Plan Approval by Board of Directors: May 20, 1998
Initial Plan Approved by Stockholders: May 20, 1998
Amended and Restated Plan Approved by
Board of Directors: July 1, 1998
Amended and Restated Plan Approved by
Stockholders: July 1, 1998
</TABLE>
20
<PAGE>
Exhibit 10.21
SECURITY AGREEMENT
------------------
THIS IS A SECURITY AGREEMENT (the "Agreement"), made and entered into this
31st day of October, 1995, by and between ROGERS-AMERICAN COMPANY OF FLORIDA,
INC., a North Carolina corporation, located at P.O. Box 473510, Charlotte, N.C.
28247-3510 (the "Debtor"), who is hypothecating the Collateral (as defined
herein) to DOPSON-HICKS OF TAMPA, INC., DOPSON-HICKS OF JACKSONVILLE, INC.,
DOPSON-HICKS OF MIAMI, INC. AND L.C. HICKS, JR. of P.O. Box 18004, Tampa,
Florida 33679, (collectively the "Secured Party"), for a purchase money loan
to Debtor and to secure other obligations of Debtor. ROGERS-AMERICAN COMPANY,
INC., a North Carolina Corporation of P.O. Box 473510, Charlotte, N.C.
28247-3510 (hereinafter referred to as "Rogers-American") has entered into this
Agreement for purposes of its obligations under Section 1.05 hereinbelow.
NOW, THEREFORE, in consideration of the covenants and conditions stated in
this Agreement and by virtue of the Indebtedness (as defined herein), the
parties agree as follows:
1. Security Interest. For value received, Debtor gives Secured Party a
------------------
security interest (the "Security Interest") in and to all the following goods,
accounts, inventory and general intangibles, and in all parts, accessories,
attachments, additions, replacements, and in all proceeds and products thereof,
in any form, including insurance policies from the loss thereof (collectively
the "Collateral"):
1.01 Accounts: All present and after-acquired accounts receivable,
---------
defined as any right to payment for goods sold or for services rendered, whether
or not it has been earned by performance, including, without limitation all
income of every type or character due to Debtor for brokerage services (or goods
sold relative thereto) from or with respect to its principals or principal
accounts.
1.02 Furniture, Furnishings, Fixtures, Equipment. All furniture,
--------------------------------------------
furnishings, fixtures, and equipment, including but not limited to leasehold
improvements, now owned or hereafter acquired, located on the property herein
described or on any other property owned or leased currently or in the future
for the operation of the Debtor's business.
1.03 Inventory. Inventory now owned or hereafter owned or acquired
----------
by Debtor, including without limitation goods held for sale or lease or to be
furnished under contracts of service, raw materials, work in process and
materials to be used or consumed in the Debtor's business.
<PAGE>
1.04 General Intangibles. All general intangibles owned or hereafter
--------------------
owned by the Debtor, including without limitation goodwill, leases of real
and/or personal property, trademarks, trade styles, trade names, and deposit
accounts, principal accounts, principal lists and contracts with principals,
including, without limitation, those principals set out on Exhibit "A" attached
hereto, to include all such general intangibles now owned or hereafter created
or acquired.
1.05 Stock Pledge. Rogers-American hereby grants, conveys, assigns
-------------
and pledges to Secured Party as additional Collateral for the Indebtedness all
of the shares of common stock owned by Rogers-American in Debtor pursuant to
that certain Stock Pledge Agreement attached hereto as Exhibit "B" and
incorporated herein by this reference (the "Stock Pledge Agreement"). Such
shares of stock shall, for all purposes herein, be included as part of the
Collateral.
2. Indebtedness Secured. This Agreement and the Security Interest
---------------------
created by it secure payment of all indebtedness of every kind owing by the
Debtor to the Secured Party or to any party included within the definition of
"Secured Party", whether now existing or hereafter incurred, direct or indirect,
and whether the indebtedness is from time to time reduced and thereafter
increased or entirely extinguished and thereafter reincurred (the
"Indebtedness"). The Indebtedness includes any sums advanced and any expenses
incurred by the Secured Party pursuant to this Agreement, and includes but is
not limited to the indebtedness evidenced by (a) the certain Promissory Note of
even date herewith in the original principal amount of FOUR MILLION DOLLARS
($4,000,000.00), a copy of which is attached as Exhibit "C" (the "Goodwill
Note"); (b) the certain Promissory Note to be given by Debtor to the Secured
Party under Section 1.1(b) of the "Asset Purchase Agreement" (as defined
hereinbelow), a copy of the agreed upon form of which is attached hereto as
Exhibit "D" (the "Loan Amount Note"); (c) that certain
Employment/Non-Competition/Non-Disclosure Agreement of even date herewith, a
copy of which is attached hereto as Exhibit "E" (the "Hicks Agreement"); (d)
that certain Unconditional and Continuing Guaranty of even date herewith
executed by Rogers-American (the "Guaranty"); and (e) that certain Asset
Purchase Agreement dated October 17, 1995 between the parties hereto (the
"Asset Agreement").
3. Representations and Warranties of Debtor. The Debtor represents and
-----------------------------------------
warrants as of the date hereof, that (which representations and warranties shall
survive the execution hereof):
3.01 The Debtor is the owner of the Collateral free of all security
interests or other encumbrances other than the Security Interest.
2
<PAGE>
3.02 The Debtor is authorized to enter into this Security Agreement
and into the transactions evidenced by the Collateral.
3.03 The Collateral is used or bought for use primarily in business
or professional operations.
3.04 If any item of the Collateral is or will become a fixture, it
will, subject to the conditions set forth in Paragraph 4.07 hereinbelow, be
affixed to real property located at the Debtor's address(es) specified on
Exhibit "F" attached hereto. The real property to which the Collateral will be
affixed is owned by those persons set forth on Exhibit "F".
3.05 The Debtor is engaged in business operations which are carried
on at the address(es) specified on Exhibit "F".
3.06 The Collateral is located at the address(es) specified on
Exhibit "F".
4. Covenants of Debtor. The Debtor covenants that so long as any
--------------------
Indebtedness remains unpaid, the Debtor:
4.01 Will defend the Collateral against the claims and demands of all
other parties except purchasers of inventory in the ordinary course of the
Debtor's business.
4.02 Will keep the Collateral free from all security interests or
other encumbrances except the Security Interest.
4.03 Subject to the conditions set forth in Paragraph 4.07
hereinbelow, will not sell, transfer, assign, deliver or otherwise dispose of
any Collateral or any interest therein without the prior written consent of the
Secured Party, except that until the occurrence of an event of default the
Debtor may sell inventory in the ordinary course of the Debtor's business.
4.04 Will not without the written consent of the Secured Party create
in favor of anyone other than the Secured Party a security interest in its
principal accounts, contracts with principals or its other assets.
4.05 Will execute and deliver to the Secured Party such financing
statements and other documents, pay all costs of title searches and filing
financing statements and other documents in all public offices requested by the
Secured Party and take such other action as the Secured Party may deem advisable
to perfect the Security Interest created by this Agreement.
4.06 Will pay or cause to be paid all taxes, assessments and other
charges of every nature which may be properly levied or assessed against the
Collateral.
3
<PAGE>
4.07 Will keep the Collateral at the address(es) specified above and
will not remove said Collateral without, no less than sixty (60) days prior to
the intended move or relocation, submitting written notice to the Secured Party
of such removal of Collateral, and without, prior to any such relocation, all
steps being taken and completed and all documents being executed and filed
necessary to continue and protect Secured Party's Security Interest in the
Collateral as a prior perfected lien, including filing any amended or substitute
UCC financing statements.
4.08 Will keep the Collateral in good condition and repair and will
not use the Collateral in violation of any provisions of this Security
Agreement, of any applicable statute, regulation or ordinance or of any policy
of insurance insuring the Collateral.
5. Verification of Collateral.
---------------------------
5.01 The Secured Party shall have the right to verify any Collateral
in any manner and through any medium which the Secured Party may consider
appropriate and the Debtor shall furnish such assistance and information and
perform such acts as the Secured Party may require in connection therewith.
5.02 Secured Party shall have the right at any time to review,
inspect and copy all books and records of Debtor and Debtor's business
operations, including, without limitation, all checkbooks, bank statements,
accounts receivable and payable records, insurance records, etc. Debtor shall
provide Secured Party with monthly, quarterly and annual financial statements of
Debtor and Rogers-American and a copy of all tax returns filed in connection
with Debtor's business operations.
6. Default.
--------
6.01 Events of Default. Any of the following events or conditions
------------------
shall constitute an event of default:
(a) Subject to any notice requirements and cure opportunities
expressly provided therein, non-payment when due whether by acceleration or
otherwise of the principal of or other payment due on any Indebtedness, time
being of the essence.
(b) Failure by the Debtor to perform any obligations under this
Agreement within ten (10) days after notice from Secured Party to do so, or,
subject to any notice requirements and cure opportunities expressly provided
therein, failure by the Debtor to perform any obligations under any other
agreement between the Debtor and the Secured Party, including, without
limitation, the Goodwill Note, Loan Amount Note or Hicks Agreement.
4
<PAGE>
(c) The commission or alleged commission of any act outside of
the normal, ordinary course of business conducted in good faith which would give
rise to suspension, termination, default, or revocation of or under any
principal contract or principal account or any other contract, agreement or
instrument forming a part of the Collateral, unless within twenty (20) days of
written notice from Secured Party, Debtor provides Secured Party with
substituted collateral of a type, quality and value reasonably acceptable to
Secured Party.
(d) Failure by the Debtor to comply with all terms and conditions
of, or the occurrence of any act of default under, the Loan Amount Note,
Goodwill Note and/or Hicks Agreement, subject to any notice requirements and
cure opportunities expressly provided therein.
(e) Filing by or against the Debtor of a petition in bankruptcy
or for reorganization under the Bankruptcy Code or for an arrangement under the
Bankruptcy Code.
(f) Making a general assignment by the Debtor for the benefit of
creditors; the appointment of a receiver or trustee for the Debtor or for any of
the Debtor's assets; or the institution by or against the Debtor of any kind of
insolvency proceedings or any proceeding for the dissolution or liquidation of
the Debtor.
(g) The occurrence of any event described in subparagraphs 6.01
(a), (b), (c), (d), (e) or (f) hereof with respect to any endorser or guarantor
or any party liable for payment of any Indebtedness.
(h) Material falsity in any certificate, statement,
representation, warranty, or audit at any time furnished to the Secured Party by
or on behalf of the Debtor or any endorser or guarantor or any other party
liable for payment of any Indebtedness, pursuant to or in connection with the
Security Agreement or otherwise (including warranties in this Agreement), and
including any omission to disclose any substantial contingent or liquidated
liabilities or any material adverse change in any facts disclosed by any
certificate statement, representation, warranty or audit furnished to the
Secured Party.
(i) A default by Debtor or any endorser or guarantor in any
agreement assigned to the Secured Party as Collateral for the Indebtedness,
unless, within twenty (20) days notice from Secured Party to Debtor, such
default shall have been cured and/or otherwise remedied to the reasonable
satisfaction of Secured Party.
5
<PAGE>
(j) The failure on the part of Debtor or Rogers-American to
comply with, or any breach or violation of, any of the terms, covenants,
representations and/or warranties of either Debtor or Rogers-American under the
provisions of the Asset Agreement, including, without limitation, those set
forth in Articles IV and VI of said Asset Agreement, but subject to the notice
requirements and cure opportunities expressly set forth in Section 9.1 of the
Asset Agreement.
(k) Subject to any notice requirements and cure opportunities
expressly provided therein, the failure on the part of Rogers-American to comply
with or perform any obligations of, or the occurrence of any act of default
under, the Stock Pledge Agreement or the Guaranty.
6.02 Remedies Upon Default. Subject to any notice requirements and
----------------------
cure opportunities expressly stated therein, the Secured Party may accelerate
and declare all or part of the Indebtedness to be immediately due upon the
happening of any event of default under this Agreement or any document forming a
part of the Indebtedness or if the Secured Party in good faith believes that the
prospect of payment of all or any part of the Indebtedness or the performance of
the Debtor's obligations under this Agreement or any other agreement now or
hereafter in effect between the Debtor and the Secured Party is impaired and,
within thirty (30) days after notice to Debtor, such potential impairment of
future payment and/or performance is not remedied to the reasonable satisfaction
of Secured Party. This paragraph is not intended to affect any rights of the
Secured Party with respect to any Indebtedness which may now or hereafter be
payable on demand.
6.03 Rights of Secured Party Upon Default. Upon the happening of any
-------------------------------------
event of default the Secured Party's rights with respect to the Collateral shall
be those of a secured party under the Uniform Commercial Code and any other
applicable law from time to time in effect. The Secured Party shall also have
any additional rights granted herein and in any other agreement now or hereafter
in effect between the Debtor and the Secured Party, including, without
limitation, the Goodwill Note, Loan Amount Note, Hicks Agreement, Stock Pledge
Agreement, Guaranty and the aforementioned Asset Agreement. If requested by the
Secured Party the Debtor will assemble the Collateral and make it available to
the Secured Party at a place to be designated by the Secured Party.
6.04 Notice. The Debtor agrees that any notice by the Secured Party of
-------
the sale or disposition of the Collateral or any other intended action
hereunder, whether required by the Uniform Commercial Code or otherwise, shall
constitute reasonable notice to the Debtor if the notice is mailed by regular or
certified mail, postage prepaid, at least five (5) days before the action, to
the Debtor's address as specified in this Agreement or to any other address
which the Debtor has specified in writing to
6
<PAGE>
the Secured Party as the address to which notice shall be given to the Debtor.
6.05 Costs. Debtor shall pay all reasonable costs and expenses
------
incurred by the Secured Party in enforcing this Agreement, realizing upon any
Collateral and collecting any Indebtedness. Costs and expenses will include all
reasonable attorney's fees (as defined in the promissory notes attached to this
Agreement as Exhibits "C" and "D"). In the event of any litigation commenced
under this Agreement, such costs and expenses shall be paid by Debtor only to
the extent Secured Party prevails in any such action.
7. Miscellaneous.
--------------
7.01 Perfection of Security Interest. The Debtor authorizes the
--------------------------------
Secured Party at the Debtor's expense to file any financing statement or
statements relating to the Collateral (without the Debtor's signature thereon)
which the Secured Party deems appropriate, and the Debtor appoints the Secured
Party as the Debtor's attorney-in-fact to execute any such financing statement
or statements in the Debtor's name and to perform all other acts which the
Secured Party deems appropriate to perfect and to continue perfection of the
Security Agreement. All financing statements to be initially filed under this
Agreement in connection with the execution hereof shall be signed by both
Secured Party and Debtor.
7.02 Failure to Perform; Reimbursement. Upon the Debtor's failure to
----------------------------------
perform any of its duties hereunder the Secured Party may, but it shall not be
obligated to, perform any of such duties and the Debtor shall forthwith upon
demand reimburse the Secured Party for any expenses incurred by the Secured
Party in doing so.
7.03 Non-Waiver; Cumulative Rights. No delay or omission by the
------------------------------
Secured Party in exercising any right hereunder or with respect to any
Indebtedness shall operate as a waiver of that or any other right, and no single
or partial exercise of any right shall preclude the Secured Party from any other
or future exercise of the right or the exercise of any other right or remedy.
The Secured Party may cure any default by the Debtor in any reasonable manner
without waiving the default so cured and without waiving any other prior or
subsequent default by the Debtor. All rights and remedies of the Secured Party
under this Agreement and under the Uniform Commercial Code shall be deemed
cumulative.
7.04 Waiver of Notice of Dishonor and Protest. Except as expressly
-----------------------------------------
provided to the contrary herein, the Debtor waives notice of dishonor and
protest of any instrument constituting Collateral at any time held by the
Secured Party on
7
<PAGE>
which the Debtor is in any way liable and waives notice of any other action by
the Secured Party.
7.05 Rights of Acquiring Parties. The rights and benefits of the
----------------------------
Secured Party under this Agreement shall, if the Secured Party agrees, inure to
any party properly acquiring an interest in the Indebtedness or any part
thereof; such rights of Secured Party to assign or otherwise transfer the rights
and benefits under this Agreement being limited as set forth in Section 9.1 of
the Asset Agreement, and the rights to assign this Agreement by Rogers-American
being limited as set forth in Sections 6.7 and 9.11 of the Asset Agreement.
Debtor has no right to assign this Agreement without the written consent of the
Secured Party.
7.06 Applicability of Terms. The terms "Secured Party" and "Debtor" as
-----------------------
used in this Agreement include the heirs, personal representatives, permitted
successor(s) and permitted assigns of these parties.
7.07 Multiple Debtors. If more than one Debtor executes this Security
-----------------
Agreement, the term "Debtor" includes each of the Debtors as well as all of
them, and their obligations under this Agreement shall be joint and several.
7.08 Amendment; Waiver. This Agreement may not be modified or amended,
------------------
nor shall any provision of it be waived except by a written instrument signed by
an authorized officer of the Debtor and by an authorized officer of the Secured
Party.
7.09 Choice of Law. This Agreement has been delivered in the State of
--------------
Florida and shall be construed under the Uniform Commercial Code as enacted in
the State of Florida and any other applicable Florida laws in effect from time
to time and shall be enforceable, at the option of the Secured Party, only in a
court of competent jurisdiction in the County of Hillsborough, State of Florida,
notwithstanding the location of the Collateral. Debtor, Secured Party and
Rogers-American each hereby expressly waive all rights to a jury trial with
respect to any and all actions commenced by any party hereto under or in
connection with this Security Agreement.
7.10 Continuing Agreement. This Agreement is a continuing agreement
---------------------
which shall remain in force until all of the Indebtedness contracted for or
created and any extension or renewals on that Indebtedness together with all
interest thereon shall be paid in full.
7.11 Exhibits. All exhibits and other documents and instruments
---------
attached to, or referred to, in this Agreement are hereby incorporated into this
Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
"Debtor"
ROGERS-AMERICAN COMPANY OF
FLORIDA, INC., a North Carolina
Corporation
illegible
- --------------------------------
illegible By: /s/ Curt L. Rogers
- -------------------------------- --------------------------------
Witnessed as to Debtor
Name: CURT L. ROGERS
------------------------------
Title: CHAIRMAN
-----------------------------
"Secured Party"
DOPSON-HICKS OF TAMPA, INC., a
Florida Corporation
illegible
- --------------------------------
illegible By: /s/ L.C. Hicks, Jr.
- -------------------------------- --------------------------------
Witnessed as to Secured Party L.C. HICKS, JR.
President
DOPSON-HICKS OF JACKSONVILLE,
INC., a Florida Corporation
illegible
- --------------------------------
illegible By: /s/ L.C. Hicks, Jr.
- -------------------------------- --------------------------------
Witnessed as to Secured Party L.C. HICKS, JR.
President
DOPSON-HICKS OF MIAMI, INC., a
Florida Corporation
illegible
- --------------------------------
illegible By: /s/ L.C. Hicks, Jr.
- -------------------------------- --------------------------------
Witnessed as to Secured Party L.C. HICKS, JR.
President
illegible
- --------------------------------
illegible By: /s/ L.C. Hicks, Jr.
- -------------------------------- --------------------------------
Witnessed as to Secured Party L.C. HICKS, JR.
Individually
9
<PAGE>
"Rogers-American"
ROGERS-AMERICAN COMPANY, INC.,
a North Carolina Corporation
/s/ Marty D. Carter
- ------------------------
illegible
- ------------------------ By: /s/ Curt L. Rogers
Witnessed as to Rogers- ---------------------------
American
Name: CURT L. ROGERS
-------------------------
Title: CHAIRMAN
------------------------
STATE OF NORTH CAROLINA
COUNTY OF UNION
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by Curt L. Rogers, as Chairman of ROGERS-AMERICAN COMPANY OF
FLORIDA, INC., a North Carolina Corporation, on behalf of the Corporation.
He/she is personally known to me or who has produced North Carolina Driver's
License 1653193 as identification and who did [did not] take an oath.
/s/ Sheryl M. Gaddy
------------------------------------
NOTARY PUBLIC -
State of North Carolina
My Commission Expires: 5-2-2000
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by L.C. HICKS, JR., as President of DOPSON-HICKS OF TAMPA, INC.,
a Florida Corporation, on behalf of the Corporation. He is personally known to
me or who has produced Florida Driver's License personally known as
identification and who did take an oath.
/s/ Linda B. Wade
------------------------------------
NOTARY PUBLIC - State of Florida
My Commission Expires: 12-29-98
----------------------------------
OFFICIAL NOTARY SEAL
LINDA B WADE
NOTARY PUBLIC STATE OF FLORIDA
COMMISSION NO. CC430507
MY COMMISSION EXP. DEC. 29, 1998
----------------------------------
10
<PAGE>
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by L.C. HICKS, JR., as President of DOPSON-HICKS OF JACKSONVILLE,
INC., a Florida Corporation, on behalf of the Corporation. He is personally
known to me or who has produced Florida Driver's License (personally known) as
identification and who did take an oath.
/s/ Linda B. Wade
----------------------------------
NOTARY PUBLIC - State of Florida
My Commission Expires: 12-29-98
----------------------------------
OFFICIAL NOTARY SEAL
LINDA B WADE
STATE OF FLORIDA NOTARY PUBLIC STATE OF FLORIDA
COUNTY OF HILLSBOROUGH COMMISSION NO. CC430507
MY COMMISSION EXP. DEC 29, 1998
----------------------------------
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by L.C. HICKS, JR., as President of DOPSON-HICKS OF MIAMI, INC.,
a Florida Corporation, on behalf of the Corporation. He is personally known to
me or who has produced Florida Driver's License (personally known) as
identification and who did take an oath.
/s/ Linda B. Wade
----------------------------------
NOTARY PUBLIC - State of Florida
My Commission Expires: 12-29-98
----------------------------------
OFFICIAL NOTARY SEAL
LINDA B WADE
STATE OF NORTH CAROLINA NOTARY PUBLIC STATE OF FLORIDA
COUNTY OF UNION COMMISSION NO. CC430507
MY COMMISSION EXP. DEC 29, 1998
----------------------------------
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by Curt L. Rogers, as Chairman of ROGERS-AMERICAN COMPANY, INC.,
a North Carolina Corporation, on behalf of the Corporation. He/she is personally
known to me or who has produced North Carolina Driver's License 16-53193 as
identification and who did take an oath.
/s/ Sheryl M. Gaddy
------------------------------
NOTARY PUBLIC - State of
North Carolina
My Commission Expires: 5-2-2000
11
<PAGE>
STATE OF FLORIDA
COUNTY OF HILLSBOROUGH
The foregoing instrument was acknowledged before me this 27th day of
October, 1995, by L.C. HICKS, JR, individually, who is personally known to me or
who has produced Florida Driver's License (personally known) as identification
and who did take an oath.
/s/ Linda B. Wade
---------------------------------
NOTARY PUBLIC - State of Florida
My Commission Expires: 12-29-98
-----------------------------------
OFFICIAL NOTARY SEAL
LINDA B WADE
NOTARY PUBLIC STATE OF FLORIDA
COMMISSION NO. CC430507
MY COMMISSION EXP. DEC 29, 1998
-----------------------------------
12
<PAGE>
Exhibit 10.22
STOCK PLEDGE AGREEMENT
----------------------
THIS AGREEMENT, made and entered into this 31st day of October,
1995, by and between ROGERS-AMERICAN COMPANY, INC., a North Carolina Corporation
of Post Office Box 473510, Charlotte, North Carolina 28247-3510 (hereinafter
referred to as the ("Pledgor"), and DOPSON-HICKS OF TAMPA, INC., a Florida
Corporation, DOPSON-HICKS OF JACKSONVILLE, INC., a Florida Corporation,
DOPSON-HICKS OF MIAMI, INC., a Florida Corporation, and L.C. HICKS, JR., of Post
Office Box 18004, Tampa, Florida 33679-8004 (hereinafter collectively referred
to as the "Pledgee").
R E C I T A L S
WHEREAS, Rogers-American Company of Florida, Inc., a North
Carolina Corporation of Post Office Box 473510, Charlotte, North Carolina
28247-3510 (hereinafter referred to as the "Debtor") is currently indebted to
the three corporate entities forming a part of Pledgee in the total amount of
$4,000,000.00 as evidenced by that certain Promissory Note of even date
herewith, a copy of which is attached hereto as Exhibit "A" and incorporated
herein by reference (hereinafter referred to as the "Goodwill Note"), and will
become further indebted to Pledgee pursuant to a loan to be made in accordance
with Section 1.1(b) of the "Asset Purchase Agreement" (as defined hereinbelow),
said additional loan to be evidenced by a certain Promissory Note, a copy of
which is attached hereto as Exhibit "B" and incorporated herein by reference
(hereinafter referred to as the "Loan Amount Note"); and
WHEREAS, Debtor has entered into a certain Employment/Non-
Competition/Non-Disclosure Agreement of even date herewith with L.C. Hicks, Jr.
(hereinafter referred to as the "Hicks Agreement") whereby the Debtor has
obligated itself with respect to certain compensation and other employment
responsibilities; and
WHEREAS, Debtor has secured its obligations under the Goodwill
Note, Loan Amount Note and Hicks Agreement by means of a certain Security
Agreement of even date herewith (the "Security Agreement"), and pursuant to
which Pledgor has entered into this Agreement; and
WHEREAS, Pledgor has entered in a certain Unconditional and
Continuing Guaranty of even date herewith (the "Guaranty") whereby Pledgor has
guaranteed payment and performance of Debtor's obligations under the Goodwill
Note, Loan Amount Note, Hicks Agreement and Security Agreement, and Pledgor has
further entered into this Agreement as additional security for Debtor's
obligations under those documents and for Pledgor's obligations under the
Guaranty; and
<PAGE>
WHEREAS, Pledgor is owner and holder of 100 shares of $1.00 par value
issued and outstanding common stock of Debtor; and
WHEREAS, the Pledgor, as the owner of such issued and outstanding
stock has agreed that the same will be pledged as security for the repayment of
the aforesaid indebtedness and obligations.
NOW, THEREFORE, in consideration of the foregoing Recitals which shall
be deemed an integral part of this Agreement and not merely as recitals thereto,
and in consideration of the mutual agreements and covenants herein contained,
the parties hereto, intending to be legally bound thereby, agree as follows:
1. Pledge. The Pledgor herein delivers and conveys to the Pledgee to
-------
be held in escrow by LOPEZ & KELLY, P.A., (hereinafter referred to as the
"Escrow Agent") the following shares of stock represented by the following
certificate number:
One Hundred (100) shares of $1.00 par value common stock of Debtor bearing
Certificate No. 1.
2. Term. Equitable title to such stock shall remain vested in the
-----
Pledgor and the Escrow Agent shall hold such stock only as security for (i) the
repayment of the indebtedness described in Exhibits "A" and "B" hereto; (ii) the
obligations under the Hicks Agreement; (iii) the obligations under the Security
Agreement; (iv) the obligations under the Guaranty; and (v) the obligations
under that certain Asset Purchase Agreement between Pledgor, Pledgee and Debtor
dated October 17, 1995 (the "Asset Agreement") (hereinafter all such obligations
of Debtor and Pledgor are referred to as the "Indebtedness"). Escrow Agent shall
not encumber or dispose of such stock except in accordance with the provisions
of this Agreement. Such stock shall remain so pledged to the Pledgee until the
said Indebtedness is repaid in full with applicable interest.
3. Voting. During the term of this pledge and so long as the Debtor
-------
or Pledgor is not in default in the performance of any of the terms of the
Indebtedness described above, then the Pledgor shall have the right to vote the
pledged stock on all corporate questions and the Pledgee shall execute due and
timely proxies in favor of the Pledgor and may be necessary to this end.
4. Representations and Warranties as to Ability to Pledge Stock.
-------------------------------------------------------------
(a) The Pledgor warrants and represents that the Pledgor has the
right, power and authority to transfer the pledged stock, that
such stock is
2
<PAGE>
being pledged and transferred free and clear of any and all liens,
restrictions and encumbrances of every type and character, and that
such pledge and transfer may be made without obtaining the consent so
to do from any person, corporation or entity whatsoever, except the
Pledgee.
(b) Pledgor represents and warrants that the pledged stock constitutes
one hundred percent (100%) of the issued and outstanding stock of
Debtor of all classes and the Pledgor has the sole right and authority
to pledge such stock.
(c) Pledgor represents that it is the sole owner of the pledged stock.
5. Stock Adjustments, Warrants and Rights. In the event that during the
---------------------------------------
term of this pledge any stock dividend, reclassification, readjustment or other
change is declared or made in the capital structure of the corporate issuer of
any of the pledged stock, all new substituted and additional shares or other
securities issued in respect to the pledged stock shall be held by the Escrow
Agent under the terms of this Agreement in the same manner as the shares of
stock originally pledged hereunder; and in the event that during the term of
this pledge subscription warrants or any other rights or options shall be issued
in connection with the pledged stock, such warrants, rights, and options shall
be immediately assigned by the Pledgee to the Pledgor, and if exercised by the
Pledgor all new stock or other securities so acquired by the Pledgor shall be
immediately assigned to the Pledgee to be held under the terms of this Agreement
in the same manner as the shares of stock originally pledged hereunder.
6. Return of Stock. Upon the pledge of stock, Pledgee shall deliver with
----------------
the original stock certificates executed stock powers in blank to the Escrow
Agent covering the pledged stock and the Escrow Agent shall return to the
Pledgor all of the stock pledged hereunder upon the payment in full of the
Indebtedness.
7. Documentary Stamps. The Pledgor agrees to pay for any and all
-------------------
documentary stamps which may be imposed on the transfer and delivery to Escrow
Agent of the pledged stock and substitutions thereof and any additions thereto,
and which may be imposed on the retransfer and redelivery of the same to the
Pledgor.
8. Default. In the event the Pledgor defaults in the performance of any
--------
of the terms of this Agreement and fails to cure such default within ten (10)
days after written notice to do so, or if an event of default, as defined in the
terms and conditions contained in the various documents referred to above and
forming a part of the Indebtedness and subject to any applicable notice
requirements and cure opportunities specifically set forth therein,
3
<PAGE>
shall occur or a default under any agreement relating thereto, or if a breach or
default occurs under any of the provisions of the Asset Agreement, including,
without limitation, those within Articles IV and VI, but subject to the notice
requirements and cure opportunities specifically set forth in Section 9.1 of the
Asset Agreement, the Pledgee shall have the following rights, exercisable
immediately after compliance with any required notice from Pledgee to Debtor
and/or Pledgor and termination without cure of any required cure opportunity
under the applicable document within the Indebtedness as to such event of
default:
(a) To direct the Escrow Agent to sell the whole or any part
of the pledged stock and any substitutes therefor and any
additions thereto, at public or private sale, at the option
of the said Pledgee and from the proceeds derived from the
said sale to pay first the cost and expenses of said sale,
including a reasonable attorneys' fee for making said sale,
and second, any interest which may then have accrued with
respect thereto, and third, the unpaid principal balance of
the Indebtedness, and accounting thereafter to the Pledgor
for any surplus then remaining derived from said sale after
making all the payments herein above set forth, such surplus,
if any, to be paid over and delivered to Pledgor, and at such
sale the Pledgee may be a bidder, and may purchase the
pledged stock or any part thereof; provided, however, that
ten (10) days notice of said sale and the time and place
thereof shall be given to the Pledgor by personal delivery or
by certified or registered mail addressed to the Pledgor at
Post Office Box 473510, Charlotte, North Carolina 28247-3510,
Attn: Douglas Holstein, President. It is further agreed that
after a sale and purchase of the pledged stock or any part
thereof there shall be no equity or right of redemption on
the part of or by the Pledgor, as all rights of redemption
are hereby expressly waived and released. It is further
understood and agreed that the Debtor and Pledgor shall
remain liable for any deficiency that may arise after the
sale or sales of the pledged stock. It is further agreed that
no public advertisement of the sale of the stock so pledged
hereunder shall be necessary, and that the Pledgee may at any
sale sell all or any part of such stock hereby pledged and
that a sale of a part of such stock shall not operate to
prevent the sale at a later date of the remainder of such
stock, and that such sale may continue from day to day at the
option of the Pledgee without further notice to the Pledgor.
4
<PAGE>
(b) The right to vote the pledged stock on all corporate
questions until such time as the default is cured and the
Pledgor shall execute due and timely proxies in favor of the
Pledgee as may be necessary to this end.
It is understood that the Pledgee may exercise either or both options to
the extent that same, in its sole discretion, will most likely lead to the
satisfaction of the Indebtedness secured by this pledge; that the rights
hereunder are in addition to any and all other rights which the Pledgee may
have under any other agreements whatsoever or by law; and further that Pledgee
may exercise either or both of the above options whether or not it exercised
any of such additional rights.
9. Prohibition of Sale or Further Encumbrance of Stock. During the
---------------------------------------------------
term of this pledge, the Pledgor agrees not to sell, assign, dispose of or
further encumber the shares of stock subject to this pledge, and Debtor agrees
not to issue any additional shares of its common stock, or create any additional
classes of stock, without the written consent of Pledgee, which consent for any
of such prohibited actions of Debtor and Pledgor shall be in the sole and
exclusive discretion of the Pledgee.
10. Corporation Parties to this Agreement. By being made a party to this
-------------------------------------
Agreement, the corporations which are parties to this Agreement agree to the
terms and conditions hereof and further agree that the execution and delivery of
this Agreement shall be authorized by a meeting of the Board of Directors of the
corporations which are parties to this Agreement to be held prior to the
consummation of this Agreement.
11. Benefit. This Agreement shall be binding upon and inure to the
-------
benefit of the parties hereto and their respective heirs, beneficiaries,
personal representatives, successors, or assigns, and it is particularly
understood and agreed that whenever the term "Pledgee" is used in the Agreement,
the said term shall include the Pledgee's successors and assigns; provided,
however, any rights of Pledgee to assign this Agreement shall be limited as
set forth in Section 9.11 of the Asset Agreement and any rights of Pledgor to
assign this Agreement shall be limited as set forth in Sections 6.7 and 9.11 of
the Asset Agreement. Debtor shall have no rights to assign this Agreement
without the prior written consent of Pledgee.
12. This Agreement is being executed in connection with and
simultaneously with the closing of a sale of assets from Dopson-Hicks of Tampa,
Inc., Dopson-Hicks of Jacksonville, Inc. and Dopson-Hicks of Miami, Inc. to
Debtor whereby the purchase price owed by Debtor was financed by Pledgee and
pursuant to which Pledgee made additional loans to Debtor.
5
<PAGE>
13. Any modifications or changes in the terms of this Agreement shall be
in writing and signed by all of the parties.
14. Pledgor agrees to and shall indemnify and pay or reimburse the
Pledgee, on demand, for any and all losses, damages, costs, expenses, collection
charges and attorneys' fees, whether paid or incurred out of court or in
litigation, including appeals and bankruptcy court proceedings, paid or incurred
by Pledgee in endeavoring or otherwise proceeding to collect, enforce or defend
Pledgee's rights against the Pledgor under this Agreement, with interest thereon
subsequent to default at the highest lawful contract rate in effect from time to
time hereafter; provided, however, Pledgor shall not be responsible for any
losses, damages, costs, expenses, collection charges or attorneys' fees
associated with any litigation under this Agreement unless Pledgee shall be the
prevailing party in any such litigation.
15. This Stock Pledge Agreement is made under and shall be governed,
construed and enforced in accordance with the laws of the State of Florida. The
Pledgor agrees that Hillsborough County, Florida shall be the proper venue in
any action based upon or arising hereunder or related hereto, and Pledgor hereby
submits itself and consents to the jurisdiction (personal and in rem) of the
court(s) in Hillsborough County, Florida, and waives any defense pertaining to
or based upon lack of such jurisdiction. Pledgor and Pledgee each hereby
expressly waive all rights to a jury trial with respect to any and all actions
commenced by Pledgor or Pledgee under or in connection with this Stock Pledge
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Signed, Sealed and Delivered
in the Presence of: "Pledgor"
ROGERS-AMERICAN COMPANY, INC.
a North Carolina Corporation
/s/ (illegible)
- --------------------------------
/s/ (illegible) By: /s/ Douglas H. Holstein
- -------------------------------- -------------------------
Name: Douglas H. Holstein
-----------------------
Attest:
----------------------
"Pledgee"
DOPSON-HICKS OF TAMPA, INC., a
Florida Corporation
/s/ (illegible)
- --------------------------------
/s/ (illegible) By: /s/ L.C. Hicks, Jr.
- -------------------------------- --------------------------
Witness as to Pledgee L.C. Hicks, Jr., President
6
<PAGE>
DOPSON-HICKS OF JACKSONVILLE, INC.,
a Florida Corporation
[UNREADABLE]
- -----------------------------
By: /s/ L.C. Hicks, Jr.
[UNREADABLE] ------------------------------------
- ----------------------------- L.C. Hicks, Jr., President
Witness as to Pledgee
DOPSON-HICKS OF MIAMI, INC.,
a Florida Corporation
[UNREADABLE]
- -----------------------------
By: /s/ L.C. Hicks, Jr.
[UNREADABLE] ------------------------------------
- ----------------------------- L.C. Hicks, Jr., President
Witness as to Pledgee
[UNREADABLE]
- -----------------------------
/s/ L.C. Hicks, Jr.
[UNREADABLE] ------------------------------------
- ----------------------------- L.C. Hicks, Jr., Individually
Witness as to Pledgee
"Escrow Agent"
LOPEZ & KELLY, P.A.
[UNREADABLE]
- -----------------------------
By: /s/ Al R. Lopez, Jr.
[UNREADABLE] ------------------------------------
- ----------------------------- Al R. Lopez, Jr.
Witness as to Escrow Agent
"Debtor"
ROGERS-AMERICAN COMPANY OF FLORIDA, INC.,
[UNREADABLE] a North Carolina Corporation
- -----------------------------
By: /s/ Douglas H. Holstein
[UNREADABLE] ------------------------------------
- -----------------------------
Witness as to Debtor Name: Douglas H. Holstein
----------------------------------
Title: President
--------------------------------
7
<PAGE>
EXHIBIT 10.23
THIS DOCUMENT WAS, WITH THE
ADVICE OF LOCAL COUNSEL, PREPARED BY:
Cynthia J Williams, Esq.
Day, Berry & Howard
260 Franklin Street
Boston, MA 02110
RECORDING REQUESTED BY AND UPON
RECORDATION RETURN TO:
Cynthia J. Williams, Esq.
Day, Berry & Howard
260 Franklin Street
Boston, MA 02110
INDENTURE OF MORTGAGE, DEED OF TRUST,
SECURITY AGREEMENT, FIXTURE FILING,
FINANCING STATEMENT AND ASSIGNMENT
OF RENTS AND LEASES
dated as of February 13, 1998
between
MERKERT ENTERPRISES, INC.,
a Massachusetts corporation
as Owner
500 Turnpike Street
Canton, Massachusetts 02021
and
CORPORATE REAL ESTATE CAPITAL, LLC,
a Delaware limited liability company,
as Lender and Mortgagee
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas, 29th Floor
New York, NY 10019
THIS INSTRUMENT IS TO BE INDEXED AS A MORTGAGE
AND AS A FIXTURE FILING IN
THE COMMONWEALTH OF MASSACHUSETTS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 Definition of Terms......................................................... 5
ARTICLE 2 Covenants................................................................... 18
Section 2.1 Payment of the Indebtedness................................. 19
Section 2.2 Title to the Mortgaged Property............................. 20
Section 2.3 Maintenance of Mortgaged Property; Compliance with
Legal Requirements; Inspection; Alterations................. 22
Section 2.4 Insurance; Restoration...................................... 26
Section 2.5 Condemnation................................................ 34
Section 2.6 Impositions................................................. 34
Section 2.7 Use of Loan Proceeds........................................ 34
Section 2.8 Permitted Contests.......................................... 34
Section 2.9 Prepayment.................................................. 35
Section 2.10 Maintenance of Existence; Merger and Consolidation.......... 35
Section 2.11 Conveyance in Anticipation of Condemnation, Granting
of Easements, Etc........................................... 36
Section 2.12 Costs of Defending and Upholding the Lien................... 37
Section 2.13 Costs of Enforcement........................................ 37
Section 2.14 Interest on Advances and Expenses........................... 37
Section 2.15 Indemnification............................................. 38
Section 2.16 Transfers................................................... 38
Section 2.17 Estoppel Certificates....................................... 39
Section 2.18 Assignment of Leases, Other Contracts and Property Income... 40
Section 2.19 Cash Management............................................. 40
Section 2.20 Defeasance Requirements..................................... 42
Section 2.21 Owner Information Covenants................................. 44
Section 2.22 Environmental Matters....................................... 46
Section 2.23 Perform Loan Documents; Cooperate in Legal Proceedings;
Further Assurances.......................................... 51
Section 2.24 Cooperate with Securitization............................... 52
ARTICLE 3 Security Agreement.......................................................... 53
Section 3.1 Representations and Warranties.............................. 53
Section 3.2 Survival of Article 3....................................... 53
Section 3.3 Security Agreement.......................................... 53
ARTICLE 4 Default and Remedies........................................................ 56
Section 4.1 Events of Default........................................... 56
Section 4.2 Remedies.................................................... 58
Section 4.3 General Provisions Regarding Remedies....................... 60
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5 Miscellaneous.............................................................. 67
Section 5.1 Notices.................................................... 67
Section 5.2 Binding Obligations; Joint and Several..................... 68
Section 5.3 Captions................................................... 68
Section 5.4 Severability............................................... 68
Section 5.5 Owner's Indebtedness Absolute.............................. 68
Section 5.6 Amendments................................................. 69
Section 5.7 Other Loan Documents and Schedules......................... 69
Section 5.8 Merger..................................................... 69
Section 5.9 Time of the Essence........................................ 69
Section 5.10 Release.................................................... 69
Section 5.11 Offsets, Counterclaims and Defenses........................ 70
Section 5.12 No Joint Venture or Partnership............................ 70
Section 5.13 Publicity.................................................. 70
Section 5.14 Governing Law.............................................. 70
Section 5.15 Lender's Discretion........................................ 70
</TABLE>
EXHIBITS
Exhibit A: Legal Description of the Land
Exhibit B: Allocated Building Debt
<PAGE>
INDENTURE OF MORTGAGE, DEED OF TRUST, SECURITY AGREEMENT, FIXTURE FILING,
FINANCING STATEMENT AND ASSIGNMENT OF RENTS AND LEASES (this "Indenture"), dated
---------
as of February 13, 1998, made by MERKERT ENTERPRISES, INC. (together with its
permitted successors and assigns, "Owner") as mortgagor of interests in real
-----
property under this Indenture, and as debtor with respect to the security
interests in personal property hereby created, with respect to the Mortgaged
Property to and for the benefit of CORPORATE REAL ESTATE CAPITAL, LLC, a
Delaware limited liability company (together with its successors and assigns,
"Lender"), as mortgagee of interests in real property under this Indenture, and
- -------
as secured party with respect to security interests in personal property created
under this Indenture. Capitalized terms used herein shall have the meaning set
forth in Article I hereto.
R E C I T A L S:
---------------
A. Owner is the fee simple owner of the Land and of all Improvements located
on the Land.
B. On the date hereof, Lender has made a loan (the "Loan") in the original
----
principal amount of NINE MILLION FIVE HUNDRED THOUSAND DOLLARS ($9,500,000)
pursuant to the terms of the Loan Agreement, which Loan is evidenced by the
Note, made by Owner, as maker, in favor of Lender, or order, as payee.
C. Owner intends by the execution and delivery of this Indenture to secure
the payment and performance of the Loan and all other Indebtedness of Owner to
Lender.
D. Owner intends these Recitals to be a material part of this Indenture.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I. This Indenture shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and assigns, and shall be deemed
to be effective as of the date of delivery hereof.
II. This Indenture constitutes a mortgage and security agreement
encumbering the Mortgaged Property upon the terms and conditions set forth
herein to secure the Loan and all other Indebtedness of Owner to Lender.
III Owner represents and warrants that the original Principal Amount of
the Loan is evidenced by the Note and that this Indenture constitutes a valid
first priority lien on, and security interest in, the Mortgaged Property
securing the Loan evidenced by the Note and all other Indebtedness of Owner to
Lender.
1
<PAGE>
G R A N T I N G C L A U S E S
-------------------------------
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and to secure
(i) the payment of principal, interest, Default Rate Interest, if any,
Make Whole Premium, if any, Late Charges, if any, Defeasance Deposit, if any,
and all other sums and Indebtedness now or hereafter due and payable in
connection with the Loan made by Lender, as lender, to Owner, as borrower,
pursuant to that certain Loan Agreement, of even date herewith (the "Loan
----
Agreement"), between Lender and Owner, which Loan is evidenced by the Note and
- ---------
secured, by this Indenture,
(ii) payment of all sums with interest thereon becoming due and payable
to Lender under this Indenture, the Loan Agreement, the Note or any other Loan
Document, and
(iii) the performance and discharge or each and every obligation,
covenant and agreement of Owner under this Indenture, the Loan Agreement, the
Note and any other Loan Document (collectively the "Indebtedness"),
------------
Owner has created a security interest in favor of Lender in, and has mortgaged,
granted, conveyed, assigned, bargained, sold, pledged, given, transferred and
set over to Lender, and by these presents does hereby create a security interest
in favor of Lender in, and does hereby irrevocably mortgage, grant, convey,
assign, bargain, sell, pledge, give, transfer and set over to Lender, with power
of sale, all of the property described in the following Granting Clauses,
subject only to Permitted Encumbrances to the extent applicable to such
property, including the following:
Granting Clause First
---------------------
All of Owner's right, title and interest, claim and demand in, to and under
the following described property, whether now owned or hereafter required:
The parcel of real property described in EXHIBIT A hereto (the "Land");
----
TOGETHER with the buildings, foundations, structures and improvements
(including fixtures) now or hereafter located on or in the Land (collectively,
the "Improvements");
------------
TOGETHER with all right, title and interest, if any, of Owner in and to the
streets and roads, opened or proposed, abutting the Land, all strips and gores
within or adjoining the Land, the air space and right to use the air space above
the Land, all rights of ingress and egress to and from the Land, all easements,
rights of way, reversions, remainders, hereditaments, and appurtenances now or
hereafter affecting the Land or the Improvements thereon, all royalties and
rights and privileges appertaining to the use and enjoyment of the Land or the
Improvements thereon, including all air, lateral support, alley, drainage,
water, oil, gas and mineral rights, options to purchase or lease, and all other
interests, estates or claims, in law or in equity, which Owner now
2
<PAGE>
has or hereafter may acquire in or with respect to the Land or the Improvements
thereon (collectively, the "Appurtenances"); and
-------------
TOGETHER with all rents, income, revenues, issues, awards, proceeds and
profits from and in respect of the property described in this Granting Clause
First which are hereby (except as otherwise set forth in Granting Clause Second)
specifically assigned, transferred and set over to Lender, it being the
intention of the parties hereto that, so far as may be permitted by law, all
property of the character hereinabove described which is now owned or held or is
hereafter acquired by Owner and is affixed, attached and annexed to the Land
shall be and remain or become and constitute a portion of the Mortgaged Property
and the security covered by and subject to the Lien hereof. The Land together
with the Improvements, the Appurtenances and the other property described in
this Granting Clause First relating thereto are herein collectively called the
"Property";
--------
Granting Clause Second
----------------------
All of Owner's right, title, and interest, claim and demand in, to and
under the following described property, whether now owned or hereafter acquired:
All equipment, fittings, furnishings, appliances, apparatus, and machinery
in which Owner now or hereafter has title interest and now or hereafter
installed in the Property and all building materials, supplies and equipment now
or hereafter delivered to the Property owned by Owner and intended to be
installed therein; all fixtures, other goods and personal property of whatever
kind and nature now contained on or in or hereafter placed on or in the Property
and used or to be used in connection with the letting or operation thereof, in
which Owner now has or hereafter may acquire title interest (but specifically
excluding inventory, furniture and other personal property which are used
primarily to conduct Owner's business) and all renewals or replacements of any
of the foregoing property or articles in substitution thereof (collectively, the
"Equipment");
---------
TOGETHER with all right, title and interest of Owner, whether now or
hereafter acquired and wherever located, in, to and under all accounts and
escrows (including each Cash Collateral Account), chattel paper, money and
investment securities (including Permitted Investments) as the foregoing terms
are defined in the Code, and all contract rights (including all construction
contracts, architects' contracts and engineers' contracts or other contracts
relating to the construction of any Improvements and all Appurtenant
Agreements), franchises, books, records, plans, specifications, permits,
licenses (to the extent assignable), approvals, actions and causes of action,
all of which now or hereafter relate to, are derived from or used in connection
with the construction, use, operation, maintenance, occupancy or enjoyment of
the Property (collectively, the "Intangibles");
-----------
TOGETHER with all right, title and interest of Owner, whether now or
hereafter acquired and wherever located, in, to and under all leases, subleases,
lettings, tenancies and licenses (to the extent assignable) of the Property or
any part thereof now or hereafter entered into and all amendments, extensions,
renewals and guaranties thereof, all security therefor, and all moneys payable
thereunder (collectively, the "Leases");
------
3
<PAGE>
TOGETHER with all rents, income, issues, profits, Loss Proceeds, purchase
prices, security deposits and other benefits to which Owner may now or hereafter
be entitled from the Property, the Equipment or the Intangibles related thereto,
or under or in connection with the Leases, including, without limitation, all
income received from tenants, transient guests, lessees, licensees and
concessionaires and other persons occupying space at the Property and/or
rendering services to tenants thereat (collectively, the "Property Income");
---------------
TOGETHER with all proceeds, judgments, claims, compensation, awards of
damages and settlements with respect to or hereafter made as a result of or in
lieu of any condemnation or taking of the Property by eminent domain or any
casualty loss of or damage to the Property, the Equipment, the Intangibles, the
Leases or the Property Income related thereto, all refunds with respect to the
payment of property taxes and assessments or with respect to insurance premiums,
and all other proceeds of the conversion, voluntary or involuntary, of the
Property, the Equipment, the Intangibles, the Leases or the Property Income
related thereto, or any part thereof, into cash or liquidated claims
(collectively, the "Proceeds"); and
--------
TOGETHER with all right, title and interest of Owner, now existing or
hereafter arising, in and to all other instruments and agreements relating to
the ownership, operation, maintenance, leasing or management of the Property
(collectively, the "Granting Clause Documents") and all sums now or hereafter
-------------------------
payable to Owner with respect thereto, including, without limitation, the
present and continuing right to make claim for, collect, receive and receipt for
any and all of the rents, payments, income, revenues, issues, awards, proceeds
and profits and other sums of money payable or receivable thereunder, whether
payable as rent or otherwise, including, without limitation, sums of money
receivable by Owner thereunder by virtue of a release of existing easements or
other rights in the nature of easements or by virtue of a dedication or transfer
of unimproved portions of the Land, to exercise any election or option or to
make any decision or determination or to give or receive any notice, consent,
waiver or approval or to take any other action under or in respect of, and to
bring actions and proceedings under the Granting Clause Documents or for the
enforcement thereof and to do anything which Owner is or may become entitled to
do under the Granting Clause Documents (including, without limitation, all of
Owner's right, title, interest and estate in, to and under any and all
warranties and other claims against dealers, manufacturers, vendors,
contractors, subcontractors, architects and others relating to the construction,
use or maintenance of the Property), as well as all rights, powers and remedies
on the part of Owner, now existing or hereafter arising and whether arising
under the Granting Clause Documents, or by statute or at law or equity or
otherwise (the Equipment, the Intangibles, the Leases, the Property Income, the
Proceeds and the Granting Clause Documents are hereinafter collectively referred
to as the "Collateral"; the "Mortgaged Property" refers to the Property and the
---------- ------------------
Collateral related thereto) provided that the assignment made by this Granting
--------
Clause Second shall be subject to the provisions of this Indenture and shall not
impair or diminish any obligation of Owner under the Granting Clause Documents
nor shall any such obligation be imposed upon Lender;
WITH MORTGAGE COVENANTS and with all POWERS OF SALE, STATUTORY POWERS OF SALE
and other STATUTORY RIGHTS AND COVENANTS and upon the STATUTORY CONDITIONS in
the State in which the Property is located;
4
<PAGE>
TO HAVE AND TO HOLD the Mortgaged Property, with all the privileges and
appurtenances to the same belonging, and with the possession and right of
possession thereof, unto Lender and its successors and assigns forever, subject
to the terms hereof; and
IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Note and any other
Indebtedness of Owner to Lender are to be secured by this Indenture and that
Lender's Lien on the Mortgaged Property is to be held by Lender upon and subject
to the provisions of this Indenture.
ARTICLE 1
Definition of Terms
-------------------
For all purposes of this Indenture, except as otherwise expressly required
or unless the context clearly indicates a contrary intent:
(1) the capitalized terms defined in this Article have the meanings
assigned to them in this Article, include the plural as well as the singular,
and, when used with respect to any contract, include all extensions,
modifications, amendments and supplements from time to time thereto;
(2) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP (as hereinafter defined) in effect on
the date hereof;
(3) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section, or other subdivision;
(4) the words "include" and "including" and other words of similar import
shall be construed as if followed by the phrase ", without limitation,"; and
(5) any provision of this Indenture permitting the recovery of attorneys'
fees and costs shall be deemed to include such fees and costs incurred in all
appellate proceedings.
As used in this Indenture, the terms set forth below shall have the
following meanings:
"Advances" shall mean all sums, amounts or expenses advanced or paid, and
--------
all costs incurred, by Lender, as provided herein or in any other Loan Document
and secured hereby, upon failure of Owner to pay or perform any obligation or
covenant contained herein or in any such other Loan Document.
"Affiliate" of any specified Person shall mean any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities or other beneficial interest,
by contract or otherwise; and the terms "controlling" and "controlled" have the
meanings correlative to the foregoing.
5
<PAGE>
"ALTA" shall mean American Land Title Association, or any successor
----
thereto.
"Allocated Building Debt" shall mean, with respect to a particular Building
-----------------------
on the Property, the original allocated building debt set forth on Exhibit B
hereto with respect to such Building on the Property, multiplied by a fraction,
the numerator of which equals the outstanding principal balance of the Note at
the time the calculation is made and the denominator of which equals (a) the
original outstanding principal balance of the Note, minus (b) the original
allocated building debt (as set forth on said Exhibit B) of any other Building
subject to a Major Building Casualty or Major Building Condemnation.
"Alteration" shall have the meaning provided in Section 2.3(d) hereof.
----------
"Appraisal" shall mean any appraisal of the Property made by an Appraiser,
---------
together with any update thereto and recertification thereof.
"Appraiser" shall mean an Independent appraiser selected by Lender who is a
---------
member of the American Institute of Real Estate Appraisers with a national
practice and which has at least ten (10) years experience with real estate of
the same type and in the geographic area of the Property.
"Appurtenances" shall have the meaning provided in the Granting Clauses
-------------
hereof.
"Appurtenant Agreements" shall mean all reciprocal easements, cross
----------------------
easements and similar types of agreements affecting the Mortgaged Property.
"Architect" shall mean a reputable Independent architect registered or
---------
licensed as such in the State.
"Authorized Representative" shall mean (i) with respect to any Person that
-------------------------
is a partnership, an Authorized Representative of the general partner of such
partnership, (ii) with respect to any Person that is a corporation, any
executive officer of such corporation, (iii) with respect to any Person that is
a trust, the trustee of such trust, and, if such trustee is a corporate trustee,
any corporate trust officer of such corporation, and (iv) with respect to any
Person that is a limited liability company, the manager or any authorized member
of such limited liability company.
"Bankruptcy Proceeding" shall mean any proceeding, action, petition or
---------------------
filing under the Federal Bankruptcy Code or any similar state or federal law now
or hereafter in effect relating to bankruptcy, reorganization, dissolution,
termination, liquidation, receivership or insolvency, or the arrangement or
adjustment of debts.
"Building" shall mean either the 50,000 square foot, 2 story improvement or
--------
the 41,500 square foot, 3 story improvement constructed on the Property, as such
improvements are shown on the ALTA-As-Built Survey of the Property prepared by
Toomey-Muson & Associates, Inc. and dated February 9, 1998.
6
<PAGE>
"Business Day" shall mean any day other than a Saturday, Sunday or any
------------
other day on which banking or savings and loan institutions in the State of New
York are open.
"Cash Collateral Account" shall mean each of the Central Account, the
-----------------------
Securitization Costs Account, the Defeasance Account and the Restoration
Account.
"Central Account" shall mean an account, established by Lender in its own
---------------
name, or as Lender may otherwise designate, into which Debt Service Payments
and all other payments due from Owner to Lender shall be deposited except as
otherwise expressly provided in this Indenture.
"Closing Date" shall mean the date on which the Note is delivered.
------------
"Code" shall mean the Uniform Commercial Code as in effect from time to
----
time in the State, including any amendments, modifications or successor statutes
thereto, and, to the extent that any of the Collateral (including any Cash
Collateral Account) is not governed by the Uniform Commercial Code in the State,
the defined term "Code" shall include any applicable common law or statute in
the State relating to the perfection and/or priority of Lender's security
interest therein.
"Collateral" shall have the meaning provided in the Granting Clauses
----------
hereof.
"Condemnation Proceeds" shall mean all proceeds, awards or other amounts
---------------------
paid or payable in connection with any Taking of all or any portion of the
Mortgaged Property.
"Debt Service Payment" shall have the meaning provided in the Note.
--------------------
"Default" shall mean the occurrence of any event hereunder or under any
-------
other Loan Document which, with or without the giving of notice or the passage
of time, or both, would be an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the lesser of
------------
(a) the Maximum Rate and (b) the sum of four percent (4%) plus the Fixed Rate.
"Default Rate Interest" shall mean, to the extent the Default Rate becomes
---------------------
applicable, interest which accrues on any defaulted amount at the Default Rate
from and including the date such defaulted amount first became due and payable
to but not including the date of payment in full thereof.
"Defeasance Account" shall mean an Eligible Account in the name of Lender,
------------------
its successors and assigns, or as maybe otherwise designated by Lender, into
which all amounts received by Lender in connection with any prepayment or
defeasance of the Note shall be deposited.
"Defeasance Deposit" shall mean, with respect to the Mortgaged Property,
------------------
the amount (which amount shall be confirmed with Lender by Owner
contemporaneously with the acquisition of the related U.S. Obligations) that
will be sufficient to purchase U.S. Obligations (A) having maturity dates on or
prior to, but as close as possible to, successive scheduled Payment Dates (after
7
<PAGE>
the Defeasance Release Date) upon which Payment Dates Debt Service Payments
would be required under the Note through the Maturity Date of the Note and (B)
in amounts sufficient to pay all scheduled Debt Service Payments on the Note
with respect to the Principal Amount through the Maturity Date of the Note.
"Defeasance Release Date" shall have the meaning provided in Section
-----------------------
2.20(c) hereof.
"Defeasance Security Agreement" shall have the meaning set forth in Section
-----------------------------
2.20(c) hereof.
"Eligible Account" shall mean either (a) a segregated account maintained
----------------
with a federal or state chartered depository institution or trust company (i)
the long-term unsecured debt obligations of which (or, in the case of a
depository institution or trust company that is the principal subsidiary of a
holding company, the long-term unsecured debt obligations of such holding
company) have been rated by two of the Rating Agencies in one of their two
highest rating categories if the deposits in such account are to be held in such
account for more than thirty (30) days, (ii) the short-term commercial paper of
which (or, in the case of a depository institution or trust company that is the
principal subsidiary of a holding company, the short-term commercial paper of
such holding company) is rated by two of the Rating Agencies in their highest
rating category at the time of any deposit therein if the deposits in such
account are to be held in such account for thirty (30) days or less, or (iii)
which is approved by Lender in its sole discretion from time to time and,
following any securitization which includes the Loan, which does not adversely
affect the ratings of the securities issued thereunder; or (b) a segregated
trust account maintained with a federal or state chartered depository
institution or trust company with corporate trust powers acting in its fiduciary
capacity which is subject to regulations regarding fiduciary funds on deposit
substantially similar to federal regulation 12 C.F.R. (S) 9.10(b).
"Engineer" shall mean an Independent engineer or engineering firm approved
--------
by Lender, in its reasonable discretion.
"Environmental Claim" shall mean any claim, action, investigation or
-------------------
written notice by any Person alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based on or resulting from (i)
the presence, or release into the environment, of any Hazardous Substance (as
hereinafter defined) at the Mortgaged Property or (ii) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Consultant" shall mean an Independent environmental
------------------------
consultant or environmental firm reasonably approved by Lender.
"Environmental Law" shall mean any present or future federal, state or
-----------------
local law, statute, regulation or ordinance, and any judicial or administrative
order or judgment thereunder, and judicial opinions or orders, pertaining to
health, industrial hygiene, Hazardous Substances or the environment, including,
but not limited to, each of the following, as enacted as of the date hereof or
as hereafter amended: the Comprehensive Environmental Response, Compensation and
Liability
8
<PAGE>
Act of 1980, 42 U.S.C. (S)(S) 9601 et seq.; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq.; the Toxic Substance Control
Act, 15 U.S.C. (S)(S) 2601 et seq.; the Water Pollution Control Act (also known
as the Clean Water Act), 33 U.S.C. (S)(S) 1251 et seq.; the Clean Air Act, 42
U.S.C. (S)(S) 7401 et seq.; and the Hazardous Materials Transportation Act, 49
U.S.C. (S)(S) 1801 et seq.
"Environmental Report" shall mean the environmental report relating to the
--------------------
Mortgaged Property prepared by an Environmental Consultant and delivered to
Lender in connection with the Loan and which Owner shall bear the cost of
obtaining.
"Environmental Violation" shall have the meaning provided in Section
-----------------------
2.22(d)(v).
"Equipment" shall have the meaning provided in the Granting Clauses hereof.
---------
"Equity Interests" shall mean (i) if Owner is a limited partnership,
----------------
limited partnership interests in Owner or (ii) if Owner is a limited liability
company, membership interests in Owner, or (iii) if Owner is a corporation, the
share or stock interests in Owner or (iv) if Owner is a trust, the partnership,
membership, share or stock interests of the entity which is the sole beneficial
owner of such trust.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, including any rules and regulations promulgated
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
---------------
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Owner or is under common control (within the
meaning of Section 414(c) of the Code) with the Owner.
"Estimated Cost" shall have the meaning provided in Section 2.3(d) hereof.
--------------
"Event of Default" shall have the meaning set forth in Section 4.1 hereof.
----------------
"Federal Bankruptcy Code" shall mean Title 11 of the United States Code, as
-----------------------
amended or superseded from time to time.
"Financing Statement" shall mean any financing statement filed or recorded
-------------------
under the Code showing Owner, as debtor, and Lender, as secured party, relating
to any Collateral.
"First Payment Date" shall have the meaning provided in the Note.
------------------
"Fiscal Year" shall mean each twelve (12) month period commencing on
-----------
September 1 and ending on August 31 during each year of the term of this
Indenture, or such other Fiscal Year as Owner elects from time to time.
"Fixed Rate" shall have the meaning provided in the Note.
----------
9
<PAGE>
"Force Majeure" shall mean acts of God, strikes or concerted acts of
-------------
workmen, fires, floods, explosions, riots, storms, earthquakes, accidents, acts
of a public enemy, war, rebellion, insurrection, sabotage, epidemic, quarantine
restrictions, shortages of labor, materials or supplies (unless the same are
otherwise available at commercially reasonable wages or prices), or
transportation embargoes or other similar causes which are beyond the reasonable
control of Owner.
"GAAP" shall mean generally accepted accounting principles in the United
----
States of America as in effect as of the date of the applicable financial report
and consistently applied.
"Governmental Authority" shall mean any federal, state, regional or local
----------------------
government or political subdivision thereof and any Person exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Granting Clause Documents" shall have the meaning provided in the Granting
-------------------------
Clauses hereto.
"Hazardous Substance" shall mean any material, waste or substance which is:
-------------------
(i) included within the definitions of "hazardous substances,"
"hazardous materials," "toxic substances," "solid waste" or "pollutant" or
like terms in or pursuant to any Environmental Law, or subject to
regulation under any Environmental Law;
(ii) listed in the United States Department of Transportation
Hazardous Materials Table, 49 C.F.R. (S) 172.101, as enacted as of the date
hereof or as hereafter amended, or in the United States Environmental
Protection Agency List of Hazardous Substances and Reportable Quantities,
40 C.F.R. Part 302, as enacted as of the date hereof or as hereafter
amended; or
(iii) explosive, radioactive, asbestos, a polychlorinated biphenyl,
petroleum or a petroleum product or waste oil.
"Impositions" shall mean (i) all taxes (including, without limitation, all
-----------
ad valorem, sales (including those imposed on lease rentals), use, single
business, gross receipts, value added, intangible transaction privilege,
privilege or license or similar taxes), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not commenced or
completed within the term of this Indenture), ground rents, water, sewer or
other rents and charges, excises, levies, fees (including, without limitation,
license, permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of
Owner, the Mortgaged Property and/or any Property Income (including all interest
and penalties thereon), which at any time prior to, during or in respect of the
term hereof may be assessed or imposed on or in respect of or be a lien upon (a)
Owner (including, without limitation, all income, franchise, single business or
other taxes imposed on Owner for the privilege of doing business in any
jurisdiction in which the Mortgaged Property, or any other collateral delivered
or pledged to Lender in connection with the Loan, is located), (b)
10
<PAGE>
the Mortgaged Property, or any other collateral delivered or pledged to Lender
in connection with the Loan, or any part thereof, or any Property Income
therefrom or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from, or activity conducted on, or in
connection with the Mortgaged Property or the leasing or use thereof or any part
thereof, or the acquisition or financing of the acquisition of the Mortgaged
Property by Owner, (ii) all transfer, recording, stamp and real property gain
taxes incurred upon the sale, transfer, foreclosure or other disposition of the
Mortgaged Property or any interest therein, and (iii) all offers, claims and
demands of mechanics, laborers, materialmen and others which, if unpaid, might
create a lien on the Mortgaged Property or on the Property Income. Nothing
contained in this Indenture shall be construed to require Owner to pay any tax,
assessment, levy or charge imposed on any of the Lender Parties which are the
nature of a franchise, capital levy, estate, inheritance, succession, sales,
income or net revenue tax.
"Improvements" shall have the meaning provided in the Granting Clauses
------------
hereto.
"Indebtedness" shall have the meaning provided in the Granting Clauses
------------
hereto.
"Independent" shall mean, when used with respect to any Person, a Person
-----------
who (i) is in fact independent, (ii) does not have any direct financial interest
or any material indirect financial interest in Owner, or in any Affiliate of
Owner, or any constituent shareholder, member, beneficiary or partner of Owner,
(iii) is not connected with Owner, or any Affiliate of Owner, or any constituent
shareholder, member, beneficiary or partner of Owner, as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions, and (iv) is not a member of the immediate family of a Person
described in clause (ii) or (iii) above. Whenever it is herein provided that
any Independent Person's opinion or certificate shall be provided, such opinion
or certificate shall state that the Person executing the same has read this
definition and is Independent within the meaning hereof.
"Insurance Proceeds" shall mean all proceeds or payments received or
------------------
receivable under any insurance policy required to be maintained pursuant to
Section 2.3 or 2.4 hereof in connection with any fire, flood or other casualty
affecting all or any portion of the Mortgaged Property.
"Intangibles" shall have the meaning provided in the Granting Clauses
-----------
hereto.
"I.R.C." shall mean the Internal Revenue Code of 1986, as amended, and as
------
it may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations promulgated thereunder in
temporary or final form, or in proposed form, if by reason of their effective
date, such regulations would apply to the transactions contemplated by the Loan
Documents.
"Land" shall have the meaning provided in the Granting Clauses hereto.
----
"Late Charge" shall have the meaning provided in the Note.
-----------
"Leases" shall have the meaning provided in the Granting Clauses hereto.
------
11
<PAGE>
"Legal Requirements" means all federal, state, county, municipal and other
------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions of Governmental Authorities (including, without
limitation, Environmental Laws) affecting Owner, the Mortgaged Property or any
part thereof or the ownership, leasing, construction, use, alteration or
operation thereof, or any part thereof, whether now or hereafter enacted and in
force, and all permits, licenses and authorizations and regulations relating
thereto, and all covenants, agreements, restrictions and encumbrances contained
in any Appurtenant Agreements or other instruments, contracts, documents or
insurance policies, either of record or known to Owner, at any time in force
affecting the Mortgaged Property or any part thereof, including, without
limitation, any which may (i) require repairs, modifications or alterations in
or to the Mortgaged Property or any part thereof, or (ii) in any way limit the
use and enjoyment thereof.
"Lender" shall mean Corporate Real Estate Capital, LLC, a Delaware limited
------
liability company, and its successors and assigns.
"Lender Parties" shall mean Lender and its successors in interest and
--------------
assigns and servicing agents, and their respective affiliates, subsidiaries,
parents, employees, officers, shareholders, partners, members, managers,
trustees, beneficial owners, directors and agents.
"Lender Party" shall mean any one of the Lender Parties individually.
------------
"Lien" shall mean any mortgage, deed of trust, deed to secure debt, lien,
----
pledge, hypothecation, assignment, security interest, or any other encumbrance,
charge or transfer of, on or affecting the Mortgaged Property or any portion
thereof or Owner, or any interest therein, including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, the filing of
any financing statement, and mechanic's, materialmen's and other similar liens
and encumbrances.
"Loan" shall have the meaning provided in the Recitals hereto.
----
"Loan Agreement" shall have the meaning provided in the Granting Clauses
--------------
hereto.
"Loan Amount" shall mean the face amount of the Note.
-----------
"Loan Documents" shall mean the Loan Agreement, the Note, this Indenture,
--------------
UCC-1 Financing Statements and each other instrument, contract, document,
agreement or certificate evidencing or securing the Loan or executed by Owner in
connection therewith.
"Loss Proceeds" shall mean any Condemnation Proceeds or Insurance Proceeds,
-------------
as applicable.
"Major Business Casualty" shall have the meaning provided in Section
-----------------------
2.4(f).
"Major Business Condemnation" shall have the meaning provided in Section
---------------------------
2.4(f).
12
<PAGE>
"Major Casualty" shall have the meaning provided in Section 2.4(f).
--------------
"Major Condemnation" shall have the meaning provided in Section 2.4(f).
------------------
"Make-Whole Premium" shall mean, if all or any portion of the Note is to be
------------------
redeemed, prepaid, accelerated or defeased, except as provided in Sections
2.4(iv), 2.11, 2.19 or 2.20, (A) at any time with respect to the Make-Whole
Premium due upon acceleration pursuant to Section 4.1, the premium which shall
be the product of (1) a fraction, (a) the numerator of which is the positive
excess, if any, of (i) the present value of all future Debt Service Payments
including the principal amount due at maturity to be made on the Note before the
redemption, prepayment or acceleration in question, discounted at an interest
rate per annum equal to the Treasury Constant Maturity Yield Index published
during the second full week preceding the date on which such premium is payable
for instruments having a maturity coterminous with the remaining term of the
Note, over (ii) the Principal Amount immediately before such redemption,
prepayment or acceleration, and (b) the denominator of which is the Principal
Amount immediately prior to the redemption, prepayment or acceleration, and (2)
the Principal Amount being redeemed, prepaid or accelerated; provided, however,
-------- -------
that if there is no Treasury Constant Maturity Yield Index for instruments
having a maturity coterminous with the remaining term of the Note, then the
index referred to in (1) above shall be equal to the weighted average yield to
maturity of the Treasury Constant Maturity Yield Indices with maturities next
longer and shorter than such remaining average life to maturity, calculated by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1% per
annum, if the average is not such a multiple) the yields of the relevant
Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest
1/100 of 1% with any figure of 1/200 of 1% or above rounded upward), and (B)
after a Permitted Defeasance Date, except as otherwise expressly set forth in
clause (A) with respect to any acceleration pursuant to Section 4.1, shall mean
the amount (which amount will be confirmed with Lender by Owner
contemporaneously with the acquisition of the related U.S. Obligations) that,
when added to the outstanding Principal Amount of the Note, would be sufficient
to purchase U.S. Obligations (1) having maturity dates on or prior to, but as
close as possible to, successive scheduled Payment Dates after the date of such
redemption, prepayment or defeasance of the Note upon which Payment Dates Debt
Service Payments would be required under the Note through the Maturity Date of
the Note, and (2) in amounts sufficient to pay all scheduled Debt Service
Payments on the Note on such Payment Dates through the Maturity Date of the Note
(but without any adjustment of the monthly amortization schedule); provided,
--------
however, under no circumstances shall the Make-Whole Premium be less than zero.
- -------
"Material Alteration" shall have the meaning provided in Section 2.3(d)
-------------------
hereof.
"Maturity Date" shall have the meaning provided in the Note.
-------------
"Maximum Rate" shall have the meaning provided in the Note.
------------
"Mortgage State" shall mean the Commonwealth of Massachusetts.
--------------
"Mortgaged Property" shall have the meaning provided in the Granting
------------------
Clauses hereto.
13
<PAGE>
"Net Proceeds" shall mean the excess of (i) (x) the purchase price (at
------------
foreclosure or otherwise) actually received by Lender with respect to the
Mortgaged Property as a result of the exercise by Lender of its rights, powers,
privileges and other remedies after the occurrence of an Event of Default, or
(y) in the event that Lender (or Lender's nominee) is the purchaser at
foreclosure by credit bid, then the amount of such credit bid, in either case,
over (ii) all costs and expenses, including, without limitation, all reasonable
attorneys' fees and disbursements and any brokerage fees, if applicable,
incurred by Lender in connection with the exercise of such remedies, including
the sale of the Mortgaged Property after a foreclosure against the Mortgaged
Property.
"Note" shall mean that certain Promissory Note evidencing the Loan from
----
Owner, as maker, to Lender, or order, as payee, together with any extension,
modification, amendment or supplement thereto and any replacement thereof.
"Officer's Certificate" shall mean a certificate delivered to Lender by
---------------------
Owner which is signed by the Authorized Representative of Owner.
"Owner" shall mean Merkert Enterprises, Inc., and its permitted successors
-----
and assigns.
"Payment Date" shall mean the date on which Debt Service Payments are due
------------
under the Note, which shall be payable monthly commencing on the First Payment
Date, or if such day is not a Business Day, the next following Business Day,
provided, however, that the first payment of stub period interest only due on
- -------- -------
the Note shall be paid on the Closing Date.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
----
succeeding to any or all of its functions under ERISA.
"Permitted Contest" shall have the meaning provided in Section 2.8.
-----------------
"Permitted Defeasance Date" shall mean any Payment Date after the earlier
-------------------------
to occur of two years after the Start Up Date (or such earlier or later time
permitted by Treasury Regulation (S)1.860G-2(a)(8), or any successor provision)
of any Person or pool of assets electing REMIC status in a securitization which
includes the Loan or three years after the Closing Date.
"Permitted Encumbrances" shall mean collectively, (i) the Liens created by
----------------------
this Indenture, and (ii) Liens and those exceptions to title set forth in the
Title Insurance Policy obtained by Lender in connection with this Indenture,
(iii) Liens, if any, for Impositions imposed by any Governmental Authority not
yet due or delinquent or being contested in good faith and by appropriate
proceedings in accordance with Section 2.8 hereof, (iv) any mechanics,
materialmen's or other Liens deleted from the exceptions to, or for which Lender
is affirmatively insured against for loss or damage to, the Title Insurance
Policy issued to Lender insuring the Lien of this Indenture, and (v) without
limiting the foregoing, any and all governmental and public utility easements,
licenses or other agreements which may hereafter be granted by Owner and which
do not adversely affect (A) the marketability of title to the Mortgaged
Property, (B) the fair market value thereof, or (C) the use thereof as of the
date hereof.
14
<PAGE>
"Permitted Investments" shall mean any one or more of the following
---------------------
obligations or securities acquired at a purchase price of not greater than par
and, if S&P is one of the Rating Agencies referred to herein, provided that no
such obligation or security has the "r" symbol attached to the rating thereof by
S&P:
(i) direct obligations of, or obligations fully guaranteed as to
payment of principal and interest by, the United States of America or any
agency or instrumentality thereof provided such obligations are backed by
the full faith and credit of the United States of America;
(ii) fully FDIC insured demand and time deposits in or certificates
of deposit of, or bankers' acceptances issued by, and payable on demand or
on a date not more than one year after the date of issuance thereof by, any
bank or trust company, savings and loan association or savings bank,
provided that the commercial paper of such depository institution or trust
company has the highest commercial paper rating available for commercial
paper by two of the Rating Agencies, and the long-term unsecured debt
obligations of such depository institution or trust company have one of the
two highest ratings available for such securities by two of the Rating
Agencies;
(iii) repurchase obligations with respect to any security described
in clause (i) above entered into with a depository institution or trust
company (acting as principal) described in clause (ii) above, provided such
--------
repurchase obligations are fully secured by a first priority perfected
security interest in the securities subject thereto and are payable on
demand or on a specified date not more than one year after the date of
issuance thereof;
(iv) general obligations of or obligations guaranteed by any State
of the United States of America or the District of Columbia receiving one
of the two highest long-term unsecured debt ratings available for such
securities by two of the Rating Agencies and which are payable on demand or
on a specified date not more than one year after the date of issuance
thereof;
(v) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United States
of America or any State thereof or the District of Columbia and which are
rated by two of the Rating Agencies in one of their two highest long-term
unsecured debt rating categories at the time of such investment or
contractual commitment providing for such investment and which are payable
on demand or on a specified date not more than one year after the date of
issuance thereof; provided, however, that securities issued by any such
-------- -------
corporation will not be Permitted Investments to the extent that investment
therein will cause the then outstanding principal amount of securities
issued by such corporation and held as part of any Cash Collateral Account
to exceed 20% of the aggregate principal amount of all Permitted
Investments held in such Cash Collateral Account;
(vi) commercial or finance company paper (including both non-
interest-bearing discount obligations and interest-bearing obligations
payable on demand or on a specified
15
<PAGE>
date not more than one year after the date of issuance thereof) that is
rated by two of the Rating Agencies in their highest short-term unsecured
debt rating available at the time of such investment or contractual
commitment providing for such investment, and is issued by a corporation
the outstanding senior long-term debt obligations of which are then rated
by two of the Rating Agencies in their highest short-term and one of their
two highest long-term unsecured debt ratings;
(vii) units of taxable money market funds, which funds are regulated
investment companies, which seek to maintain a constant net asset value per
share and invest solely in obligations backed by the full faith and credit
of the United States, which money market funds are rated AAAm or AAAm-G by
S&P; and
(viii) any other demand, money market or time deposit, or any other
obligation, security or investment, that may be consented to in writing by
Lender and which are acceptable to the Rating Agencies;
provided, however, that no instrument or security shall be a Permitted
- -------- -------
Investment if (y) such instrument or security evidences a right to receive only
interest payments or does not have, by its terms, a predetermined fixed dollar
amount of principal due at maturity that cannot vary or change or (z) the right
to receive principal and interest payments derived from the underlying
investment provides a yield to maturity in excess of 120% of the yield to
maturity at par of such underlying investment, and provided, further, however,
-------- ------- -------
that each Permitted Investment shall be selected with respect to a particular
Cash Collateral Account with a maturity date reasonably anticipated to occur
prior to the date at which funds will be required to be disbursed with respect
thereto from the related Cash Collateral Account.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"Plan" means any employee benefit or other plan established or maintained,
----
or to which contributions have been made, by the Owner or any ERISA Affiliate
and which is covered by Title IV of ERISA.
"Principal Amount" shall mean the principal amount of the Loan outstanding
----------------
from time to time as the same may be increased as a result of any advance by
Lender under any Loan Document and as the same may be decreased as a result of
any payment or prepayment thereof.
"Proceeds" shall have the meaning provided in the Granting Clauses hereto.
--------
"Prohibited Transaction" means any transaction set forth in Section 406 of
----------------------
ERISA or Section 4975 of the Code for which there is no applicable statutory or
regulatory exemption (including a class exemption or an individual exemption).
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<PAGE>
"Property" shall have the meaning provided in the Granting Clauses hereto.
--------
"Property Income" shall have the meaning provided in the Granting Clauses
---------------
hereto.
"Rating Agencies" shall mean Duff & Phelps Credit Rating Co., S&P, Fitch
---------------
Investors Services, Inc., and Moody's Investors Service Inc. or any successor
thereto, and any other nationally recognized statistical rating agency which may
hereafter be engaged by Lender; provided, however, that at any time during which
-------- -------
the Loan is included in a securitization, "Rating Agencies" shall mean the
rating agency or rating agencies that from time to time rate the securities
issued in connection with such securitization.
"Remedial Work" shall have the meaning provided in Section 2.22(b)(ii).
-------------
"REMIC" shall mean a real estate mortgage investment conduit as defined
-----
under Section 860D of the Code.
"Reportable Event" means any of the events set forth in Section 4043(c) of
----------------
ERISA as to which events the PBGC by regulation has not waived the requirement
of Section 4043(a) of ERISA that it be notified within thirty (30) days of the
occurrence of such event, provided that a failure to meet the minimum funding
--------
standard of Section 412 of the Code or Section 302 of ERISA shall be a
Reportable Event regardless of any waivers given under Section 412(d) of the
Code
"Restoration Account" shall mean an Eligible Account in the name of Lender,
-------------------
its successors and assigns, as secured party, or as may be otherwise designated
by Lender, into which all Loss Proceeds and amounts deposited by Owner as
Restoration Cost, shall be deposited except as otherwise expressly set forth in
this Indenture.
"Restoration Cost" shall have the meaning provided in Section 2.4(g).
----------------
"S&P" shall mean Standard & Poor's Ratings Group, or any successor thereto.
---
"Securitization Costs" shall mean that portion of the reasonable fees to be
--------------------
paid by Owner of the reasonable fees charged by any trustee or other
administrator or servicing agent in connection with any securitization in which
the Loan is included and all fees, expenses or disbursements of the Rating
Agencies in connection with its surveillance and maintenance of its rating or
shadow rating of the long term unsecured debt of Owner.
"Securitization Costs Account" shall mean an Eligible Account, maintained
----------------------------
in the name of Lender for the benefit of Owner, as debtor, and Lender, its
successors and assigns, as secured party, or as may be otherwise designated by
Lender in which funds reserved pursuant to Section 2.19(b) to cover
Securitization Costs shall be held.
"Start-Up Date" shall mean the "start-up date" within the meaning of
-------------
Section 860G(a)9 of the I.R.C. of any Person or pool of assets electing REMIC
status in a securitization which includes the Loan.
17
<PAGE>
"State" shall mean the state or commonwealth in which the Mortgaged
-----
Property is situated.
"Structural Work" shall have the meaning provided in Section 2.3(d) hereof.
---------------
"Taking" shall mean (i) a taking, requisition, sale or voluntary conveyance
------
of all or part of the Mortgaged Property, or any interest therein or right
accruing thereto or use or occupancy thereof, by, on account of, or in
settlement of any actual or threatened condemnation or other eminent domain
proceeding whether or not the same shall have actually been commenced, or (ii)
any requirement by any Governmental Authority that Owner remove all or part of a
Building on the Mortgaged Property.
"Title Insurance Policy" shall mean the ALTA Form 1970 lender's title
----------------------
insurance policy, insuring that this Indenture constitutes a first priority lien
in favor of Lender on the Mortgaged Property subject only to the Permitted
Encumbrances of the type specified in clause (i), (ii) and (iii) of the
definition thereof, and containing such endorsements and affirmative assurances
as Lender shall reasonably require.
"Transfer" shall mean the conveyance, assignment, sale, mortgaging,
--------
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to, or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any direct
or indirect legal or beneficial interest (including any profit interest in
Owner) in all or any portion of the Mortgaged Property or in Owner.
"Treasury Constant Maturity Yield Index" is the average yield for the most
--------------------------------------
recent "Week Ending" as reported by the Federal Reserve Board in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication).
"Work" shall have the meaning provided in Section 2.3(d) hereof.
----
"U.S. Obligations" means obligations or securities not subject to
----------------
prepayment, call or early redemption which are direct obligations of, or
obligations fully guaranteed as to timely payment by, the United States of
America or any agency or instrumentality of the United States of America, the
obligations of which are backed by the full faith and credit of the United
States of America.
"Unscheduled Payments" shall mean (i) all Loss Proceeds that Lender has
--------------------
elected or is required to apply to the repayment of the Indebtedness pursuant to
this Indenture, the Loan Agreement or any other Loan Document, (ii) any funds
representing a voluntary or involuntary prepayment of the principal portion of
the Note and (iii) any Net Proceeds.
ARTICLE 2
Covenants
Owner covenants, warrants, represents and agrees with and to Lender as
follows:
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Section 2.1 Payment of the Indebtedness. Owner shall punctually pay the
---------------------------
Indebtedness at the times and in the manner provided in this Indenture, in the
Note and in the other Loan Documents, all in lawful money of the United States
of America.
(a) Owner's obligation to pay the principal of and interest on the
Loan (including Late Charges, Default Rate Interest, and Make-Whole Premium, if
any), shall be evidenced by this Indenture and by the Note, duly executed and
delivered by Owner. The Note shall be payable as to principal, interest, Late
Charges, Default Rate Interest and Make-Whole Premium, if any, as specified in
this Indenture and in the Note, with a final maturity on the Maturity Date.
Owner shall pay all outstanding Indebtedness on the Maturity Date. Interest
(other than Default Rate Interest) shall accrue on the outstanding Principal
Amount of the Note and all other amounts due to Lender under the Loan Documents
at the Fixed Rate and shall be computed as set forth in the Note. If Owner fails
to make any payment of any sums due under the Loan Documents on the date when
the same is due, Owner shall pay a Late Charge. On the Maturity Date, Owner
shall pay to Lender all amounts owing under the Loan Documents including,
without limitation, interest, principal, Late Charges, Default Rate Interest and
any Make-Whole Premium. The Note is subject to prepayment as set forth in
Sections 2.1(b) and 2.9 and is subject to defeasance as set forth in Section
2.20.
(b) Commencing on the First Payment Date and on each Payment Date
thereafter until the Note is paid in full on the Maturity Date or otherwise,
Owner shall pay to Lender an amount equal to the Debt Service Payment due on the
related Payment Date as set forth on Schedule 1 attached to the Note,
irrespective of whether or not any voluntary or involuntary prepayments of
principal have been made, provided, however, that such Debt Service Payments may
-------- -------
be reamortized as set forth in this Section 2.1(b). On the Maturity Date Owner
shall pay to Lender the entire outstanding Principal Amount of the Note, to the
extent not theretofore paid, together with all accrued but unpaid interest
thereon and any other Indebtedness due hereunder, under the Note or under any
other Loan Document. In the event that Lender elects, agrees or is obligated to
accept a prepayment of a portion of the Note in accordance with Section 2.4(f)
or 2.11, upon receipt of such prepayment, each Debt Service Payment which shall
thereafter be payable with respect to the Note shall be reduced by an amount
equal to the product of such Debt Service Payment times a fraction, the
numerator of which equals the principal amount being prepaid and the denominator
of which equals the entire principal amount outstanding hereunder at the time of
determination prior to giving effect of such prepayment, such that upon the due
payment of all remaining Debt Service Payments, there shall have been paid to
Lender the entire unpaid principal amount of the Note together with accrued
interest thereon on a stepped installment payment basis. Schedule 1 shall be
revised by Owner to so reamortize the remaining Debt Service Payments and a new
Schedule 1 shall be delivered to Lender to be substituted for the Schedule 1
then attached to the Note. Such revised Schedule 1 shall reflect payments on the
same Payment Dates set forth in the original Schedule 1 and at the same interest
rate utilized in the original Schedule 1 over the remaining life of the Note
and, absent error, the Debt Service Payments thereafter due on the Note shall be
those set forth in such revised Schedule 1.
(c) Each and every payment (each, a "Payment"; collectively, the
-------
"Payments") made by Owner to Lender in accordance with the terms of this
--------
Indenture, the Note and/or the terms of any one or more of the other Loan
Documents and all other proceeds received by Lender with
19
<PAGE>
respect to the Indebtedness, shall be applied (i) first, to all Late Charges,
Make-Whole Premium, Default Rate Interest and other sums payable as Indebtedness
hereunder, under the Note or under the other Loan Documents (other than those
sums included in clauses (ii) and (iii) of this Section 2.1(c), but including
any amounts advanced by Lender on behalf of Owner) in such order and priority as
determined by Lender in its sole discretion, (ii) second, to all other interest
which shall be due and payable with respect to the Principal Amount pursuant to
the terms of the Note as of the date the Payment is received, and (iii) third,
to the Principal Amount, provided, however, that (x) amounts received under
-------- -------
Article 4 shall be applied as set forth in Section 4.3(l) and (y) any amounts
received with respect to a defeasance pursuant to Section 2.20 shall be applied
in accordance with Section 2.20. Unscheduled Payments shall be applied in the
same manner set forth herein subject, however, to the applicable provisions of
this Indenture with respect thereto.
(d) To the extent that Owner makes a Payment or Lender receives any
Payment or proceeds for Owner's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
obligations of Owner intended to be satisfied thereby shall be revived and
continue as if such Payment or proceeds had not been received by Lender.
(e) If a Default in the payment of money owed by Owner to Lender
shall occur hereunder, under the Note or under any other Loan Document, interest
on the defaulted amount commencing five (5) Business Days after the date of the
occurrence of such Default, immediately and without notice to Owner, shall
accrue at the Default Rate until such defaulted amount is paid to Lender with
interest thereon at the Default Rate.
(f) In the event the Indebtedness is accelerated pursuant to this
Indenture, Owner shall be required to pay to Lender, in addition to the
Principal Amount which has been accelerated or which is to be prepaid and
accrued interest and any other Indebtedness which is then due and payable, an
amount equal to the Make-Whole Premium. Lender shall deliver notice to Owner of
the amount of any Make-Whole Premium due with respect to any prepayment by Owner
at least three (3) Business Days prior to the date of such prepayment which
notice shall be conclusive and binding upon Owner absent manifest error,
provided, however, that any failure of Lender to deliver such notice to Owner
- -------- -------
shall not excuse or delay Owner's obligation to pay such Make-Whole Premium when
due.
(g) The provisions of this Section 2.1 shall survive any discharge of
the Lien of this Indenture in connection with a defeasance pursuant to Section
2.20.
Section 2.2 Title to the Mortgaged Property.
-------------------------------
(a) Owner is the owner of good, marketable, and insurable fee simple
title to the Mortgaged Property, including all buildings on the Mortgaged
Property and all installations and mechanical, electrical, plumbing, heating and
air conditioning systems located in or annexed to such buildings, and all
additions, alterations and replacements made at any time with respect to the
20
<PAGE>
foregoing, free and clear of liens and encumbrances except Permitted
Encumbrances. There are no outstanding options or rights of first refusal
affecting the Mortgaged Property or any portion thereof.
(b) Owner has full power and lawful authority to encumber the
Mortgaged Property in the manner and form herein set forth.
(c) This Indenture is and will remain a valid and enforceable first
lien on and security interest in the Mortgaged Property, subject only to the
Permitted Encumbrances. Any Lease which is entered into by Owner encumbering the
Property shall be (i) subordinate to the Lien of this Indenture and (ii) made on
market terms, conditions and rates. Owner will provide prior written notice to
Lender upon entering into any Lease together with a copy of such Lease (except
for Leases with respect to the daily leasing of the conference rooms and
auditorium facilities.)
(d) Owner will preserve such title and will forever warrant and
defend the same and the validity and priority of the Lien hereof to Lender,
against all claims whatsoever.
(e) Subject to Owner's right to conduct a Permitted Contest pursuant
to Section 2.8 with respect thereto, Owner shall pay when due and payable, all
payments and charges due under or in connection with any Liens and encumbrances
on, and security interests in and to, the Mortgaged Property or any portion
thereof, all rents and charges under any ground leases affecting the Mortgaged
Property, and all claims and demands of mechanics, materialmen, laborers and
others which, if unpaid, might result in or permit the creation of a Lien on the
Mortgaged Property or any portion thereof which does not constitute a Permitted
Encumbrance. Owner shall not effect, permit or suffer to exist (except in
connection with a Permitted Contest pursuant to Section 2.8) the imposition of
any Lien (other than Permitted Encumbrances) on the Mortgaged Property, and
Owner shall promptly cause the full and unconditional discharge of any such Lien
imposed on or against the Mortgaged Property or any portion thereof by either
payment in full thereof or filing any bond required by law to effect such
discharge. Owner shall do or cause to be done, at the sole cost of Owner,
everything reasonably necessary to fully preserve the first priority of the Lien
of this Indenture on the Mortgaged Property, subject only to Permitted
Encumbrances. If Owner fails to make any such payment or if a Lien attaches to
the Mortgaged Property or any portion thereof (except in connection with a
Permitted Contest pursuant to Section 2.8) Lender may (but shall not be
obligated to) make such payment or discharge such Lien, and Owner shall
reimburse Lender on demand for all such Advances, together with interest thereon
at the Default Rate from the date paid by Lender to the date of repayment, and
such sum shall be part of the Indebtedness secured by this Indenture, but this
sentence shall not prevent any default by Owner in the observance of this
Section from becoming an Event of Default.
(f) Owner shall do, execute, acknowledge and deliver, at Owner's sole
cost and expense, such further acts, instruments or documentation, including
additional title insurance policies or endorsements, as Lender may reasonably
require from time to time to better assure, transfer and confirm unto Lender the
rights now or hereafter intended to be granted to Lender under this Indenture or
any other Loan Document; provided, however, that no such further acts,
-------- -------
instruments or documentation shall increase Owner's obligations under the Loan
Documents.
21
<PAGE>
(g) Owner shall pay any and all taxes, charges, filing, registration
and recording fees, excises and levies imposed upon Lender in connection with
the execution, delivery and/or recording of this Indenture or any other Loan
Document or by reason of its interest in, or measured by amounts payable under,
the Note, this Indenture or any other Loan Document (other than income,
franchise and doing business taxes), and shall pay all stamp taxes and other
taxes required to be paid on the Note or the other Loan Documents. If Owner
fails to make such payment within five (5) days after notice thereof from
Lender, Lender may (but shall not be obligated to) pay the amount due, and Owner
shall reimburse Lender on demand for all such Advances with interest thereon at
the Default Rate from the date paid by Lender to the date of repayment, and such
sum shall be part of the Indebtedness secured by this Indenture, but this
sentence shall not prevent any default by Owner in the observance of this
Section from becoming an Event of Default.
(h) Owner will, upon the execution and delivery hereof, and
thereafter from time to time, cause this Indenture, each supplement and
amendment to each of said instruments and Financing Statements with respect
thereto, to be filed, registered and recorded as may be required by law to
publish notice of and maintain the Lien hereof upon the Mortgaged Property.
Owner will, from time to time, perform or cause to be performed any other act as
required by law, and will execute or cause to be executed any and all further
instruments (including Financing Statements, continuation statements and similar
statements with respect to any of said documents) requested by Lender for such
purposes. If Owner shall fail to execute, deliver and file such Financing
Statements and other instruments in accordance with the provisions of this
Section, Lender shall be and is hereby irrevocably appointed the agent and
attorney-in-fact of Owner to do so, with full power of substitution, which
appointment is coupled with an interest, but this sentence shall not prevent any
default by Owner in the observance of this Section from becoming an Event of
Default.
(i) The Mortgaged Property consists of two separate legal parcels
each of which is, or as to Lot 33 as shown on Subdivision Plan of Land in
Canton, Massachusetts, Plan No. 14945 O ("Lot 33") will be, separately taxed and
assessed.
Section 2.3 Maintenance of Mortgaged Property; Compliance with Legal
--------------------------------------------------------
Requirements; Inspection; Alterations.
- -------------------------------------
(a) Owner represents and warrants that the Mortgaged Property is in
good order and repair except as disclosed on Lender's inspection report or as
otherwise disclosed in writing by Owner to Lender. Owner, at its own expense,
will maintain all parts of the Mortgaged Property in good repair and condition,
except for ordinary wear and tear, and will take all action and will make all
structural and non-structural, foreseen and unforeseen and ordinary and
extraordinary changes and repairs which may be required to keep all parts of the
Mortgaged Property in good repair and condition. In the event that all or any
part of the Improvements shall encroach upon any property, street or right-of-
way adjoining or adjacent to the Mortgaged Property, or shall violate the
agreements or conditions affecting the Mortgaged Property or any part thereof,
or any Legal Requirements, or shall hinder, obstruct or impair any easement or
right-of-way to which the Mortgaged Property is subject or of any Person so
affected then, (unless such encroachment, violation, hindrance, obstruction or
impairment is a Permitted Encumbrance), Owner shall, at its expense, either (i)
obtain valid and effective waivers or settlements of all
22
<PAGE>
claims, liabilities a nd damages resulting therefrom, or (ii) if Lender consents
thereto, make such changes, including alteration or removal, to the Improvements
and take such other action as shall be necessary to remove or eliminate such
encroachments, violations, hindrances, obstructions or impairments.
(b) Subject to Owner's right to conduct a Permitted Contest pursuant
to Section 2.8 with respect thereto, Owner shall comply in all material respects
with all Legal Requirements with respect to Owner and with respect to the
Mortgaged Property, and shall comply in all material respects with the
requirements of any Governmental Authority claiming jurisdiction over Owner or
over the Mortgaged Property or any portion thereof within thirty (30) days (or
such other period of time provided in the order or allowed by law) after an
order containing such requirement has been issued by such Governmental
Authority. Subject to applicable Legal Requirements, Owner shall permit Lender
or its authorized representatives to enter upon and inspect the Mortgaged
Property upon reasonable prior notice at all reasonable hours. Owner shall
comply with the Amended Order of Conditions under the Massachusetts Wetlands
Protection Act which will be issued by the Canton Conservation Commission in
connection with Owner's January 12, 1998 Notice of Intent and Owner shall
complete all work and obtain a Certificate of Compliance in connection therewith
within twelve (12) months after the date hereof.
(c) Owner shall not, without the prior written consent of Lender,
which consent shall not be unreasonably withheld, unless an Event of Default
shall have occurred and be continuing, in which case Lender may withhold its
approval in its sole discretion, (i) change the use of the Property or cause or
permit the use or occupancy of any part of the Property to be discontinued if
such change or discontinuance would violate any zoning or other law, ordinance
or regulation, (ii) consent to any zoning reclassification, modification or
restriction adversely affecting all or any portion of the Property, (iii) permit
or undertake any Material Alteration (except pursuant to Sections 2.3(d) and
2.4(f) hereof) of the Mortgaged Property or any portion thereof (provided that
articles of personal property included within the Collateral may be removed, so
long as the same are replaced with similar items of equal or greater value),
(iv) permit or suffer to occur any waste on or to the Mortgaged Property or any
portion thereof or permit a public or private nuisance with respect to the
Mortgaged Property, or (v) take any steps whatsoever to convert the Mortgaged
Property or any portion thereof to a condominium or cooperative form of
ownership.
(d) Owner may in accordance with the applicable provisions hereof, at
its expense, make additions to and alterations of any Building, the
Improvements, and construct additional Improvements (collectively,
"Alterations"), provided that (i) the fair market value, utility and useful life
----------- --------
of the Mortgaged Property shall not be lessened thereby, (ii) such Alterations
shall be expeditiously completed in a good and workmanlike manner, free and
clear of Liens, and in compliance with all applicable Legal Requirements and the
requirements of all insurance policies required to be maintained by Owner
hereunder, (iii) Owner shall not make any Alterations in violation of the terms
of any restriction, easement, condition, covenant or other matter affecting
title to or use of the Mortgaged Property and (iv) no Material Alterations, as
hereafter defined, shall be made unless Lender's prior written consent shall
have been obtained, which consent shall not be unreasonably withheld, delayed or
conditioned, provided no Event of Default shall have occurred and be continuing.
"Material Alteration" is defined as either (A) Structural Work (as hereinafter
-------------------
23
<PAGE>
defined), or (B) any demolition of any portion of the Improvements, (C)
Alterations which would materially and adversely affect the building systems or
equipment, (D) Work which involves the construction of a shared common or party
wall on a property line which separates the Mortgaged Property from adjacent
land or (E) Work with an Estimated Cost in excess of $100,000 per Building per
year. Owner shall advise Lender of the scheduled window and HVAC replacement and
all such Work in connection therewith shall constitute Material Alterations and
Owner shall comply with the provisions contained herein; provided, however that
--------
with respect to subparagraph (E) of the definition of Material Alteration,
amounts incurred for such window and HVAC replacement shall not be included in
the $100,000 amount per Building, per year restriction. "Structural Work" is
---------------
defined as Work which involves the structural elements of any roof, load-bearing
wall, structural beams, columns, supports, foundation or any other structural
element of the Mortgaged Property. "Estimated Cost" is defined as the estimated
--------------
cost of materials, construction and labor (not including architects, engineers
or other professionals), as estimated by a licensed Architect, which estimate
together with a complete description of the Work and all related works shall be
delivered to, and such estimate and description reasonably approved by, Lender
before the commencement of any Work hereunder. "Work" is defined, without
----
duplication, as Alterations, Material Alterations, Structural Work, restoration,
repair and any other work which Owner shall be required or permitted to do under
this Indenture. Owner agrees that all Work shall be performed subject to each
of the following:
(i) Owner shall not perform any Work which shall have an
adverse material effect on the use or operation of the Mortgaged Property, as
operated by Owner as of the date hereof. Any Work when completed shall be of
such a character as not to reduce the value of the Mortgaged Property below its
value immediately prior to the commencement of such Work or damage to such
Mortgaged Property necessitating such Work or change.
(ii) No Work shall be performed if the same would materially
reduce the usable square footage of the Improvements, or would weaken,
temporarily or permanently, the structure of the Improvements or any part
thereof, or reduce in any material respect the permitted uses thereof under
applicable zoning or licensing laws or impair other amenities of the Mortgaged
Property.
(iii) No Material Alterations shall be commenced until detailed
plans and specifications (including layout, architectural, mechanical and
structural drawings), prepared by an Architect shall have been submitted to and
approved by Lender, which approval shall not be unreasonably withheld, delayed
or conditioned and no such Work shall be undertaken except under the supervision
of the Architect.
(iv) The reasonable cost and expense of Lender's or Lender's
agent's (A) review of any plans and specifications required to be furnished
pursuant to this Indenture, and (B) review and supervision of any such Work
shall be paid by Owner within ten (10) days after demand.
24
<PAGE>
(v) All Work shall be commenced only after all required
municipal and other governmental permits, licenses, authorizations and approvals
shall have been obtained by Owner at its own cost and expense, and copies
thereof delivered to Lender.
(vi) If the Work shall constitute Material Alterations, it
shall not be commenced until Owner shall have obtained and delivered to Lender,
either (A) a performance bond and a labor and materials payment bond (issued by
a corporate surety licensed to do business in the State in which the Mortgaged
Property is located and reasonably satisfactory to Lender), each in an amount
equal to the Estimated Cost of such Work and in form otherwise reasonably
satisfactory to Lender and from a financial institution reasonably acceptable to
Lender and rated by each of the Rating Agencies in one of their respective two
highest rating categories, or (B) such other security as shall be reasonably
satisfactory to Lender.
(vii) All Work shall be performed in a first-class workmanlike
manner, and in accordance with all Legal Requirements, as well as any plans and
specifications therefor which shall have been approved by Lender, if required.
All Work shall be commenced and completed promptly, subject to a Force Majeure.
(viii) Subject to Owner's right to conduct a Permitted Contest
pursuant to Section 2.8 with respect thereto, the cost of all Work shall be paid
promptly, in cash, so that the Mortgaged Property shall at all times be free
from (A) Liens for labor or materials supplied or claimed to have been supplied
to the Mortgaged Property (if the laws of a particular jurisdiction impose a
Lien in favor of mechanics as of the commencement of Work or disallow the
prohibition of such Lien, such Lien in and of itself shall not constitute a
violation hereof, but such law shall not relieve Owner of its obligation to
timely pay all charges incurred for Work), and (B) chattel mortgages,
conditional sales contracts, title retention agreements, security interest and
agreements, and financing agreements and statements.
(ix) Upon completion of any Work, Owner, at its expense, shall
obtain certificates of final approval of such Work required by any governmental
or quasi-governmental authority and shall furnish Lender with copies thereof,
and, if the Work constituted Material Alterations, together with "as-built"
plans and specifications for such Material Alterations.
(x) Any Work shall be subject to inspection at any time and
from time to time by Lender, and its Architect(s), or duly authorized agents or
representatives, and if any such party upon any such inspection shall be of the
opinion that the Work is not being performed in accordance with the provisions
of this Section or the plans and specifications, or that any of the materials or
workmanship are not first-class or are unsound or improper, Owner shall correct
or cause to be corrected any such failure and shall replace or cause to be
replace any unsound or improper materials or workmanship.
(xi) Owner may, at its cost and expense, install, or place upon
or reinstall, or replace and remove from the Mortgaged Property any personal
property in accordance with the provisions of this Indenture. No such
installation, replacement or removal shall impair the structural and functional
integrity of the Mortgage Property as an independent commercial property, in
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<PAGE>
compliance with Legal Requirements, at the time the Alterations are made or
while this Indenture is in effect.
Section 2.4 Insurance; Restoration.
----------------------
(a) Owner shall, at its expense, maintain, the following insurance
coverages with respect to each Mortgaged Property during the term of this
Indenture:
(i) Insurance with respect to the Improvements against all
perils included within the classification "All Risk of Physical Loss", covering
such risks as shall be customarily insured against with respect to improvements
similar in construction, location and use including by way of example,
earthquake, flood, sprinkler leakage, debris removal, cost of demolition,
malicious mischief, water damage, boiler and machinery explosion or damage and
the like, with extended coverage, and in amounts not less than the greater of
(x) 100% of the actual replacement cost of the Improvements (exclusive of
foundations and excavations), without regard to depreciation, and (y) such other
amount as is necessary to prevent any reduction in such policy by reason of and
to prevent Owner, Lender or any other insured thereunder from being deemed to be
a co-insurer. If as of the date hereof, or at any time during the term of this
Indenture, the Mortgaged Property is not in compliance with all Legal
Requirements such that in the event of a partial or total casualty or
destruction such Legal Requirements would prohibit Owner from restoring or
rebuilding the Mortgaged Property to the specifications and condition of the
Mortgaged Property prior to such casualty or destruction, then Owner shall be
required to carry agreed value insurance.
(ii) Commercial general public liability insurance insuring
Owner, and Lender against all claims for damages to person or property or for
loss of life or of property occurring upon, in, or about the Mortgaged Property,
in limits of at least $5,000,000 combined single limit for bodily injury or
death to any one person, $10,000,000 for bodily injury or death to any number of
persons in respect of any one accident or occurrence and $1,000,000 for property
damage in respect of one accident or occurrence, or such greater limits as may
be required from time to time by Lender consistent with insurance coverage on
properties similarly constructed, occupied and maintained.
(iii) Worker's compensation insurance (including employers'
liability insurance, if requested by Lender) to the extent required by the law
of the State in which the Mortgaged Property is located and to the extent
necessary to protect Owner and Lender and the Mortgaged Property against
worker's compensation claims.
(iv) Flood insurance in an amount equal to the full replacement
costs of the Mortgaged Property or the maximum amount available, whichever is
less, if all or any portion of the Improvements are located in an area which has
been designated by the Secretary of Housing and Urban Development as having
special flood hazards, and if flood insurance is available under the National
Flood Insurance Act.
(v) During any period during which construction is conducted
on the Property and during which period the construction and materials are not
covered by the existing
26
<PAGE>
policies, premium prepaid insurance policies covering the Property (which during
construction shall be on an "All-Risk" perils, including theft, "Builder's
Risk", "Completed Value" form or substantially similar policy form) in amounts
equal to the replacement costs of the Improvements (including construction
materials and personal property on or off site) covering insurance risks no less
broad than those covered under a Standard Multi Peril (SMP) policy form, which
contains a 1987 Commercial ISO "Causes of Loss-Special Form", with coverage for
such other expenses as Lender may reasonably require. Such insurance shall
contain an agreed amount endorsement and bear a 100% co-insurance clause.
(vi) During any period when construction is conducted on the
Property, worker's compensation, employers' liability, commercial auto
liability, and commercial general liability insurance (including contractual
liability and completed operations coverage) for each general contractor written
on a 1996 standard "ISO" occurrence basis form or equivalent and excess umbrella
coverage, carried during the course of construction, with general liability
insurance limits as set forth in clause (ii) above.
(b) Owner shall not carry separate insurance, concurrent in kind or
form or contributing in the event of loss, with any insurance required under
this Section 2.4, provided, however, that notwithstanding the foregoing, Owner
--------
may carry additional insurance not required under this Indenture, provided any
such insurance affecting the Mortgaged Property shall be for the mutual benefit
of Owner and Lender, as their respective interests may appear, and shall be
subject to all other provisions of this Section 2.4.
(c) (i) Such insurance shall be issued by companies authorized to
transact business in the State in which the Mortgaged Property is located and
having an Alfred M. Best Company rating of "A" or better and financial size
category of not less than X, and an S&P rating of "A" or better as to claims
paying ability. No insurance policy maintained by Owner thereunder shall provide
for a deductible in excess of $50,000. Originals or certified copies of all
insurance policies shall be delivered to and held by Lender. Owner shall deliver
to Lender copies of the applicable insurance policies and original or duplicate
certificates of insurance, satisfactory to and permitting reliance thereon by
Lender, evidencing the existence of all insurance which is required to be
maintained by Owner hereunder, such delivery to be made (i) at or prior to the
execution and delivery hereof and (ii) at least thirty (30) days prior to the
expiration of any such insurance in each case, bearing notations evidencing the
payment of premiums or renewal premiums, as applicable. Owner shall immediately
notify Landlord whenever any separate insurance is obtained and shall deliver to
Lender the policies or certificates evidencing the same. Any insurance required
hereunder may be provided under blanket policies provided that the Mortgaged
--------
Premises and the applicable coverage applicable thereto are specified therein.
(d) All such insurance (other than any worker's compensation policy),
whether maintained by Owner, shall be endorsed to provide that:
(i) such insurance will not be canceled or amended except after
thirty (30) days' written notice to Lender, except with respect to non-payment
which shall not be canceled or amended except after ten (10) days written notice
to Lender, and that it shall not be invalidated by
27
<PAGE>
any act or negligence of Owner or any person or entity having an interest in the
Mortgaged Property, nor by occupancy or use of the Mortgaged Property for
purposes more hazardous than permitted by such policy, nor by any foreclosure or
other proceedings relating to the Mortgaged Property, nor by change in title to
or ownership of the Mortgaged Property;
(ii) Lender is an additional insured with the understanding
that any obligation imposed upon the insured (including, without limitation, the
liability to pay premiums, but excluding any obligation of the insured to
cooperate with any insurer or any insurer's representative in the investigation,
defense or settlement of any claim covered under such insurance) shall be the
sole obligation of Owner and not that of any other insured;
(iii) all Insurance Proceeds payable under any policy of
insurance with respect to the Mortgaged Property (other than any general
liability policy and any worker's compensation policy) shall be paid to Lender
under a standard mortgagee's clause;
(iv) the interests of Lender shall not be invalidated by any
action or inaction of Owner, or any other Person, and such insurance shall
insure Lender regardless of any breach or violation by Owner or any other Person
of any warranties, declarations or conditions contained in the policies relating
to such insurance or application therefor;
(v) the insurer thereunder waives all rights of subrogation
against Lender and waives any right of set-off and counterclaim and any other
right of deduction, whether by attachment or otherwise;
(vi) such insurance shall be primary without right of
contribution from any other insurance carried by or on behalf of Owner or Lender
or any other Person with respect to its interest in the Mortgaged Property; and
(vii) all terms, conditions, insuring agreements and
endorsements, with the exception of limits of liability, shall operate in the
same manner as if there were a separate policy covering each insured.
(e) If Owner fails to maintain and deliver or fails to cause to be
maintained and delivered to Lender the original policies or certificates of
insurance required by this Indenture, Lender may, at its option, procure such
insurance, and Owner shall reimburse Lender in the amount of all such premiums
thereon promptly, upon demand by Lender, with interest thereon at the Default
Rate from the date paid by Lender to the date of repayment, and such sum shall
be a part of the Indebtedness secured by this Indenture, but this sentence shall
not prevent any default under this Section 2.4 from becoming an Event of
Default.
(f) (i) In the event of any casualty affecting all or any portion of
the Mortgaged Property or of any Taking or proposed Taking with respect thereto,
Owner shall, at such time as Owner has obtained actual knowledge thereof, give
prompt written notice thereof to Lender (which notice shall set forth Owner's
good faith estimates of the cost of repairing or restoring any damage or
destruction caused thereby), or, if Owner cannot reasonably estimate the
anticipated cost of such
28
<PAGE>
restoration, Owner shall nonetheless give Lender prompt notice of the occurrence
of any such casualty, Taking or proposed Taking, and will diligently proceed to
obtain estimates to enable Owner to quantify the anticipated cost of such
restoration, whereupon Owner shall promptly notify Lender of such good faith
estimate.
(ii) Lender is hereby irrevocably appointed as Owner's
attorney-in-fact, coupled with an interest, with full power of substitution,
with exclusive power to collect, receive and retain the Loss Proceeds relating
to any such casualty or Taking, subject to the provisions of this Indenture and
the Loan Agreement, and with exclusive power after the occurrence and during the
continuance of any Event of Default to make any compromise or settlement in
connection with any such casualty or Taking. So long as no Event of Default
shall have occurred and be continuing, Owner may adjust, compromise, settle or
enter into any agreement with respect to any such casualty, Taking, compromise
or settlement proceedings with the prior written consent of Lender, which
consent shall not be unreasonably withheld, delayed or conditioned and which
consent shall not be required for any adjustment, compromise or settlement of
Loss Proceeds in an amount less than $100,000. Lender may appear in any such
proceeding or action to negotiate, prosecute and adjust any claim for any Loss
Proceeds, and Lender shall collect all such Loss Proceeds. Owner shall pay all
costs and expenses in connection with each such proceeding, action, negotiation,
prosecution and adjustment. All Loss Proceeds shall be applied in accordance
with the provisions of this Indenture. Owner shall execute and deliver to Lender
any and all instruments reasonably required in connection with any such
casualty,Taking or compromise or settlement proceeding promptly after request
therefor by Lender.
(iii) Owner hereby irrevocably assigns to Lender all Loss
Proceeds payable with respect to any award, compensation or insurance payment to
which Owner may become entitled by reason of Owner's interest in the Mortgaged
Property (A) if the use, occupancy or title of the Mortgaged Property or any
part thereof is taken, requisition or sold in, by or on account of any actual or
threatened Taking (B) if the Mortgaged Property or any part thereof is damaged
or destroyed by fire, flood or other casualty. All Loss Proceeds shall be paid
directly to Lender pursuant to the terms and conditions hereof. Lender shall
deposit any Loss Proceeds received by it into the Restoration Account. If any
Loss Proceeds are received by Owner, such Loss Proceeds shall be received in
trust for Lender, shall be segregated from other funds of Owner, and shall be
forthwith paid to Lender to be held in a segregated account controlled by
Lender, in each case to be applied or disbursed in accordance with paragraphs
(f) and (g) of this Section 2.4.
(iv) Subject to the next sentence of this Section 2.4(f)(iv),
if a Taking or casualty shall affect all or a substantial portion of the
Mortgaged Property and shall render the Mortgaged Property unsuitable for
restoration for continued use or occupancy of Owner's business (herein, a "Major
-----
Condemnation" and "Major Casualty"), then Owner shall, not later than forty-five
- ------------ --------------
(45) days after such Major Condemnation or Major Casualty, as the case may be,
deliver to Lender (A) an irrevocable notice of its intention to prepay the Note
in full on the first Payment Date specified in such notice occurring not less
than 30 nor more than 90 days after the date of such notice and (B) a
certificate of Owner describing the event giving rise to such prepayment and
stating that Owner has determined in good faith that such Major Condemnation or
Major Casualty, as the case may be, has rendered the Mortgaged Property
unsuitable for restoration for continued use and
29
<PAGE>
occupancy of Owner's business. If a Taking or casualty occurs that affects all
or a substantial portion (more than 20%) of a Building or if a Taking of the
nature described in clause (ii) of the definition of Taking occurs, which in any
such case, renders such Building unsuitable for restoration for continued use or
occupancy of Owner's business which does not constitute a Major Condemnation or
Major Casualty (such condemnation herein called, a "Major Building Condemnation"
---------------------------
and such casualty herein called "Major Building Casualty"), then Owner shall,
-----------------------
not later than forty-five (45) days after such Major Building Condemnation or
Major Building Casualty, as the case may be, deliver to Lender (A) an
irrevocable notice of its intention to prepay a portion of the Note in an amount
equal to 100% times the Allocated Building Debt related to such Building (plus
Make-Whole Premium if such notice is given in connection with a Major Building
Condemnation of the nature described in clause (ii) of the definition of Taking)
on the first Payment Date specified in such notice occurring not less than 30
nor more than 90 days after the date of such notice and (B) a certificate of
Owner describing the event giving rise to such prepayment and stating that Owner
has determined in good faith that such Major Building Condemnation or Major
Building Casualty, as the case may be, has rendered the Building unsuitable for
restoration for continued use and occupancy of Owner's business. Any Major
Building Condemnation or Major Building Casualty that occurs following a
previous Major Building Condemnation or Major Building Casualty with respect to
the other previously existing Building shall constitute a Major Condemnation or
Major Casualty, respectively.
(v) If no Event of Default has occurred and is continuing and
if Owner has not delivered notice to Lender of its intention to prepay the Note
pursuant to clause (iv) of this Section 2.4(f)(iv), Lender will make the Loss
Proceeds available to Owner for the repair, restoration and rebuilding of the
Mortgaged Property or such Building (such repair, restoration and rebuilding are
sometimes hereinafter collectively referred to as the Work) so damaged,
destroyed or taken, such Work to be performed in full compliance with all Legal
Requirements and pursuant to the terms and subject to the conditions of Section
2.4(g) hereof. If an Event of Default has occurred and is continuing, the Loss
Proceeds may be applied by Lender, at its sole option, to reduce the
Indebtedness. If the Loss Proceeds are applied to reduce the Indebtedness,
Lender shall apply the same in accordance with the applicable provisions of this
Indenture. If Owner has delivered notice to Lender of its intention to prepay
the Note pursuant to Section 2.4(f)(iv), Owner shall prepay all or a portion of
the Note as specified in such notice (with Make-Whole Premium if such prepayment
is with respect to a Taking of the nature described in clause (ii) of the
definition of Taking) and, contemporaneously with such prepayment, Lender shall
pay to Owner any Loss Proceeds received by Lender prior to such prepayment in
connection with the related Major Casualty, Major Condemnation, Major Building
Casualty or Major Building Condemnation. In the event that Lender elects to
allow Loss Proceeds to be used for the Work or if Lender is required pursuant to
the terms hereof to make the Loss Proceeds available for Work, any excess Loss
Proceeds remaining after completion of such Work, so long as no Event of Default
has occurred and is continuing, shall be paid over to Owner, provided, however,
-------- -------
that if an Event of Default has occurred and is continuing, such excess Loss
Proceeds may be applied to the payment of the Indebtedness by Lender, at its
sole option.
(g) If, after a Taking or casualty, Owner is not permitted to give
notice of its intention to prepay the Note in accordance with Section 2.4(f)(iv)
then Owner shall, at its expense,
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<PAGE>
promptly rebuild, replace or repair the Mortgaged Property or the Building in
conformity with the requirements herein so as to restore the Mortgaged Property
or the Building (in the case of condemnation, as nearly as practicable) to the
condition and fair market value thereof immediately prior to such occurrence).
Prior to any such rebuilding, replacement or repair, Owner and Lender shall
agree on the maximum cost thereof (the "Restoration Cost"). If Lender elects to
----------------
allow the Loss Proceeds to be used for the Work or is required to make the Loss
Proceeds available for such Work, in accordance with Section 2.4(f), then such
Loss Proceeds shall be held by Lender and shall be paid out from time to time to
Owner as the Work progresses (less any cost to Lender of recovering and paying
out such Loss Proceeds, including, without limitation, reasonable attorneys'
fees and costs allocable to inspecting the Work and the plans and specifications
therefor), subject to compliance by Owner of each of the following conditions:
(i) The Restoration Cost shall be paid first out of Owner's
own funds to the extent that the Restoration Cost exceeds the Loss Proceeds
received by Lender in connection with such occurrence, after which expenditure
Owner shall be entitled to receive the Loss Proceeds in accordance with Section
2.4(g), but only against certificates of Owner (and Lien releases and other
items and conditions generally and reasonably required in connection with
disbursement of the Loss Proceeds) delivered to Lender from time to time as such
work or rebuilding, replacement and repair progresses, each such certificate
describing the work for which Owner is requesting payment and the cost incurred
by Owner in connection therewith and stating that Owner has not theretofore
received payment for such work. To the extent that this Indenture requires that
Owner deliver its portion of the Restoration Cost to Lender (or other security
acceptable to Lender), Owner shall deliver the same to Lender. In addition, in
such event the Restoration Cost shall be disbursed in accordance with the
procedure set forth herein. In the event of any temporary Taking, the Loan
Documents shall remain in full force and effect and the Loss Proceeds allocable
to such temporary Taking shall be paid to Lender, to be applied towards the
payment of Debt Service Payments and Securitization Costs as the same become
due. Owner shall not be entitled to disbursements of amounts in the Restoration
Account or of the Loss Proceeds if an Event of Default has occurred and is
continuing.
(ii) The Debt Service Payments and Securitization Costs payable
under the provisions of the Loan Documents shall not be affected, altered or
reduced by any casualty or Taking (except as specifically set forth with respect
to a prepayment of the Note upon payment of the amounts required therein).
Owner's obligation to continue to pay shall continue notwithstanding any such
casualty or Taking, unless a prepayment occurs.
(iii) If the Loss Proceeds are required to be held by Lender in
the Restoration Account, then such Loss Proceeds and any amount of Restoration
Cost deposited by Owner with Lender shall be held by Lender and shall be paid
out from time to time to Owner as the work progresses (less any cost to Lender
of recovering and paying out such proceeds, including, without limitation,
reasonable attorneys', trustees' or escrow fees relating thereto and costs
allocable to inspecting the work and the plans and specifications therefor),
subject to Section 2.3 hereof.
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(iv) If the work constitutes Material Alterations, the
provisions of Section 2.3(d) shall apply and either the Authorized
Representative of Owner or, if the Work is required to be performed under the
supervision of an Architect pursuant to Section 2.3(d), the Architect selected
by Owner and reasonably acceptable to Lender, shall have delivered to Lender a
certificate estimating the cost of completing the Work, and, if the amount set
forth therein is more than the amount of Loss Proceeds then being held by Lender
in connection with a casualty to or partial Taking of the Mortgaged Property or
a Building, Owner shall have delivered or caused to be delivered to Lender (x)
cash collateral in an amount equal to such excess, or (y) an unconditional,
irrevocable, clean sight draft letter of credit, in form and substance, and
issued by a bank, acceptable to Lender in its sole discretion, in the amount of
such excess, and which bank has a rating from each of the Rating Agencies in one
of their respective two highest rating categories, or (z) evidence acceptable to
Lender that the excess has been expended in performing the Work prior to any
funds being drawn from the Loss Proceeds.
(v) Each request for payment shall be made on not less than ten
(10) Business Days prior notice to Lender and shall be accompanied by an
Officer's Certificate (or if such Work is being performed under the supervision
of an Architect, by a certificate of such Architect), stating (A) in the case of
an Officer's Certificate only, that no Default exists hereunder or under any
other Loan Document, (B) that, based upon an inspection of the Mortgaged
Property or a Building, all of the Work completed has been done in substantial
compliance with the approved plans and specifications, if required under Section
2.3(d), (C) that the sum requested is validly required to reimburse Owner for
payments by Owner, or is validly due to the contractor, subcontractors,
materialmen, laborers, engineers, architects or other persons rendering services
or materials for the Work (giving a brief description of such services and
materials), and that when added to all sums previously paid out by Lender does
not exceed the value of the Work done to the date of such certificate, (D) if
the sum requested is to cover payment relating to repair and restoration of
personal property required or relating to the Mortgaged Property or a Building,
that title to the personal property items covered by the request for payment is
vested in Owner, and (E) the remaining cost to complete such Work and that the
remaining amount held by Lender (together with any amounts contemporaneously
deposited with Lender in the Restoration Account in connection herewith) shall
be sufficient to cover the cost of completion of such Work; provided, however,
-------- -------
that if such certificate is given by an Architect, such Architect shall certify
as to clause (B) above, and the Authorized Representative of Owner shall certify
as to the remaining clauses above, and provided, further, that Lender shall not
--------
be obligated to disburse such funds if the provisions of Section 2.4(g)(x) are
applicable. Additionally, each request for payment shall contain a statement
signed by Owner approving both the Work done to date and the Work covered by the
request for payment in question.
(vi) Each request for payment shall be accompanied by waivers of
Lien satisfactory to Lender covering that part of the Work for which payment or
reimbursement has been made as of the date of the current request and, if
required by Lender, a search prepared by a title company or licensed abstractor,
or by other evidence satisfactory to Lender that there has not been filed with
respect to the Mortgaged Property or a Building any mechanics, or other Lien or
instrument for the retention of title relating to any part of the Work not
discharged of record. Additionally, as to any personal property covered by the
request for payment, Lender shall be
32
<PAGE>
furnished with evidence of payment therefor and such further evidence
satisfactory to assure Lender of its valid first Lien on and security interest
in the personal property.
(vii) Lender shall have the right to inspect the Work at all
reasonable times upon reasonable prior notice and may condition any disbursement
of Loss Proceeds upon the satisfactory completion, as determined in Lender's
sole discretion, of any portion of the Work for which payment or reimbursement
is being requested. Neither the approval by Lender of any required plans and
specifications for the Work nor the inspection by Lender of the Work shall make
Lender responsible for the preparation of such plans and specifications or the
compliance of such plans and specifications, or of the Work, with any applicable
Legal Requirement, covenant or agreement.
(viii) Amounts shall be disbursed from the Restoration Account
not more frequently than once every thirty (30) days.
(ix) Upon completion of the Work and payment in full therefor,
Lender shall apply any amounts remaining in the Restoration Account in
accordance with the provisions of Section 2.4(f).
(x) Notwithstanding any other provision of this Section
2.4(g), so long as Owner fails promptly to commence the Work or to proceed
diligently and continuously to complete the Work or an Event of Default has
occurred and is continuing, Lender, in its sole discretion, may apply any
amounts held in the Restoration Account and/or any Loss Proceeds held by it to
continue the Work, to make any Advances it may, in its sole discretion, decide
to make with respect to the Mortgaged Property or a Building or apply such Loss
Proceeds to pay or prepay, in whole or in part, any Indebtedness. No such
Advance by Lender shall cure an Event of Default, and Owner shall be obligated
to immediately reimburse such amount to Lender, together with interest accrued
thereon at the Default Rate.
Restoration Cost and/or Loss Proceeds held by Lender in accordance with this
Section 2.4(g) shall be held in the Restoration Account.
Notwithstanding any other provision of this Section 2.4, if the cost of the
Work is less than $100,000 with respect to any one casualty or partial Taking,
such Work can be completed in less than ninety (90) days and no Event of Default
has occurred and is continuing hereunder then Lender, upon request by Owner,
shall permit Owner to apply for and receive the Loss Proceeds directly from the
insurer or payor thereof (and Lender shall advise such insurer or payor to pay
over such Loss Proceeds directly to Owner), provided that Owner shall promptly
and diligently commence and complete such Work in a good and workmanlike manner.
(h) If an Event of Default shall have occurred and be continuing or
if Owner (i) shall fail to submit to Lender for approval plans and
specifications (if required pursuant to Section 2.3(d) hereof) for the Work
(approved by the Architect and by all Governmental Authorities whose approval is
required), (ii) after any such plans and specifications for the Work are
approved by all such Governmental Authorities, by the Architect and, if required
hereunder, by Lender, shall fail
33
<PAGE>
to commence promptly such Work, (iii) after Lender has released the Loss
Proceeds to the extent provided for hereunder, shall fail to diligently
prosecute such Work to completion, or (iv) shall fail in any other respect to
comply with the Work obligations under this Section 2.4, then, in addition to
all other rights available hereunder, at law or in equity, Lender, or any
receiver of the Mortgaged Property or any portion thereof, upon fifteen (15)
days prior notice to Owner (except in the event of emergency in which case no
notice shall be required), may (but shall have no obligation to) perform or
cause to be performed such Work, and may take such other steps as it deems
advisable, but this sentence shall not prevent any default by Owner from
becoming an Event of Default. Owner hereby waives, for Owner and all others
holding under or through Owner, any claim, other than for willful misconduct,
against Lender and any receiver arising out of any act or omission of Lender or
such receiver pursuant hereto, and Lender may apply all or any portion of the
Restoration Cost and/or Loss Proceeds (without the need to fulfill any other
requirements of this Section 2.4) to reimburse Lender and such receiver, for all
amounts incurred in connection with the Work, and any costs not reimbursed to
Lender or the receiver shall be paid by Owner to Lender or such receiver upon
demand together with interest thereon at the Default Rate from the date such
amounts are advanced until the same are paid to Lender or the receiver, and such
sum shall be part of the Indebtedness secured by this Indenture.
Section 2.5 Condemnation. Promptly after receipt of written notice or
------------
otherwise obtaining actual knowledge thereof, Owner shall notify Lender promptly
of the commencement or threat of any Taking of the Mortgaged Property or a
Building or a portion thereof and the provisions of Section 2.4 shall apply with
respect thereto to the extent set forth therein.
Section 2.6 Impositions. Owner shall comply with all Legal Requirements
-----------
and shall pay or cause to be paid all Impositions with respect to Owner, the
Mortgaged Property or any part thereof and/or any Property Income derived
therefrom or with respect thereto to the extent the same are due and payable,
unless a current Permitted Contest with respect to a Legal Requirement or of the
amount or validity thereof shall be made in good faith.
Section 2.7 Use of Loan Proceeds. The proceeds of the Loan will not be
--------------------
used for personal, family or household use.
Section 2.8 Permitted Contests. "Permitted Contest" shall mean, so long
------------------
as no Event of Default under this Indenture shall have occurred and be
continuing, that Owner may, in good faith, contest the existence, amount or
validity of any Imposition or Lien or Legal Requirement by appropriate
proceedings diligently pursued, provided that (a) there shall have been
deposited with Lender an amount sufficient to pay such Imposition, or Lien or to
perform such Legal Requirement or such other security as shall be satisfactory
to Lender, together with all interest and penalties which may become due thereon
as determined by Lender, (i) prior to the commencement of any contest with
respect to a failure to pay any such Imposition or Lien or failure to perform
any such Legal Requirement relating to the Mortgaged Property, and (ii) no later
than sixty (60) days after Owner has knowledge of the attachment, or filing or
recording of any Lien with respect to the Mortgaged Property involving claims
against Owner which do not otherwise relate to the Mortgaged Property, and (b)
failing to pay such Imposition or Lien or failing to perform such Legal
Requirement will not (1) subject Lender to criminal or civil penalties or fines
or to prosecution for
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a crime, (2) subject the Mortgaged Property or a ny part thereof to being
condemned, vacated, forfeited or otherwise impaired, (3) impair the value of the
Lien or security interest granted hereunder, (4) have the effect of interrupting
or preventing the collection of any contested amount or other realization of
value from the Mortgaged Property or any part thereof or interest therein, the
Debt Service Payments or Securitization Costs or any other sums payable
hereunder or any portion thereof to satisfy the claim, (5) subject the Mortgaged
Property, any portion thereof or interest therein, the Debt Service Payments or
Securitization Costs or any other sums payable under the Loan Documents or any
portion thereof to sale, forfeiture, interruption or loss by reason of such
proceedings or (6) affect the ownership or occupancy of the Mortgaged Property
or the Lender's ability or right to exercise its remedies hereunder, including
without limitation, foreclosure against the Mortgaged Property; provided,
--------
further, that prior to the date on which any such Imposition would otherwise
- -------
have become delinquent or any such Lien attach or any such Legal Requirement not
be performed, Owner shall have given Lender prior notice of such contest. When
required by the immediately preceding sentence, Owner shall give such security
as may be reasonably required by Lender to ensure ultimate payment of such
Imposition or such Lien and compliance with such Legal Requirements and to
prevent any sale, forfeiture, interruption or loss of the Mortgaged Property or
any portion thereof, any Debt Service Payments and Securitization Costs or other
sums required to be paid by Owner hereunder, by reason of such nonpayment or
noncompliance. Owner shall promptly pay any such Imposition or Lien as finally
determined, together with all interest and penalties payable in connection
therewith, and Owner shall promptly perform any such Legal Requirement as
finally determined and pay any costs, liabilities, damages, penalties or other
amounts, if any, required as part of any such final determination.
Section 2.9 Prepayment. Owner shall not have the right to prepay the
----------
Loan, in whole or in part, except in accordance with the terms of this Section
2.9. Although Owner, at its option, shall be permitted to make a Defeasance
Deposit pursuant to Section 2.20 after the Permitted Defeasance Date, Owner
shall not be permitted to prepay, in whole or in part, the Principal Amount,
except as expressly provided in Sections major condemnation or major casualty
2.4(f)(iv), 2.11 and 2.19, which prepayment shall be without premium, except if
a Major Building Condemnation occurs of the nature described in clause (ii) of
the defintion of Taking, then in that instance, such prepayment shall be with a
Make-Whole Premium. All prepayments in whole or in part of the Principal Amount
-----------------------------------------------------------
shall be made on a Payment Date after payment and application of the Debt
- -------------------------------------------------------------------------
Service Payment due on such Payment Date and shall be applied in accordance with
- ----------------------------------------
Section 2.1(c). Upon any partial prepayment of the Note, the Debt Service
Payments may be reamortized as set forth in Section 2.1(b).
Section 2.10 Maintenance of Existence; Merger and Consolidation.
--------------------------------------------------
(a) Owner is and, so long as any portion of the Indebtedness shall
remain outstanding, shall do all things necessary to continue to be a duly
organized, validly existing corporation. So long as it owns the Mortgaged
Property, Owner shall do all things necessary to comply (in accordance with the
terms of any other applicable Granting Clause Document), in all material
respects with all Legal Requirements of any Governmental Authority or court
applicable to Owner or to the Mortgaged Property or any portion thereof and to
preserve and keep in full force and effect its existence, and to the extent
necessary or desirable for the conduct of its business, its
35
<PAGE>
franchises, licenses, authorizations, registrations, permits and approvals under
the laws of the United States, the State of its formation and the State in which
the Mortgaged Property is located.
(b) Prior to the merger of Owner into another corporation, to the
consolidation of Owner with one or more other corporations, and to the sale or
other disposition of all or substantially all the assets of Owner to one or more
other entities, the surviving entity or transferee of assets, as the case may
be, shall deliver to Lender an acknowledged instrument in recordable form
assuming all obligations, covenants and responsibilities of Owner hereunder and
under any instrument executed by Owner relating to the Mortgaged Property.
Owner covenants that it will not merge or consolidate or sell or otherwise
dispose of all or substantially all of its assets unless such instruments shall
have been so delivered. In addition, the following shall be conditions
precedent of such a merger, consolidation or sale of assets: (i) that no Event
of Default shall have occurred and is continuing hereunder; (ii) the surviving
entity of any merger, consolidation or the transferee in connection with any
such sale of assets must be organized in the United States and must have a net
worth and long term unsecured credit rating not less than the net worth and long
term unsecured credit rating of Owner on the day prior to the merger,
consolidation or sale of assets; (iii) if the Loan is included in a
securitization, the Rating Agencies shall have confirmed in writing that such
merger, consolidation or sale of assets shall not result in a downgrade,
withdrawal or qualification of any securities in connection with such
securitization; (iv) opinions in form and substance reasonably satisfactory to
Lender which shall include those opinions which are customarily and usually
given at such time relating to such merger, consolidation or sale of assets
addressed to Lender and to the Rating Agencies shall have been delivered by
Owner to Lender, and after any securitization which includes the Loan, to the
Rating Agencies (including without limitation, tax and bankruptcy opinions); and
(v) Lender shall be given, as a prerequisite to such merger, consolidation or
sale of assets, a written certification from the chief financial officer of
Owner that the provisions of this Section have been satisfied.
Section 2.11 Conveyance in Anticipation of Condemnation, Granting of
-------------------------------------------------------
Easements, Etc. If no Event of Default shall have occurred and be continuing,
- ---------------
Owner may, from time to time, (i) sell, assign, convey or otherwise transfer an
interest in the Mortgaged Property to any Person legally empowered to take such
interest under the power of eminent domain, (ii) grant easements, licenses,
rights of way and other rights and privileges in the nature of easements of such
nature, extent and duration as Owner may reasonably request; (iii) release or
relocate existing easements and appurtenances which are for the benefit of the
Mortgaged Property; (iv) dedicate or transfer unimproved portions of the
Mortgaged Property for road, highway or other public purposes; (v) execute
petitions to have the Mortgaged Property annexed to any municipal corporation or
utility district; (vi) execute amendments to any covenants and restrictions
affected the Mortgaged Property; and (vii) execute and deliver any instrument
necessary or appropriate to confirm such grants or releases to any Person in
each of the foregoing instances, but only if (A) such grant or release is not
materially detrimental to the proper conduct of business of Owner on the
Mortgaged Property, (B) such grant or release does not impair the effective use
of the Mortgaged Property for its intended purposes or materially adversely
affect its value, (C) Owner considers the consideration, if any, being paid for
such grant or release to be fair and adequate, (D) for so long as this Indenture
is in effect, Owner will perform all obligations, if any, under the applicable
instrument, and (E) Lender shall have received (X) a certificate from the
appropriate officer of Owner certifying as to the
36
<PAGE>
satisfaction of the conditions described in clause (A) through (D) above, (Y) a
duly authorized undertaking of Owner in form and substance reasonably
satisfactory to Lender, to the effect that Owner will remain obligated hereunder
and under the other Loan Documents to the same extent as if such grant or
release had not been made and (Z) such instruments, certificates (including
evidence of authority) and opinions of counsel reasonably acceptable to Lender,
as Lender may reasonably request. Any easement that imposes any Lien arising by
virtue of the nonperformance of obligations under such easement shall be
subordinate to the Lien of this Indenture. The grant of any such easement shall
be subject to Lender's prior consent. Owner shall be responsible for the payment
of all costs and expenses (including the costs and expenses of Lender) incurred
in connection with this Section 2.11. All amounts or proceeds (after deducting
reasonable expenses of collecting the same and reconstructing the Mortgaged
Property) received by Owner by virtue of said action and/or release of said
interest shall be paid over to Owner, provided, however, that if the amount to
-------- -------
be paid over to Owner exceeds $100,000 or if any Event of Default shall have
occurred and be continuing, such amounts or proceeds shall be paid to Lender
immediately upon receipt thereof by Owner and, at Lender's sole election, shall
be applied as a partial prepayment of the Note without premium pursuant to
Section 2.9.
Section 2.12 Costs of Defending and Upholding the Lien. Lender may, (a)
-----------------------------------------
appear in and defend any action or proceeding, in the name and on behalf Lender
or Owner, in which Lender is named or which Lender in its sole discretion
determines may adversely affect the Mortgaged Property, this Indenture, the Lien
hereof or any other Loan Document; and (b) institute any action or proceeding
which Lender in its sole discretion determines should be instituted to protect
the interest or rights of Lender in the Mortgaged Property or under this
Indenture or any other Loan Document. Lender shall provide prompt written
notice of the foregoing to Owner and shall endeavor to provide Owner with at
least fifteen (15) days prior written notice thereof. Owner agrees to bear and
shall pay or reimburse Lender within five (5) days after demand therefor for all
Advances and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) relating to or incurred by Lender in connection with any such
action or proceeding.
Section 2.13 Costs of Enforcement. Owner agrees to bear and shall pay or
--------------------
reimburse Lender on demand for all Advances, out-of-pocket costs and expenses
(including, without limitation, reasonable attorneys' and appraisers' fees and
expenses and the fees and expenses of any receiver or similar official) of or
incidental to the collection of the Indebtedness or the enforcement of Owner's
obligations under this Indenture or any other Loan Document, any foreclosure (or
Transfer in lieu of foreclosure) of this Indenture or any other Loan Document or
sale of all or any portion of the Mortgaged Property by power of sale, any
enforcement, compromise or settlement of this Indenture, any other Loan Document
or the Indebtedness, or any defense or assertion of the rights or claims of
Lender in respect of any thereof, by litigation or otherwise.
Section 2.14 Interest on Advances and Expenses. All Advances made, interest
---------------------------------
thereon, and expenses incurred at any time by Lender pursuant to the provisions
of this Indenture or the other Loan Documents or under applicable law shall be
secured by this Indenture as part of the Indebtedness, with equal rank and
priority. All such Advances and expenses (including all amounts reimbursable
pursuant to Section 2.13) shall bear interest at the Default Rate, payable on
demand, from the date that each such Advance or expense is made or incurred to
the date of reimbursement.
37
<PAGE>
Section 2.15 Indemnification. In addition, and without limitation to any
---------------
other provision of this Indenture, Owner shall protect, indemnify and save
harmless Lender Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expense (including, without
limitation, reasonable attorneys' fees and expenses whether incurred within or
outside the judicial process) (any of the foregoing, a "Claim"), imposed upon or
-----
incurred by or asserted against any Lender Party by reason of or with respect to
(a) the Lien of this Indenture (as such Lien relates to an event occurring on or
about the Mortgaged Property), the Mortgaged Property or any portion thereof or
any interest therein or the receipt of any Property Income; (b) any accident,
injury to or death of any person or loss of or damage to property occurring in,
on or about the Mortgaged Property or any portion thereof or on the adjoining
sidewalks, curbs, parking areas, streets or ways including, without limitation,
as a result of or arising from any negligent or tortious act or omission of
Owner or its agents, employees, officers and directors; (c) any use, non-use or
condition in, on or about, or possession, alteration, repair, operation,
maintenance or management of, the Mortgaged Property or any portion thereof or
on the adjoining sidewalks, curbs, parking areas, streets or ways; (d) any
failure on the part of Owner to perform or comply with any of the terms,
covenants or conditions of this Indenture or any of the other Loan Documents;
(e) any representation or warranty made herein, in any certificate delivered to
Lender or in any other Loan Document being false or misleading in any material
respect as of the date such representation or warranty was made; (f) performance
of any labor or services or the furnishing of any materials or other property in
respect of the Mortgaged Property or any portion thereof; (g) any claim by
brokers, finders or similar Persons claiming to be entitled to a commission in
connection with the Loan, any Lease or other transaction involving the Mortgaged
Property or any portion thereof; (h) any Imposition, including, without
limitation, any Imposition attributable to the execution, delivery, filing, or
recording of any Loan Document, Lease or memorandum thereof; (i) any Lien or
claim arising on or against the Mortgaged Property or any portion thereof under
any Legal Requirement or any liability asserted against Lender with respect
thereto; or (j) the claims of any tenant of all or any portion of the Mortgaged
Property or any Person acting through or under any tenant or otherwise arising
under or as a consequence of any Lease. Notwithstanding the foregoing
provisions of this Section 2.15 to the contrary, Owner shall have no obligation
to indemnify any Lender Party pursuant to this Section 2.15 for liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
relative to the foregoing which (I) result from such Lender Party's willful
misconduct or gross negligence, or (II) arise from and after the date title to
the Mortgaged Property is transferred to a Person (other than Lender, or its
successors and assigns, any designee of Lender, or an affiliate of Owner)
pursuant to a foreclosure under this Indenture or a deed-in-lieu of such
foreclosure. Any amounts payable to any Lender Party by reason of the
application of this Section 2.15 shall be secured by this Indenture and shall
become immediately due and payable and shall bear interest at the Default Rate
from the date any such Claim is suffered or incurred by such Lender Party until
paid by Owner.
Section 2.16 Transfers. (a) Except as otherwise expressly permitted under
---------
Section 2.11 and this Section 2.16, no Transfer shall be permitted, and Owner
shall not suffer or permit a Transfer to occur, without the prior written
consent of Lender, which consent will be given or withheld in the sole
discretion of Lender, provided, however, no consent of Lender shall be necessary
-------- -------
for Transfers of Equity Interests which in the aggregate during the term of the
Loan (a) do
38
<PAGE>
not exceed forty-nine percent (49%) of the total interests in Owner and (b) do
not result in any partner's, members, shareholder's or other Person's interest
in Owner exceeding forty-nine percent (49%) of the total interests in Owner.
Transfers of Equity Interests exceeding forty-nine (49%) shall be permitted so
long as (i) no Event of Default shall have occurred and be continuing hereunder;
(ii) any transferee of the Equity Interests must be either a natural person or
an entity organized in the United States, as the case may be; (iii) Owner must
following the Transfer have not less than the net worth and the long term
unsecured credit rating as it did prior to the Transfer; (iv) if the Loan is
included in a securitization, the Rating Agencies shall have confirmed in
writing that such Transfer shall not result in a downgrade, withdrawal or
qualification of any securities in connection with such securitization; (v)
opinions in form and substance reasonably satisfactory to Lender which shall
include those opinions which are customarily and usually given at such time
relating to such Transfer addressed to Lender and to the Rating Agencies shall
have been delivered by Owner to Lender, and after any securitization which
includes the Loan, to the Rating Agencies (including without limitation, tax and
bankruptcy opinions); and (vi) Lender shall have received, as a prerequisite to
such Transfer, a written certification from an officer of Owner that the
provisions of this Section have been satisfied. Any Transfer made in violation
of the foregoing provision shall be an immediate Event of Default without notice
or opportunity to cure and shall be void and of no effect as against Lender.
(b) Lender's consent to any one Transfer shall not be deemed to be a
waiver of Lender's right to require such consent to any future Transfer.
(c) Owner agrees to bear and shall pay or reimburse Lender on demand
for all reasonable expenses (including, without limitation, reasonable
attorneys, fees and disbursements, title search costs, and title insurance
endorsement premiums) incurred by Lender in connection with the review, approval
and documentation of any such Transfer. Owner agrees to provide reasonable prior
written notice to Lender of any Transfer contemplated by this Section 2.16.
Section 2.17 Estoppel Certificates.
---------------------
(a) Within ten (10) Business Days after a request by Lender, Owner
shall furnish to Lender a duly acknowledged written statement confirming the
amount of the outstanding Indebtedness, the terms of payment and Maturity Date
of the Note, the date to which interest has been paid, whether any offsets or
defenses exist against the Indebtedness, and whether any Event of Default or any
Default has occurred and is continuing with respect to this Indenture or any
other Loan Document, that each Granting Clause Document is unmodified and in
force and effect (or if there have been modifications, that each Granting Clause
Document is in force and effect as modified, and identifying the modification
agreements), the date to which Debt Service Payments and Securitization Costs
have been paid, whether there is any existing default by any party under any
Granting Clause Document and whether there exists any material unrepaired damage
to the Mortgaged Property. If any offsets or defenses are alleged to exist,
such statement shall set forth in reasonable detail the nature thereof.
(b) Within ten (10) Business Days after a request by Owner, Lender
shall furnish to Owner a duly acknowledged written statement confirming the
amount of the Indebtedness, the
39
<PAGE>
terms of payment and maturity date of the Note, the date to which interest and
principal has been paid, and whether any Event of Default has occurred and is
continuing with respect to this Indenture or any other Loan Document of which
Lender has actual knowledge.
Section 2.18 Assignment of Leases, Other Contracts and Property Income.
---------------------------------------------------------
Owner hereby absolutely and unconditionally assigns and transfers to Lender the
Leases, the Granting Clause Documents and the Property Income. Owner shall not
otherwise assign, transfer or encumber in any manner the Leases, the Granting
Clause Documents or the Property Income, or any portion thereof. The assignment
in this Section 2.18 shall constitute an absolute and present assignment of the
Leases, the Granting Clause Documents and the Property Income, and not an
assignment for security, and the existence or exercise of Owner's conditional
license to collect Property Income which shall continue unless there is an Event
of Default, or otherwise act with respect to any Granting Clause Document shall
not operate to subordinate this assignment to any subsequent assignment. The
exercise by Lender of any of its rights or remedies under this Section 2.18
shall not be deemed or construed to make Lender a mortgagee-in-possession. Owner
will punctually perform all obligations, covenants and agreements by it to be
performed under each other Granting Clause Document and will at all times do all
things reasonably necessary to compel performance by the other parties thereto
of all of their respective obligations, covenants and agreements thereunder.
Section 2.19 Cash Management.
---------------
(a) Central Account and Securitization Costs Account. At all time
------------------------------------------------
during the term of the Loan, Owner shall cause to be deposited into the Central
Account all payments of Debt Service Payments and Make-Whole Premiums which are
payable to Lender and, except as otherwise expressly provided in this Indenture,
all other payments by Owner to Lender under the Loan Documents. The Central
Account is Lender's own account established for the purpose of receiving all
payments referred to in the preceding sentence. In accordance with the terms of
this Indenture, Owner shall cause the Securitization Costs to be deposited into
the Securitization Costs Account which shall be used by Lender to offset
Securitization Costs. The Securitization Costs Account shall be under the sole
dominion and control of Lender. Owner hereby grants Lender a security interest
in Owner's right, title and interest in all amounts to be deposited into the
Securitization Costs Account and in any Permitted Investments with respect
thereto. Owner hereby irrevocably directs and authorizes Lender to withdraw
funds from the Securitization Costs Account in accordance with the terms and
conditions of this Indenture and the other Loan Documents. Owner shall have no
right of withdrawal in respect of the Securitization Costs Account.
(b) Application of Securitization Costs Account. On each Payment
-------------------------------------------
Date, Owner shall deposit into the Securitization Costs Account $833.33, which
amount shall not increase per Payment Date and not exceed $10,000 per year.
The Securitization Costs shall be used by Lender to pay or reimburse the payment
of a proportionate share of the Securitization Costs for which Lender is
responsible in connection with any securitization transaction in which the Loan
or any interest therein has been included. If no Event of Default has occurred
and is continuing, on each Payment Date occurring in March of each year
commencing March 1, 1999, prior to depositing the $833.33 required by this
Section 2.19(b) to be deposited into the Securitization Costs Account on
40
<PAGE>
such date, any amount held in the Securitization Costs Account in excess of the
actual proportionate share of the Securitization Costs that are incurred with
respect to the Loan during the prior calendar year shall be withdrawn from the
Securitization Costs Account and paid to Owner. If there are not sufficient
funds deposited in the Securitization Costs Account or the Central Account on or
before the Payment Date to fund the applicable Debt Service Payment and the
Securitization Costs and any amount necessary to pay any other Indebtedness then
due and owing, then a Default shall exist hereunder.
(c) Permitted Investments. Upon the written request of Owner, Lender
---------------------
shall instruct the depositary institution holding the Securitization Costs
Account and the Restoration Account to invest and reinvest any balance in the
Securitization Costs Account and the Restoration Account from time to time in
Permitted Investments as instructed by Owner and otherwise in accordance with
this Section 2.19(c), provided that (i) if Owner fails to so instruct such
depositary, or upon the occurrence and during the continuance of a Default or
Event of Default, Lender may invest and reinvest such balance in Permitted
Investments as Lender shall determine in its sole discretion, (ii) the
maturities of the Permitted Investments on deposit in the Securitization Costs
Account and the Restoration Account shall, to the extent such dates are
ascertainable, be selected and coordinated to become due not later than the day
before any disbursements from the Securitization Costs Account and the
Restoration Account must be made, (iii) all such Permitted Investments shall be
held in the name of Lender, its successors and assigns, and shall be under the
sole dominion and control of Lender, and (iv) no Permitted Investment shall be
made unless Lender shall retain a perfected first priority Lien in such
Permitted Investment securing the Indebtedness and all filings and other actions
necessary to ensure the validity, perfection, and priority of such Lien have
been taken. All funds in the Securitization Costs Account and the Restoration
Account that are invested in a Permitted Investment are deemed to be held in the
Securitization Costs Account and the Restoration Account for all purposes of
this Indenture and the other Loan Documents. Neither Lender nor any of the
other Lender Parties shall have any liability for any loss in investments of
funds in the Securitization Costs Account and the Restoration Account that are
invested in Permitted Investments whether Owner or Lender selected such
Permitted Investment in accordance herewith and no such loss shall affect
Owner's obligation to fund, or liability for funding, the Securitization Costs
Account and the Restoration Account. Owner agrees that Owner shall include all
such earnings on the Securitization Costs Account and the Restoration Account as
income of Owner (and, if Owner is a partnership or other pass-through entity,
the partners, members or beneficiaries of Owner, as the case may be), and shall
be the owner of such accounts for federal and applicable state and local tax
purposes. Owner shall be responsible for any and all fees, costs and expenses
with respect to Permitted Investments.
(d) Loss Proceeds. Subject to the terms hereof, so long as no Event
-------------
of Default has occurred and be continuing in the event of a casualty to the
Mortgaged Property, Owner shall cause all proceeds received under any insurance
policy required to be maintained by Owner or by Lessee ("Insurance Proceeds")
------------------
(less costs of recovering such Insurance Proceeds, including, without
limitation, reasonable attorneys' fees) to be paid by the insurer directly to
Lender, whereupon Lender shall deposit the same in the Restoration Account,
(after deducting out Lender's cost of recovering and paying out such Insurance
Proceeds, including, without limitation, reasonable attorneys' fees) and shall
apply the same in accordance with the applicable provisions of Section 2.4 of
this
41
<PAGE>
Indenture. Subject to the terms hereof, so long as no Event of Default shall
have occurred and be continuing, Owner shall cause all of the proceeds and
awards in respect of any Taking (any such proceeds or awards, "Condemnation
------------
Proceeds") (less costs of recovering such Condemnation Proceeds, including,
- --------
without limitation, reasonable attorneys' fees) to be paid to Lender, whereupon
Lender shall deposit the same in the Restoration Account, (after deducting out
Lender's cost of recovering and paying out such Condemnation Proceeds,
including, without limitation, reasonable attorneys' fees) and shall apply the
same in accordance with the applicable provisions of Sections 2.4 and 2.5 of
this Indenture; provided, however, that any Condemnation Proceeds received in
-------- -------
connection with a temporary Taking shall, be maintained in the Central Account
and applied by Lender to make payment of Debt Service Payments and
Securitization Costs when due; provided further, however, that in the event that
-------- ------- -------
the Condemnation Proceeds of any such temporary Taking are paid in a lump sum in
advance, Lender shall, subject to the terms hereof cause such Condemnation
Proceeds to be held in the Restoration Account, and Lender shall estimate, in
Lender's reasonable discretion, the number of Payment Dates that the Mortgaged
Property shall be affected by such temporary Taking, shall divide the aggregate
Condemnation Proceeds in connection with such temporary Taking by such number of
Payment Dates, and shall disburse from the Restoration Account into the Central
Account each Payment Date during the pendency of such temporary Taking an amount
equal to the lesser of (i) Debt Service Payment and Securitization Costs due
with respect to such Payment Date or (ii) the amount remaining in the
Restoration Account provided, however, funds in the Restoration Account shall be
-------- -------
applied as Loss Proceeds in accordance with Sections 2.4 and 2.5 hereof. If any
Insurance Proceeds or Condemnation Proceeds (collectively, "Loss Proceeds") are
-------------
received by Owner, such Loss Proceeds (less costs of recovering such Loss
Proceeds, including, without limitation, reasonable attorneys' fees) shall be
received in trust for Lender, shall be segregated from other funds of Owner, and
shall be forthwith paid into the Restoration Account, in each case to be applied
or disbursed in accordance with the foregoing. Subject to the terms hereof, any
Loss Proceeds made available to Owner, as applicable, for restoration in
accordance herewith, to the extent not used by Owner, as applicable, in
connection with, or to the extent they exceed the cost of, such restoration,
shall be deposited into the Restoration Account, whereupon Lender shall apply
the same in accordance with the applicable provisions of Section 2.4 of this
Indenture.
Section 2.2 Defeasance Requirements.
-----------------------
(a) After the Permitted Defeasance Date, the Lien of this Indenture
shall be released with respect to the Property and the Mortgaged Property
relating thereto, and Lender, on demand of and at the expense of Owner, shall
execute proper instruments acknowledging satisfaction and discharge of the Lien
of this Indenture (except as limited in this Section 2.20) when Owner has
irrevocably deposited or caused to be deposited the Defeasance Deposit if loan
becomes part of a REMIC for 3 yrs after Closing Date (2/13/98) with respect to
such Mortgaged Property into the Defeasance Account if loan becomes part of a
REMIC for 3 yrs after Closing Date (2/13/98) as directed by Lender (or an agent
selected by Lender which will act as Lender's agent) and has otherwise complied
with this Section 2.20;
(b) Any defeasance of the Loan by Owner shall be made on a Payment
Date;
(c) Subject to the terms and conditions of this Indenture, Owner may
defease the Principal Amount; if Owner: (i) (1) provides not less than thirty
(30) days prior written notice to
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<PAGE>
Lender specifying a Payment Date after the Permitted Defeasance Date (a
"Defeasance Release Date") on which the payments provided in clauses (A) and (B)
-----------------------
below are to be made and the deposit provided in clause (C) below is to be made,
(A) pays all interest accrued and unpaid on the Indebtedness to and including
the Defeasance Release Date, (B) pays all other sums then due and payable under
the Loan Documents, (C) deposits with Lender an amount equal to the Defeasance
Deposit, and (ii) delivers to Lender (1) a security agreement, in form and
substance satisfactory to Lender, creating a first priority perfected Lien on
the deposits required pursuant to this Section 2.20 and the U. S. Obligations
purchased on behalf of Owner in accordance with this Section (the "Defeasance
----------
Security Agreement"), (2) for execution by Lender, a release of the Mortgaged
- ------------------
Property from the Lien of this Indenture in a form appropriate for the
jurisdiction in which the Mortgaged Property is located, (3) an Officer's
Certificate of Owner certifying that the requirements set forth in this Section
have been satisfied and that the Defeasance Deposit was not made by Owner with
the intent of preferring Lender over other creditors of Owner or with the intent
of defeating, hindering, delaying, or defrauding creditors of Owner or any of
its Affiliates, (4) an opinion of Owner's counsel in form and substance
reasonably satisfactory to Lender which shall include those opinions in
connection with defeasance which are customarily and usually given at such time
stating, among other things, (x) that the U. S. Obligations have been duly and
validly assigned and delivered to Lender and Lender has a first priority
perfected security interest in and Lien on the deposits required pursuant to
this Section and a first priority perfected security interest in and Lien on the
U. S. Obligations purchased pursuant hereto and the Proceeds thereof, (y) that
the defeasance will not adversely affect the status of any REMIC formed in
connection with a securitization in which the Loan is included, or if no
securitization has occurred, that the defeasance will not cause Lender to
recognize income, gain or loss for Federal income tax purposes and Lender will
be subject to Federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such defeasance had not occurred,
and (z) that the trust resulting from the Defeasance Deposit does not require
registration of the trust under the Investment Company Act of 1940, as amended,
and (5) such other certificates, documents or instruments as Lender may request
including, without limitation, (x) written confirmation from the relevant Rating
Agencies that such defeasance will not cause any Rating Agency to withdraw,
qualify or downgrade the then-applicable rating on any security issued in
connection with any securitization in which the Loan is included, and (y) a
certificate from any Independent certified public accountant certifying that the
amounts of the U. S. Obligations comply with all of the requirements of this
Indenture;
(d) The U. S. Obligations shall mature on or be redeemable, or
provide for payment thereon, on or prior to the Business Day immediately
preceding the date on which Payments under the Note are due and payable and the
proceeds thereof shall be payable directly to Lender or to an Eligible Account
as directed by Lender with all amounts received therefrom to be paid to Lender
and applied in accordance with the provisions of the Note and this Indenture. In
connection with the foregoing, Owner appoints Lender as Owner's agent for the
purpose of applying the amounts delivered pursuant to clause (c)(ii)(4) above to
purchase U. S. Obligations;
(e) If any notice of defeasance is given, Owner shall be required to
defease the Principal Amount on the specified Payment Date;
43
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(f) Upon compliance with the requirements of this Section in the
event of a total defeasance of the Principal Amount, the Property and the
Mortgaged Property relating thereto (other than U.S. Obligations and the
Defeasance Account) shall be released from the Lien of this Indenture;
(g) Nothing in this Section shall release Owner from any liability
or obligation relating to any environmental matters with respect to the
Mortgaged Property arising under Section 2.22 of this Indenture; and
(h) In the case of a Defeasance Deposit, if Lender or its agent is
unable to apply amounts received on the Defeasance Deposit in accordance with
this Section 2.20, by reason of any legal proceeding or by reason of any order
or judgment of any court or Governmental Authority enjoining, restraining or
otherwise prohibiting such application, Owner's obligations under this Indenture
and the Note shall be revived and reinstated as though no Defeasance Deposit had
been made, until such time as Lender or its agent is permitted to apply such
amounts in accordance with this Section 2.20; provided, however, that if Owner
-------- -------
has made any payment of Indebtedness because of the reinstatement of its
obligations hereunder, Owner shall be subrogated to the rights of Lender to
receive such amounts from the Defeasance Deposit when such amounts are
distributed by Lender or its agent.
Section 2.21 Owner Information Covenants. Owner covenants and agrees, from
---------------------------
the date hereof and until payment in full of the Indebtedness or the earlier
release of this Indenture, as follows:
(a) Litigation. Owner will give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened (in writing)
against Owner which in Owner's reasonable determination might materially
adversely affect Owner's ability to make payments required by the Note or to
perform its other obligations under the Loan Documents or business or the
condition, value, use or ownership of the Mortgaged Property or any part
thereof.
(b) Financial Reporting.
-------------------
(i) Owner will keep and maintain or will cause to be kept and
maintained on a Fiscal Year basis, in accordance with GAAP (or such other
accounting basis reasonably acceptable to Lender) consistently applied, proper
and accurate books, records and accounts reflecting all of the financial affairs
of Owner. So long as no Event of Default has occurred and is continuing, Lender
shall have the right from time to time but not more often than twice per year at
its expense, and if an Event of Default has occurred and is continuing then
without limitation, at all times during normal business hours upon reasonable
notice to examine such books, records and accounts at the office of Owner or
other Person maintaining such books, records and accounts, to make such copies
or extracts thereof as Lender shall desire and to discuss Owner's affairs,
finances and accounts with Owner and its accountants. During and after the
occurrence of an Event of Default, Owner shall pay any costs and expenses
incurred by Lender to examine Owner's accounting records with respect to the
Mortgaged Property and to visit the Mortgaged Property, as Lender shall
determine to be necessary or appropriate in the protection of Lender's interest.
44
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(ii) Owner will deliver to Lender copies of all financial
statements, reports, notices and proxy statements sent by Owner to its
stockholders or to the Securities and Exchange Commission; provided, however,
that if such statements and reports do not include the following information,
Owner will deliver to Lender (A) within 120 days after the end of each fiscal
year of Owner, a balance sheet of Owner and its consolidated subsidiaries as at
the end of such year and a statement of profits and losses of Owner and its
consolidated subsidiaries for such year setting forth in each case, in
comparative form, the corresponding figures for the preceding fiscal year in
reasonable detail and scope and certified by independent certified public
accountants of recognized national standing selected by Owner; and (B) within 60
days after the end of each fiscal quarter of Owner a balance sheet of Owner and
its consolidated subsidiaries as at the end of such quarter and statements of
profits and losses of Owner and its consolidated subsidiaries for such quarter
setting forth in each case, in comparative form, the corresponding figures for
the similar quarter of the preceding year, in reasonable detail and scope, and
certified by the chief financial officer of Owner, the foregoing financial
statements all being prepared in accordance with GAAP (any such financial
statements which are unaudited may not contain all footnotes and year end
adjustments required by GAAP) consistently applied. Together with Owner's annual
and quarterly financial statements, Owner shall furnish to Lender an Officer's
Certificate certifying as of the date thereof (1) that the financial statements
accurately represent the results of operation and financial condition of Owner
and the Mortgaged Property all in accordance with GAAP (except as disclosed) and
in accordance with generally accepted auditing standards consistently applied,
and (2) whether there exists an event or circumstance which constitutes, or
which upon notice or lapse of time or both would constitute, a Default or Event
of Default under this Indenture, the Note or any other Loan Document executed
and delivered by Owner, and if such event or circumstance exists, the nature
thereof, the period of time it has existed and the action then being taken to
remedy such event or circumstance.
(iii) Owner shall furnish to Lender, within fifteen (15)
Business Days after Lender's request therefor, such further detailed information
with respect to the operation of the Mortgaged Property and the financial
affairs of Owner as may be reasonably requested by Lender.
(iv) Owner shall, concurrently with Owner's delivery to Lender,
provide a copy of the items required to be delivered to Lender under this
Section 2.21 to the Rating Agencies, the trustee, and any servicer and/or
special servicer that may be retained in conjunction with the Loan or any
securitization.
(v) Owner shall furnish to Lender such other financial
information with respect to Owner, the Mortgaged Property or this Indenture as
Lender may, from time to time request (including, without limitation, in the
case of a defeasance pursuant to Section 2.20, a review by a third party
acceptable to Lender, of the calculations required to be made pursuant to
Section 2.20).
(c) Notice of Default. Promptly after having notice or actual
-----------------
knowledge thereof, Owner will notify Lender of any material adverse change in
Owner's condition, financial or otherwise, or of the occurrence of
45
<PAGE>
any Event of Default known to Owner, or of the occurrence of any event known to
Owner which upon notice or the passage of time or both would constitute an Event
of Default.
(d) Other Notices. Promptly after having notice or actual knowledge
-------------
thereof, Owner will notify Lender of the occurrence of any of the following: (i)
receipt of written notice from any Governmental Authority relating to the
Mortgaged Property; (ii) any material change in the occupancy of the Mortgaged
Property; (iii) receipt of any written notice from the holder of any other lien
or security interest in the Mortgaged Property; (iv) any casualty or Taking
affecting the Mortgaged Property; or (v) commencement of any judicial or
administrative proceedings by, against or otherwise affecting Owner or the
Mortgaged Property.
Section 2.22 Environmental Matters.
---------------------
(a) Owner represents and warrants to Lender that except as set
forth in the Phase I environmental report delivered to Owner and Lender in
connection with the origination of the Loan,:
(i) except as set forth in Schedule (v)(i) to the Owner's
Certificate, the Mortgaged Property complies with all Environmental Laws;
(ii) except as set forth on Schedule (v) (i) to the
Owner's Certificate, no notices, complaints or orders of violation or non-
compliance with Environmental Laws have been received by Owner and, to the best
of Owner's actual knowledge, no federal, state or local environmental
investigation or proceeding is pending or threatened with regard to the
Mortgaged Property or any use thereof or any alleged violation of Environmental
Laws with regard to the Mortgaged Property or of any release or threatened
release of Hazardous Substances on, from or under or affecting the Mortgaged
Property;
(iii) to Owner's knowledge and except as set forth on
Schedule (v) (ii) to the Owner's Certificate, neither the Mortgaged Property,
nor any portion thereof, has been used by Owner, nor by any prior owner for the
generation, manufacture, storage, handling, transfer, treatment, recycling,
transportation, processing, production, refinement or disposal of any Hazardous
Substance;
(iv) to Owner's knowledge, no underground storage tanks
have been installed or maintained in the Mortgaged Property in violation of
applicable Environmental Laws and there exists no Hazardous Substance or surface
impoundment contamination in violation of applicable Environmental Laws at,
under or on the Mortgaged Property which originated on or off the Mortgaged
Property; and
(v) to Owner's knowledge, the Mortgaged Property is free
of Hazardous Substances and friable asbestos, the removal of which is required
or the maintenance of which is prohibited or penalized by any Environmental Law.
(b) Environmental Compliance and Remedial Work.
------------------------------------------
46
<PAGE>
(i) Owner agrees that it (A) shall comply, and cause the
Mortgaged Property to comply, with all Environmental Laws applicable to the
Mortgaged Property, (B) shall not use and shall prohibit the use of the
Mortgaged Property for the generation, manufacture, refinement, production, or
processing of any Hazardous Substance or for the storage, handling, disposal,
treatment, transfer or transportation of any Hazardous Substance (other than in
connection with the operation and maintenance of such Mortgaged Property and in
commercially reasonable quantities as a consumer thereof and except as to such
household or commercial products customarily maintained in similar
establishments, subject to, in any event, compliance with Environmental Laws),
(C) shall not install or permit the installation on the Mortgaged Property of
any underground storage tanks or surface impoundments and shall not permit there
to exist any contamination by Hazardous Substances to the Mortgaged Property
originating on or off such Mortgaged Property (other than in connection with the
use, operation and maintenance of such Mortgaged Property and then only in
compliance with applicable Environmental Laws and all other applicable laws,
rules, orders, ordinances, regulations and requirements now or hereafter enacted
or promulgated of every government and municipality having jurisdiction over
such Mortgaged Property and of any agency thereof) or asbestos-containing
materials (except in compliance with Environmental Laws) and (D) shall cause any
Alterations of the Mortgaged Property to be done in a way so as to not expose
the persons working on or visiting the Mortgaged Property to Hazardous
Substances and in connection with any such Alterations shall remove any
Hazardous Substances present upon the Mortgaged Property which are not in
compliance with Environmental Laws or which present a danger to persons working
on or visiting the Mortgaged Property.
(ii) If any investigation, site monitoring, containment,
cleanup, removal, restoration or other remedial work of any kind or nature
(collectively, the "Remedial Work") is required on the Mortgaged Property
-------------
pursuant to an order or directive of any Governmental Authority or under any
applicable Environmental Law, or in Owner's or in Lender's opinion, based upon
recommendations of qualified environmental engineer reasonably acceptable to
Lender, after notice to Owner if the determination is made by Lender, is
reasonably necessary to prevent future liability under any applicable
Environmental Law, because of or in connection with the current or future
presence, suspected presence, release, or suspected release of a Hazardous
Substance at or into the air, soil, ground water, surface water, or soil vapor
on, under or emanating from the Mortgaged Property or any portion thereof, Owner
shall (at Owner's sole cost and expense), or shall cause such responsible third
parties to, promptly commence and diligently prosecute to completion all such
Remedial Work. In all events, such Remedial Work shall be commenced within sixty
(60) days (or such shorter period as may be required under any applicable
Environmental Law) after the earlier to occur of Owner's actual knowledge that
remediation is required under applicable Environmental Laws or any written
demand reasonably made therefor by Lender; however, Owner shall not be required
to commence such Remedial Work within the above specified time periods if
prevented from doing so by any Governmental Authority or if commencing such
Remedial Work within such time periods would result in Owner or such Remedial
Work violating any Environmental Law or Owner is conducting a Permitted Contest
in good faith and by appropriate proceedings the applicability of the relevant
Environmental Laws in accordance with Section 2.8, provided that such contest
--------
shall not (I) create or materially increase the risk of any civil or criminal
liability of any kind whatsoever on the part of Owner or Lender or (II) permit
or materially increase
47
<PAGE>
the risk of the spread, release or suspected release of any Hazardous Substance
into the air, soil, ground water, surface water, or soil vapor on, under or
emanating from the Property or any portion thereof during the pendency of such
contest.
(iii) All Remedial Work shall be performed by contractors, and
under the supervision of a consulting engineer, each approved in advance by
Lender (which approval shall not be unreasonably withheld or delayed). All out-
of-pocket costs and expenses reasonably incurred in connection with such
Remedial Work and Lender's reasonable monitoring or review of such Remedial Work
which Lender may, but is not obligated to, do (including reasonable attorneys'
fees and disbursements, but excluding internal overhead, administrative and
similar costs of Lender) shall be paid by Owner. If Owner does not timely
commence and diligently prosecute to completion the Remedial Work, then, Lender
may (but shall not be obligated to) cause such Remedial Work to be performed.
Owner agrees to bear and shall pay or reimburse Lender on demand for all
Advances and expenses (including reasonable attorneys' fees and disbursements,
but excluding internal overhead, administrative and similar costs of Lender)
reasonably relating to or incurred by Lender in connection with monitoring,
reviewing or performing any such Remedial Work.
(iv) Lender may (but is not obligated to) give its written
consent, which consent shall not be unreasonably withheld or delayed, prior to
Owner commencing any Remedial Work or entering into any settlement agreement,
consent decree or other compromise relating to any Hazardous Substances or
Environmental Laws which might, in Lender's sole judgment, impair the value of
Lender's security hereunder to a material degree. Lender's prior written consent
shall not be required, however, if the presence or threatened presence of
Hazardous Substances on, under or about the Mortgaged Property poses an
immediate threat to the health, safety or welfare of any person or is of such a
nature that an immediate remedial response is necessary, or if Lender fails to
respond to any notification by Owner hereunder within twenty (20) Business Days
from the date of such notification. In such events, Owner shall notify Lender as
soon as practicable of any action taken.
(c) Environmental Matters; Inspection.
---------------------------------
(i) Upon reasonable prior written notice, Lender and its
agents, representatives and employees shall have the right at all reasonable
times and during normal business hours, except to the extent such access is
limited by applicable law, to enter upon and inspect all or any portion of the
Mortgaged Property, provided that such inspections shall not unreasonably
interfere with the operation thereof or the tenants, if any, thereon. Except as
provided in clause (ii) below, (y) Lender, at its sole expense, may retain an
environmental consultant to conduct and prepare reports of such inspections and
(z) Owner shall be given a reasonable opportunity to review any and all reports,
data and other documents or materials reviewed or prepared by the consultant,
and to submit comments and suggested revisions or rebuttals to same. The
inspection rights granted to Lender in this Section 2.22(b) shall be in addition
to, and not in limitation of, any other inspection rights granted to Lender in
this Indenture, and shall expressly include the right to conduct soil borings
and other customary environmental tests, assessments and audits in compliance
with applicable Legal Requirements; provided, that, except as set forth in
48
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clause (ii) below, Lender shall cause to be repaired any damage caused by such
borings, tests, assessments or audits.
(ii) Owner agrees to bear and shall pay or reimburse Lender
on demand for all Advances and expenses (including reasonable attorneys' fees
and disbursements, but excluding internal overhead, administrative and similar
costs of Lender) reasonably relating to or incurred by Lender in connection with
the inspections, tests and reports described in this Section 2.22(b) in the
following situations:
(A) If Lender has reasonable grounds to believe at the
time any such inspection is ordered, that there exists an
Environmental Violation or that a Hazardous Substance is present on,
under or emanating from the Mortgaged Property, or is migrating to or
from adjoining property, except under conditions permitted by
applicable Environmental Laws and not prohibited by any Loan Document;
(B) If any such inspection reveals an Environmental
Violation or that a Hazardous Substance is present on, under or
emanating to or from the Mortgaged Property or is migrating from
adjoining property, except under conditions permitted by applicable
Environmental Laws and not prohibited by any Loan Document; or
(C) If an Event of Default shall have occurred and be
continuing at the time any such inspection is ordered.
(d) Environmental Notices. To the extent that Owner has actual
---------------------
knowledge thereof, Owner shall promptly provide notice to Lender of:
(i) the failure of the Mortgaged Property to comply with any
Environmental Law in any manner whatsoever except for the use or disposal of
incidental amounts of Hazardous Substances customarily used in the operation of
similar buildings similarly situated in a commercially reasonably manner and in
compliance with Legal Requirements; the issuance to any tenant of space in the
Mortgaged Property or any assignee or licensee of the Owner of any notice,
request for information, complaint or order of violation or non-compliance or
liability of any nature whatsoever with regard to the Mortgaged Property or the
use thereof with respect to Environmental Laws;
(ii) any proceeding or investigation commenced or threatened by
any Governmental Authority with respect to the presence of any Hazardous
Substance on, under or emanating from the Mortgaged Property;
(iii) any proceeding or investigation commenced or threatened by
any Governmental Authority, against Owner, with respect to the presence,
suspected presence, release or threatened release of Hazardous Substances from
any property not owned by Owner, including,
49
<PAGE>
but not limited to, proceedings under the Federal Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq.;
(iv) all claims made or any lawsuit or other legal action or
proceeding brought by any Person against (A) Owner or the Mortgaged Property or
any portion thereof, or (B) any other party occupying the Mortgaged Property or
any portion thereof, in any such case relating to any loss or injury allegedly
resulting from any Hazardous Substance or relating to any violation or alleged
violation of Environmental Law;
(v) the discovery of any occurrence or condition on the
Mortgaged Property or on any real property adjoining or in the vicinity of the
Mortgaged Property, of which Owner becomes aware, which reasonably could be
expected to lead to the Mortgaged Property or any portion thereof being in
violation of any Environmental Law or subject to any restriction on ownership,
occupancy, transferability or use under any Environmental Law (collectively, an
"Environmental Violation") or which might subject Lender to an Environmental
-----------------------
Claim; and
(vi) the commencement and completion of any Remedial Work.
(e) Copies of Notices. Owner will promptly transmit to Lender copies
-----------------
of any citations, orders, notices or other communications received by Owner from
any Person with respect to the notices described in Section 2.22(d) hereof.
(f) Environmental Claims. Lender may, but is not required to, join
--------------------
and participate in, as a party if Lender so determines, any legal or
administrative proceeding or action concerning the Mortgaged Property or any
portion thereof under any Environmental Law, if, in Lender's judgment, the
interests of Lender will not be adequately protected by Owner. Owner agrees to
bear and shall pay or reimburse Lender, on demand, for all Advances and expenses
(including reasonable attorneys' fees and disbursements, but excluding internal
overhead, administrative and similar costs of Lender) relating to or incurred by
Lender in connection with any such action or proceeding.
(g) Indemnification. Owner agrees to indemnify, reimburse, defend,
---------------
and hold harmless Lender and the other Lender Parties for, from, and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties, punitive and consequential damages, costs of any Remedial Work,
reasonable attorneys', fees, disbursements and expenses, and reasonable
consultants' fees, disbursements and expenses (but excluding internal overhead,
administrative and similar costs of Lender and the other Lender Parties),
asserted against, resulting to, imposed on, or incurred by Lender and/or the
other Lender Parties, directly or indirectly, in connection with any of the
following:
(i) the events, circumstances, or conditions which are alleged
to, or do, (1) relate to the presence, or release into the environment, of any
Hazardous Substance at the Mortgaged Property or relate to circumstances forming
the basis of any violation, or alleged
50
<PAGE>
violation, of any Environmental Law by Owner or with respect to the Mortgaged
Property, and in either case, result in Environmental Claims, or (2) constitute
Environmental Violations;
(ii) any pollution or threat to human health or the environment
that is related in any way to Owner's or any previous owner's or operator's
management, use, control, ownership or operation of the Mortgaged Property,
including, without limitation, all onsite and offsite activities involving
Hazardous Substances, and whether occurring, existing or arising prior to or
from and after the date hereof, and whether or not the pollution or threat to
human health or the environment is described in the Environmental Report;
(iii) any Environmental Claim against any Person whose liability
for such Environmental Claim Owner has or may have assumed or retained either
contractually or by operation of law;
(iv) any Remedial Work under subsection 2.22(b)(ii) hereof,
required to be performed pursuant to any Environmental Law or the terms hereof;
or
(v) the breach of any environmental representation, warranty
or covenant set forth in this Indenture or in any certificate delivered by Owner
to Lender pursuant to the Loan Agreement or this Indenture,
except to the extent such Environmental Claims result solely from the negligence
or willful misconduct of any Lender Party.
The indemnity provided in this Section 2.22(g) shall not be included in any
exculpation of Owner or any other Person from personal liability provided in
this Indenture or in any of the other Loan Documents and shall survive the
repayment in full of the Indebtedness, any foreclosure of the Mortgaged Property
and the satisfaction and release of this Indenture or reconveyance. Nothing in
this Section 2.22(g) shall be deemed to deprive Lender of any rights or remedies
provided to it elsewhere in this Indenture or the other Loan Documents.
Section 2.23 Perform Loan Documents; Cooperate in Legal Proceedings;
-------------------------------------------------------
Further Assurances.
- ------------------
(a) Perform Loan Documents. Owner shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all costs, fees and expenses to the extent required under the Loan
Documents.
51
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(b) Cooperate In Legal Proceedings. Owner will cooperate fully
------------------------------
with Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, permit Lender, at its election, to participate in any
such proceedings at Lender's expense.
(c) Further Assurances. Owner shall, at Owner's sole cost and
------------------
expense:
(i) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and specifications,
Appraisals, title and other insurance reports and agreements, and each and every
other document, certificate, agreement and instrument required to be furnished
pursuant to the terms of the Loan Documents or reasonably requested by Lender in
connection therewith;
(ii) execute and deliver to Lender such documents,
instruments, certificates, assignments and other writings, and do such other
acts necessary or desirable, to evidence, preserve and/or protect the Collateral
at any time securing or intended to secure the Note or other Indebtedness, as
Lender may reasonably require; provided the same shall not create any personal
liability on the part of Owner except as expressly provided herein or in the
other Loan Documents; and
(iii) do and execute all and such further lawful and
reasonable acts, conveyances and assurances for the better and more effective
carrying out of the intents and purposes of this Indenture and the other Loan
Documents, as Lender shall reasonably require from time to time.
Section 2.24 Cooperate with Securitization.
-----------------------------
(a) Cooperation with Rating Agencies. Owner will cooperate, at
--------------------------------
its sole cost and expense, to obtain and to have its rating updated by any
Rating Agency initially, and no later than twelve (12) months after the date
hereof, and, thereafter, no later than twelve (12) months after the most recent
update. Owner covenants and agrees that in the event Lender decides to include
this Loan as an asset of a securitization, Owner, prior to, during and after
such securitization shall, at Owner's expense, (i) gather any environmental
information required by the Rating Agencies in connection with such a
securitization, (ii) at Lender's request, meet with representatives of any
trustee, servicing agent or Rating Agency to discuss the business and operations
of the Mortgaged Property, and (iii) cooperate with the reasonable requests of
any trustee, servicing agent or Rating Agency in connection with all of the
foregoing. In addition, Owner shall further provide such information as may be
reasonably requested by such Rating Agencies in connection with such
securitization and in connection with any surveillance conducted after obtaining
such securitization. Owner agrees to continue to be rated by one or more Rating
Agencies at its cost and expense so long as the Lien of this Indenture has not
been discharged.
(b) Securitization Opinions. In the event the Loan becomes the
-----------------------
subject of a securitization sponsored or underwritten by Lender or any of its
Affiliates, Owner shall, at its cost
52
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and expense, within ten (10) Business Days after Lender's written request
therefor, deliver certificates and opinions of counsel in form and substance and
delivered by counsel reasonably acceptable to Lender and the Rating Agencies, as
may be reasonably required by Lender and/or the Rating Agencies in connection
with such securitization.
(c) Securitization Financials. Owner covenants and agrees
-------------------------
that, upon Lender's written request therefor in connection with a securitization
in which the Loan is to be included as an asset, Owner shall, at its sole cost
and expense, promptly deliver audited, if then available, or unaudited financial
statements and related documentation prepared by an Independent certified public
accountant that satisfy securities laws and requirements for use in a public
registration statement (which may include up to three (3) years of historical
audited financial statements), to the extent the same are available.
(d) Securitization Costs. Commencing on the First Payment Date
--------------------
and on each Payment Date thereafter, Owner shall pay to Lender in addition to
the Debt Service Payments due on such dates an amount equal to $833.33. Owner
shall cause the Securitization Costs to be deposited into the Securitization
Costs Account which shall be used by Lender to offset Securitization Costs.
ARTICLE 3
Security Agreement
------------------
Section 3.1 Representations and Warranties. Owner represents and
------------------------------
warrants, as of the date hereof, each and every representation and warranty made
by Owner in (i) its certificate delivered to Lender in satisfaction of a closing
condition pursuant to the Loan Agreement, (ii) this Indenture and (iii) any
other Loan Document is made as of the date hereof (except as otherwise expressly
provided therein or herein), is true and correct, and is hereby incorporated by
reference herein.
Section 3.2 Survival of Article 3. The representations and warranties
---------------------
referred to in Section 3.1 shall survive the delivery of the Note and making of
the Loan and shall continue for so long as any Indebtedness remains owing to
Lender; provided, however, that the environmental compliance representations of
-------- -------
Owner referred to in Section 3.1 shall survive in perpetuity. So long as any
Indebtedness remains owing to Lender, the security agreement, covenants and
agreements of Owner set forth in Section 3.3 shall survive any foreclosure of
this Indenture by or on behalf of Lender as if Section 3.3 were included in a
separate document. All representations, warranties, covenants and agreements
made in this Indenture or in the other Loan Documents shall be deemed to have
been relied upon by Lender notwithstanding any investigation heretofore or
hereafter made by Lender or on its behalf.
Section 3.3 Security Agreement. Owner covenants, warrants, represents
------------------
and agrees with and to Lender, as follows:
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(a) This Indenture constitutes a security agreement under the
Code and serves as a fixture filing in accordance with the Code. Owner hereby
confirms the grant of a security interest pursuant to Granting Clause Second in
favor of Lender as secured party under the Code with respect to all property
(specifically including the Collateral) now or hereafter included in the
Mortgaged Property which is covered by the Code. Among other things, this
Indenture is filed as a fixture filing and covers property which is or will
become fixtures on the Mortgaged Property. The mention in a Financing Statement
filed in the records normally pertaining to personal property of any portion of
the Mortgaged Property shall not derogate from or impair in any manner the
intention of Owner and Lender hereby declared that all Equipment is part of the
real property encumbered by the Indenture to the fullest extent permitted by
law, regardless of whether any such item is physically attached to the
Improvements or whether serial numbers are used for the better identification of
certain items. Specifically, the mention in any such Financing Statement of the
rights in or to (i) any Insurance Proceeds, (ii) any Condemnation Proceeds,
(iii) Owner's interest in any Leases or Property Income, or (iv) any other item
included in the Mortgaged Property, shall not be construed to alter, impair or
impugn any rights of Lender as determined by this Indenture, or the priority of
Lender's lien upon and security interest in, that portion of the Mortgaged
Property which constitutes real property. Any such mention shall be for the
protection of Lender in the event that notice of Lender's priority of interest
as to any portion of the Mortgaged Property is required to be filed in
accordance with the Code to be effective against or take priority over the
interest of any particular class of persons, including the federal government or
any subdivision or instrumentality thereof.
(b) Except for the security interest granted by this Indenture,
Owner is, and as to portions of the Collateral to be acquired after the date
hereof will be, the sole owner of the Collateral, free from any lien, security
interest, encumbrance or adverse claim thereon of any kind whatsoever except
Permitted Encumbrances. Owner shall notify Lender of, and shall defend the
Collateral against, all claims and demands of all persons at any time claiming
the same or any interest therein. Owner will execute and deliver to Lender for
filing a Financing Statement or Financing Statements in connection with the
Collateral in the form required to properly perfect Lender's security interest
in the Collateral to the extent that it may be perfected by such a filing. Owner
agrees that at any time and from time to time, at the expense of Owner, Owner
shall promptly execute and deliver all further instruments, and take all further
action, that Lender may request, in order to perfect and protect the pledge,
security interest and lien granted or purported to be granted hereby, or to
enable Lender to exercise and enforce Lender's rights and remedies hereunder
with respect to, the Collateral.
(c) Except as otherwise provided in this Indenture, Owner shall
not lease to any party for a term greater than one (1) year more than 5,000
square feet of a Building or Transfer all or any portion of the Collateral
without the prior written consent of Lender.
(d) The Collateral is not used or bought for personal, family or
household purposes.
(e) The Collateral which constitutes Equipment and fixtures
shall be kept on or at the Mortgaged Property, and Owner shall not remove such
Collateral from the Mortgaged
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Property without the prior consent of Lender, except such portions or items
thereof as are consumed or worn out in ordinary usage, all of which shall be
promptly replaced by Owner with items of equal or greater value.
(f) In the event of any change in name, identity or structure of
Owner, Owner shall notify Lender thereof and promptly after request shall
execute, file and record such Code forms as are necessary to maintain the
priority of Lender's lien upon and security interest in the Collateral, and
shall pay all expenses and fees in connection with the filing and recording
thereof. If Lender shall require the filing or recording of additional Code
forms or continuation statements, Owner shall, promptly after request, execute,
file and record such Code forms or continuation statements as Lender shall deem
necessary, and shall pay all expenses and fees in connection with the filing and
recording thereof, it being understood and agreed, however, that no such
additional documents shall increase Owner's obligations under the Loan
Documents.
(g) Owner hereby irrevocably appoints Lender as its attorney-in-
fact, with full right of substitution, which power of attorney is coupled with
an interest, to file or record with the appropriate public office on its behalf
any Financing Statement, or other form or continuation statement in connection
with the Collateral covered by this Indenture.
(h) Any disposition pursuant to the Code of so much of the
Collateral as may constitute personal property shall be considered commercially
reasonable if made pursuant to a public sale which is advertised at least twice
in a newspaper of local circulation in the community where the Land relating to
the Collateral is located. Any notice required by the Code to be given to Owner
shall be considered reasonably and properly given if given in the manner and at
the address provided in Section 5.1 at least five (5) calendar days prior to the
date of any scheduled public sale.
(i) In the event of the foreclosure of this Indenture as it
relates to all or any portion of the Mortgaged Property, or other transfer of
title to or assignment of all or any portion of the Mortgaged Property in
extinguishment of all or any portion of the Indebtedness, all right, title and
interest of Owner in and to all policies of insurance required by this Indenture
and any Insurance Proceeds shall inure to the benefit of and pass to Lender or
any purchasers or transferees of the Mortgaged Property.
(j) A CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS
INDENTURE OR ANY FINANCING STATEMENT RELATING TO THIS INDENTURE SHALL BE
SUFFICIENT AS A FINANCING STATEMENT.
(k) The mailing address of Owner and the address of Lender from
which information concerning the security interest granted hereby may be
obtained are set forth on the cover sheet of this Indenture and as set forth in
Section 5.1 hereof. Owner maintains its sole place of business or its chief
executive office at the address shown on said cover sheet, and Owner shall
immediately notify Lender in writing of any change in said place of business or
chief executive office.
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(l) Beyond the exercise of reasonable care in the custody thereof,
Lender shall not have any duty as to any Cash Collateral Account or any income
thereon or any other Collateral in Lender's possession or control or in the
possession or control of any agents for or of Lender, or the preservation of
rights against any Person or otherwise with respect thereto. Lender shall be
deemed to have exercised reasonable care in the custody of any Collateral in
Lender's possession or under Lender's control if such Collateral is accorded
treatment substantially equal to that which Lender accords Lender's own
property, it being understood that Lender shall not be liable or responsible for
any loss, damage or diminution in value by reason of the acts or omissions of
Lender, or Lender's agents, employees or bailees.
(m) Owner hereby irrevocably appoints Lender as Owner's attorney-in-
fact, with full power of substitution, which power of attorney is coupled with
an interest, at any time after the occurrence of an Event of Default (except as
otherwise expressly provided in the Assignment) to execute, acknowledge and
deliver any instruments and to exercise and enforce every right, power, remedy,
option and privilege of Owner with respect to the Collateral, and do in the
name, place and stead of Owner, all such acts, things and deeds for and on
behalf of and in the name of Owner with respect to the Collateral, which Owner
could or might do or which Lender may deem necessary or desirable to more fully
vest in Lender the rights and remedies provided for herein with respect to the
Collateral and to accomplish the purposes of this Indenture.
ARTICLE 4
Default and Remedies
Section 4.1 Events of Default. The occurrence of any of the following
-----------------
events shall constitute an "Event of Default" under this Indenture:
(a) if default shall be made in the payment of the principal, interest
or Make-Whole Premium, if any, on the Note or in the payment of any Defeasance
Deposit on the date the same becomes due and payable, either as a Debt Service
Payment, at maturity, as part of any prepayment or otherwise, as set forth in
the Note and any Loan Document and such failure continues for five (5) Business
Days after the date due;
(b) if the Property shall have been left unoccupied and unattended for
a period of thirty (30) days;
(c) other than any Event of Default under this Section 4.1 for which
no grace period or a shorter grace period (as specified in such clause) shall be
applicable, if Owner shall continue to be in default under any of the other
terms, covenants or conditions of the Note, this Indenture or any other Loan
Document for ten (10) days after the earlier to occur of Owner's actual
knowledge thereof or notice to Owner has been sent from Lender, in the case of
any default which can be cured by the payment of a sum of money, or for thirty
(30) days after the earlier to occur of Owner's actual knowledge thereof or
notice from Lender in the case of any other default, provided, however, that if
-------- -------
such nonmonetary default is susceptible of cure but cannot reasonably be cured
within such thirty (30) day period and provided further that Owner shall have
commenced to cure
56
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such default within such thirty (30) day period and thereafter diligently and
expeditiously proceeds to cure the same, such thirty (30) day period shall be
extended for such time as is reasonably necessary for Owner in the exercise of
due diligence to cure such default but in no event for a period longer than
ninety (90) days; or
(d) if Owner shall dissolve or otherwise fail to maintain its legal
existence (except as permitted by Section 2.10 hereof); or fail to comply with
the provisions of Section 2.10 hereof;
(e) if any representation or warranty made herein or in any other Loan
Document, or in any report, certificate, financial statement or other
instrument, agreement or document furnished by Owner in connection with this
Indenture, the Note, the Loan Agreement or any other Loan Document executed and
delivered by Owner, shall be false or misleading in any material respect as of
the date such representation or warranty was made in a manner which is material
and adverse to Lender as determined by Lender in its reasonable discretion;
(f) if Owner (or any entity with whom Owner's assets would ordinarily
be consolidated in such proceeding), files or consents to the filing of, or
commences or consents to the commencement of, any Bankruptcy Proceeding with
respect to Owner or such entity, or if Owner shall make an assignment for the
benefit of its creditors or shall admit in writing the inability to pay its
debts generally as they become due;
(g) if any Bankruptcy Proceeding shall have been filed against Owner
(or any entity with whom Owner's assets would ordinarily be consolidated in such
proceeding), and the same is not withdrawn, dismissed, canceled or terminated
within ninety (90) days after the date of such filing;
(h) if a receiver, liquidator or trustee shall be appointed for Owner
or if Owner shall be adjudicated bankrupt or insolvent, or if any petition for
bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or
any similar federal or state law, shall be filed by or against, consented to, or
acquiesced in by, Owner, if any, or if any proceeding for the dissolution or
liquidation of Owner, if any, shall be instituted and any of the foregoing is
not withdrawn, dismissed, canceled or terminated within ninety (90) days after
the date of such filing, adjudication, order or appointment;
(i) if any Transfer occurs other than in accordance with this
Indenture, if Owner fails to maintain any insurance in violation of this
Indenture or if Owner shall have failed to comply with any negative covenant
contained herein;
(j) if an Event of Default as defined or described in the Note, the
Loan Agreement or in any other Loan Document occurs or if any other event shall
occur or condition shall exist, if the effect of such event or condition is to
accelerate the maturity of any portion of the Indebtedness as to all or any
portion of the Mortgaged Property or to permit Lender to accelerate the maturity
of all or any portion of the Indebtedness as to all or any portion of the
Mortgaged Property; or
57
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(k) if final judgment for the payment of money in excess of $100,000
shall be rendered against Owner and Owner shall not discharge the same or cause
it to be discharged within sixty (60) days from the entry thereof, or shall not
appeal therefrom or from the order, decree or process upon which or pursuant to
which said judgment was granted, based or entered, and secured a stay of
execution pending such appeal.
Upon the happening of any Event of Default, Lender, at any time thereafter
during the continuance of any Event of Default, subject to any applicable
provisions of the Note and this Indenture, may accelerate and declare, by
written notice to Owner, all or any portion of the Indebtedness immediately due
and payable, with Make-Whole Premium, and upon any such declaration all
Indebtedness so accelerated, together with the Make-Whole Premium, shall become
and be immediately due and payable, anything in the Note, this Indenture or in
any other Loan Document to the contrary notwithstanding, provided, however, that
-------- -------
if such Event of Default shall have occurred under Section 4.1(f), (g) or (h),
then no written notice shall be required but acceleration shall occur
immediately upon such Event of Default.
Section 4.2 Remedies. In case any one or more Events of Default shall
--------
happen and be continuing, then and in each and every such case Lender,
personally or by its attorneys or agents (as directed by Lender), is hereby
authorized and empowered, and whether or not the Indebtedness shall have matured
or been declared due, to exercise any one or more of the following remedies, and
to do or cause to be done any or all of the following acts and things, namely:
(a) To the full extent permitted by law, enter into and upon and take
possession of any and all of the Mortgaged Property and each and every part
thereof, and exclude the Owner, its successors or assigns, its or their agents
and servants, wholly therefrom; and have, hold, use, operate, manage and control
the Mortgaged Property and each and every part thereof, and, in the name of the
Owner or otherwise as deemed most appropriate, conduct the business thereof, and
exercise the franchises pertaining thereto and all the rights and powers of the
Owner, and use all the then existing property and assets for that purpose either
personally or by their superintendents, managers, receivers, agents and/or
servants or attorneys, as Lender shall deem best; and, at the expense of the
Mortgaged Property, from time to time, either by purchase, repairs or
construction, may maintain and restore, and insure, and keep insured, the
Mortgaged Property whereof Lender, personally or by its attorneys or agent (as
directed by Lender), shall become possessed as aforesaid, in the manner and to
the same extent as is usual with similar properties, and likewise, from time to
time, at the expense of the Mortgaged Property, may obtain such appraisals and
environmental reports as Lender may deem appropriate with respect to the
Mortgaged Property, make all necessary and/or proper repairs, renewals and
replacements and useful alterations, additions, betterments, and improvements
thereto and thereon, as Lender may seem appropriate; collect and receive all
tolls, earnings, income, rents, issues, profits and revenues of the same and of
every part thereof; and after deducting the expenses of operating the Mortgaged
Property and of conducting the business thereof and of all appraisals,
environmental reports, repairs, maintenance, renewals, replacements,
alterations, additions, betterments and improvements, and all payments which may
be made for interest, taxes, assessments, insurance and prior or other charges
upon the Mortgaged Property or any part thereof, as well as all expenses and
just and reasonable compensation for the services of Lender, and all attorneys,
counsel, agents, clerks, servants and other employees by them properly
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engaged and employed, apply the balance of the moneys received by Lender,
personally or by its attorneys or agent (as directed by Lender), in the manner
provided in Section 4.3(l). Whenever all that is due and payable on the
Indebtedness under any of the terms of this Indenture and any other Loan
Documents shall have been paid Lender shall surrender possession of the
Mortgaged Property taken under this Section (other than cash or securities at
the time required to be held hereunder and except to the extent the Mortgaged
Property has theretofore been foreclosed upon and sold pursuant to the terms of
this Indenture) to the Owner, its successors or assigns; the same right of
entry, however, to exist upon any subsequent Event of Default.
(b) Lender, after giving written notice that an Event of Default has
occurred and written notice of sale to Owner, with or without entry, may sell or
dispose of, subject to all the Liens thereon which then shall be prior and
superior to the Lien of this Indenture, if any, or free from such Liens as
Lender may elect to discharge, the Mortgaged Property and all or any part or
parts of the right, title, interest, claim and demand of Owner therein and the
right of redemption thereof, at one or more private or public sales pursuant to
Section 4.3, in accordance with applicable law as an entirety or in parcels and
at such time or times and place or places and upon such conditions as to upset
or reserve bids or prices and as to terms of payment including terms as to
credit, partial credits and security for payment and other terms of sale as it
or they may fix, or as may be required by law, including power and authority to
rescind or vary any contract of sale that may be entered into and to resell
under the powers herein conferred. Any sums so collected or received shall be
held and applied by it in the manner provided in Section 4.3(l).
(c) Lender, with or without entry, may proceed to protect and to
enforce its rights under this Indenture or any other Loan Document by a suit or
suits in equity or at law, whether for the specific performance of any covenant
or agreement contained herein or in any Loan Document, or in aid of the
execution of any power therein granted or for the foreclosure of this Indenture,
or for the sale of the Mortgaged Property under the power of sale granted herein
or the judgment or decree of any court or courts of competent jurisdiction, or
by any other appropriate legal or equitable remedy as, being advised by
Independent counsel, shall be deemed most effectual to protect and enforce any
rights or duties hereunder.
(d) Lender may exercise all remedies and rights provided under the
Code or similar laws.
(e) Lender may seek to recover judgment on the Note (or any portion of
the Indebtedness evidenced thereby), either before, during or after any
proceedings for the foreclosure (or partial foreclosure) or enforcement of this
Indenture or any other Loan Document.
(f) Lender may secure the appointment of a receiver, trustee,
liquidator or similar official of the Mortgaged Property or any portion thereof,
and Owner hereby consents and agrees to such appointment, without notice to
Owner and without regard to the adequacy of the security for the Indebtedness
and without regard to the solvency of Owner or any other Person liable for the
payment of the Indebtedness, and, if Lender so elects and directs, such receiver
or other official shall have power to continue all then pending actions and to
hold and enforce all such choses-in-action as have accrued or are to accrue to
Owner, as well as all of the earnings, income and profits thereof,
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for the sole benefit of Lender, and shall have all rights and powers permitted
by applicable law and such other rights and powers as the court making such
appointment may confer, but the appointment of such receiver or other official
shall not impair or in any manner prejudice the rights of Lender to receive the
Property Income with respect to any of the Mortgaged Property pursuant to this
Indenture.
(g) In addition to the rights which Lender may have herein, upon the
occurrence of any Event of Default, Lender, at its option, may require Owner to
pay monthly in advance to Lender, or any receiver appointed to collect the
Property Income, the fair and reasonable rental value for the use and occupation
of any portion of the Mortgaged Property occupied by Owner and may require Owner
to vacate and surrender possession to Lender of the Mortgaged Property or to
such receiver and, Owner may be evicted by summary proceedings or otherwise.
(h) Lender may pursue against Owner, any other rights and remedies of
Lender permitted by law, equity or contract or as set forth herein or in the
other Loan Documents.
In case any Event of Default shall occur, Lender may proceed to lawfully
exercise any one or more of the foregoing remedies.
Section 4.3 General Provisions Regarding Remedies.
-------------------------------------
(a) Effect of Judgment. No recovery of any judgment by Lender and no
------------------
levy of an execution under any judgment upon the Mortgaged Property or any
portion thereof or upon any other property of Owner shall adversely affect in
any manner or to any extent the Lien of this Indenture upon the remaining
portion of the Mortgaged Property. Such Lien, rights, powers and remedies of
Lender shall continue unimpaired as before until full payment of the
Indebtedness secured hereby.
(b) Continuing Power of Sale. The right of Lender to foreclose under
------------------------
this Indenture shall not be exhausted by any one or more sales of any portion of
the Mortgaged Property but shall continue unimpaired until all of the Mortgaged
Property is sold or all of the Indebtedness is paid in full.
(c) Power of Sale; Receivership. In case any Event of Default shall
---------------------------
occur and be continuing and Lender shall proceed by suit or suits at law or in
equity, or by any other judicial proceeding, as Lender shall be entitled to have
the Mortgaged Property or any portion thereof sold by judicial sale under the
order of a court or courts of competent jurisdiction, or by power of sale, or
under executory or other legal process, for or toward the satisfaction of the
Indebtedness entitled to the benefit of the security of this Indenture, and
Lender shall be entitled to the enforcement of the rights, liens and security
provided by this Indenture as a matter of right, and during the pendency of any
such action, suit or proceeding Lender shall be entitled, as a matter of right,
to one or more receiverships of the Mortgaged Property, or any portion thereof,
and of the earnings, revenues, issues, profits and income thereof, without
regard to the adequacy of the security for the Indebtedness and whether the
Mortgaged Property shall or shall not be adequate and sufficient to pay and
satisfy the Indebtedness then outstanding; but, notwithstanding the appointment
of any such
60
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receiver, Lender shall be entitled to the possession and control of any cash and
other securities payable or deliverable under the provisions of this Indenture
to Lender.
(d) Sale. In the event of any sale, whether made under the power of
----
sale herein granted or conferred, or under or by virtue of judicial proceedings,
or of any judgment or decree of foreclosure and sale, the whole of the Mortgaged
Property may be sold, in the sole discretion of Lender, in one parcel as an
entirety or in such parcels and in such order as shall be determined by Lender,
in its sole discretion, or, otherwise, and this provision shall bind the parties
hereto; and each for itself and all persons, firms and corporations claiming by,
through or under it, or who may at any time hereafter become holders of Liens
junior to the Lien of this Indenture, hereby expressly waive and release, to the
full extent permitted by applicable law, any and all right to have the Mortgaged
Property or any part thereof marshaled upon any sale, foreclosure or other
enforcement hereof; and Lender or any court in which the foreclosure of this
Indenture or the administration of any trusts hereby created is sought, shall
have the right as aforesaid to sell the Mortgaged Property as a whole in a
single parcel or in such parcels and in such order as Lender may determine in
its sole discretion.
(e) Notice of Sale. Notice of any sale pursuant to any provision of
--------------
this Indenture shall be given in such manner and in such places as may be
required by law and, in addition, as Lender may deem advisable.
(f) Adjournment of Sale. Any sale to be made under the provisions of
-------------------
this Indenture may be adjourned and readjourned, from time to time, by
announcement at the time and place appointed for such sale or for such adjourned
sale or sales; and, without further notice or publication, such sale may be made
at the time and place to which the same shall be so adjourned or readjourned to
the extent permitted by applicable law.
(g) Conveyance Upon Sale. Upon the completion of any sale or sales
--------------------
under or by virtue of the provisions of this Indenture, Lender or any Person
duly appointed by any court of competent jurisdiction for such purpose, as may
be required by applicable law, shall execute and deliver to the accepted
purchaser or purchasers a good and sufficient deed or good and sufficient deeds
of conveyance of fee simple title with such covenants made on behalf of Owner
and other instruments conveying, assigning and transferring the property and
franchises sold as Lender may determine in its sole discretion. Lender its
successors, are hereby appointed the true and lawful irrevocable attorneys of
Owner, which appointment is coupled with an interest, in its name and stead, to
make all necessary deeds and conveyances of property thus sold, and for that
purpose it may execute all necessary acts of assignment and transfer, and may
substitute one or more persons with like power, Owner hereby authorizing,
ratifying and confirming all that its said attorneys, or such substitute or
substitutes, shall lawfully do by virtue hereof. Nevertheless, Owner, if so
requested by Lender shall ratify and confirm such sale or sales by executing and
delivering to such purchaser or purchasers all such instruments, transfers,
assignments and conveyances as may be necessary or desirable in the judgment of
Lender for the purpose designated in such request.
(h) Termination of Equity of Redemption. To the full extent permitted
-----------------------------------
by applicable law and subject to the waivers set forth in Section 4.3(d), any
such sale or sales made under or by virtue of the provisions of this Indenture,
whether under the power of sale hereby
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granted and conferred, or under or by virtue of judicial proceedings, shall
operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Owner of, in and to the Mortgaged Property sold,
and shall be a conclusive and perpetual bar and extinguishment of any and all
equity of redemption, both at law and in equity, against Owner, its successors
and/or assigns, and against any and all Persons claiming or seeking to claim an
interest in the Mortgaged Property sold, or any part thereof from, through or
under Owner, its successors and/or assigns.
(i) Fixtures. To the extent that any particular item of Mortgaged
--------
Property is a fixture under applicable real property law and is also a fixture
subject to the security interest under the Code, the option is hereby given (i)
to treat any such item as equipment under the Code and to sever (physically or
constructively) such item from the real estate and to exercise all remedies
provided in the Code with respect thereto; or (ii) to treat any such item as a
part of the real estate and to foreclose upon or sell same in accordance with
the laws of the State pertaining to the sale at foreclosure or sale under power
of sale of real estate. Said option may be exercised after the occurrence and
during the continuance of an Event of Default at any time or times, and any
number of times and the times and manner of the exercise of such option shall be
solely within the sole discretion and direction of Lender.
(j) Discharge of Purchaser. The receipt or receipts of Lender or of
----------------------
the court officer conducting any such sale for the purchase money paid at any
such sale shall be a sufficient discharge therefor to any purchaser of the
Mortgaged Property or any part thereof sold as aforesaid; and no such purchaser
or his representatives, grantees and/or assigns, after paying such purchase
money and receiving such receipt, shall be bound to see to the application of
such purchase money upon or for any trust or purpose of this Indenture, or in
any manner whatsoever be answerable for any loss, misapplication or non-
application of any such purchase money or any part thereof, or be bound to
inquire as to the authorization, necessity, expediency or regularity of any such
sale.
(k) Credit for Indebtedness. Upon any sale made under the power of
-----------------------
sale granted in this Indenture or under or by virtue of judicial proceedings,
any holder or holders of Indebtedness may bid for and purchase the property
being sold and upon compliance with the terms of sale may hold, retain and
dispose of such property in its or their own absolute right without further
accountability and in lieu of paying cash therefor may make settlement for the
purchase price by crediting upon the Indebtedness of Owner secured by this
Indenture the net proceeds of sale after deduction of all costs, expenses and
other amounts to be paid therefrom as herein provided. The Person making such
sale shall accept such settlement without requiring the production of the Note,
and without such production there shall be deemed credited thereon the net
proceeds of sale ascertained and established as aforesaid.
(l) Disposition of Proceeds of Sale and Other Amounts Received Under
----------------------------------------------------------------
Article 4. Except to the extent governed by the terms and provisions of Section
- ---------
4.3(k) hereof, all amounts received under this Article and all purchase money,
proceeds or avails of any sale or sales referred to in this Article, whether
under the power of sale herein granted or pursuant to judicial proceedings,
together with any other amounts of cash which then may be held by Lender under
any of the provisions of this Indenture, shall be applied as follows:
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First, to the payment of the costs and expenses of such collection,
-----
sale, including reasonable compensation to Lender, its agents, attorneys
and counsel, and of all expenses, liabilities and Advances made or incurred
by Lender under this Indenture or under any other Loan Document, with
interest thereon in accordance with this Indenture, and to payment of all
taxes, assessments or Liens prior to the Lien of this Indenture except any
taxes, assessments or other prior Liens subject to which such sale has been
made and to the payment of all other costs incurred in connection with the
enforcement of the Loan Documents;
Second, in such order and priority as determined by Lender in its sole
------
discretion, to the payment of all Late Charges, Make-Whole Premiums,
Default Rate Interest or other sums payable under the Note, this Indenture
or any other Loan Document, to all other interest which shall be due and
payable with respect to the Indebtedness and to the principal of the
Indebtedness, together with post-judgment interest as permitted by law; and
Third, to the payment of the surplus, if any, to Owner, its successors
-----
or assigns, or to whomsoever may be lawfully entitled to receive the same.
(m) Action Upon The Note. In case, pursuant to Section 4.1 hereof,
--------------------
the Indebtedness shall have become immediately due and payable and Owner shall
fail to pay the same forthwith, Lender, in its own name, as required by
applicable law, shall be entitled to sue for and to recover judgment for the
whole amount so due and unpaid.
Lender shall be entitled to recover judgment as aforesaid either before or
after or during the pendency of any proceedings for the enforcement of the Lien
of this Indenture upon all or any portion of the Mortgaged Property, and the
right to recover such judgment shall not be affected by any entry or sale
hereunder or by the exercise of any other right, power or remedy for the
enforcement of the provisions of this Indenture or the foreclosure of the Lien
hereof; and in case of a sale of any of the Mortgaged Property and of the
application of the proceeds of sale to the payment of the Indebtedness hereby
secured, Lender, in its own name, shall be entitled to enforce payment of and to
receive all amounts then remaining due and unpaid upon any and all of the
Indebtedness secured hereunder and then outstanding, and shall be entitled to
recover judgment for any portion of such Indebtedness remaining unpaid. No
recovery of any such judgment and no attachment or levy of any execution upon
any such judgment, upon the Mortgaged Property or any part thereof or upon any
other property pledged by Owner as security for the Indebtedness, shall, in any
manner or to any extent, affect the Lien of this Indenture upon the Mortgaged
Property or any part thereof, or any lien, rights, powers or remedies hereunder,
or of the holder or holders of the Indebtedness secured hereby but such lien,
rights, powers and remedies shall continue unimpaired as before.
Any moneys collected under the provisions of this Section shall be applied
as set forth in Section 4.3(l).
(n) Impairment of Security. Lender shall have power to institute and
----------------------
maintain such suits and proceedings as Lender shall deem necessary, appropriate
or expedient to prevent any impairment of the security hereunder or to preserve
and to protect its interests and security in respect
63
<PAGE>
of the Mortgaged Property, or in respect of the income, earnings, rents, issues,
profits and revenues arising therefrom, including power to institute and to
maintain suits or proceedings to restrain the enforcement of, or compliance
with, or the observance of, any legislative or other governmental order that may
be deemed unconstitutional or otherwise invalid, if in the sole judgment of
Lender the enforcement of, or compliance with, or observance of, such order
would impair the security hereunder or be prejudicial to the interests of
Lender.
(o) Waivers and Agreements Regarding Remedies. To the fullest extent
-----------------------------------------
Owner may legally do so, Owner:
(i) agrees that Owner will not at any time insist upon, plead,
claim or take the benefit or advantage of any laws now or hereafter in force
providing for any appraisal or appraisement, valuation, stay, extension or
redemption, and waives and releases all rights of redemption, valuation,
appraisal or appraisement, stay of execution, extension and notice of election
to accelerate or declare due the whole or any portion of the Indebtedness,
except as otherwise expressly provided herein or in the other Loan Documents;
(ii) waives all rights to a marshaling of the assets of Owner, its
partners, members or other owners, if any, and others with interests in Owner
and the Mortgaged Property, or to a sale in inverse order of alienation in the
event of foreclosure of the interests hereby created, and agrees not to assert
any right under any laws pertaining to the marshaling of assets, the sale in
inverse order of alienation, homestead exemption, the administration of estates
of decedents, or any other matters whatsoever to defeat, reduce or affect the
right of Lender under the Loan Documents to a sale of the Mortgaged Property for
the collection of the Indebtedness without any prior or different resort for
collection, or the right of Lender to the payment of the Indebtedness out of the
Net Proceeds of the Mortgaged Property in preference to every other claimant
whatsoever;
(iii) waives any right to bring or utilize any counterclaim (other
than a compulsory counterclaim) or set-off and any counterclaim or set-off
raised by Owner in such foreclosure action, shall be dismissed; provided,
--------
however, that if such counterclaim or set-off is based on a claim which could be
- -------
tried in an action for money damages, the foregoing waiver shall not bar a
separate action for such damage (unless such claim is required by law or
applicable rules of procedure to be pleaded in or consolidated with the action
initiated by Lender), but such separate action shall not thereafter be
consolidated with any foreclosure action of Lender; and provided further that
--------
the bringing of such separate action for money damages shall not be deemed to
afford any grounds for staying any such foreclosure action;
(iv) waives and relinquishes any and all rights and remedies Owner
may have or be able to assert by reason of the provisions of any laws pertaining
to the rights and remedies of sureties or guarantors;
(v) waives the defense of laches and any applicable statutes of
limitation; and
(vi) waives any right to have any trial, action or proceeding tried
by a jury.
64
<PAGE>
(p) No Impairment of Lender's Rights. No delay or omission of Lender
--------------------------------
to exercise any right or power arising from any default shall impair any such
right or power, or shall be construed to be a waiver of any such default or an
acquiescence therein, nor shall the action of Lender in case of any default, or
of any default and the subsequent waiver of such default, affect or impair the
rights of Lender in respect of any subsequent default on the part of the Owner
or impair any right resulting therefrom and every power and remedy given by this
Article may be exercised from time to time, and as often as may be deemed
expedient by Lender.
(q) Restoration of Rights. In case of any waiver of any default or
---------------------
Event of Default hereunder, Owner and Lender shall be restored to their former
positions and rights hereunder, respectively, but no such waiver shall extend to
any subsequent or other default or Event of Default or impair any right
consequent thereon.
(r) Remedies Non-Exclusive. Except as herein expressly provided to
----------------------
the contrary, no remedy herein conferred upon or reserved to Lender is intended
to be exclusive of any other remedy, but each and every such remedy shall be
cumulative, and shall be in addition to every other remedy given hereunder or
now of hereafter existing at law or in equity or by statute; and the employment
of any remedy hereunder, or otherwise, shall not, to the extent permitted by
applicable law prevent the concurrent or subsequent employment of any other
appropriate remedy or remedies.
(s) No Waiver or Release. Lender may resort to any remedies and the
--------------------
security given by the Loan Documents, in whole or in part, and in such portions
and in such order as determined in Lender's sole discretion. No such action
shall in any way be considered a waiver of any rights, benefits or remedies
evidenced or provided by the Loan Documents. The failure of Lender to exercise
any right, remedy or option provided in the Loan Documents shall not be deemed a
waiver of such right, remedy or option or of any covenant or obligation secured
by the Loan Documents. No acceptance by Lender of any payment after the
occurrence of an Event of Default and no payment by Lender of any Advance or
obligation for which Owner is liable hereunder shall be deemed to waive or cure
any Event of Default, or Owner's liability to pay such obligation. No
forbearance on the part of Lender, and no extension of time for the payment of
the whole or any portion of the Indebtedness or any other indulgence given by
Lender to Owner or any other Person, shall operate to release or in any manner
affect the interest of Lender in the remaining Mortgaged Property or the
liability of Owner to pay the Indebtedness. No waiver by Lender shall be
effective unless it is in writing and then only to the extent specifically
stated.
(t) Lender's Right to Waive, Consent or Release. Lender may at any
-------------------------------------------
time, in writing, (i) waive compliance by Owner with any covenant herein made by
such Owner to the extent and in the manner specified in such writing; (ii)
consent to Owner doing any act which Owner is prohibited hereunder from doing,
or consent to Owner failing to do any act which Owner is required hereunder to
do, to the extent and in the manner specified in such writing; or (iii) release
any portion of the Mortgaged Property, or any interest therein, from this
Indenture and the lien of the other Loan Documents. No such act with respect to
Owner shall in any way impair the rights of Lender hereunder with respect to
Owner or any of the remaining Mortgaged Property except to the extent expressly
provided by Lender in such writing.
65
<PAGE>
(u) No Impairment; No Release. The interests and rights of Lender
-------------------------
under the Loan Documents shall not be impaired by any indulgence, including (i)
any renewal, extension or modification which Lender may grant with respect to
any of the Indebtedness; (ii) any surrender, compromise, release, renewal,
extension, exchange or substitution which Lender may grant with respect to the
Mortgaged Property or any portion thereof; or (iii) any release or indulgence
granted to any maker, endorser, guarantor or surety of any of the Indebtedness.
(v) Limitation Upon Exercise of Remedies. All rights, remedies and
------------------------------------
powers provided by this Indenture or any supplemental indenture may be exercised
only to the extent that the exercise or enforcement thereof does not violate any
applicable provision of law and all the provisions of this Indenture or any
supplemental indenture are intended to be subject to all applicable mandatory
provisions of law that may be controlling and to be limited to the extent
necessary so that they will not render this Indenture or any supplemental
indenture or the Indebtedness invalid or unenforceable, or render this Indenture
or any supplemental indenture not entitled to be recorded or filed under the
provisions of any applicable law in order to create or maintain the Lien
intended to be created hereby or thereby.
(w) Lender's Discretion. Except to the extent expressly provided to
-------------------
the contrary herein, in the other Loan Documents or as may be required by
applicable law, Lender may exercise its rights, options and remedies and may
make all decisions, judgments and determinations under this Indenture and the
other Loan Documents in its sole, unfettered discretion.
(x) Recitals of Facts. In the event of a sale or other disposition of
-----------------
all or any portion of the Mortgaged Property pursuant to Section 4.2 or Section
4.3 hereof and the execution of a deed or other conveyance pursuant thereto, the
recitals therein of facts (such as default, the giving of notice of default and
notice of sale, demand that such sale should be made, postponement of sale,
terms of sale, purchase, payment of purchase money and other facts affecting the
regularity or validity of such sale or disposition) shall be conclusive proof of
the truth of such facts. Any such deed or conveyance shall be conclusive
against all Persons as to such facts recited therein.
(y) Possession of the Mortgaged Property. Upon the occurrence and
------------------------------------
during the continuance of any Event of Default hereunder and demand by Lender at
its option, Owner shall immediately surrender or cause the surrender of
possession of the Mortgaged Property to Lender. If Owner or any other occupant
is permitted to remain in possession, such possession shall be as a licensee of
Lender and such occupant (i) shall on demand pay to Lender monthly, in advance,
reasonable use and occupancy charges for the space so occupied (which shall not,
in any event, be less than one hundred percent (100%) of the Debt Service
Payments and Securitization Costs set forth in the Loan Documents, and (ii) in
default thereof, may be dispossessed by summary proceedings. Upon three (3)
days prior demand, Owner shall assemble the Collateral and make it available at
any place Lender may designate to allow Lender to take possession and/or dispose
of the Collateral. The covenants herein contained may be enforced by a receiver
of the Mortgaged Property or any portion thereof.
66
<PAGE>
(z) Subrogation. If all or any portion of the proceeds of the Note or
-----------
any Advance shall be used directly or indirectly to pay off, discharge or
satisfy, in whole or in part, any prior lien or encumbrance upon the Mortgaged
Property or any portion thereof, then Lender shall be subrogated to, and shall
have the benefit of the priority of, such other lien or encumbrance and any
additional security held by the holder thereof.
ARTICLE 5
Miscellaneous
Section 5.1 Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(i) certified or registered United States mail, postage prepaid, return receipt
requested, or (ii) expedited prepaid delivery service, either commercial or
United States Postal Service, with proof of attempted delivery, in each case
addressed as shown below, or (iii) by facsimile to the facsimile numbers shown
below followed by notice sent in accordance with clause (ii) to the addresses
shown below:
If to Lender: Corporate Real Estate Capital, LLC
c/o Secured Capital Corp
11150 Santa Monica Blvd., Suite 1400
Los Angeles, California 90025
Attention: D. Michael Van Konynenburg
Fax No: (310) 477-3436
with a copy to: Corporate Real Estate Capital, LLC
c/o U.S. Realty Advisors, LLC
1370 Avenue of the Americas
New York, New York 10019
Attention: David M. Ledy
Fax No: (212) 581-4950
with copy to: Day, Berry & Howard
260 Franklin Street
Boston, Massachusetts 02110
Attention: Cynthia J. Williams, Esq.
Fax No: (617) 345-4745
If to Owner: Merkert Enterprises, Inc.
500 Turnpike Street
Canton, Massachusetts 02021
Attention: Sidney D. Rogers, Jr.
Fax No: (781) 828-8274
with a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C.
67
<PAGE>
One Financial Center
Boston, Massachusetts 02111
Attention: Joel R. Bloom, Esq.
Fax No: (617) 542-2241
Such address or facsimile number may be changed by any party in a written notice
to the other parties hereto in the manner provided for in this Section. A
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
the first attempted delivery on a business day; in the case of expedited prepaid
delivery, upon the first attempted delivery on a business day; or in the case of
facsimile delivery upon receipt noted on the copy of the facsimile notice
retained in the records of the sender thereof. A party receiving a notice which
does not comply with the technical requirements for notice under this Section
5.1 may elect to waive any deficiencies and treat the notice as having been
properly given.
Section 5.2 Binding Obligations; Joint and Several. The provisions and
--------------------------------------
covenants of this Indenture shall run with the land, shall be binding upon
Owner, its successors and assigns, and shall inure to the benefit of Lender, its
legal representatives, successors and assigns. If Owner consists of more than
one Person or party, the obligations and liabilities of each such Person or
party hereunder shall be joint and several. Owner acknowledges and agrees that
Lender may assign its duties, rights or obligations hereunder or under any Loan
Document in whole, or in part, to a servicer and/or trustee or other entity in
Lender's sole discretion.
Section 5.3 Captions. The captions of the Sections and subsections of
--------
this Indenture are for convenience only and are not intended to be a part of
this Indenture and shall not be deemed to modify, explain, enlarge or restrict
any of the provisions hereof.
Section 5.4 Severability. If any one or more of the provisions
------------
contained in this Indenture shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Indenture, but this Indenture shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
Section 5.5 Owner's Indebtedness Absolute. Except as set forth to the
-----------------------------
contrary in the Loan Documents, all sums payable by Owner hereunder shall be
paid without notice, demand, counterclaim, set-off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction, and the
obligations and liabilities of Owner hereunder shall in no way be released,
discharged, or otherwise affected (except as expressly provided herein) by
reason of:
(a) any damage to or destruction of or any condemnation or similar
taking of the Mortgaged Property or any portion thereof;
(b) any restriction or prevention of or interference with any use of
the Mortgaged Property or any portion thereof;
68
<PAGE>
(c) any title defect or encumbrance or any eviction from the Mortgaged
Property or any portion thereof by title paramount or otherwise; (d) any
Bankruptcy Proceeding relating to Owner, if any, or any action taken with
respect to this Indenture or any other Loan Document by any trustee or receiver
of Owner, or by any court, in any such proceeding; (e) any claim which Owner has
or might have against Lender; (f) any default or failure on the part of Lender
to perform or comply with any of the terms hereof or of any other agreement with
Owner; or (g) any other occurrence whatsoever, whether similar or dissimilar to
the foregoing, whether or not Owner shall have notice or knowledge of any of the
foregoing. Except as expressly provided herein, Owner waives all rights now or
hereafter conferred by statute or otherwise to any abatement, suspension,
deferment, diminution or reduction of any sum secured hereby and payable by
Owner.
Section 5.6 Amendments. This Indenture cannot be altered, amended,
----------
modified or discharged orally and no executory agreement shall be effective to
modify or discharge it in whole or in part, unless in writing and signed by the
party against which enforcement is sought and by Lender.
Section 5.7 Other Loan Documents and Schedules. All of the agreements,
----------------------------------
conditions, covenants, provisions and stipulations contained in the Note, the
Loan Agreement and the other Loan Documents, and each of them, which are to be
kept and performed by Owner are hereby made a part of this Indenture to the same
extent and with the same force and effect as if they were fully set forth in
this Indenture, and Owner shall keep and perform the same, or cause them to be
kept and performed, strictly in accordance with their respective terms. The
cover sheet to this Indenture and each schedule, rider and exhibit attached to
this Indenture are integral parts of this Indenture and are incorporated herein
by this reference. In the event of any conflict between the provisions of any
such schedule or rider and the remainder of this Indenture, the provisions of
such schedule or rider shall prevail.
Section 5.8 Merger. So long as any Indebtedness shall remain unpaid,
------
fee title to and any other estate in the Mortgaged Property shall not merge, but
shall be kept separate and distinct, notwithstanding the union of such estates
in any Person.
Section 5.9 Time of the Essence. Time shall be of the essence in the
-------------------
performance of all obligations of Owner under this Indenture.
Section 5.10 Release. If all of the Indebtedness is paid in full, then
-------
in that event only all rights of Lender under this Indenture and the other Loan
Documents shall terminate and the Mortgaged Property shall become free and clear
of the liens, grants, security interests, conveyances and assignments evidenced
hereby and thereby, and Lender shall release or cause to be released without
warranty such liens, grants, assignments, conveyances and security interests in
due form at Owner's cost (to the extent permitted by the law of the State), and
this Indenture and the estate hereby granted shall cease and become void;
provided, however, that no provision of this Indenture or any other Loan
- -------- -------
Document which, by its own terms, is intended to survive such payment,
performance, and release (nor the rights of Lender under any such provision)
shall be affected in any manner thereby and such provision shall, in fact,
survive. Recitals of any matters or facts in any release instrument executed by
Lender under this Section 5.10 shall be conclusive proof of the
69
<PAGE>
truthfulness thereof. To the extent permitted by law, such an instrument may
describe the grantee or releasee as "the person or persons legally entitled
thereto," and Lender shall not have any duty to determine the rights of persons
claiming to be rightful grantees or releases of the Mortgaged Property. When
this Indenture has been fully released or discharged by Lender, the release or
discharge hereof shall operate as a release and discharge of and as a
reassignment of all future Leases and Property Income with respect to the
Mortgaged Property to the person or persons legally entitled thereto, unless
such release expressly provides to the contrary.
Section 5.11 Offsets, Counterclaims and Defenses. Any assignee of
-----------------------------------
Lender's interest in and to this Indenture, the Note and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims or
defenses which are unrelated to this Indenture, the Note and the other Loan
Documents which Owner may otherwise have against any assignor of this Indenture,
the Note and the other Loan Documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Owner in any action or proceeding
brought by any such assignee upon this Indenture, the Note and other Loan
Documents and any such right to interpose or assert any such unrelated offset,
counterclaim or defense in any such action or proceeding is hereby expressly
waived by Owner.
Section 5.12 No Joint Venture or Partnership. Owner and Lender intend
-------------------------------
that the relationship created hereunder be solely that of borrower and lender.
Nothing herein is intended to create a joint venture, partnership, tenancy-in-
common, or joint tenancy relationship between Owner and Lender nor to grant
Lender any interest in the Mortgaged Property other than that of mortgagee or
lender.
Section 5.13 Publicity. All promotional news releases, publicity or
---------
advertising by Owner or its Affiliates through any media intended to reach the
general public shall not refer to the Loan Documents or the financing evidenced
by the Loan Documents, or to Lender without the prior written approval of
Lender, in each instance. Any of the Lender Parties shall be authorized to
provide information relating to the Mortgaged Property, the Loan and matters
relating thereto to rating agencies, underwriters, placement agents, any other
Persons engaged in connection with a proposed securitization intending to
include the Loan, potential securities investors, auditors, regulatory
authorities and to any parties which may be entitled to such information by
operation of law.
Section 5.14 Governing Law. This Indenture and the obligations arising
-------------
hereunder shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Massachusetts. To the fullest extent permitted by law, Owner
hereby unconditionally and irrevocably waives any claim to assert that the law
of any jurisdiction other than Massachusetts, as applicable, governs this
Indenture, the Note and the other Loan Documents. Each party hereto agrees that
any action or proceeding under this Indenture or any other Loan Document shall
be brought or enforced only in the state or federal courts sitting in the
Commonwealth of Massachusetts.
Section 5.15 Lender's Discretion. Whenever pursuant to this Indenture,
-------------------
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
provided in this Agreement) be in the sole discretion of Lender and shall be
final and conclusive.
70
<PAGE>
IN WITNESS WHEREOF, this Indenture has been executed by Owner as of the day
and year first hereinabove written.
MERKERT ENTERPRISES, INC., as Owner
By: /s/ Sidney D. Rogers, Jr.
----------------------------------
Sidney D. Rogers, Jr.
Treasurer
By: /s/ Thomas P. Maher
----------------------------------
Thomas P. Maher
Vice President
71
<PAGE>
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss
On this 11th day of February 1998, before me appeared Sidney D. Rogers Jr,
to me personally known, who, being by me duly sworn (or affirmed), did say that
(s)he is the Treasurer of Merkert Enterprises, Inc. and that the seal affixed to
said instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority of
its board of directors, and said Sidney D. Rogers, Jr acknowledged said
instrument to be the free act and deed of said corporation.
/s/ Cynthia J Grondin
--------------------------------
Name: Cynthia J. Grondin
Title: Notary Public
Commission Expires On: 4-30-04
ACKNOWLEDGMENT
--------------
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss
On this 11th day of February 1998, before me appeared Thomas P. Maher, to
me personally known, who, being by me duly sworn (or affirmed), did say that
(s)he is the Vice President of Merkert Enterprises, Inc. and that the seal
affixed to said instrument is the corporate seal of said corporation, and that
said instrument was signed and sealed on behalf of said corporation by authority
of its board of directors, and said Thomas P. Maher acknowledged said instrument
to be tHe free act and deed of said corporation.
/s/ Cynthia J. Grondin
--------------------------------
Name: Cynthia J. Grondin
Title: Notary Public
Commission Expires On: 4-30-04
72
<PAGE>
EXHIBIT 10.24
($9,500,000)
LOAN AGREEMENT
BY AND BETWEEN
CORPORATE REAL ESTATE CAPITAL, LLC,
as lender
and
MERKERT ENTERPRISES, INC.,
as borrower
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. CERTAIN DEFINITIONS................................................................. 1
Section 1.1 Definitions.................................................. 1
2. GENERAL TERMS....................................................................... 1
Section 2.1 Amount of the Loan........................................... 1
Section 2.2 Use of Proceeds.............................................. 1
Section 2.3 Security for the Note........................................ 1
Section 2.4 Payment of Loan.............................................. 2
3. CONDITIONS TO CLOSING OF LOAN....................................................... 2
4. PAYMENT OF EXPENSES................................................................. 5
5. DEFAULTS............................................................................ 7
6. MISCELLANEOUS....................................................................... 7
Section 6.1 Survival..................................................... 7
Section 6.2 Lender's Discretion.......................................... 7
Section 6.3 Governing Law................................................ 7
Section 6.4 Modification, Waiver in Writing.............................. 8
Section 6.5 Delay Not a Waiver........................................... 8
Section 6.6 Notices...................................................... 8
Section 6.7 Trial by Jury................................................ 8
Section 6.8 Headings..................................................... 8
Section 6.9 Assignment................................................... 8
Section 6.10 Severability................................................. 9
Section 6.11 Preferences.................................................. 9
Section 6.12 Waiver of Notice............................................. 9
Section 6.13 Remedies of Owner............................................ 9
Section 6.14 Reserved..................................................... 9
Section 6.15 Exhibits Incorporated........................................ 10
Section 6.16 Offsets, Counterclaims and Defenses.......................... 10
Section 6.17 No Joint Venture or Partnership.............................. 10
Section 6.18 Publicity.................................................... 10
Section 6.19 Conflict; Construction of Documents.......................... 10
Section 6.20 Brokers and Financial Advisors............................... 10
Section 6.21 Joint and Several Liability.................................. 11
</TABLE>
i
<PAGE>
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Indenture
Exhibit C Form of Opinion
Exhibit D Form of Owner's Certificate
ii
<PAGE>
LOAN AGREEMENT
--------------
LOAN AGREEMENT (this "Agreement"), made as of the 13th day of February,
---------
1998, by and between CORPORATE REAL ESTATE CAPITAL, LLC, a Delaware limited
liability company, as lender (together with its successors and assigns,
"Lender"), and Merkert Enterprises, Inc., a Massachusetts corporation, as
------
borrower (together with its permitted successors and assigns, "Owner").
-----
RECITALS
--------
WHEREAS, Owner desires to obtain a loan (the "Loan") from Lender in the
----
amount of Nine Million Five Hundred Thousand Dollars ($9,500,000) (the "Loan
----
Amount");
- ------
WHEREAS, Lender is willing to make the Loan to Owner in the Loan Amount
upon the terms and subject to the conditions set forth herein and in the other
Loan Documents (hereinafter defined); and
WHEREAS, the Loan will be secured by, among other things that certain
Indenture of Mortgage, Deed of Trust, Security Agreement, Fixture Filing,
Financing Statement and Assignment of Rents and Leases, dated as of the date
hereof, made by Owner, in favor of Lender as security for the Loan, (as
modified, amended or supplemented from time to time, the "Indenture"), which
---------
Indenture encumbers the Mortgaged Property.
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
1. CERTAIN DEFINITIONS
-------------------
Section 1.1 Definitions. All capitalized terms used but not defined
-----------
herein shall have the meaning set forth with respect thereto in the Indenture.
2. GENERAL TERMS
-------------
Section 2.1 Amount of the Loan. Subject to the terms and conditions of
------------------
this Agreement, Lender shall lend to Owner the Loan Amount. The Loan to Owner
shall be evidenced by the Note.
Section 2.2 Use of Proceeds. No proceeds of the Loan shall be used for
---------------
personal, family or household use.
Section 2.3 Security for the Note. The Note and Owner's obligations
---------------------
hereunder and under the other Loan Documents shall be secured by the Indenture.
<PAGE>
Section 2.4 Payment of Loan. Owner shall repay the Loan and any other
---------------
Indebtedness due under and in accordance with the provisions of the Note, the
Indenture and the other Loan Documents.
3. CONDITIONS TO CLOSING OF LOAN
-----------------------------
The obligation of Lender to make the Loan on the Closing Date is subject to
(A) the material accuracy and correctness on the Closing Date of the
representations and warranties of Owner contained in the Indenture, (B) the
performance by Owner of its agreements contained herein and to be performed by
it on or prior to the Closing Date, and (C) the satisfaction of all of the
following conditions on or prior to the Closing Date:
(a) Loan Documents. Each of the Loan Documents shall have been duly
--------------
authorized, executed and delivered by the parties thereto and shall be in full
force and effect, and no default shall exist thereunder, and Lender and its
counsel shall have received a fully executed copy of this Agreement and each of
the other documents listed below (together with this Agreement, collectively the
"Loan Documents"):
(1) Note; and
(2) Indenture.
(except only Lender or its counsel, on Lender's behalf, shall have received the
executed Note). The Loan Documents and any Financing Statements under the Code
shall have been recorded, registered and filed, if necessary, in order for the
Title Insurance Policy to be issued in accordance with paragraph (e) below and
for Lender to hold a first Lien on and a fully perfected first security interest
in the Mortgaged Property subject only to Permitted Encumbrances.
(b) Payment of Recording Charges. All taxes, fees and other charges in
----------------------------
connection with the execution, delivery, recording, filing and registration of
the Loan Documents shall have been paid or provision for such payment shall have
been made to Lender's satisfaction.
(c) Title. On the Closing Date, title to the Mortgaged Property shall
-----
conform to the representations set forth in the Indenture and in the certificate
delivered pursuant to Section 3(t) hereof.
(d) Representations and Warranties. On the Closing Date, all of the
------------------------------
representations and warranties of Owner set forth in the Indenture or in any
certificate of Owner, to be delivered in accordance with paragraph (t) below
shall be true and correct and Owner shall have supplied evidence acceptable to
Lender thereof.
(e) Title Insurance Policy. Lender shall have received a Title
----------------------
Insurance Policy, or an irrevocable commitment therefor with respect to the
Mortgaged Property, issued by a
2
<PAGE>
nationally recognized title insurance company acceptable to Lender and
authorized to do business in the State in which the Mortgaged Property is
located, and such policy shall insure that the Indenture constitutes a first
lien on the Mortgaged Property, subject only to Permitted Encumbrances (which,
in the case of Permitted Encumbrances described in clause (ii) of the definition
thereof, are acceptable to Lender). Such Title Insurance Policy shall include
any and all endorsements thereto as shall be required by Lender including,
without limitation, mechanics' lien endorsements, survey endorsements and
comprehensive endorsements, shall be satisfactory in form and substance to
Lender and shall insure Lender against loss in an amount not less than the
original principal amount of the Note.
(f) Survey. Lender shall have received a copy of an ALTA (or other
------
comparable State requirement) boundary or as-built survey, as applicable, of the
Land and related Improvements satisfactory in form and substance to Lender
certified to Lender within ninety (90) days prior to the Closing Date by an
Independent surveyor licensed in the State in which the Mortgaged Property is
located.
(g) Financial Statements. Owner shall have delivered to Lender
--------------------
certified financial statements for the years ending August 31, 1997, August 31,
1996 and August 31, 1995 of Owner and its consolidated subsidiaries and the most
recent quarterly financial statements of Owner and its consolidated subsidiaries
which shall be reasonably acceptable in form and substance to Lender. Such
financial statements shall be prepared in accordance with GAAP (any such
financial statements which are unaudited may not contain all footnotes and year
end adjustments required by GAAP) consistently applied and shall fairly reflect
the financial condition of Owner as of the date made and for the periods covered
thereby.
(h) Organization; Authority. Owner shall have furnished Lender with
-----------------------
evidence satisfactory to Lender that Owner is validly formed and existing, and
in good standing and duly existing in its jurisdiction of organization and in
the State in which the Mortgaged Property is located. Furthermore, Owner shall
have submitted to Lender certified organizational documents of Owner. Owner
shall have delivered to Lender, a certified resolution of all directors or other
necessary Persons authorizing Owner to execute, deliver and perform the Loan
Documents.
(i) Certificate of Occupancy; Permits; Zoning. Owner shall have
-----------------------------------------
delivered to Lender copies of all certificates of occupancy and other permits
and licenses required for the operation of the Mortgaged Property. Owner shall
have delivered evidence satisfactory to Lender that the Mortgaged Property
complies with all zoning and use restrictions and with all conditions and
restrictions in any Appurtenant Agreements.
(j) UCC Search. Lender shall have received current Uniform Commercial
----------
Code search certificates from such offices as Lender may elect to search showing
those financing statements, if any, that are on file against Owner and/or the
Mortgaged Property. Unless otherwise approved by Lender, all of said financing
statements affecting the Mortgaged Property
3
<PAGE>
or any of the personal property and intangibles in which Lender is to be granted
a security interest pursuant to the terms of the Loan Documents shall have been
terminated of record.
(k) Opinion of Owner. Lender shall have received the opinion of
----------------
counsel to Owner, dated the Closing Date and addressed to Lender, with respect
to such matters as set forth in Exhibit F, and as approved in final form and
---------
substance by Lender and its counsel.
(l) Reserved.
(m) Governmental Approvals. On the Closing Date, except as disclosed
----------------------
on Schedule (v) to the Owner's Certificate, all approvals, authorizations and
consents, including certificates of occupancy and environmental impact reports,
if any be required, of all Governmental Authorities having jurisdiction with
respect to the Mortgaged Property, Owner or the transactions contemplated in the
Loan Documents shall have been obtained and be in full force and effect.
(n) No Material Adverse Change. There shall have been no material
--------------------------
adverse changes in the business or financial condition of Owner since August 31,
1997.
(o) Insurance Certificates. Lender shall have received certificates
----------------------
for the insurance required by the Indenture.
(p) No Proceedings. No action or proceeding shall have been
--------------
instituted nor shall any governmental action be threatened before any
Governmental Authority, nor shall any order, judgment or decree have been issued
or proposed to be issued by any court or Governmental Authority, which may have
a material adverse effect on the business or financial condition of Owner or to
set aside, restrain, enjoin or prevent the performance of this Agreement, any
other Loan Document or any transaction contemplated hereby or thereby.
(q) Environmental Report. Lender shall have received a Phase I
--------------------
Environmental Report with respect to the Mortgaged Property and a reliance
letter with respect thereto satisfactory in form and substance to Lender
prepared by an environmental engineering firm approved by Lender in accordance
with the scope of ASTM Standard E1527. Lender may require the preparation of an
additional Phase II environmental assessment report satisfactory in form and
substance to Lender, if the Phase I environmental assessment report reveals
conditions which in Lender's opinion warrant further testing.
(r) Appraisal. Lender shall have received an Appraisal with respect
---------
to the Mortgaged Property showing that the original principal amount of the Note
does not exceed 86% of the fair market value of such Mortgaged Property.
4
<PAGE>
(s) Tax Service. Lender shall have obtained, at Owner's expense, a
-----------
tax service to monitor payment of taxes with respect to the Mortgaged Property.
(t) Closing Certificates. Lender and its counsel shall have received
--------------------
the Certificate of Owner dated the Closing Date and substantially in the form of
Exhibit G and as approved in final form by Lender and its counsel.
- ---------
(u) Perfection of Security Interests. UCC-1 Financing Statements with
--------------------------------
respect to the Mortgaged Property showing Owner, as debtor, and Lender, as
secured party, shall be filed and/or recorded in each office where necessary to
permit Owner to make its representation that Lender has a first perfected
security interest in that portion of the Mortgaged Property which is subject to
the Code.
(v) Rating. Lender shall have received a letter of recent date from
------
Standard & Poor's Ratings Group confirming that the long term unsecured debt
rating of Owner is B or higher which rating is not subject to any pending
downgrade nor is such rating subject to any credit watch.
(w) Origination Fee. Lender shall have received from Owner at closing
---------------
an origination fee equal to 1.25% of the Loan Amount.
(x) Closing Costs. Owner shall pay, or cause to be paid, all costs
-------------
referenced in Section 4(a) which are invoiced at or prior to closing.
(y) Reserved.
--------
(z) Other Items. All opinions, certificates and other instruments and
-----------
all proceedings in connection with the transactions contemplated by this
Agreement and the other Loan Documents shall be reasonably satisfactory in form
and substance to each of the parties hereto and their respective special
counsel. Each of the parties hereto shall have received all instruments and
other evidence as it may reasonably request, in form and substance satisfactory
to it and its special counsel, with respect to such transactions and the taking
of all proceedings in connection therewith. If any provision of any Loan
Document requires the certification, representation or warranty of the existence
or nonexistence of any particular fact or implies as a condition the existence
or nonexistence of such fact, then Lender or any other party which is the
beneficiary thereof shall be free to require the establishment to its reasonable
satisfaction of the existence or nonexistence of such fact.
4. PAYMENT OF EXPENSES
-------------------
Owner will:
5
<PAGE>
(a) Pay or cause to be paid all reasonable fees, expenses and
disbursements of Lender's counsel and local counsel, if any, in the State in
which the Mortgaged Property is located, in connection with this transaction,
including, without limitation, any expenses of such counsel in connection with
any modification or waiver under any Loan Document and the exercise of any
rights and remedies under this Agreement or any Loan Document and all other
expenses in connection therewith, including, without limitation, filing fees,
document reproduction reasonable expenses, environmental site assessment costs,
title insurance premiums, survey expenses, appraisal expenses, and all fees,
taxes and expenses for the recording, registration and filing of documents.
(b) Reimburse Lender or cause Lender to be reimbursed for its
reasonable out-of-pocket expenses (other than income or franchise taxes or
similar tax) in connection with such transactions and any items of the character
referred to in Section 4(a) above which shall have been paid by Lender,
including expenses incurred in connection with any modification or waiver of any
Loan Document and the exercise of rights and remedies under this Agreement or
any Loan Document.
(c) Pay or cause to be paid, and save Lender harmless from and against
any and all liability and loss with respect to or resulting from (i) any claim
for or on account of any brokers' or finders' fees with respect to the
transactions contemplated herein, or (ii) the nonpayment or delayed payment of
any such fees and any and all stamp, mortgage and other similar taxes, fees and
excises (except Lender's income and franchise taxes and fees), if any, including
any interest and penalties, which are payable in connection with the
transactions contemplated by this Agreement.
(d) Pay or cause to be paid all reasonable costs and expenses incurred
by Lender (including, without limitation, special and local counsel fees and
expenses) in entering into any future amendments or supplements with respect to
any Loan Document, whether or not such amendments or supplements are entered
into, or giving or withholding of waivers of consents hereto or thereto, which
have been requested by Owner.
(e) Pay or cause to be paid (i) at closing all reasonable fees payable
to any tax monitoring service retained in accordance with Section 3(s) hereof,
(ii) all reasonable fees, expenses or disbursements of the Rating Agencies in
connection with its surveillance and maintenance of its rating or shadow rating
of the long-term unsecured debt of Owner, (iii) the proportionate share of
reasonable trustee's fees and expenses which may be payable by Lender in
connection with any securitization transaction in which the Loan or any interest
thereon has been included.
With respect to the payment of expenses by Owner listed in Section 4(a)-(e)
above, Lender shall first apply to such expenses the $25,000 loan application
deposit received by it from Owner.
6
<PAGE>
5. DEFAULTS
--------
So long as any Event of Default shall have occurred and be continuing,
Lender may, in addition to any other rights or remedies available to it pursuant
to this Agreement, the Note, the Indenture or the other Loan Documents, or at
law or in equity, take such action, without notice or demand, as Lender deems
advisable to protect and enforce its rights against Owner and in and to all or
any portion of the Mortgaged Property, including, without limitation, declaring
by written notice to Owner the entire Indebtedness to be immediately due and
payable and Lender may enforce or avail itself of any or all rights or remedies
provided in the Loan Documents against Owner and/or the Mortgaged Property,
including, without limitation, all rights or remedies available at law or in
equity.
6. MISCELLANEOUS
-------------
Section 6.1 Survival. This Agreement and all covenants, agreements,
--------
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as any portion of the Indebtedness is outstanding and unpaid. Whenever
in this Agreement any of the parties hereto is referred to (including any
provision with respect to the delivery of notice), such reference shall be
deemed to include the legal representatives, successors and assigns of such
party. All covenants, promises and agreements in this Agreement contained, by
or on behalf of Owner, shall inure to the benefit of the respective legal
representatives, successors and assigns of Lender. Nothing in this Agreement or
in any other Loan Document, express or implied, shall give to any Person other
than the parties and the holder(s) of the Note and the Indenture, and their
legal representatives, successors and assigns, any benefit or any legal or
equitable right, remedy or claim hereunder.
Section 6.2 Lender's Discretion. Whenever pursuant to this Agreement,
-------------------
Lender exercises any right given to it to approve or disapprove, or any
arrangement or term is to be satisfactory to Lender, the decision of Lender to
approve or disapprove or to decide whether arrangements or terms are
satisfactory or not satisfactory shall (except as is otherwise specifically
provided in this Agreement) be in the sole discretion of Lender and shall be
final and conclusive.
Section 6.3 Governing Law. This Agreement and the obligations arising
-------------
hereunder shall be governed by, and construed in accordance with, the laws of
the State in which the Mortgaged Property is located. To the fullest extent
permitted by law, Owner hereby unconditionally and irrevocably waives any claim
to assert that the law of any other jurisdiction governs this Agreement. Each
party hereto agrees that any action or proceeding under this Agreement or any
other Loan Document shall be brought or enforced only in the state or federal
courts sitting in the Commonwealth of Massachusetts.
7
<PAGE>
Section 6.4 Modification, Waiver in Writing. No modification, amendment,
-------------------------------
extension, discharge, termination or waiver (a "Modification") of any provision
------------
of this Agreement, or of the Note, or of any other Loan Document, or of any
other Loan Document, nor consent to any departure by Owner or any other party
therefrom, shall in any event be effective unless the same shall be in a writing
signed by Lender and by the party against whom enforcement is sought, and then
such waiver or consent shall be effective only in the specific instance, and for
the purpose, for which given. Except as otherwise expressly provided herein, no
notice to, or demand on Owner, shall entitle Owner to any other or future notice
or demand in the same, similar or other circumstances. Lender does not hereby
agree to, nor does Lender hereby commit itself to, enter into any Modification.
Section 6.5 Delay Not a Waiver. Neither any failure nor any delay on the
------------------
part of Lender in insisting upon strict performance of any term, condition,
covenant or agreement, or exercising any right, power, remedy or privilege
hereunder, or under the Note, or of any other Loan Document, or any other
instrument given as security therefor, shall operate as or constitute a waiver
thereof, nor shall a single or partial exercise thereof preclude any other
future exercise, or the exercise of any other right, power, remedy or privilege.
In particular, and not by way of limitation, by accepting payment after the due
date of any amount payable under this Agreement, the Note or any other Loan
Document, Lender shall not be deemed to have waived any right either to require
prompt payment when due of all other amounts due under this Agreement, the Note
or the other Loan Documents, or to declare a default for failure to effect
prompt payment of any such other amount.
Section 6.6 Notices. All notices, consents and other communications
-------
provided for hereunder or under any other Loan Document shall be given in
writing and shall be effective for all purposes if given in the manner provided
in Section 5.1 of the Indenture to the Person entitled to receive the same,
which Section 5.1 of the Indenture is hereby incorporated herein by reference.
Section 6.7 TRIAL BY JURY. OWNER, TO THE FULLEST EXTENT THAT IT MAY
-------------
LAWFULLY DO SO, WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO
THIS AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
Section 6.8 Headings. The Article and/or Section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 6.9 Assignment. Lender shall have the right to transfer, sell or
----------
assign this Agreement and any of the other Loan Documents to any Person who
purchases or otherwise
8
<PAGE>
acquires Lender's interest in the Loan. All references to "Lender" hereunder
shall be deemed to include the successors and assigns of Lender.
Section 6.10 Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 6.11 Preferences. Lender shall have no obligation to marshal any
-----------
assets in favor of Owner or any other party or against or in payment of any or
all of the obligations of Owner pursuant to this Agreement, the Note or any
other Loan Document. Lender shall have the continuing and exclusive right to
apply or reverse and reapply any and all payments by Owner to any portion of the
Indebtedness. To the extent Owner makes a payment or payments to Lender, which
payment or proceeds or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds received, the Indebtedness or part thereof intended to be satisfied
shall be revived and continue in full force and effect, as if such payment or
proceeds had not been received by Lender.
Section 6.12 Waiver of Notice. Owner shall not be entitled to any notices
----------------
of any nature whatsoever from Lender except with respect to matters for which
this Agreement or the other Loan Documents specifically and expressly provide
for the giving of notice by Lender to Owner and except with respect to matters
for which Owner is not, pursuant to applicable Legal Requirements, permitted to
waive the giving of notice. Owner hereby expressly waives the right to receive
any notice from Lender with respect to any matter for which this Agreement or
the other Loan Documents does not specifically and expressly provide for the
giving of notice by Lender to Owner.
Section 6.13 Remedies of Owner. In the event that a claim or
-----------------
adjudication is made that Lender or any of the Lender Parties has acted
unreasonably or unreasonably delayed acting in any case where by law or under
this Agreement, the Note, the Indenture or the other Operative Documents, Lender
or such Lender Party, as the case may be, has an obligation to act reasonably or
promptly, Owner agrees that neither Lender nor such Lender Party shall be liable
for any monetary damages, and Owner's sole remedy shall be limited to commencing
an action seeking injunctive relief or declaratory judgment. The parties hereto
agree that any action or proceeding to determine whether Lender or a Lender
Party has acted reasonably shall be determined by an action seeking only a
declaratory judgment.
Section 6.14 Reserved.
9
<PAGE>
Section 6.15 Exhibits Incorporated. The information set forth on the
---------------------
cover hereof, and the exhibits annexed hereto, are hereby incorporated herein as
a part of this Agreement with the same effect as if set forth in the body
hereof.
Section 6.16 Offsets, Counterclaims and Defenses. Any assignee of the
-----------------------------------
Lender's interest in and to this Agreement, the Note, the Indenture and the
other Loan Documents shall take the same free and clear of all offsets,
counterclaims or defenses which are unrelated to this Agreement, the Note, the
Indenture and the other Loan Documents which Owner may otherwise have against
any assignor of this Agreement, the Note, the Indenture and the other Loan
Documents, and no such unrelated counterclaim or defense shall be interposed or
asserted by Owner in any action or proceeding brought by any such assignee upon
this Agreement, the Note, the Indenture and other Loan Documents and any such
right to interpose or assert any such unrelated offset, counterclaim or defense
in any such action or proceeding is hereby expressly waived by Owner.
Section 6.17 No Joint Venture or Partnership. Owner and Lender intend
-------------------------------
that the relationship created hereunder be solely that of borrower and lender.
Nothing herein is intended to create a joint venture, partnership, tenancy-in-
common, or joint tenancy relationship between Owner and Lender nor to grant
Lender any interest in the Mortgaged Property other than that of mortgagee or
lender.
Section 6.18 Publicity. All promotional news releases, publicity or
---------
advertising by Owner or its Affiliates through any media intended to reach the
general public shall not refer to the Loan Documents or the financing evidenced
by the Loan Documents, or to Lender without the prior written approval of
Lender, in each instance. Any of the Lender Parties shall be authorized to
provide information relating to the Mortgaged Property, the Loan, Owner, the
Loan Documents and matters relating thereto to Rating Agencies, underwriters,
placement agents, any other Persons engaged in connection with a proposed or
actual securitization intending to include or including the Loan, potential and
actual securities investors, auditors, accountants, lawyers, regulatory
authorities and to any parties which may be entitled to such information by
operation of law.
Section 6.19 Conflict; Construction of Documents. In the event of any
-----------------------------------
conflict between the provisions of this Agreement and the provisions of the
Note, the Indenture or any of the other Loan Documents, the provisions of
whichever document is most favorable to Lender shall prevail. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that the Loan Documents shall
not be subject to the principle of construing their meaning against the party
which drafted same.
Section 6.20 Brokers and Financial Advisors. Owner and Lender hereby
------------------------------
represent that they have dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement, except with respect to Jonathan
Katz, whose compensation will be the sole responsibility of Owner. Owner and
10
<PAGE>
Lender hereby agree to indemnify and hold the other harmless from and against
any and all claims, liabilities, costs and expenses of any kind in any way
relating to or arising from a claim by any Person that such Person acted on
behalf of the indemnifying party in connection with the transactions
contemplated herein. The provisions of this Section 6.20 shall survive the
expiration and termination of this Agreement and the repayment of the
Indebtedness.
Section 6.21 Joint and Several Liability. If Owner consists of more than
---------------------------
one Person or party, the obligations and liabilities of each such Person or
party hereunder shall be joint and several.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed by the parties
hereto as of the day and year first hereinabove written.
CORPORATE REAL ESTATE CAPITAL, LLC
By: SECURED CRC CORP., its Manager
By: /s/ Michael Lesser
----------------------------------------
Name: Michael Lesser
Title: Vice President
MERKERT ENTERPRISES, INC.
By: ________________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed by the parties
hereto as of the day and year first hereinabove written.
CORPORATE REAL ESTATE CAPITAL, LLC
By: SECURED CRC CORP., its Manager
By: ________________________________________
Name:
Title:
MERKERT ENTERPRISES, INC.
By: /s/ Sidney D. Rogers, Jr.
----------------------------------------
Name: Sidney D. Rogers, Jr.
Title: Vice President
<PAGE>
EXHIBIT 10.25
PROMISSORY NOTE
---------------
Loan Amount: $9,500,000 Note Date: February 13, 1998
FOR VALUE RECEIVED, MERKERT ENTERPRISES, INC., a Massachusetts corporation
(together with its permitted successors and assigns, "Owner"), hereby promises
-----
to pay to the order of CORPORATE REAL ESTATE CAPITAL, LLC, a Delaware limited
liability company, its successors and assigns ("Lender"), or order, the
------
principal sum of NINE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($9,500,000) and all other amounts advanced by Lender to or on behalf of Owner
pursuant to the Indenture (as hereinafter defined) or any other Loan Document
(collectively, as such amount may be reduced from time to time as the result of
the payment or prepayment thereof, the "Principal Amount") and interest thereon
----------------
from the date hereof until the Maturity Date (as defined below), at the rate of
eight and 563/1000 percent (8.563%) per annum (the "Fixed Rate"), plus interest
----------
on any overdue principal, interest and Make-Whole Premium (as defined in the
Indenture), if any, at the lesser of the Default Rate (as defined in the
Indenture) or the Maximum Rate as set forth below. All computations of interest
shall be calculated on a 360-day year based on twelve 30-day months except that
the initial installment of interest only shall be based on actual number of days
elapsed. In addition, Owner agrees to pay to Lender a late payment charge of
five percent (5%) (the "Late Charge") of any principal or interest payment made
-----------
more than five (5) business days after the due date thereof, which Late Charge
shall be due with any such late payment.
Owner shall pay installments (each a "Debt Service Payment") of interest
--------------------
only and of principal and interest on this Note, which installments shall be
payable on the dates specified herein (each such date a "Payment Date")
------------
commencing on the Closing Date of the Loan and thereafter on the first day of
each month, commencing April 1, 1998 (the "First Payment Date") and ending March
------------------
1, 2018 (the "Maturity Date"), as follows:
-------------
(i) in an initial installment of interest only in the amount of the
interest accruing on the Principal Amount from the date hereof to March 1,
1998, payable on the Closing Date of the Loan; and
(ii) in installments consisting of principal and interest combined in
the amounts set forth on Schedule 1 hereto, payable on the first day of
----------
each successive month commencing on April 1, 1998 through and including the
Maturity Date; provided, however, that the payment due on the Maturity Date
-------- -------
shall be in the amount necessary to
<PAGE>
pay all of the remaining unpaid Principal Amount and unpaid accrued
interest on this Note, and provided, further, however that upon partial
--------------------------
prepayment of this Note Schedule 1 hereto shall be revised to reamortize
----------
the Debt Service Payments so that each Debt Service Payment due after such
partial prepayment shall each be reduced by an amount equal to the product
of such Debt Service Payment times a fraction, the numerator of which
equals the principal amount being prepaid and the denominator of which
equals the entire principal amount outstanding hereunder at the time of
determination prior to giving effect to such prepayment. Such
reamortization shall reflect payments on the same Payment Dates and at the
same interest rate set forth in the original schedule.
Owner shall make all payments hereunder, without any counterclaims, setoff
or deduction whatsoever, in lawful money of the United States and in immediately
available funds by wire transfer at such place as Lender may designate in
writing to Owner from time to time.
This Note evidences a loan (the "Loan") made by Lender to Owner pursuant to
----
that certain Loan Agreement, dated as of the date hereof (together with all
supplements and amendments thereto, the "Loan Agreement"), between Lender and
--------------
Owner. This Note is secured by that certain Indenture of Mortgage, Deed of
Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of
Rents and Leases, of even date herewith (together with all supplements and
amendments thereto, the "Indenture") from Owner, as mortgagor, in favor of
---------
Lender. The Indenture is incorporated herein by reference and this Note is
subject to the provisions of, and entitled to the benefits of, the Indenture,
including, without limitation, the provisions regarding the Default Rate, Make-
Whole Premium, if any, and restrictions on and requirements for prepayment,
defeasance and rights of acceleration. Capitalized terms used herein have the
meanings assigned to those terms in the Indenture unless otherwise defined
herein.
Should the indebtedness represented by this Note or any part hereof be
collected at law or in equity or in bankruptcy, receivership or other court
proceeding, or should this Note be placed in the hands of attorneys for
collection after default, the Owner agrees to pay, in addition to the principal,
Make-Whole Premium, if any, interest due and payable hereon and any other sums
due and payable hereon, all costs of collecting or attempting to collect this
Note, including reasonable attorneys' fees and expenses (including those
incurred in connection with any appeal).
Owner and all endorsers and guarantors of this Note hereby waive
presentment, demand, notice, protest, stay of execution, and all other defenses
to payment generally, assent to the terms hereof, and agree that any renewal,
extension, or postponement of the time for payment or any other indulgence or
any substitution, exchange, or release of collateral or the additional release
of any Person or entity primarily or secondarily liable, may be affected without
notice to and
<PAGE>
without releasing Owner, any endorser or any guarantor from any liability
hereunder or under any related guaranty.
The parties hereto intend to conform to and contract in strict conformance
with all applicable usury laws. The provisions of this Note, the Indenture and
of all agreements between Owner and Lender are hereby expressly limited so that
in no contingency or event whatsoever, whether by reason of prepayment, late
payment, default, demand for payment, acceleration of the maturity of this Note
or otherwise, shall the amount contracted for, charged, paid or agreed to be
paid to Lender for the use, forbearance or detention of money to be loaned under
this Note or otherwise exceed the maximum amount permissible under applicable
law (the "Maximum Rate"). If, from any circumstance whatsoever, performance or
------------
fulfillment of any provision hereof, of the Indenture or of any of the other
Loan Documents or of any agreement between Owner and Lender shall, at the time
of the execution and delivery thereof or at the time performance of such
provision shall be due, involve or purport to require any payment in excess of
the limits prescribed by law, the obligation to be performed or fulfilled shall
be reduced automatically to the limit of such validity without the necessity of
execution of any amendment or new document. If, from any circumstance
whatsoever, Lender shall ever receive anything of value deemed interest under
applicable law which would exceed interest at the Maximum Rate, an amount equal
to any amount which would have been excessive interest shall be applied to the
reduction of the outstanding principal balance of this Note in the inverse order
of its maturity and not to the payment of interest, or if such amount which
would have been excessive interest exceeds the outstanding principal balance of
this Note, such excess shall be refunded to Owner. All sums contracted for,
charged, paid or agreed to be paid to Lender for the use, forbearance or
detention of the indebtedness of Owner to Lender shall, to the extent permitted
by applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of such indebtedness so that the amount of interest on account
of such indebtedness does not exceed the Maximum Rate. The provisions of this
paragraph shall control all existing and future agreements between Owner and
Lender.
Owner shall pay all fees and expenses of Lender as provided in the
Indenture. This Note shall be governed by and construed in accordance with the
laws of the State in which the Mortgaged Property is located without reference
to conflicts of law rules.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as
of the date and year first above written.
MERKERT ENTERPRISES, INC.
By: /s/ Sidney D. Rogers, Jr.
-------------------------
Name: SIDNEY D. ROGERS, JR.
Title: V.P.
<PAGE>
Exhibit 10.26
FORM OF
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE MERKERT AMERICAN CORPORATION
1998 STOCK OPTION AND INCENTIVE PLAN
IF THIS STOCK OPTION IS GRANTED IN TANDEM WITH STOCK APPRECIATION
RIGHTS, THEN, UPON THE EXERCISE OF ANY OF SUCH STOCK APPRECIATION
RIGHTS, AN EQUAL NUMBER OF OPTION SHARES SHALL AUTOMATICALLY TERMINATE
AND SHALL NO LONGER BE EXERCISABLE.
Check box if granted in tandem with SAR's . . . . [ ]
Name of Optionee:
------------------------------
No. of Option Shares:
--------------------------
Option Exercise Price per Share: $
----------------------------------------
Grant Date:
-------------------------
Expiration Date:
----------------------------------------
Pursuant to the Merkert American Corporation 1998 Stock Option and
Incentive Plan (the "Plan") as amended through the date hereof, Merkert American
Corporation (the "Company") hereby grants to the Optionee named above an option
(the "Stock Option") to purchase on or prior to the Expiration Date specified
above all or part of the number of shares of Common Stock, par value $ per
-----
share (the "Stock") of the Company specified above at the Option Exercise Price
per Share specified above subject to the terms and conditions set forth herein
and in the Plan.
1. Vesting Schedule. No portion of this Stock Option may be exercised
----------------
until such portion shall have vested. Except as set forth below, and subject to
the discretion of the Committee (as defined in Section 2 of the Plan) to
accelerate the vesting schedule hereunder, this Stock Option shall be vested and
exercisable with respect to the following number of Option Shares on the dates
indicated:
<TABLE>
<CAPTION>
Number of
---------
Option Shares Exercisable* Vesting Date
------------------------- ------------
<S> <C>
( %)
---------- -- -----------
( %)
---------- -- -----------
( %)
---------- -- -----------
( %)
---------- -- -----------
( %)
---------- -- -----------
</TABLE>
*Max of $100,000 per yr.
<PAGE>
In the event of a Change of Control of the Company as defined in Section
17 of the Plan, this Stock Option shall become immediately vested and
exercisable in full, whether or not this Stock Option or any portion hereof is
vested and exercisable at such time. Once vested, this Stock Option shall
continue to be exercisable at any time or times prior to the close of business
on the Expiration Date, subject to the provisions hereof and of the Plan.
2. Manner of Exercise.
------------------
(a) The Optionee may exercise this Option only in the following
manner: from time to time on or prior to the Expiration Date of this Option, the
Optionee may give written notice to the Committee of his or her election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any Company plan and that have been
held by the Optionee for at least six months; (iii) by the Optionee delivering
to the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price, provided
that in the event the Optionee chooses to pay the option purchase price as so
provided, the Optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure; or (iv) a combination
of (i), (ii) and (iii) above. Payment instruments will be received subject to
collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for shares of Stock purchased upon exercise of this
Stock Option shall be issued and delivered to the Optionee upon compliance to
the satisfaction of the Committee with all requirements under applicable laws or
regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the
2
<PAGE>
Committee as to such compliance shall be final and binding on the Optionee. The
Optionee shall not be deemed to be the holder of, or to have any of the rights
of a holder with respect to, any shares of Stock subject to this Stock Option
unless and until this Stock Option shall have been exercised pursuant to the
terms hereof, the Company shall have issued and delivered the shares to the
Optionee, and the Optionee's name shall have been entered as the stockholder of
record on the books of the Company. Thereupon, the Optionee shall have full
voting, dividend and other ownership rights with respect to such shares of
Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be 100 shares, unless the number
of shares with respect to which this Stock Option is being exercised is the
total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. Termination of Employment. If the Optionee's employment by the
-------------------------
Company or a Subsidiary (as defined in the Plan) is terminated, the period
within which to exercise the Option may be subject to earlier termination as set
forth below.
(a) Termination Due to Death. If the Optionee's employment terminates
------------------------
by reason of death, any Option held by the Optionee shall become fully
exercisable and may thereafter be exercised by the Optionee's legal
representative or legatee for a period of 12 months from the date of death or
until the Expiration Date, if earlier.
(b) Termination Due to Disability. If the Optionee's employment
-----------------------------
terminates by reason of Disability (as defined in the Plan), any Option held by
the Optionee shall become fully exercisable and may thereafter be exercised by
the Optionee for a period of 12 months from the date of termination or until the
Expiration Date, if earlier. The death of the Optionee during the 12-month
period provided in this Section 3(b) shall extend such period for another 12
months from the date of death or until the Expiration Date, if earlier.
(c) Termination for Cause. If the Optionee's employment terminates
---------------------
for Cause (as defined in the Plan), any Option held by the Optionee shall
terminate immediately and be of no further force and effect.
(d) Other Termination. If the Optionee's employment terminates for
-----------------
any reason other than death, Disability, or Cause, and unless otherwise
determined by the Committee, any Option held by the Optionee may be exercised,
to the extent exercisable on the date of termination, for a period of three
months from the date of termination or until the Expiration Date, if earlier.
Any Option that is not exercisable at such time shall terminate immediately and
be of no further force or effect.
3
<PAGE>
The Committee's determination of the reason for termination of the Optionee's
employment shall be conclusive and binding on the Optionee and his or her
representatives or legatees.
4. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-
---------------
assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.
6. Status of the Stock Option. This Stock Option is intended to qualify
--------------------------
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), but the Company does not represent or warrant
that this Option qualifies as such. The Optionee should consult with his or her
own tax advisors regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. If the
Optionee intends to dispose or does dispose (whether by sale, gift, transfer or
otherwise) of any Option Shares within the one-year period beginning on the date
after the transfer of such shares to him or her, or within the two-year period
beginning on the day after the grant of this Stock Option, he or she will notify
the Company within 30 days after such disposition.
7. Miscellaneous.
-------------
(a) Notice hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance of employment by the Company or any Subsidiary.
4
<PAGE>
(c) Pursuant to Section 15 of the Plan, the Committee may at any time
amend or cancel any outstanding portion of this Stock Option, but no such action
may be taken which adversely affects the Optionee's rights under this Agreement
without the Optionee's consent.
MERKERT AMERICAN CORPORATION
By:
-----------------------------
Name:
Title:
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated:
------------------------ -------------------------------------
Optionee's Signature
Optionee's name and address:
-------------------------------------
-------------------------------------
-------------------------------------
5
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included or made a part of this
registration statement.
Arthur Andersen LLP
Boston, Massachusetts
July 17, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included or made a part of this
registration statement.
Hege Kramer Connell Murphy &
Goldkamp, P.C.
Philadelphia, Pennsylvania
July 17, 1998
